Summary
The Supreme Court upheld the managing director’s FEMA penalty for an import-compliance failure continuing after he assumed management. Although foreign exchange had been remitted before his tenure, the goods remained uncleared and the required bill of entry unsubmitted. He knew of the default and failed to pursue corrective measures with due diligence, defeating the statutory defence. The company’s contravention had already attained finality and was not reopened.
Issues
- Whether a managing director assuming office after the initial default could be liable for its continuation.
- Whether the knowledge or due-diligence defence was established.
- Whether the company’s underlying contravention could be reopened in this appeal.
Provisions considered
- Sections 10(5) and 10(6), Foreign Exchange Management Act, 1999Declaration and use-or-surrender requirements informed the continuing contravention arising from incomplete import compliance. (¶¶ 8, 9, 10, 11)
- Section 42, including proviso and Explanation, Foreign Exchange Management Act, 1999Responsibility extended to management during the continuing default, subject to a proved absence of knowledge or exercise of all due diligence. (¶¶ 8, 11, 12, 13, 14)
- Regulation 6, Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000Expiry of the prescribed surrender period did not end the contravention; it continued until rectified. (¶¶ 10, 11)
Held
- The company’s separate special leave petition had been dismissed, making the underlying finding of contravention final. This appeal was limited to the managing director’s individual defence concerning his later assumption of office. (¶¶ 5, 7, 8)
- The import had not been completed: the goods remained in a bonded warehouse and the required bill of entry had not been submitted. That failure continued until corrective steps were taken, rather than ending when the initial compliance period expired. (¶¶ 9, 10, 11)
- The appellant was in charge after 22 October 2001, knew of the default and sought additional time, but did not act with the requisite diligence to rectify it. His absence from management when remittance occurred did not absolve him from the continuing failure. (¶¶ 11, 12, 13, 14)
- The section 42(1) defence required pleading and proof that the contravention occurred without knowledge or despite all due diligence. A vague assertion that the earlier management had not disclosed licence obligations was insufficient on these facts. (¶¶ 12, 13)
- The penalty enforced a civil obligation, for which mens rea was not essential. The precedent concerning criminal or quasi-criminal punishment did not bar this civil liability. (¶¶ 11, 14, 15)
Result
Appeal dismissed without costs; the appellant’s Rs 10 lakh penalty and the orders affirming his liability sustained.