Case Note & Summary
The appeal arose from complaint proceedings initiated by the Enforcement Directorate under Section 16(3) of the Foreign Exchange Management Act, 1999 (FEMA). A show-cause notice dated 19.5.2004 was issued to the appellant, Suborno Bose, who was the Managing Director of M/s Zoom Enterprises Limited. The notice alleged contravention of Section 10(6) of FEMA read with Sections 46 and 47 and paragraphs A10 and A11 of the Foreign Exchange Manual 2003-04. The company had imported goods (Water Cooled Screw Chiller Units and Air Handling Units) from France and the USA, remitting foreign exchange on 18.4.2000 and 19.6.2000. However, the goods were kept in a bonded warehouse and the company failed to take delivery or submit the Bill of Entry to the authorized dealer. The appellant took over management in July 2002 and claimed financial constraints prevented clearance. The adjudicating authority imposed a penalty of Rs.10 lakhs each on the company and the appellant. The Special Director (Appeals) dismissed the appeals, holding that the appellant was aware of the goods and failed to take steps. The High Court of Calcutta dismissed further appeals, ruling that the violation was a continuing offence and not a technical one. The Supreme Court, in this judgment, dismissed the appeal, affirming that the contravention under Section 10(6) continues until compliance, and the appellant, as Managing Director, is vicariously liable. The court noted that the appellant had sufficient funds but did not take delivery or seek extension from RBI. The penalty was upheld.
Headnote
A) Foreign Exchange Management Act - Continuing Offence - Section 10(6) FEMA, 1999 - Failure to submit Bill of Entry - The court held that the violation under Section 10(6) continues until compliance is made, and thus the appellant, who took over management after the initial contravention, cannot escape liability. The offence is not technical but an economic offence attracting strict liability. (Paras 5-6) B) Foreign Exchange Management Act - Vicarious Liability of Managing Director - Section 10(6) read with Sections 46, 47 FEMA, 1999 - The Managing Director, being responsible for the conduct of business, is liable for the company's failure to complete import formalities. The court upheld the penalty of Rs.10 lakhs on the appellant. (Paras 4-5) C) Foreign Exchange Management Act - Strict Liability - Section 10(6) FEMA, 1999 - Contravention of FEMA provisions creates strict liability and cannot be treated as a technical violation. The court affirmed that the violation is an economic offence. (Para 5)
Issue of Consideration
Whether the appellant, as Managing Director of the company, is liable for contravention of Section 10(6) of FEMA, 1999 for failure to complete import formalities within the prescribed period, and whether the violation is a continuing offence.
Final Decision
The Supreme Court dismissed the appeal, upholding the penalty of Rs.10 lakhs imposed on the appellant under Section 13(1) of FEMA, 1999.
Law Points
- Strict liability under FEMA
- Continuing offence
- Vicarious liability of Managing Director
- Failure to submit Bill of Entry
- Non-compliance with RBI guidelines
