Pankaj Kapal Mehra v. Union of India & Anr.

2) Sometime during the 1980's I was employed as an executive director of the company, my role in the company was limited to project implementation, R&D and human resource management.

3) During my employment with the company, I was drawing a salary of Rs. 36,000/- per month.” 10.[2] A reading of the aforegoing Affidavits shows that the Petitioner was a salaried Director of the Company, who was also in charge of project implementation, Research and Development and human resource management. Thus, quite clearly, the Petitioner’s involvement in the license procurement was restricted to signing on a power-of-attorney person on behalf of the company, pursuant to a board resolution passed by the Company.

11. On the aspect of territorial jurisdiction/forum non conveniens, the Respondents have relied on the judgment of the Supreme Court in Kusum Ingots case to submit that this Court cannot entertain the present Petition. This submission of the Respondents is misconceived. As has been referred to above, the Petitioner had previously challenged an order passed by Respondent No.2 which challenge was allowed by a Coordinate Bench of this Court by its order dated 06.09.2012. The Respondents participated in these proceedings, thus submitting to the jurisdiction of this Court. 11.[1] The Supreme Court in Kusum Ingots case has held that where an order is passed by a Tribunal in one place and an Appellate Authority is constituted at a different place, a Writ Petition would be maintainable at both places. In addition, it has been held that even if a small part of the cause of action arises within the jurisdiction of the High Court, the Court can entertain the Petition. It was held in the Kusum Ingots case that: “…27. When an order, however, is passed by a Court or Tribunal or an executive authority whether under provisions of a statute or otherwise, a part of cause of action arises at that place. Even in a given case, when the original authority is constituted at one place and the appellate authority is constituted at another, a writ petition would be maintainable at both the places. In other words as order of the appellate authority constitutes a part of cause of action, a writ petition would be maintainable in the High Court within whose jurisdiction it is situate having regard to the fact that the order of the appellate authority is also required to be set aside and as the order of the original authority merges with that of the appellate authority… xxx xxx xxx …30. We must, however, remind ourselves that even if a small part of cause of action arises within the territorial jurisdiction of the High Court, the same by itself may not be considered to be a determinative factor compelling the High Court to decide the matter on merit. In appropriate cases, the Court may refuse to exercise its discretionary jurisdiction by invoking the doctrine of forum conveniens. (See Bhagat Singh Bugga v. Dewan Jagbir Sawhney [AIR 1941 Cal 670: ILR (1941)

1 Cal 490], Madanlal Jalan v. Madanlal [(1945) 49 CWN 357: AIR 1949 Cal 495], Bharat Coking Coal Ltd. v. Jharia Talkies & Cold Storage (P) Ltd. [1997 CWN 122], S.S. Jain & Co. v. Union of India and New Horizons Ltd. v. Union of India [AIR 1994 Del 126].)…” 11.[2] In any event, it is settled law that even if part of a cause of action arises within the territorial jurisdiction of this Court, the Court would have jurisdiction to try and entertain this Petition. The order impugned before this Court is a penalty order dated 29.03.2004, which has been upheld, by the Impugned Order, passed by the Respondent No.2 at New Delhi. Thus, a part of the cause of action has arisen in Delhi and this Court has the jurisdiction to entertain this Petition.

12. A Coordinate Bench of this Court in Krishna Kumar Bangur case, dealt with a similar issue where a show-cause notice was issued under Sections 8 and 11 of the FTDR Act to a company and all its directors, and reasons for arriving at the conclusion that a Director is personally liable, had not been adumbrated therein. It was held that where the authority had not specifically considered the role to be played by the Petitioner therein in the export performance and was reticent on the reasons for personal culpability of any of the directors, it could not be sustained. It was further held that if the show-cause notice or the orders in original and the appellate order did not disclose any reasons, the order would be set aside. The relevant extract of Krishna Kumar Bangur case is below:

13. A similar view was taken by another Coordinate Bench of this Court in Ved Kapoor case, where the question arose as to whether the penalty imposed upon a company can be recovered from its directors. Relying on Krishna Kumar Bangur case, the Court held that unless the Respondents find that the Director was under a duty or obligation of the company, and consciously failed to do so, the liability cannot be attributed on such Director. It was held that such an obligation cannot be assumed merely by virtue of a person being a Director of such Company.

11. In view of the legal proposition enunciated in the above-referred cases, the respondents would be competent to proceed against the petitioner under Section 11(2) of the Act, if they are of the opinion that he was under a duty or obligation to fulfil the export obligation of the company and consciously failed to do so. Of course, in such a case, it would be incumbent upon the respondents to issue a notice under Section 14 of the Act to him, stating therein the ground on which such a liability is sought to be fastened on him. Such an obligation cannot be assumed merely on account of the petitioner being or having been a director of the company.

12. For the reasons stated hereinabove, both the writ petition are disposed of with a direction that the penalty imposed upon M/s. Hitkari China Limited shall not be enforced against the petitioner, though it can certainly be enforced against the company. This order, however, shall not come in the way of the respondents proceeding against the petitioner, under Section 11(2) of the Act, in terms of this order.”

14. A show-cause notice that was sent by Respondent No.2 to the Petitioner and the Company merely stated that a license was obtained for fulfilling an export obligation, and that since the obligation was not fulfilled, the show-cause notice was being issued. There was no averment therein about fastening of liability on a director. The showcause notice was replied to by the Petitioner in his capacity as a director, wherein it was clarified that the Company went into liquidation and all directors had ceased to be directors from 14.12.1998 and that books and records of the Company were with the official liquidator. It was further clarified by the Petitioner that he was an employee director. The Petitioner also sets out in this Reply that considering that the violation/complaint was in the year 1997, it was not possible for the Petitioner to pinpoint or locate the records to analyse and prove that the export obligations were fulfilled. The relevant extract of the Reply dated 12.05.2003 sent by the Petitioner reads as follows:

and absence of any of the managerial or other staff, we have no way of knowing as to what is lying at which place today. Consequently, we do not know how to pinpoint or locate the records to analyse the import export account so as to determine and prove the fulfillment of export obligations. We believe that the captioned license would be lying unutilized or would only have been utilized after the exports had already taken place.”

15. The record reflects that the show-cause notice although was addressed to the Company and its 14 Directors, was not delivered to the Company or the other 13 Directors of the Company. The only person on whom the show-cause notice and the Impugned Order was served upon by the Respondent, was the Petitioner. The Reply of the Petitioner was thus in his individual capacity and not on behalf of the Company. 15.[1] The OIO refers to the Company as a firm and acknowledges the Reply given by the Petitioner. It also states that all notices sent to the directors except for the Petitioner had come back with the remarks “office closed as Court sealed the premises”. It acknowledges that the Company was wound up on 14.12.1998 by the Bombay High Court when possession of the factory books and records were sealed and notes that it is “impossible to get the required information”. However, OIO goes on to exercise powers and impose a fiscal penalty on the Company and its directors. In fact, the words used in the OIO are Directors/Partners. The relevant extract of OIO is below: “10. It has been observed from the file that the firm has not submitted any documents evidencing fulfilment of export obligation against the above licence nor the firm has submitted any reply. The noticee has factories at four locations and was professionally managed and had a large work force at each location. The import exports work. It was noticed that their various employees did documentation work only and that employees are no more with them since last 4/5 years due to close of the company. In view of this, it is impossible to get the required information. Now the possession of company has been taken over by the official Liquidator as per the Hon'ble High Court of Mumbai and the official Liquidator has also sealed all the properties belong to the company.

11. I, in exercise of powers vested in me under Section 13 of Foreign Trade Development & Regulation) Act, 1992 do hereby impose fiscal penalty of Rs.l,00,00,000/- (Rupees One crore only) on the firm M/s. Orkay Industries Ltd. N.K. M. International House, Babubhai Chinai Marg, 178, Backbay Reclamation, Mumbai- 400 020 and also its Directors/Partners etc. under Section 11(2) of the Act.”. 15.[2] No reference is made in the OIO as to how the directors are personally liable. Given the fact that the Respondent was unable to get the required information, it is unclear as to how the Respondent was able to ascertain and impose fiscal penalty, especially on the Petitioner. The provision of the statute provides for a decision based on an examination of the facts and documents before it and not otherwise.

16. The Impugned Order is passed more than 9 years after the OIO and premises itself on the fact that the firm (read Company) had not fulfilled its export obligations, and since it could not produce any document in its support, it was liable for the obligation. It further goes on to hold that the ground of liquidation of the Company could not be a ground for non-submission of export documents or non-payment of custom duty could not be taken as a ground for non-submission by the Petitioner. The discussion on this aspect is limited. There is however no discussion at all as to the personal liability of the Petitioner at any place in the Impugned Order.

17. This Court concurs with the judgments passed in Krishna Kumar Bangur case and Ved Kapoor case, which relying on Santanu Ray vs. Union of India[6], have held that unless specific allegations have been made which discuss the role of a director in the export performance, there is no question of finding him personally liable for the same. The order impugned has failed to fulfil this or show any adjudication on this aspect. In the absence thereof, the Respondent cannot now by, taking additional grounds and pleas, attempt to go beyond the Impugned Order.

18. There is another aspect which has to be taken into consideration. The export licence was issued on 15.11.1994. Proceedings were initiated by issue of the show-cause notice on 07.04.2003. The OIO was then passed on 29.03.2004. The complaint of default in export obligations was of the year 1997. 18.[1] The export obligation of the year 1997 was challenged by the Respondent in the year 2003, which led to the passing of the OIO on 29.03.2004 and Impugned Penalty Order on 24/25.06.2013. No explanation has been provided by the Respondents for the delay in taking steps against the Petitioner, none has been argued before this Court either.

19. The Petitioner has also relied upon an Order-In-Appeal dated 24.07.2005 passed by the Respondent in a connected case being case 1988 SCC OnLine Del 169 No.11/27/03-04/ECA-1 filed by the Respondent No.2 against the Company which states that since there is no evidence as to whether the Petitioner was not the Managing Director but a mere employee. It was further held that in these circumstances, the entire penalty could be recovered from the Company alone. Thus, the Respondent excluded the name of the Petitioner from the proceedings dated 25.07.2006. This Order in a connected Appeal passed by the Respondent No. 2 is extracted below: “5....While the orders have been passed against the firm and Sh. Pankaj Mehra as Ex-MD of the firm. But only Shyri Mehra has preferred an appeal. Though the appellant firm as well as the advocate has pleaded that Shri Pankaj K. Mehra was not the MD but was merely an employee of the firm but no documentary evidence to this effect has been producea [sic.produced].Generally, Managing Director is the whole sole responsible for all activities of a firm. In this case there is no evidence either to confirm that he was MD or employee[sic.employee] as the Adjudication order itself show him as Ex-MD of the appellant firm. The appellant firm has not filed any appeal against the impugned Adjudication order and any appeal filed now will be time barred. Under these circumstances, the entire penalty has to be recovered from the firm only. While these orders are in any case liable to be enforced against M/s. Orkay Industries Ltd. on account of their failure to file appeals under the Act. I hold the view that the name of the appellant be excluded from the proceedings of the above referred Adjudication orders. Accordingly in view of powers vested in me in terms of provisions of the Section 15 of the Foreign Trade (D&R) Act, 1992 the following order is made. No. 11/2/03-04/ECA-I/1330 dated 25.7.2006 ORDER

1. Only the name of Shri Pankaj K. Mehra is excluded from the proceedings under the above referred Adjudication Orders and accordingly the Orders stand modified to that extent.

2. Since the firm have not filed any appeal against these Adjudication orders and statutory time allowed has already passed, these orders be enforced against them and entire penalty, including Rs.10 lakhs imposed on Shri Mehra may also be recovered from the company and demand may be raised to the official Liquidator.” [Emphasis Supplied]

20. The Respondent has relied upon a judgment of the Supreme Court in the Standard Charted Bank case to submit that a whole time Director or an Executive Director is liable and responsible for the business of the Company. This judgment was in the context of quantification of liability of a Director of a Company under the provisions of Section 138 and 141 of the Negotiable Instrument Act, 1881, where the vicarious liability of the Director of the Company is specifically set out in the provisions of the said Act. Thus, this decision is inapplicable in the facts of the present case.

21. In addition, the contention of the Respondents that the Petitioner being a whole-time director is automatically liable and culpable for the defaults of the Company is also misconceived. In any event, the Petitioner has filed the Affidavits pursuant to the orders passed by this Court wherein he has clearly set out that he was only an employee director and that he had no role to play in the export obligation or licences. The Respondents have also not disputed the fact in its orders that the Company went into liquidation in 1998, and that all documents and records were taken over by the official liquidator, when such proceeding is filed in terms of Section 446 of the Companies Act, 1956 and Section 33 of the Insolvency and Bankruptcy Code, 2016, and once a company goes into liquidation, all proceedings to be initiated against such company could only be initiated with prior approval of the adjudicating authority. There is no evidence of this being done either.

22. This Court therefore finds no merit in the contentions of the Respondents. The Impugned penalty order is set aside.

23. The Petition is disposed of in terms of the aforegoing.