Allowed

FPA-FE-216/MUM/2003 of M/s. Sigmalon Equipment P. Ltd. v/s The Joint Director, Directorate of Enforcement, Mumbai

ATFP17 Aug 2018FPA-FE-216/MUM/2003

Case brief

AI extract

What is this about?

The Tribunal quashed adjudication orders imposing penalties for alleged violations of FERA. It held the impugned order unsustainable due to lack of independent evidence and reliance on uncorroborated, contradictory admissions made under alleged pressure by a rival director.

What did the court decide?

The Impugned Order dated 14.05.2003 holding the appellants guilty and imposing penalties was set aside.

FPA-FE-216/MUM/2003 of M/s. Sigmalon Equipment P. Ltd. v/s The Joint Director, Directorate of Enforcement, Mumbai — ATFP (2018) — LawSathi Research

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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Date of Decision : 17^th August, 2018

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FPA-FE-216/MUM/2003

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M/s. Sigmalon Equipment P. Ltd.

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... Appellant/Applicant

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Versus

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The Joint Director, Directorate of Enforcement, Mumbai

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… Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Shri Gaurav Duggal Advocate Shri Saswat Pattnaik, Advocate For the respondent : Ms. Agam Kaur,Legal Consultant

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CORAM

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JUSTICE MANMOHAN SINGH : CHAIRMAN

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JUDGEMENT

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FPA-FE-216/MUM/2003

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The present appeal has been filed against the Order dated 14.05.2003 being Order No. ADJ/70/DD/AKL/B/2003 in Memorandum No. T-4/26B/DD/RKP/2002 dated 21.05.2002 passed by the Dy. Director of Enforcement, Enforcement Directorate, Mumbai whereby the Dy. Director held Appellant No. 1 guilty under Section 16(1) of the Foreign Exchange Regulation Act, 1973 thereby imposing a penalty of Rs.25,00,000/- (Rupees twenty five lakh only) on the Appellant No. 1 Company M/s. Sigmalon Equipment Pvt. Ltd who has also Appellant No. 2, Shri Ashok Kumar (he is dead now) guilty of the charges under Section 16(1) read with 68(1) of Foreign Exchange Regulation Act, 1973 and thereby imposing a penalty of Rs.15,00,000/- (Rupees fifteen lakh only).

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FPA-FE-216-MUM-2003

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The Dy. Director further held Appellant No. 2 guilty to the charges under Section 8(1) of Foreign Exchange Regulation Act, 1973 and thereby imposing a penalty of Rs.10,00,000/- (Rupees Ten lakh only) on Appellant No.2, Shri Ashok Kumar.

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It is the case of the Respondent, Enforcement Directorate, Mumbai that it has received information through some sources that Appellant No. 1 was engaged in providing technical services for engineering documentation job for M/s. EEE and also for sending technical personnel of Appellant No. 1 to M/s. EEE to perform the engineering documentation work. It is further the case of the Respondent that an amount of US $ 1,50,000 was due to Appellant No. 1 and it had failed to receive the amount due from M/s. EEE.

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It was also alleged that Late Shri Ashok Kumar, the Managing Director of the Appellant No.1 Company instead of making efforts with M/s. EEE to cause the remittance of the said amount of US $ 1,50,000 receivable from M/s. EEE, in fact, had collected the amount abroad from M/s EEE during his visit to Germany. The said amount was later deposited by Late Shri Ashok Kumar in his accounts maintained with Swiss Credit Bank, Zurich and which was later transferred to Late Shri Ashok Kumar’s son’s account maintained with Barclay’s Bank UK.

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In view of aforesaid, the Respondent issued summons under Section 40 of the Foreign Exchange Regulation Act, 1973 to the company and its Directors namely Late Shri Ashok Kumar and Shri Vinod Kumar and recorded their respective statements on 01.10.2001, 08.10.2001 and 09.04.2002 etc. The said statements are on record.

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Dy. Director, Enforcement Directorate, Mumbai issued a Show Cause Memorandum bearing No. T-4/36-B/DD/RKP/2002/6528 dated 21.05.2002 which inter-alia, directed the Appellant Company, Late Shri Ashok Kumar and FPA-FE-216-MUM-2003 Page 2 of 8

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Shri Vinod Kumar to show cause in writing within 10 days as to why Adjudication Proceedings as contemplated in Section 51 of the FERA, 1973 should not be held against them. Pursuant to the said direction of the Dy. Director, Enforcement Directorate, Mumbai, the Appellant filed their response.

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Late Shri Ashok Kumar vide his reply dated 24.03.2003, clarified the position that the company did not enter into contract worth US $ 1,50,000 nor rendered the services in respect of documentation work.

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By Order dated 14.05.2003, the Dy. Director inter-alia, held Appellant No. 1 company guilty under Section 16(1) of the Foreign Exchange Regulation Act, 1973 and thereby imposed a penalty of Rs.25,00,000 (Rupees twenty five lakh only) on the Appellant No. 1, company and further held Appellant No. 2, Late Shri Ashok Kumar guilty of charges under Section 16(1), with 68(1) and Section 8(1) of Foreign Exchange Regulation Act, 1973 and thereby imposed a penalty of Rs. 15,00,000/- (Rupees fifteen lakh only) and Rs.10,00,000/- (Rupees ten lakh only), respectively.

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The Tribunal vide its order dated 01.10.2009 framed two points of difference:

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i) Whether M/s. Sigmalon Equipment Ltd has been rightly held guilty of contravention of Section 16(1) of FER Act for having failed to realize amount totaling to US $ 1,50,000 receivable by them from M/s. Erman Electro Echnik (M/s. EEE) during the period 1990-91?

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It has come on record that there were disputes and differences between the two brother’s i.e. Late Shri Ashok Kumar and Shri Vinod Kumar at the relevant time and Ashok Kumar was also the Director of the Appellant Company.

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There is an evidence on record that Shri Vinod Kumar at relevant time in order to harass the company and Shri Late Vinod Kumar had lodged various FPA-FE-216-MUM-2003 Page 3 of 8

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complaints before different forums including with the Police, Criminal Complaint, Income Tax Dept., Company Law Board etc. The Judgement dated 28-04-1999, passed by the Company Law Board in C.P. No. 12 of 1998, titled as Vinod Kumar Vs M/s Sigmalon Equipment Pvt. Ltd., would disclosed that Shri Vinod Kumar had raised the allegation of the Appellants having siphoned off funds.

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The allegation was effectively rejected by the Company Law Board, at para 25 which is reproduced as under:-

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“as far as the allegations relating to siphoning of funds, we do not find much substance in the allegation of the Petitioner. In regard to the alleged siphoning off 1.5 Lakhs US Dollars, the Petitioner has not furnished any documentary evidence to show that such an amount was due to the Company and the same has been paid by the foreign party. In the absence of details, we are not in a position to hold these allegations against the 2^nd Respondent.”

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The above finding and judgement of the Company Law Board were never challenged by Shri Vinod Kumar. In the present case, the action against the present Appellant was initiated by the Respondent also on the basis of only a complaint made by Shri Vinod Kumar.

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It is admitted position that the statement recorded of Shri Vinod Kumar on 09.04.2002, he himself admitted that he is the complainant and had lodged complaint with the Respondent and other authorities against his brother without referring to any documents or evidence.

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In the Show Cause Memorandum dated 21.05.2002 issued against and Appellant and its Directors, the Respondents only relied upon the statement recorded by Late Shri Ashok Kumar and Shri Vinod Kumar. No documents or evidence was produced or relied upon by the Respondent except statements recorded by its Directors.

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FPA-FE-216-MUM-2003

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It is also a matter of fact that before the adjudication proceedings, the request for cross examination of Shri Vinod Kumar was also declined by the Respondent.

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With regard to the allegation that during 1990-91, the Appellant Company had entered into a contract with M/s EEE for engineering services and documentation work for an amount of US $ 1,50,000 and had failed to receive the amount due from M/s EEE. Late Shri Ashok Kumar had in his reply dated 24.03.2003 stated that the company did not enter into contract worth US $ 1,50,000 or thereabouts.

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The Dy. Director, Enforcement Directorate has not supported the charges with any corroborative independent evidence and has solely relied upon the statement/ complaint made by Shri Vinod Kumar (who is the brother of Late Ashok Kumar) and had having the litigation against his brother and list the matter in court whereby it was held that no documents in this regard were produced/proved. It is also a matter of fact that show cause notice was issued on the complaint of Shri Vinod Kumar and after the findings of the court in favour of Late Shri Ashok Kumar.

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The Dy. Director failed to apply its mind to the submissions made by Late Shri Ashok Kumar and by Shri Anshul Kumar, on behalf of Late Shri Ashok Kumar and the Appellant Company, to the Show Cause Notice and without there being any evidence with respect to the said allegation, the Respondent held the Appellant guilty under Section 16 (1) read with Section 68(1) of the Act and thereby imposed a very heavy and severe penalty of Rs.25 Lakhs on the Company and Rs.15 Lakhs and Rs.10 Lakhs on Late Shri Ashok Kumar.

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There is no other independent evidence which is subject matter of the present Complaint. There is no raid on the Appellant Company or premises of FPA-FE-216-MUM-2003 Page 5 of 8

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its Directors. The statement of its employee as alleged in the said Show Cause Memorandum were not recorded by the Respondent, though they were referred.

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Admittedly, there is no statement of admission with respect to the alleged contract between the Appellant and M/s. EEE, West Germany and Late Shri Ashok Kumar was also not even examined/questioned by the Respondent with respect to the alleged transaction. The said action taken by the Respondent was only on the basis of a complaint/information of Shri Vinod Kumar. Shri Vinod Kumar was earlier failed to produce any evidence in company court. The said decisions attains finality. The Respondent mainly on the basis of the statement made by Shri Vinod Kumar, has passed the Impugned Order and inter-alia, held the Appellants guilty of the charges framed under Section 16(1) read with 68(1) of Foreign Exchange Regulation Act, 1973.

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It appears from record that at relevant time, Late Shri Ashok Kumar and Shri Vinod Kumar were Directors of the Appellant Company and were equally responsible for daily affairs of the Company Business and management, when the said action by the Respondent was initiated, however, the Respondent passed the said Impugned Order dated 14.05.2003 only against the present Appellants and dropped all the charges against Shri Vinod Kumar as the Respondent did not find his involvement in the alleged transaction of US $ 1,50,000/-. In case, Shri Ashok Kumar has received the Foreign Exchange from the German Company and deposited in his personal account, the documentary evidence ought to have been brought on record. On the basis of hearsay statement without any evidence, the findings could not have been arrived as it is the admitted position that Vinod Kumar brother Ashok Kumar had the litigations in the courts.

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The financial status of the Appellant Company is that it had already closed down since 1991. The Appellant Company had also filed its IT Returns for the assessment years 2000-01 and 2006-07 by its Auditors together with FPA-FE-216-MUM-2003 Page 6 of 8

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profit and loss accounts and auditors report and also balance sheet and annual report ending year 31.03.2001, which certifies that the Appellant Company is in loss supported by its Auditors Report.

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Shri Ashok Kumar expired in Pune on 10-01-2008 in Jahangir Hospital, Pune. A copy of the Death Certificate issued by the Municipal Corporation, Pune has already been submitted.

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The other question is whether the Appellant Company was under an obligation to explain the admission of Ashok Kumar, its Managing Director, of having received DM 40,000 from M/s EEE in the final settlement of compensation for services rendered by its employee, A.N. Saqrode to M/s EEE during 01-04-1990 to 10-12-1990, which was made without disclosing the actual amount of compensation receivable by the company from the German Company and the actual terms and conditions on which A.N. Sarode was sent to the German Company for a period of said more than 6 months which the company has not been able to discharge? If so, its effect.

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As far as statement of Late Shri Ashok Kumar that during his tour to Germany in the year 1992 and he settled the compensation amount for DM 40,000 is concerned, it is argued that the said statement was made under pressure and was a forcible statement obtained. The Dy. Director, Enforcement Directorate failed to appreciate that such statement ought not to be relied upon, unless there is independent corroboration of certain material aspect of the said statement, through independent sources is present. There is no evidence with respect to the alleged transaction which was ever produced by Shri Vinod Kumar and or relied upon by the Respondent. Therefore, such statement made by Late Shri Ashok Kumar ought not to be relied upon by the Respondent during the adjudication proceedings in the absence of back-up evidence to some extent. Merely on the complaint by the rival party, no penalty can be imposed unless the admission based on some evidences as it is FPA-FE-216-MUM-2003 Page 7 of 8

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the practice that accuse always alleged that admissions are obtained under threat and pressure. In such situation, proper investigation is required in order to prove guilt of accused party.

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The statements of Shri Vinod Kumar are contradictory and self-defeating.

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Shri Vinod Kumar in his statement dated 09.04.2002 before the Respondent states that he does not have any role to play in the affairs of Appellant No.1, whereas before the Company Law Board, at para 2 of the Judgement dated 1804-1999, he takes a completely contrary stand.

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28. The relevant extract of para 2 is reproduced as under:-

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“ the petitioner was actively involved in the management of the company as a whole time director along with the 2^nd respondent who was also a whole time director, both of them drawing equal remuneration. Thus the company was being managed by both in nature of a partnership”.

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In view of the aforesaid, the benefit of doubt goes in favour of the appellant. The adjudication Order is not sustainable for the lack of evidences. There is no clear and cogent evidence available on record to show that Shri Ashok Kumar has received any payment pertaining to the transaction in question.

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The Impugned Order is, therefore, set-aside by allowing the present appeal.

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(Justice Manmohan Singh) Chairman

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New Delhi, 17^th August, 2018. ‘skb’

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FPA-FE-216-MUM-2003

FPA-FE-216/MUM/2003 of M/s. Sigmalon Equipment P. Ltd. v/s The Joint Director, Directorate of Enforcement, Mumbai

Case brief

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FPA-FE-216/MUM/2003 of M/s. Sigmalon Equipment P. Ltd. v/s The Joint Director, Directorate of Enforcement, Mumbai

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