Preface:
The Foreign Exchange Regulation Act, 1973 (hereinafter referred to as the FERA) came into force on 01.01.1974. The purpose of FERA was to consolidate and amend the law regulating certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the conservation of the foreign exchange resources of India and the proper utilization thereof in the interests of the economic development of India.
Under FERA, only RBI authorized a person/company to deal in foreign exchange and to do transactions in foreign currencies; also, it was only the RBI that was given power to revoke the authorization of such person/ company in case of non-compliance.
Under FERA, only RBI could authorize persons to operate as Money Changers, to convert the currency at rates determined by RBI. The FERA mandated that no person in India, without permission from RBI could make payments to a person resident outside India, or could receive payments from a person outside India.
That FERA was replaced by the Foreign Exchange Management Act, 1999 (hereinafter referred to as FEMA), which came into effect from 01.06.2000 in India.
Section 68 of the FERA:
Section 68 of FERA mandated that persons occupying responsible positions in companies accused of violating norms contained in FERA, could be prosecuted vicariously. Section 68 of FERA dealt with “Offences by Companies”. Section 68 (1) of FERA provided that, “… every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be deemed to be guilty of the contravention…”.
Section 68 (1) of FERA created a legal fiction, that is, “… shall be deemed to be guilty…”; the legal fiction triggers on fulfillment of conditions as contained in the section. The words, “… every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business…” have to be given some meaning and purpose. The provision cannot be read to mean that whoever was a director of a company at the relevant time when contravention took place, shall be deemed to be guilty of the contravention. Had the legislature intended that all the directors irrespective of their role and responsibilities shall be deemed to be guilty of contravention, Section 68 of FERA could have been worded in different manner. When a person is proceeded with for committing an offence and is to be punished, necessary ingredients of the offence as required by Section 68 of FERA should be present.
Section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the N.I. Act):
1. In the N.I. Act initially there was no provision regarding offences by companies and by Act 66 of 1988, Section 141 was inserted in the N.I. Act.
2. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extending liability to others. Section 141 of the N.I. Act is an instance of specific provision which in case an offence under Section 138 of the N.I. Act is committed by a company, extends criminal liability for dishonour of cheque to officers of the company.
3. Section 141 of the N.I. Act stipulates that:
a. A company being a juristic person, all its deeds and functions are result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action (dishonour of cheque) being taken against the company.
b. Every person who at the time the offence (dishonour of cheque) was committed, was in-charge of and was responsible to the company for the conduct of business of the company, shall be liable for the offence committed by the company.[1]
4. In the matter of: N. Rangachari V/s Bharat Sanchar Nigam Ltd, (2007) 5 SCC 108, it was observed that:
“… 20. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the N.I. Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.”
Interpreting Section 68 of FERA in light of Section 141 of the N.I. Act:
Recently, the Hon’ble Supreme Court, in the matter of: Shailendra Swarup V/s Deputy Director (Enforcement Directorate), Criminal Appeal No. 2463/ 2014 (Date of Decision: 27.07.2020) observed that:
1. A non-executive director of a company charged with violations under FERA, can neither be prosecuted nor penalized, if he was not holding a responsible position/ authority in the company when the alleged violations under FERA were committed by the company.
2. Section 68 of the FERA deals with “Offences by Companies” and is pari materia to Section 141 of the N.I. Act.
3. In order to determine the scope of Section 68 of FERA, interpretation given to Section 141 of the N.I. Act by the Supreme Court through its various rulings, can be looked into.
4. Both in Section 68 of the FERA and Section 141 of the N.I. Act, the criminal liability arises from being in charge of and responsible for the conduct of the company at the relevant time.
5. Section 68 of FERA cannot be read to mean that whoever was a director of a company at the relevant time when contravention took place, shall be deemed to be guilty of the contravention.
6. In Para 38 of the report, it was observed that:
“… Section 68 of FERA, 1973 as well as Section 141 of the Negotiable Instruments Act deals with the offences by the companies in the same manner. The ratio of the judgments of this Court on Section 141 of Negotiable Instruments Act as noted above are also clearly relevant while interpreting Section 68 of FERA Act.”
7. For proceeding against a director of a company for contravention of provisions of FERA, the necessary ingredient for proceeding shall be that at the time offence was committed, the director was in charge of and was responsible to the company for the conduct of the business of the company.
8. The liability to be proceeded with for offence under Section 68 of FERA depends on the role one plays in the affairs of the company and not on mere designation or status of executive/non-executive director.
Excursus:
1. An employee/ director of a company, which is charged for violations under FERA, could be prosecuted or penalized, if he was holding a responsible position/ authority in the company when the alleged violations under FERA were committed by the company.
2. Section 68 of FERA is pari materia to Section 141 of the N.I. Act.
