The petitioner has filed the above Criminal Original Petition to call for the records in E.O.C.C.No. 503 of 2002 on the file of Additional Chief Metropolitan Magistrate, Economic Offences Court, E.O.II, Chennai and quash the proceedings.
2. The prosecution case is as follows:
The respondent/complainant filed the case against ten accused persons on an alleged offences under
Sections 18(2),18(3) r/w. 68 of the Foreign Exchange Regulation Act, 1973, punishable under
Section 56(1)(i) of the said Act, r/w. Sub Section 3 and 4 of Section 49 of the Foreign Exchange Management Act, 1999. The complainant stated that on the basis of reference from the RBI and Intelligence collected search operations under
Section 37 of Foreign Exchange Regulation Act were carried out at the premises of the first accused, M/s. M.V.R.Industries Ltd, and its group companies situated at 5th floor, 'Rayala Towers', No.781, Mount Road, Chennai-2 and certain other connected premises on 26.09.1996. Search was also conducted in certain other premises on 7/8.11.1996. As a result of the above searches, certain documents were seized. The said search was conducted in ten places of the accused persons.
3. The intelligence collected indicated that there was large scale non-realisation of export sale proceeds of the Cashew Kernels exported by them and there had been huge over-invoicing of the raw cashew nuts imported by them from various countries. There are eight group companies of M.V.R. Group in India. Besides, there were four more companies in Singapore, which were the counterpart companies of the said M.V.R. Group Companies in India. All these companies were cumulatively run by one Mr.M.V.Varadarajulu @ M.V.Raja. The said Raja was not available on the date of search. He was arrested in the year 2001 in France on the request of C.B.I, and a separate letter of Rogatory has been issued from this Honourable Court on 23.04.2002. It is submitted that a non-bailable warrant was issued by this Honourable Court for offence under
Section 56 of Foreign Exchange and Regulation Act. The same is pending execution.
4. The complainant further contended that on the basis of initial scrutiny of documents, statements were recorded from the important functionaries of the Companies namely, (1) S.P.Vairavan, who was the Managing Director of the Group Companies in India, (2)Mr. Sai Jagannathan, legal adviser to the M.V.R.Group companies in India and (3) Mr. Subramanian, Chartered Accountant as well as the Statutory Auditor of the M.V.Group of Companies. Some other Directors of the company on record were present. Apart from this several directors of the group companies were examined. The complainant also collected statements from 36 persons in this regard.
5. During the course of investigation, it was learnt that the Central Bureau of Investigation, Chennai, who were probing the Indian Bank Scam had searched the premises of M.V.R.Group of Companies in India and had recovered certain documents. Those documents were kept in the custody of Economic Offences Wing of C.B.I, Chennai and Bank Securities, Fraud Cell, C.B.I, Bangalore.
6. On the basis of these statements, enquiries and search, show cause notice were issued to the accused persons.
7. The said M.V.Raja, was the person behind the operation of M.V.R. Group of Companies. Under him, all the other accused persons are functioning. It was observed by the complainant in the course of investigation that there had been huge quantum of non-realisation of export sales proceeds of the Cashew Kernels processed and exported by the Group of Companies in India during the period 1993-1996. The amount involved in these transactions was Rs.209.13 crores. The company exports goods to U.S.A, European Countries etc. While the goods were consigned directly to the respective buyers, the bills were raised in the name of their counterpart companies. The goods were exported on "Delivery on acceptance" basis. However, the bills were not paid for years together. As per the undertaking given in the form G.R., under which the exports were made, the companies had to realise the invoice amounts within six months from the date of export.
8. However, the counterpart companies, who had received the goods sold the same and realised the proceeds from the overseas buyers did not repatriate the sale proceeds to the Indian Companies. Thus, there was a huge non-reputation of the export sale proceeds to the Indian Companies to the extent of Rs.209.13 Crores. In order to avoid pressure from the banks for repatriation of the sale proceeds, the counterpart companies made quality claims on the Indian Companies even for the goods exported by them several years before, and refused payment for the same. Thus, an amount of Rs.209.13 crores remained unrealised. It is pertinent to note that cashew kernels exported by M.V.R. Group of companies in India were subjected to quality checks by internal quality control personnel as well as external quality control agencies like 'SGS India Ltd'. Further, the complainant contended that the Companies in India willingly paid higher prices for the raw cashew nuts imported by them and even opened irrevocable letters of credit in India for payment to Singapore based companies. It is alleged that the raw cashew nuts imported by one company were transferred in the name of the other company without the knowledge of the bankers, who had financed the import.
9. It was further alleged that though the actual price of raw cashew nuts ranged from US 425 dollars per metric tonne to about 1000 dollars per metric tonne, the same goods were filled for about US 1050 dollars per metric tonne to US 1255 dollars per metric tonne by the overseas suppliers. The Singapore companies raised letters of credit in the names of supplies abroad from Indian bank and other Banks in Singapore and paid the same. For goods received in India, Group companies have raised irrevocable letter of credit in favour of the companies situated in Singapore and paid for goods received by them. The special Director of enforcement, New Delhi issued show cause memorandum on 25.9.1997 to the A1 company proposing penalties on the companies under Section 50 of FERA. After giving notice, sufficient opportunity was given to the accused to send in their statements in writing whether they had any permission/ exemption of the R.B.I to enter into the aforesaid transactions. But no documentary evidence was produced by the accused regarding permission / exemption of the RBI.
10. Therefore the complainant has lodged a complaint against the accused persons with the additional Chief Metropolitan Magistrate Court, E.O.II, Chennai. Supporting his case, 15 prosecution witnesses have been mentioned besides the relevant documents. The same has been taken on file by the Learned Magistrate on 31.05.2002 on his file and summons were issued.
11. The petitioner accused No.8 contented that he was served with summons by the learned Magistrate. He further contended that the complaint copy was not served on him. So, he is not aware of the contents of the complaint. The petitioner has raised the following grounds.
A) The petitioner joined as a Director in Satyam Foods Pvt. Ltd., on 23rd May 1995 and resigned from the Board of Directors on 01.04.1996. Form-32 was duly filed before the Registrar of Companies, Pondicherry.
FORM-32 FILED ON BEHALF OF THE PETITIONER SHOWING THAT THE PETITIONER HAD RESIGNED ON 1st APRIL 1996 IS ENCLOSED HEREWITH AS ANNEXURE-B.
The prosecution had been initiated against the company by invoking
Section 68 of repealed provisions of Foreign Exchange Regulation Act.
Section 68 deals with prosecution of companies and its directors. Every person employed or holding the position as Director cannot be prosecuted for any violations of the provisions of the Act by the Company. Before prosecuting a person in his capacity as Director, it has to be identified whether he is in-charge and responsible for the conduct of the business of the company at the relevant time.
The allegation in the compalaint is "Cashew Kernels were processed and exported by company between 1993 and 1996 and the value of the export has not been realized culminating in prosecution." In paragraph 7 of the complaint, it is alleged, "7. .... the second accused (Mr.M.Varadarajulu @ M.V.Raja) has been excising overall control and was issuing instructions to S.P.Vairavan, and other officials of the company. The 2nd accused was observed to have taken all the policy decisions of the companies and the companies in India, although shown to be a acting as independent entity wholly controlled by him. Every petty matters like monthly over head demands had to be approved by him from Singapore......"
Nowhere in the complaint, it had been alleged that the petitioner was incharge of and was responsible to the company for the conduct of the business of the enquiry at the relevant time, when the offence was committed. The requirement of law is that there should be an allegation that the petitioner was incharge and responsible for the conduct of the business of the company. The onus of proving this fact is on the prosecution. This has to be done by making necessary averment in the complaint and then substantiating those averments by letting in evidence to that effect.
As
section 68 of the Foreign Exchange Regulation Act coupled with
Section 56 of the said Act are highly penal sections and make a person, who was incharge and responsible for the conduct of the business of the company, vicariously liable for an offence committed by the company. Hence, the well settled principle of strict construction of penal statute has to be invoked. There is not even a whisper nor a shred of material and nor anything else to show that the petitioner had committed or omitted to do any act from which a reasonable inference could be drawn that the petitioner also could be vicariously liable. In the absence of such averment, that the petitioner is in charge and responsible for the conduct of the business of the first accused company, the prosecution cannot survive against the petitioner.
The petitioner relies on the judgments reported in the following journals, for the above contention.
1998(2) MWN (Cri) 250;
1983 SCC (Cri) 115 ;
1998(Cri) L.J.3287.
(B) The petitioner most humbly submits that the order of issuance of process by the Court is a sacrosanct act, which requires application of judicial mind. It cannot/should not be performed mechanically and arbitrarily. The judicial officer is vested with the power of issuance of summons, after satisfying himself with the materials placed before him as accompaniment to the complaint. The reading of the complaint and the accompaniments should make out a prima facie case for issuance of process.
The petitioner submits that the Judicial Magistrate, before whom the complaint was filed, had not applied his mind for the following reasons:-
(i) There is no averment in the entire complaint that the petitioner was incharge and responsible for the conduct of the business of the company. If the learned Magistrate had perused the complaint, he would not have ordered for issuance of summons to the petitioner. For prosecution under
Sections 56 of Foreign Exchange Regulation Act, the averment 'in-charge and responsible" is sine qua non. In this regard, the petitioner relies upon the following judgments.
a) AIR 1971 SC 2162 Giridharilal Gupta ..vs.. D.N.Mehta & another
b) 2002 (6) 169 SCALE Smt. Katta Sujatha ..vs.. Fertilisers and Chemicals, Travancore and another.
(ii) The petitioner reliably learns that the Additional Chief Metropolitan Magistrate, Economic Offences Court No.II was holding additional charge of Additional Chief Metropolitan Magistrate, Economic Offences Court No.I, on 31st May 2002. The complaint was filed on that date, as 31st May 2002 was the last day for preferring complaint under the Foreign Exchange Regulation Act, as per the notification issued on 1st June 2000. The respondent/complainant herein had preferred complaints numbering 50. Each complaint was different running to 15 pages without the accompaniments. After the complaints were filed on 31st May 2002, after attending to the normal work, all the complaints were taken cognizance, which is impossible. This can be done only if the act was done in a mechanical way. Hence, the issuance of process to the petitioners on 31st May 2002 is without application of mind and is liable to be quashed.
12. The Learned Counsel for the petitioner and Learned Counsel for the Respondent argued their respective cases. After considering the contentions of the petitioner and the Respondent, this Court is of the view that
1) The complainant, after conducting search in various places had collected vital documents.
2) For the said export and import transactions, for which number of documents have been collected from RBI and other Banks.
This is a national offence and this figure has been arrived at on the basis of scrutinising all the available documents. Further, in the said case, arrest was made. Case is also ready for trial. Petitioners also have faced the prosecution proceedings from the year 2002. Now, if the petitioner faces the rest of the prosecution case, he will not be prejudiced or undergo any hardship.
13. Hence, the Court is not warranted to interfere in the proceedings in C.C.No 502 of 2002 on the file of the Additional Metropolitan Magistrate Court, E.O.II, Egmore, Chennai. The case has got to be tried. Accordingly, the Criminal Original Petition No.23930 of 2002 is dismissed. Consequently, connected Miscellaneous Petitions are closed.
29.07.2009 Index:Yes/No Internet:Yes/No mra To
1. The Chief Enforcement Officer, Enforcement Directorate, Government of India, Shastri Bhavan, 26, Haddows Road, Chennai 600 006.
2. Additional Chief Metropolitan Magistrate, Economic Offences Court, E.O.II, Chennai.
3. The Public Prosecutor, High Court, Madras.
C.S.KARNAN, J mra Crl.O.P.No.23930 of 2002 and Crl.M.P.Nos.9995 and 9996 of 2002 29.07.2009