Foreign Exchange Violation: Supreme Court Upholds Penalty on Suborno Bose

The case of Suborno Bose v. Enforcement Directorate & Anr. revolves around foreign exchange violations under the Foreign Exchange Management Act, 1999 (FEMA). The Supreme Court, on March 5, 2020, upheld the penalty imposed on Suborno Bose, the Managing Director of M/s. Zoom Enterprises Ltd., for non-compliance with foreign exchange regulations. The case highlights critical issues related to import transactions, failure to submit Bills of Entry, and the liabilities of company executives under FEMA.

This blog post delves into the legal background, arguments presented by both parties, and the Supreme Court’s reasoning for its decision.

Background of the Case

The case originated from a show-cause notice issued to Suborno Bose and his company, M/s. Zoom Enterprises Ltd., on May 19, 2004, by the Enforcement Directorate under Section 16(3) of FEMA. The notice alleged violations of Section 10(6) of FEMA read with Sections 46 and 47, and paragraphs A-10 and A-11 of the Foreign Exchange Manual 2003-04.

The allegations stemmed from the company’s import of equipment, including two Water-Cooled Screw Chiller Units and accessories from Carrier S.A., France, and Air Handling Units from Carrier Corporation, USA. The company had acquired foreign exchange for these imports but failed to submit the required Bills of Entry and did not take delivery of the goods, which remained in a bonded warehouse.

Legal Proceedings and Arguments

Petitioner’s Arguments (Suborno Bose)

The company was initially managed by Mr. Aniruddha Roy Chowdhury and others. Suborno Bose took over in October 2001 and was unaware of the previous violations.
The company faced financial constraints, preventing the clearance of the shipment from the customs department.
Requests were made to the Tourism Finance Corporation of India Limited (TFCI) for a bank guarantee of Rs. 40 lakhs to facilitate clearance.
There was no deliberate attempt to violate FEMA; rather, unforeseen circumstances caused the non-compliance.

Respondent’s Arguments (Enforcement Directorate)

The foreign exchange was remitted in 2000 for the import of goods, yet the company failed to comply with the mandatory requirement of submitting Bills of Entry.
Under FEMA regulations, transactions involving foreign exchange must be completed within six months, failing which the funds must be surrendered to an authorized dealer.
The company neither surrendered the funds nor completed the import process, leading to a violation of FEMA provisions.
Despite taking over management in 2001, Suborno Bose failed to rectify the violations or take steps to comply with FEMA regulations.

Adjudication and Appeal

The adjudicating authority found the company and its Managing Director guilty of violating FEMA and imposed the following penalties:

M/s. Zoom Enterprises Ltd. – Rs. 10,00,000/-
Suborno Bose – Rs. 10,00,000/-

The penalty was to be deposited with the Enforcement Directorate within 45 days. The company and Suborno Bose appealed the decision before the Special Director (Appeals), FEMA & Commissioner of Income Tax, Delhi. The appellate authority upheld the penalties, emphasizing that:

The foreign exchange had to be utilized for its declared purpose or surrendered to an authorized dealer.
The company did not take delivery of the imported goods, violating FEMA provisions.
Financial constraints were not a valid excuse, as the company had sufficient resources to clear the shipment.

Following the dismissal of their appeals, the case was taken to the Calcutta High Court, which upheld the penalties, stating that:

“The violation continues till compliance is made, and the appellant cannot be absolved from liability merely because he took over management later.”

Supreme Court’s Ruling

The Supreme Court, while dismissing the appeal, focused on the following key issues:

1. The Nature of FEMA Violations

The Court reaffirmed that violations under FEMA are of a continuing nature. The failure to comply with foreign exchange regulations does not become time-barred and continues until corrective action is taken.

2. Liability of Company Executives

Under Section 42 of FEMA, company executives responsible for business conduct at the time of violation remain liable. The Supreme Court observed:

“If the delinquency is a civil obligation, the defaulter is obligated to make efforts to rectify the contravention. So long as the imported goods remained uncleared, the obligation to submit the Bill of Entry remained unfulfilled.”

Thus, Suborno Bose, as the Managing Director, was responsible for taking corrective steps but failed to do so.

3. Lack of Due Diligence

The Court noted that despite being aware of the contraventions, Suborno Bose did not take any significant steps to clear the goods or surrender the foreign exchange. It emphasized:

“The appellant became aware of the contravention yet failed to take corrective measures. He cannot now contend that no liability could be fastened upon him.”

4. No Mens Rea Required

The Court reiterated that FEMA violations do not require mens rea (criminal intent). As a regulatory law, FEMA imposes civil liabilities rather than criminal punishment. It cited the ruling in Chairman, SEBI v. Shriram Mutual Fund, which held that penalty under regulatory laws is for breach of obligations, irrespective of intent.

Final Verdict

The Supreme Court upheld the penalty on Suborno Bose, stating:

“Considering the admitted fact that the appellant took over management of the company in 2001 and was fully aware of the violations but failed to take corrective measures, he cannot escape liability.”

Thus, the appeal was dismissed, reaffirming the regulatory framework of FEMA and the importance of compliance with foreign exchange laws.

Petitioner Name: Suborno Bose.
Respondent Name: Enforcement Directorate & Anr..
Judgment By: Justice A. M. Khanwilkar, Justice Dinesh Maheshwari.
Place Of Incident: India.
Judgment Date: 05-03-2020.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Suborno Bose vs Enforcement Director Supreme Court of India Judgment Dated 05-03-2020.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Corporate Compliance
See all petitions in unfair trade practices
See all petitions in Judgment by A M Khanwilkar
See all petitions in Judgment by Dinesh Maheshwari
See all petitions in dismissed
See all petitions in supreme court of India judgments March 2020
See all petitions in 2020 judgments

See all posts in Corporate and Commercial Cases Category
See all allowed petitions in Corporate and Commercial Cases Category
See all Dismissed petitions in Corporate and Commercial Cases Category
See all partially allowed petitions in Corporate and Commercial Cases Category