G.Ganapathisubramanian v. The Chief Enforcement Officer,Enforcement Directorate,Government of India

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 29.07.2009CORAM:THE HONOURABLE MR.JUSTICE C.S.KARNANCrl.O.P.No.23930 of 2002andCrl.M.P.Nos.9995 and 9996 of 2002G.Ganapathisubramanian.. PetitionerVersusThe Chief Enforcement Officer,Enforcement Directorate,Government of India,Shastri Bhavan,26, Haddows Road,Chennai – 600 006... Respondent Petition filed under Section 482 Cr.P.C to call for the recordsin E.O.C.C.No. 503 of 2002 on the file of Additional ChiefMetropolitan Magistrate, Economic Offences Court, E.O.II, Chennai andquash the proceedings.For Petitioner : M/s. Ram and RamFor Respondent : Mr.K.Ramasamy Special Public Prosecutor for Enforcement O R D E RThe petitioner has filed the above Criminal Original Petition tocall for the records in E.O.C.C.No. 503 of 2002 on the file ofAdditional 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 accusedpersons on an alleged offences under Sections 18(2), 18(3) r/w. 68 ofthe Foreign Exchange Regulation Act, 1973, punishable under Section56(1)(i) of the said Act, r/w. Sub Section 3 and 4 of Section 49 of https://hcservices.ecourts.gov.in/hcservices/ the Foreign Exchange Management Act, 1999. The complainant statedthat on the basis of reference from the RBI and Intelligencecollected search operations under Section 37 of Foreign ExchangeRegulation Act were carried out at the premises of the first accused,M/s. M.V.R.Industries Ltd, and its group companies situated at 5thfloor, 'Rayala Towers', No.781, Mount Road, Chennai-2 and certainother connected premises on 26.09.1996. Search was also conducted incertain other premises on 7/8.11.1996. As a result of the abovesearches, certain documents were seized. The said search wasconducted in ten places of the accused persons.3.The intelligence collected indicated that there was largescale non-realisation of export sale proceeds of the Cashew Kernelsexported by them and there had been huge over-invoicing of the rawcashew nuts imported by them from various countries. There are eightgroup companies of M.V.R. Group in India. Besides, there were fourmore companies in Singapore, which were the counterpart companies ofthe said M.V.R. Group Companies in India. All these companies werecumulatively run by one Mr.M.V.Varadarajulu @ M.V.Raja. The saidRaja was not available on the date of search. He was arrested in theyear 2001 in France on the request of C.B.I, and a separate letter ofRogatory has been issued from this Honourable Court on 23.04.2002.It is submitted that a non-bailable warrant was issued by thisHonourable Court for offence under Section 56 of Foreign Exchange andRegulation Act. The same is pending execution.4.The complainant further contended that on the basis ofinitial scrutiny of documents, statements were recorded from theimportant 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 Indiaand (3) Mr. Subramanian, Chartered Accountant as well as theStatutory Auditor of the M.V.Group of Companies. Some otherDirectors of the company on record were present. Apart from thisseveral directors of the group companies were examined. Thecomplainant also collected statements from 36 persons in this regard.5.During the course of investigation, it was learnt that theCentral Bureau of Investigation, Chennai, who were probing the IndianBank Scam had searched the premises of M.V.R.Group of Companies inIndia and had recovered certain documents. Those documents were keptin the custody of Economic Offences Wing of C.B.I, Chennai and BankSecurities, 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 ofM.V.R. Group of Companies. Under him, all the other accused persons https://hcservices.ecourts.gov.in/hcservices/ are functioning. It was observed by the complainant in the course ofinvestigation that there had been huge quantum of non-realisation ofexport sales proceeds of the Cashew Kernels processed and exported bythe Group of Companies in India during the period 1993-1996. Theamount involved in these transactions was Rs.209.13 crores. Thecompany exports goods to U.S.A, European Countries etc. While thegoods were consigned directly to the respective buyers, the billswere raised in the name of their counterpart companies. The goodswere exported on "Delivery on acceptance" basis. However, the billswere not paid for years together. As per the undertaking given inthe form G.R., under which the exports were made, the companies hadto realise the invoice amounts within six months from the date ofexport.8.However, the counterpart companies, who had received thegoods sold the same and realised the proceeds from the overseasbuyers did not repatriate the sale proceeds to the Indian Companies.Thus, there was a huge non-reputation of the export sale proceeds tothe Indian Companies to the extent of Rs.209.13 Crores. In order toavoid pressure from the banks for repatriation of the sale proceeds,the counterpart companies made quality claims on the Indian Companieseven for the goods exported by them several years before, and refusedpayment for the same. Thus, an amount of Rs.209.13 crores remainedunrealised. It is pertinent to note that cashew kernels exported byM.V.R. Group of companies in India were subjected to quality checksby internal quality control personnel as well as external qualitycontrol agencies like 'SGS India Ltd'. Further, the complainantcontended that the Companies in India willingly paid higher pricesfor the raw cashew nuts imported by them and even opened irrevocableletters of credit in India for payment to Singapore based companies.It is alleged that the raw cashew nuts imported by one company weretransferred in the name of the other company without the knowledge ofthe bankers, who had financed the import. 9.It was further alleged that though the actual price of rawcashew nuts ranged from US 425 dollars per metric tonne to about 1000dollars per metric tonne, the same goods were filled for about US1050 dollars per metric tonne to US 1255 dollars per metric tonne bythe overseas suppliers. The Singapore companies raised letters ofcredit in the names of supplies abroad from Indian bank and otherBanks in Singapore and paid the same. For goods received in India,Group companies have raised irrevocable letter of credit in favour ofthe companies situated in Singapore and paid for goods received bythem. The special Director of enforcement, New Delhi issued showcause memorandum on 25.9.1997 to the A1 company proposing penaltieson the companies under Section 50 of FERA. After giving notice,sufficient opportunity was given to the accused to send in theirstatements in writing whether they had any permission/ exemption ofthe R.B.I to enter into the aforesaid transactions. But no https://hcservices.ecourts.gov.in/hcservices/ documentary evidence was produced by the accused regarding permission/ exemption of the RBI. 10.Therefore the complainant has lodged a complaintagainst the accused persons with the additional Chief MetropolitanMagistrate Court, E.O.II, Chennai. Supporting his case, 15prosecution witnesses have been mentioned besides the relevantdocuments. The same has been taken on file by the Learned Magistrateon 31.05.2002 on his file and summons were issued.11.The petitioner accused No.8 contented that he was servedwith summons by the learned Magistrate. He further contended thatthe complaint copy was not served on him. So, he is not aware of thecontents of the complaint. The petitioner has raised the followinggrounds. A)The petitioner joined as a Director in SatyamFoods Pvt. Ltd., on 23rd May 1995 and resigned from the Boardof Directors on 01.04.1996. Form-32 was duly filed beforethe Registrar of Companies, Pondicherry.FORM-32 FILED ON BEHALF OF THE PETITIONER SHOWING THAT THEPETITIONER HAD RESIGNED ON 1st APRIL 1996 IS ENCLOSEDHEREWITH AS ANNEXURE-B.The prosecution had been initiated against the companyby invoking Section 68 of repealed provisions of ForeignExchange Regulation Act. Section 68 deals with prosecutionof companies and its directors. Every person employed orholding the position as Director cannot be prosecuted forany violations of the provisions of the Act by the Company.Before prosecuting a person in his capacity as Director, ithas to be identified whether he is in-charge and responsiblefor the conduct of the business of the company at therelevant time.The allegation in the compalaint is "Cashew Kernelswere processed and exported by company between 1993 and 1996and the value of the export has not been realizedculminating in prosecution." In paragraph 7 of thecomplaint, it is alleged,"7..... the second accused (Mr.M.Varadarajulu @M.V.Raja) has been excising overall control and was issuinginstructions to S.P.Vairavan, and other officials of thecompany. The 2nd accused was observed to have taken all thepolicy decisions of the companies and the companies inIndia, although shown to be a acting as independent entitywholly controlled by him. Every petty matters like monthly https://hcservices.ecourts.gov.in/hcservices/ over head demands had to be approved by him fromSingapore......"Nowhere in the complaint, it had been alleged that thepetitioner was incharge of and was responsible to thecompany for the conduct of the business of the enquiry atthe relevant time, when the offence was committed. Therequirement of law is that there should be an allegationthat the petitioner was incharge and responsible for theconduct of the business of the company. The onus of provingthis fact is on the prosecution. This has to be done bymaking necessary averment in the complaint and thensubstantiating those averments by letting in evidence tothat effect.As section 68 of the Foreign Exchange Regulation Actcoupled with Section 56 of the said Act are highly penalsections and make a person, who was incharge and responsiblefor the conduct of the business of the company, vicariouslyliable for an offence committed by the company. Hence, thewell settled principle of strict construction of penalstatute has to be invoked. There is not even a whisper nora shred of material and nor anything else to show that thepetitioner had committed or omitted to do any act from whicha reasonable inference could be drawn that the petitioneralso could be vicariously liable. In the absence of suchaverment, that the petitioner is in charge and responsiblefor the conduct of the business of the first accusedcompany, the prosecution cannot survive against thepetitioner.The petitioner relies on the judgments reported in thefollowing 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 orderof issuance of process by the Court is a sacrosanct act,which requires application of judicial mind. Itcannot/should not be performed mechanically and arbitrarily.The judicial officer is vested with the power of issuance ofsummons, after satisfying himself with the materials placedbefore him as accompaniment to the complaint. The readingof the complaint and the accompaniments should make out aprima facie case for issuance of process. https://hcservices.ecourts.gov.in/hcservices/ The petitioner submits that the Judicial Magistrate,before whom the complaint was filed, had not applied hismind for the following reasons:-(i)There is no averment in the entire complaint thatthe petitioner was incharge and responsible for the conductof the business of the company. If the learned Magistratehad perused the complaint, he would not have ordered forissuance of summons to the petitioner. For prosecutionunder Sections 56 of Foreign Exchange Regulation Act, theaverment 'in-charge and responsible" is sine qua non. Inthis regard, the petitioner relies upon the followingjudgments.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 AdditionalChief Metropolitan Magistrate, Economic Offences Court No.IIwas holding additional charge of Additional ChiefMetropolitan Magistrate, Economic Offences Court No.I, on31st May 2002. The complaint was filed on that date, as 31stMay 2002 was the last day for preferring complaint under theForeign Exchange Regulation Act, as per the notificationissued on 1st June 2000. The respondent/complainant hereinhad preferred complaints numbering 50. Each complaint wasdifferent running to 15 pages without the accompaniments.After the complaints were filed on 31st May 2002, afterattending to the normal work, all the complaints were takencognizance, which is impossible. This can be done only ifthe act was done in a mechanical way. Hence, the issuanceof process to the petitioners on 31st May 2002 is withoutapplication of mind and is liable to be quashed. 12.The Learned Counsel for the petitioner and Learned Counselfor the Respondent argued their respective cases. After consideringthe contentions of the petitioner and the Respondent, this Court isof the view that 1) The complainant, after conducting search in various placeshad collected vital documents. 2)For the said export and import transactions, for whichnumber of documents have been collected from RBI and other Banks.3) Show cause notice was issued to the petitioners andsufficient opportunities given .4)Supporting the prosecution case a list of 15 witnesses havebeen furnished.5)In the said case, it is alleged that about Rs.209.13 croresof public money is involved. https://hcservices.ecourts.gov.in/hcservices/ This is a national offence and this figure has been arrived at on thebasis of scrutinising all the available documents. Further, in thesaid case, arrest was made. Case is also ready for trial.Petitioners also have faced the prosecution proceedings from the year2002. 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 theproceedings in C.C.No 502 of 2002 on the file of the AdditionalMetropolitan Magistrate Court, E.O.II, Egmore, Chennai. The case hasgot to be tried. Accordingly, the Criminal Original Petition No.23930of 2002 is dismissed. Consequently, connected Miscellaneous Petitionsare closed. Sd/- Asst. Registrar /True Copy/ Sub Asst.Registrar mra To1.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 Special Public Prosecutor, High Court, Madras.+ 1 cc M/s. Ram & Ram, Advocates (SR 33359)+ 1 cc Mr.Ramasamy.K. Advocate (SR 32922) Crl.O.P.No.23930 of 2002andCrl.M.P.Nos.9995 and9996 of 2002JSV (CO)RH (21.10.09)