G.Ganapathisubamanian 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.23931 of 2002andCrl.M.P.Nos. 9997 and 9998 of 2002G.Ganapathisubamanian .. 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 C.C.No.502/2002 on the file of the Additional Chief MetropolitanMagistrate (Economic Offences E.O.II, Chennai – 8) and quash theproceedings as against the petitioner. For Petitioner : M/s. Ram and RamFor Respondent : Mr.K.Ramasamy Special Public Prosecutor for EnforcementO R D E RThe petitioner / accused No.8 has filed the above CriminalOriginal Petition No.23931 of 2002 to call for the records in C.C.No.502/2002 on the file of the Additional Chief Metropolitan Magistrate(Economic Offences E.O.II, Chennai – 8) and quash the proceedings asagainst the petitioner.2.The Respondent/Complainant had initiated these proceedingsagainst the petitioner for offences under Sections 18(2), 18(3) r/w68 and under Section 56 (1) (i) of the Foreign Exchange RegulationAct, and submits as follows:- https://hcservices.ecourts.gov.in/hcservices/ 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 ofthe 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. https://hcservices.ecourts.gov.in/hcservices/

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 personsare 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 by https://hcservices.ecourts.gov.in/hcservices/ them. 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 nodocumentary 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 his file and summons were issued.11.It is alleged by the petitioner that on perusal of thecomplaint, he had come to know that M.V.R Industries Ltd has beenarrayed as the 1st accused. Besides that, 10 others were also arrayedas accused. The petitioner has been arrayed as 8th accused.12.The petitioner seeks to quash the complaint as against himon the following grounds. 1)The petitioner submits that he joined MVR Industries on 19thMarch 1996 and resigned from the Board of Directors on 4th December1996. Form – 32 was duly filed before the Registrar of Companies,Pondicherry to this effect.2)The petitioner submits that he was Director of Satyam foodsLtd i.e., from the inception of the company. He resigned from theBoard of Directors on 1st April 1996. Form – 32 was duly filed beforethe Registrar of Companies, Pondicherry, showing that the petitionerhad resigned on 1.4.1996. The prosecution had been initiated againstthe company by invoking Section 68 of repealed provisions of ForeignExchange Regulation Act. It is alleged by the petitioner that everyperson employed or holding the position as Director cannot beprosecuted for any violations of the provisions of the Act by thecompany, it has to be identified whether he is in-charge andresponsible for the conduct of the business of the company at therelevant time.3) The petitioner has also contended that in the complaint ithas been mentioned that only the 2nd accused (Mr.M.Varadarajulu @M.V.Raja) has been excising overall control and was issuinginstructions to officials of the company, that the 2nd accused wasobserved to have taken all the policy decision of the companies andthe companies in India, and that even petty matters like monthly overhead demands had to be approved by him from Singapore. The petitionerhas alleged that nowhere in the complaint has it been stated that the https://hcservices.ecourts.gov.in/hcservices/ petitioner was in charge of and was responsible for the conduct ofthe business of the company at the relevant time when the offence wascommitted. The petitioner has contended that the onus of proving thisfact is on the prosecution.4)It is further alleged that there is not even a whisper or ashred of material nor anything else to show that the petitioner hadcommitted or omitted to do any act from which a reasonable inferencecould be drawn that the petitioner also could be vicariously liable.In the absence of such an averment, the prosecution cannot surviveagainst the petitioner .5).The petitioner has further relied on the Judgementsreported in the following Journal, for the above contention 1998(2)MWN (Cri) 250; 1983 SCC (Cri) 115 ; 1998(Cri) L.J.3287. Further thepetitioner has contended that for prosecution under section 56 of theForeign Exchange Regulation Act, the averment "in charge andresponsible" is sine qua non. In this regard, two citations have beenrelied upon.A) AIR 1971 SC 2162 – Giridharilal Gupta ..vs.. D.N.Mehta & another B) 2002 (6) 169 SCALE – Smt. Katta Sujatha ..vs.. Fertilisers andChemicals, Travancore and another.13.Considering the contentions raised by the Learned Counselsarguing for their respective parties, the Court is of the view that,a) As per Section 68, sub section 2, "---- where a contraventionof any of the provisions of this Act or of any rule, direction ororder made thereunder has been committed by a company and it isproved that the contravention has taken place with the consent orconnivance of, or is attributable to any neglect on the part of, anydirector, manager, secretary ---, such director---- shall also bedeemed to be guilty of the contravention and shall be liable to beproceeded against and punished accordingly. And hence, it becomes allthe more necessary for the petitioner to establish the fact that he,being a Director of the Satyam Foods Ltd, at the relevant period, hadnot consented or connived with the accused – 2, in the irregularitiesmentioned in the complaint.b) The petitioner has contended that he had resigned as Directorfrom the said Satyam food Ltd on 1.4.1996. But it has been alleged inthe complaint that there had been huge quantum of non-realisation ofexport sales proceeds of the cashew kernels processed and exported bythe group companies in India during the period 1993 – 1996 and thatthe amount involved in these transactions was Rs.209.13 crores. Assuch, the question of the petitioner's involvement in the allegedirregularities arise; c) The petitioners contention that only the 2nd accused istotally responsible for exercising overall control and that all other https://hcservices.ecourts.gov.in/hcservices/ Directors or officers do not have any role is a point in dispute,which has to be sorted out in a trial Court, after examination ofdocuments and witnesses.14.The Court, therefore, opines that the petitioner/accused 8is a necessary party and as such the complaint as against thepetitioner cannot be quashed and hence the Criminal Original PetitionNo. 23931 of 2002 is dismissed. Consequently, connected MiscellaneousPetitions are closed. Sd/- Asst. Registrar /True Copy/ Sub Asst.Registrar mraTo1.The Chief Enforcement Officer,Enforcement Directorate,Government of India,Shastri Bhavan,26, Haddows Road,Chennai – 600 006.2.Additional Chief Metropolitan Magistrate,(Economic Offences E.O.II, Chennai – 8).3. The Special Public Prosecutor, High Court, Madras+ 1 cc M/s. Ram & Ram, Advocate (SR 33204)+ 1 cc Mr.Ramasamy.K. Advocate (SR 32923)Crl.O.P.No.23931 of 2002andCrl.M.P.Nos. 9997and 9998 of 2002JSV (CO)RH (21.10.09)