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Shailendra Swarup v. The Deputy Director, Enforcement Directorate

Criminal Appeal · 2020 INSC 465Decided 27 Jul 2020
Criminal Appeal No. 2463 of 2014
Justice Ashok Bhushan · Justice R. Subhash Reddy

Background

Shailendra Swarup, a practicing advocate, was a part-time, non-executive director of Modi Xerox Ltd. (MXL). The company failed to furnish evidence of import against foreign remittances made between 1985 and amalgamation, leading the Enforcement Directorate to initiate penalty proceedings under the Foreign Exchange Regulation Act, 1973 (FERA) against the company and its directors, including Swarup. He contended he was never in charge of, or responsible for, the day-to-day business of the company. Despite this, he was penalised by the adjudicating officer, and this was upheld by the Appellate Tribunal and the Delhi High Court.

Decision Breakdown

The Supreme Court held that under Section 68 of FERA, a director can only be held liable for a company's contravention if it is shown that he was actually "in charge of and responsible for the conduct of the business" at the relevant time: merely holding the office of director is not enough. The Court noted that an earlier adjudication order, concerning a different period of the same company's affairs, had itself accepted that Swarup was only a non-executive, part-time director, yet no reasoned basis was given for taking a contrary view in his case. Since the authorities had never established that he was actually in charge of the business, the penalty was quashed and the appeal allowed.

Lesson Learnt

Simply being listed as a company director, especially a part-time, non-executive one, does not automatically make a person liable for the company's regulatory violations; the law requires specific proof that the individual was actually in charge of and responsible for running the business at the relevant time.

Official source (sci.gov.in)View Judgment (PDF)

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