Bombay High Court
Tulip Star Hotels Limited vs The Special Director Of ... on 14 October, 2010
Bench: V.C. Daga, R. M. Savant
1 FEMA Nos.3/08 & 4/08
lgc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
FEMA APPEAL NO 3 OF 2008
Tulip Star Hotels Limited ]
a company incorporated under the ]
provisions of the Companies Act, 1956 ]
having its registered office at Indra Palace ]
H-Block, Connaught Circus, ]
New Delhi - 110 001 and administrative ]
office at 1st Floor, Cecil Court, Lonsdowne ]
Road, Colaba, Mumbai - 400 039 ]... Appellant.
Versus
The Special Director of Enforcement, ]
Enforcement Directorate, ]
Janmabhoomi Chambers, 1st Floor, ]
Walchand Hirachand Marg, Fort, ]
Mumbai - 400 001 ]... Respondent.
WITH
FEMA APPEAL NO 4 OF 2008
Mr.Peter Kerkar ]
Adult Indian Inhabitant, ]
having office at 1st Floor, Cecil Court, ]
Landsdowne Road, Colaba, ]
Mumbai 400 039 ]... Appellant.
Versus
The Special Director of Enforcement, ]
Enforcement Directorate, ]
Janmabhoomi Chambers, 1st Floor, ]
Walchand Hirachand Marg, Fort, ]
Mumbai - 400 001 ]... Respondent.
Ms.Tanmayi Gadre i/by D V Rao & Associates for the Appellants.
Mr. A J Rana, Senior Counsel, along with Mr. M S Bharadwaj & Mr. D A Dubey for
the Respondents.
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2 FEMA Nos.3/08 & 4/08
CORAM : V C DAGA AND R M SAVANT, JJ.
DATE : 14th October 2010
JUDGMENT [PER R M SAVANT, J] :
1 By the above Appeals, the Appellants have challenged the common order
dated 2nd July 2008 passed by the Appellate Tribunal for Foreign Exchange, New Delhi
by which order the Appeals filed by the Appellants above named came to be dismissed
and the Order in Original dated 3rd October 1994 came to be confirmed resultantly the
penalty imposed on the Appellants above named was maintained.
2 Both the above Appeals have been admitted by this Court on 7th January
2009 on the following substantial question of law :-
"Once an Authorised Dealer duly complies with the
instructions laid down in the Memorandum of instructions
to Full Fledge Money Changer (FLM), issued by Reserve
Bank of India (RBI) under Section 73(3) of FERA, while
undertaking money changing transactions with another
Authorised Dealer, can such Authorised Dealer then be held
liable for violation of provisions of Section 6(4) and (5) of
FERA?
FACTUAL MATRIX :-
3 Factual Matrix involved in the Appeals can be stated thus :-
The Appellant in Appeal No.3 of 2008 is a company incorporated under
the Companies Act, and was formerly and at the relevant time known as Cox & Kings
Travel and Finance Ltd. The said Appellant was at the relevant time, was a duly
licensed Full Fledge Money Changer (for short "FFMC") and/or an Authorised Dealer,
who was issued the requisite licence by the Reserve Bank of India (for short "RBI") to
deal in and/or transact foreign exchange. The Appellant in Appeal No.4/08 was the
Executive Director of the Appellant in Appeal No.3/08, and was in-charge of running
affairs of the Appellant in Appeal No.3/08. The order passed by the Appellate
Tribunal For Foreign Exchange (for short "ATFFE") is in the proceedings initiated
against the Appellants for violation of various provisions of Foreign Exchange
Regulation Act, 1973 (for short "FERA"). The proceedings have arisen on account of
the show cause notice which came to be issued to the Appellants for violation of
Sections 6(4), 6(5), 7 and 8(i) of the FERA. The said show cause notice came to be
issued as a result of certain investigations which were carried out by the Department of
Revenue Intelligence (for short "DRI") into the affairs of two FFMCs and/or authorised
dealers i.e. Hotel Zam Zam and M/s. Gulf Enterprises. In so far as present Appeals are
concerned, the relevant FFMC is Hotel Zam Zam. It was alleged by the DRI that Hotel
Zam Zam had purchased from the Appellant in Appeal No.3/08, foreign exchange of
US $ 147,000 and UK Pounds 1000 between - April to June 1997 and, thereafter had
sold the same to certain unauthorised persons. On the same basis, the Commissioner
of Customs issued a show cause notice to the Appellant in Appeal No.3/08 which was
dated 9th January 1998 and the Appellant in Appeal No.4/08 was the co-noticee. The
said show cause notice was also issued to Hotel Zam Zam and other entities like
Appellant in Appeal No.3/08. Pursuant to the said show cause notice, adjudication
proceedings took place. In the said adjudication proceedings, the Commissioner of
Customs held that various FFMCs, including the Appellant, did not have any pre-
concert knowledge of the violations and/or breaches committed by Hotel Zam Zam,
whilst dealing with Hotel Zam Zam for sale of foreign exchange. It appears that
consequently, no action was taken against the Appellant in Appeal No.3/08. The
matter has rested there as no further proceedings were initiated against the order
passed by the Commissioner of Customs
Thereafter on 29th April 2002, the Enforcement Directorate issued
Memorandum/show cause notice dated 29th April 2002 alleging violation of the
provisions of Sections 6(4); 6(5); 7 and 8(1) of the FERA and Para-3 of the
Memorandum of Instructions to Full-Fledged Money Changers (for short "FLM") issued
by the RBI. Gravamen of the allegations were as under :-
(i) That the Appellant in Appeal No.3/08 has not complied with the
conditions under which authorization/license was granted by the RBI to the Appellant
to deal in foreign exchange;
(ii) That the Appellant had dealt with foreign exchange contrary to the
authorization/directives of RBI and/or had not adequately satisfied itself, whilst
dealing with Hotel Zam Zam and, therefore, had acted in violation of Sections 6(4)
and 6(5) of FERA;
(iii) That the Appellants had dealt with individually on behalf of the Hotel
Zam Zam who were not its authorised representatives and in view thereof there was
violation of Para 3 of FLM. The Appellants filed their Reply to the said show cause
notice. The said show cause notice was adjudicated upon by the Respondent herein
and by his order dated 28th October 2004 held Appellants guilty of villation of the
provisions of Section 6(4), 6(5) and 7 of FERA. However, violation of the provisions of
Section 8(1) was not proved. The Respondent has imposed penalty of Rs.50,000./- on
the Appellant in Appeal No.3 and Rs.50,000/- on the Appellant in Appeal No.4/08.
4 The findings of the Respondent as regards violation of provision of FERA
can be culled out from the following excerpt of the said order :-
"It is alleged in the impugned SCN that the noticees have
handed over foreign exchange to the unauthorised persons
deputed to them by the said M/s. Hotel Zam Zam without
verifying their bonafides. In this regards, it is a matter of
record that during the period 29.4.97 to 5.6.97 the said M/s.
Cox and Kings Travel & Finance Ltd sold foreign exchange of
US $ 1,47,000 and Stg. Pounds 1000 to M/s. Hotel Zam Zam
who is also FFMC holding the relevant RBI licence and that
this fact has not been controverted by the noticees. The foreign
exchange sold by M/s. Cox and Kings Travel & Finance Ltd.
was against pay orders issued to them by Hotel Zam Zam.
However, it is observed that the noticee company M/s. Cox
and Kings Travel & Finance Ltd. has not verified the bonafides
of the persons deputed to them by the said M/s. Hotel Zam
Zam at the time of handing over the foreign exchange to them.
In other words, the noticee company failed to verify the
authorization in favour of the concerned to buy/sell foreign
exchange on behalf of the said money changers as
contenmplated in the relevant provisions of the FLM. In fact,
it is incumbent upon the said M/s. Cox and Kings Travel &
Finance Ltd. in terms of instructions contained in para 3 of the
memorandum FLM issued by the RBI to have checked the
bonafides of the persons deputed to them by M/s. Hotel Zam
Zam before handing over the foreign currencies to them which
they failed to do with the result, foreign exchange equivalent
to US$ 1,47,000 and Stg. Pounds 1000 sold by M/s. Cox and
Kings Travel & Finance Ltd to M/s. Hotel Zam Zam was in turn
sold by the latter in the open black market. To sum up, had the
said noticee company M/s. Cox and Kings Travel & Finance Ltd
more vigilant while dealing with the foreign exchange
transactions with M/s. Hotel Zam Zam, there could have been
no occasion for the said M/s. Hotel Zam Zam to procure
foreign exchange so easily from the noticee company M/s. Cox
and Kings Travel & Finance Ltd and to sell the same in black
market at premium. Thus by not insisting on the authorization
from the said Hotel Zam Zam disclosing the names, address
and other particulars of the persons deputed by them for
purchasing foreign exchange from M/s. Cox and Kings Travel
& Finance Ltd., the said M/s. Cox and Kings Travel & Finance
Ltd has contravened the directions contained in para 3 of the
Memorandum FLM r/w sec. 6(4), 6(5) and 7 of the FERA
1973. I therefore hold them guilty for the said
contraventions."
The substance of the findings of the adjudicating authority in the Order in Original is
that by not insisting on the authorization from the said Hotel Zam Zam, the Appellant
had violated the said provisions of FERA which have been mentioned in the show
cause notice and, has thereby facilitated the said Hotel Zam Zam to easily procure
foreign exchange from the Appellants and to sell the same in black market at a
premium.
5 Aggrieved by the said Order in Original dated 28th October 2004, the
Appellants filed Appeals being Appeal No.1259 of 2004 (filed by M/s. Tulip Star Hotels
Ltd) and Appeal No.1260 of 2004 (filed by Peter A Kerkar) before the ATFFE, New
Delhi. The said Appeals came to be dismissed by the ATFFE by the impugned order
dated 2nd July 2008 and thereby confirmed the penalty imposed against the Appellants
above named for violation of the provisions of FERA. As indicated above, it is the said
order passed by the ATFFE, which is challenged in the above Appeals.
6 It is required to be noted that the penalty imposed upon some other
employees of the Appellant in Appeal No.3/08 viz Three Branch Managers, one
Marketing Manager and One Accountant has become final as they did not file Appeals
challenging the said Order dated 2nd July 2008 and, therefore, the question arose,
whether the Appeals filed by the Appellants as above are maintainable in the light of
the fact that the order had become final as far as those five persons are concerned.
The learned counsel for the Appellants Ms.Gadre relied upon the judgment of the Apex
Court in support of her submission that though the said five persons had not filed any
Appeals, the Appeals filed by the present Appellants above named are still
maintainable. To buttress the said submission the learned counsel for the Appellants
relied upon the judgments of the Apex Court reported in (1998) 1 SCC 14 in the
matter of Hari Nath and anr. v/s. State of UP and, reported in AIR 1991 SC 318 in
the matter of Brathi alias Sukhdev Singh v/s. State of Punjab.
In so far as first judgment of the Apex Court in the matter of Hari Nath
v/s. State of UP is concerned, the relevant para is para 26 which is reproduced as
under :-
"26. Accordingly, these appeals are allowed, the conviction and
sentence of the appellants in S.T. 168 of 1974 on the file of the
First Additional Sessions Judge, Jaunpur, and affirmed in the
Criminal Appeal No.14 of 1979 on the file of the Allahabad High
Court are set aside and the appellants are directed to be set at
liberty forthwith. The conviction and sentence of the non-
appealing accused, namely, Pheku Singh cannot also be sustained
consistent with the findings in and the result of these appeals as
the findings are interdependent and inextricably integrated. The
conviction and sentence of Pheku Singh are also set aside and the
said Pheku Singh, accused 3 in S.T. No.168 of 1974 is also directed
to be set at liberty forthwith."
As can been seen from a reading of the aforesaid Para in the said case
that since the Apex Court had found infirmity in the test identification parade, the
conviction and sentence of the Appellants were set aside. Resultantly the conviction
and sentence of the non-appealing accused was also set aside in view of the fact that
some could not also be sustained in view of the findings recorded by the Apex Court,
as the said findings are interdependent and inextricably integrated. The benefit of
acquittal was therefore given to the non-appealing accused also.
In so far as judgment in Brathi (supra) is concerned, the Apex Court has
held as under :-
"When several persons are alleged to have committed an offence
in furtherance of the common intention and all except one are
acquitted, it is open to the appellate court to find out on a
reappraisal of the evidence that some of the accused persons have
been wrongly acquitted, although it could not interfere with such
acquittal in the absence of an appeal by the State Government.
The effect of such a finding is not to reverse the order of acquittal
into one of conviction or visit the acquitted person with criminal
liability. The findings is relevant only in invoking against the
convicted person his constructive criminality."
7 The learned senior counsel for the Respondent Mr.Rana did not seriously
dispute the maintainability of the above Appeals, though the other five employees had
not filed Appeals challenging the common order dated 2nd July 2008. We, therefore,
proceeded to hear the parties on the merits of the matter.
RIVAL SUBMISSIONS :
8 Submissions advanced on behalf of the Appellants can be summarised as
under :-
(i) That Sections 6(4); 6(5) and 8(i) of FERA have no application in case of
transactions in foreign exchange between authorised dealer/ FFMCs. In the instant
case, both the Appellant Tulip Star Hotels Ltd and the Hotel Zam Zam were the
authorised dealers/FFMCs and, therefore, in terms of para-9 of the FLM which
postulates free purchase by one money changer from the other money changer and
authorized dealer in foreign exchange, there was no requirement to obtain declaration
from other FFMC i.e. Hotel Zam Zam in respect of sections 6(4) and 6(5) of FERA;
(ii) That the only obligation of the selling FFMC is to see that to ask for a
copy of the original licence of the purchaser FFMC and to sell the foreign exchange
only against Pay Order/Demand Draft drawn by debiting the account of the purchasing
FFMC;
(iii) That there is no dispute that Hotel Zam Zam had received foreign
exchange as per the procedure laid down by RBI and it was Hotel Zam Zam which
could be said to be guilty of misuse of the said foreign exchange by selling it in the
black market and, therefore, the Appellants could not be held guilty in the absence of
mens rea;
(iv) That benefit of purposive construction of the provisions by the Tribunal
should have been given to the Appellants rather than to hold them guilty;
(v) The charges levelled against the Appellants of violation of the provisions
of Sections 6(4); 6(5) and 7 of FERA cannot be said to have been proved beyond
reasonable doubt in view of the fact that the amount had reached Hotel Zam Zam and
it is Hotel Zam Zam which had thereafter misused the said foreign currency.
The learned counsel for the Appellants for the said purpose relied upon
the judgment of the Apex Court reported in AIR 1962 SC 1764 in the matter of Shanti
Prasad Jain v/s. The Director of Enforcement wherein the Apex Court held that the
proceedings under FERA are quasi-criminal in character and it is the duty of the
Respondent to make out the charges beyond all reasonable doubt that there has been a
violation of the law.
(vi) That section 6(5) would have to construed in a manner that the
obligation thereunder as regards the authorised representative is only to see that the
sale takes place through the authorised representative of the seller FFMC and the seller
FFMC has no corresponding obligation to see that whilst dealing with the purchaser
FFMC whether it is dealing with the authorised representative;
(vii) That if two possible constructions of the provisions are possible, the
interpretation which would avoid penalty is to be adopted.
In support of this submission, the learned counsel for the Appellants
relied upon the judgment of the Chancery Division in Re. H P C Production, Ltd.
reported in 38 All England Law Reports (1962) ALL ER.
(viii) That in so far as penal provisions are concerned, if two possible
and reasonable constructions can be put upon a penal provision, the court must lean
towards that construction of provision which exempts the subject from penalty rather
than the one which imposes penalty.
In support of this submission, the learned counsel for the
Appellants relied upon the judgment of Apex Court reported in AIR 1954 SC 496 in
the matter of Tolaram Relumal and anr. v/s. The State of Bombay.
9 Per contra the following submissions were advanced on behalf of the
Respondents :-
(a) That the findings as regards contravention of the provisions of FERA
which have been mentioned in the show cause notice have been so recorded on the
basis of the material on record which includes the statement of the Appellant in Appeal
No.4/08;
(b) That though the foreign exchange ultimately reached Hotel Zam Zam,
the fact that the said foreign exchange was sold in the black market cannot be lost
sight of in considering whether the provisions of FERA have been violated ;
(c) That though two FFMCs can enter into transactions freely in terms of the
FLM, the said transactions are circumscribed by the provisions of FERA including
Sections 6(4) and 6(5);
(d) That the Appellants had not made necessary inquiry as postulated in
Section 6(5) of the FERA as is apparent from the record;
(e) That the FLMs are only an aid to effectuate the provisions of FERA and
they cannot be construed in a manner so as to be in a conflict with the provisions of
FERA or make the statutory provisions otiose.
(f) That the purposive construction laid down by the Tribunal is a device
adopted to see to it that the purpose and intent of the Act is achieved;
(g) That the mens rea is not necessary, in the adjudicatory proceedings in
establishing blame over the delinquent/defaulter for imposing penalty for the breach
of civil obligations.
In support of his said submission the learned senior counsel for the
Respondent relied upon the judgment of the Apex Court reported in (1996) 2 SCC
471 in the matter of Director of Enforcement v/s MCTM Corporation Pvt.Ltd & ors.
CONSIDERATION :
10 We have heard the learned counsel for the parties and bestowed our
anxious consideration to the rival contentions.
11 At the out set it would have to be noted that there is a concurrent finding
recorded by both the adjudicatory authority as well as the ATFFE to the effect that the
Appellant in its capacity as FFMC has not acted cautiously and responsibly whilst
making the sale of foreign currency which duty has been cast upon the FFMCs by the
provisions of FERA, a concurrent finding has also been recorded that during the period
from April 1997 to June 1997 when the amount of US$ 147,000 and UK Pounds 1000
was sold to Hotel Zam Zam, foreign exchange was handed over to one Rakesh Mhatre,
the representative of Hotel Zam Zam of which person no details were available with
the Appellants above named. The said findings of fact have been recorded on the basis
of the material which was on record including the statement of Executive Director Shri
Peter Kerkar, who is the Appellant in Appeal No.4/08.
12 In the context of the challenge of the Appellants to the impugned order, it
would be apposite to refer to the relevant provisions of the FERA as also the FLM
issued by the RBI. So far as the instant Appeals are concerned, Sections 6(4), 6(5), 7,
8(1) and 8(2) of the FERA and Paras 3 and 9 of the FLM are relevant and the same are
reproduced as under :-
Section 6 Authorised dealers in foreign exchange ---
-------
-------
6(4) An authorised dealer shall, in all his dealings in
foreign exchange and in the exercise and discharge of the powers
and of the functions delegated to him under Section 74, comply
with such general or special directions or instructions as the
Reserve Bank may, from time to time, think fit to give, and, except
with the previous permission of the Reserve Bank, an authorised
dealer shall not engage in any transaction involving any foreign
exchange which is not in conformity with the terms of his
authorisation under this section.
6(5) An authorised dealer shall, before undertaking any
transaction in foreign exchange on behalf of any person, require
that person to make such declaration and to give such information
as will reasonably satisfy him that the transaction will not involve,
and is not designed for the purpose of, any contravention or
evasion of the provisions of this Act or of any rule, notification,
direction or order made thereunder, and where the said person
refuses to comply with any such requirement or makes only
unsatisfactory compliance therewith, the authorised dealer shall
refuse to undertake the transaction and shall, if he has reason to
believe that any such contravention or evasion as aforesaid is
contemplated by the person, report the matter to the Reserve Bank.
Section 7:- Money-changers --- (1) The Reserve Bank may, on
an application made to it in this behalf, authorise any person to
deal in foreign currency,
(2) An authorisation under this section shall be in writing and----
(i) may authorise dealings in all foreign currencies or may be
restricted to authorising dealings in specified foreign
currencies only;
(ii) may authorise transactions of all descriptions in foreign
currencies or may be restricted to authorising specified
transactions only;
(iii) may be granted with respect to a particular place where
alone the money-changer shall carry on his business;
(iv) may be granted to be effective for a specified period, or
within specified amounts;
(v) may be granted subject to such conditions as may be
specified therein.
(3) Any authorisation granted under sub-section (1) may be
revoked by the Reserved Bank at any time if the Reserve Bank is
satisfied that---
(i) it is in the public interest to do so; or
(ii) the money-changer has not complied with the conditions
subject to which the authorisation was granted or has
contravened any of the provisions of this Act or of any rule,
notification, direction or order made thereunder ;
Provided that no such authorisation shall be revoked on the
ground specified in clause (ii) unless the money-changer has been
given a reasonable opportunity for making a representation in the
matter;
(4) The provisions of sub-sections (4) and (5) of Section 6 shall,
in so far as they are applicable, apply in relation to a money-
changer as they apply in relation to an authorised dealer.
Explanation --- In this section, "foreign currency" means
foreign currency in the form of notes, oins or traveller's cheques
and "dealing" means purchasing foreign currency in the form of
notes, coins or traveller's cheques or selling foreign currency in the
form of notes or coins.
Section 8 : Restrictions on dealings in foreign exchange--- (1)
Except with the previous general or special permission of the
Reserve Bank, no person other than an authorised dealer shall in
India, and no person resident in India other than an authorised
dealer shall outside India, purchase or otherwise acquire or borrow
from, or sell, or otherwise transfer or lend to or exchange with,
any person not being an authorised dealer, any foreign exchange.
Provided that nothing in this sub-section shall apply to any
purchase or sale of foreign currency effected in India between any
person and a money-changer.
Explanation-- For the purposes of this sub-section, a person,
who deposits foreign exchange with another person or opens an
account in foreign exchange with another person, shall be deemed
to lend foreign exchange to such other person."
(2) Except with the previous general or special permission of
the Reserve Bank, no person, whether an authorised dealer or a
money-changer or otherwise, shall enter into any transaction
which provides for the conversion of Indian currency into foreign
currency or foreign currency into Indian currency at rates of
exchange other than the rates for the time being authorised by the
Reserve Bank."
Paragraphs 3 and 9 of the FLM
"Authorised Officials
3 All money-changers should arrange to forward lists giving
full names and designations of their representatives who are
authorised to buy and sell foreign currency notice, coins and
travellers, cheques on their behalf together with their specimen
signatures, at the end of each calender year to the office of Reserve
Bank under whose jurisdiction they are functioning. Any changes
in thei list should also be brought to the notice of Reserve Bank.
No person other than the authorised representative should be
allowed to transact money-changing business on behalf of the
money-changer."
"Purchases from other Money-changers and Authorised
Dealers :-
9. Money-changers may freely purchase from other money-
changers and authorised dealers in foreign exchange or their
Exchange Bureau, any foreign currency notes and coins tendered
by the letter. Rupee equivalent of the amount of foreign currency
purchased should, however, be paid by way of a crossed cheque
drawn on their bank account or if made by way of a Banker's
cheque/Pay Order/Demand Draft, it should be accompanied by a
certificate from the bank issuing the relative instrument certifying
that the funds for the instrument have been received by it by debit
to the applicant's bank account. In no circumstances should
payments in respect of such sale be made in cash"
In terms of Section 6(4) of FERA the authorised dealer is obligated not to
engage in any transaction involving any foreign exchange which is not in conformity
with the terms of his authorisation under this Section. In terms of Section 6(5) of
FERA, the authorised dealer shall before undertaking any transaction in foreign
exchange on behalf of any person, require that person to make such declaration and to
give such information as will reasonably satisfy him that the transaction will not
involve and is not designed for the purpose of any contravention or evasion of the
provisions of this Act or of any rule, notification, directions or order made thereunder
and where the said person refuses to comply with any such requirement or makes only
unsatisfactory compliance therewith, the authorised dealer shall refuse to undertake
the transaction and shall, if he has reason to believe that any such contravention or
evasion as aforesaid is contemplated by the person, report the matter to the Reserve
Bank. In so far as applicability of the said provisions are concerned, sub-section 4 of
Section 7 clearly declares that the said provisions namely sub-sections (4) and (5) of
Section 6 would apply in relation in relation to a money changer as they apply in
relation to an authorised dealer.
The facts of the instant case disclose that the said Hotel Zam Zam though
a FFMC had offered to purchase the foreign exchange at a higher rate than the
exchange rate fixed by the RBI. The Appellants, therefore, in terms of Section 6(4) of
FERA ought to have reported the matter to the RBI in respect of the said contemplated
transaction and should have avoided to go through the said transaction.
In terms of Section 6(5), the authorised dealer i.e. in the instant case the
Appellant--Tulip Star Hotels Ltd., should have inquired from the representative of
Hotel Zam Zam as regards his credentials which include his registration with the RBI
as an authorised representative of the concerned FFMC as that is the requirement of
Para 3 of the FLM under which Para the FFMC has to forward to the RBI the names of
the persons whom it desires to appoint as its representatives. From the evidence in the
instant case of the Executive Director of the Appellant-Tulip Star Hotels Limited, it is
crystal clear that the said exercise was not carried out and a large amount of foreign
exchange was handed over to the representative of the said Hotel Zam Zam without
checking his credentials in terms of section 6(5) of FERA. That the fact that the
foreign exchange ultimately reached the said Hotel Zam Zam, in our view, cannot
extricate the Appellants from violation of Section 6(5) as ultimately, the said foreign
exchange was sold in the black market.
13 The submission of the learned counsel for the Appellants based on para 9
of the FLM, in our view, is misconceived, though Para 9 permits free transaction
between two money changers, the said transaction cannot be carried out in violation
of the provisions of FERA but has to keep within the parameters of FERA. Relying
upon para 9 of the FLM, a money changer cannot absolve himself or itself of the
obligation cast by Sections 6(4) and 6(5) of FERA. In fact Para 9 of the FLM is
circumscribed by the provisions of the Act namely Sections 6(4) and 6(5) as also Para
3 of the FLM. The submission of the learned counsel for the Appellants that there was
no obligation on the Appellants to check the credentials of the representative of the
Hotel Zam Zam in terms of Section 6(5) in view of Para 9 of the FLM does not
commend to us and has to be rejected.
14 Similarly the submission of the learned counsel for the Petitioner that if
two views are possible on a reading of Section 6(5), then an interpretation which
would absolve the defaulter should be adopted in our view cannot be accepted. In so
far as section 6(5) is concerned, the language is plain and clear and there is no
ambiguity so as to give rise to two interpretations. Going by a literal construction of
the said provision, the same unequivocally leads to a conclusion that the obligation
cast in Section 6(5) is both on the seller as well as purchaser and cannot be restricted
to only the seller. In a sense the said provision casts a duty and, in our view, the said
duty has been cast by the legislature with some purpose considering the fact that the
FFMCs are dealing in foreign exchange. In the light of the above, the submission of
the learned counsel for the Appellants that a penal provision should be construed in a
manner so as to absolve the defaulter of the penalty cannot be accepted for the
aforesaid reasons. In so far as the submission of the learned counsel for the Appellants
that in so far as Hotel Zam Zam is concerned, it was a licenced FFMC and therefore
what it did after the foreign exchange reached it was without the knowledge of the
Appellants and there was therefore no mens rea on the part of the Appellants. cannot
be accepted, in the light of the judgment of the Apex Court which was relied upon by
the learned senior counsel for the Respondent in the case of Director of Enforcement
v/s M C T M Corporation Pvt. Ltd and ors (supra). Para 13 of the said judgement is
material and the same is reproduced as under :-
"We are in agreement with the aforesaid view and in our opinion,
what applies to "tax delinquency" equally holds good for the
`blameworthy' conduct for contravention of the provisions of
FERA, 1947. We, therefore, hold that means rea (as is understood
is criminal law) is not an essential ingredient for holding a
delinquent liable to pay penalty under Section 23(1)(a) of FERA,
1947 for contravention of the provisions of Section 10 of FERA,
1947 and that penalty is attracted under Section 23(1)(a) as soon
as contravention of the statutory obligation contemplated by
Section 10(1)(a) is established. The High Court apparently fell in
error in treating the "blameworthy conduct" under the Act as
equivalent to the commission of a "criminal offence", overlooking
the position that the "blameworthy conduct" in the adjudicatory
proceedings is established by proof only of the breach of a civil
obligation under the Act, for which the defaulter is obliged to
make amends by payment of the penalty imposed under Section
23(1)(a) of the Act irrespective of the fact whether he committed
the breach with or without any guilty intention. Our answer to the
first question formulated by us above is, therefore, in the
negative."
It also cannot be lost sight of that the said Hotel Zam Zam offered a
higher rate than the official rate, such a transaction therefore was clearly prohibited by
virtue of sub-section (2) of Section 8, unless the previous general or special permission
of the RBI was obtained. In the instant case, admittedly no such permission was
obtained. The said transaction therefore can also be said to be in breach of Section
8(2) of the FERA.
15 In the light of the above, we do not find any infirmity or illegality in the
order passed by the ATFFE confirming the Order in Original. Resultantly, the question
of law would have to be answered in favour of the Revenue and against the Appellants.
Both the above Appeals therefore to stand dismissed with no order as to costs.
[R.M.SAVANT, J] [V C DAGA, J]
