Standard Chartered Bank vs Directorate Of Enforcement And ...
2009 Latest Caselaw 5295 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Judgment delivered on: 18.12.2009


+     W.P. (C) 7144/2002, 196/2004, 1967/2004, 2345/2004, 2356/2004,
2633/2005, 8717/2005, 8718/2005, 5419/2006

STANDARD CHARTERED BANK                                         ..... Petitioner


                            -versus -


DIRECTORATE OF ENFORCEMENT AND ORS                              ..... Respondent

+      W.P. (C) 8272/2004, 9172-9195/2004

BANK OF AMERICA N.A.                                             .... Petitioner


                            -versus-


DIRECTORATE OF ENFORCEMENT AND ORS                              ..... Respondent


Advocates who appeared in this case:

For the Petitioner      :   Mr. A.N. Haksar, Sr. Advocate with Mr. Ateev Mathur,
                            Mr. Sumit Bansal, Mr. Ajay Monga & Mr. Manish,
                            Advocates

For the Respondents :       Mr. A.S. Chandhiok, ASG, with Mr. B.V. Niren and

Mr. Pratap, Advocates for respondent No.1 in W.P.(C) 7144/2002, 196/2004, 1967/2004, 2345/2004, 2356/2004 , 8717/2005, 8718/2005.

Ms. Rajdipa Behura with Mr. C.S. Chauhan, Advocates for respondent No.1 in W.P. (C) 2633/2005, 8272/2004. Mr. S.K. Dubey, Advocate for R-1 to 4 in W.P. (C) 5419/2006 Mr. H.S. Parihar, Advocate for RBI in W.P. (C) 7144/2002, 196/2004, 1967/2004, 2345/2004, 2356/2004, 8717/2005

CORAM:-

HON'BLE MR. JUSTICE BADAR DURREZ AHMED HON'BLE MS. JUSTICE VEENA BIRBAL

1. Whether the Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not?

3. Whether the judgment should be reported in Digest?

BADAR DURREZ AHMED, J (ORAL)

1. In these writ petitions a common question arises and, therefore, the

same are being disposed of by a common order. The issue raised in these

petitions is with regard to the deposits in foreign currency made by power of

attorney holders of Non-Resident Indians in whose names the Non-Resident

External (NRE) Accounts stood. The question that arises for consideration

is - whether, even for the period prior to 31.07.1995, such deposits in

foreign currency needed to be made, necessarily, by the Non-Resident

Indian account holder, in person?

2. This issue arises in the backdrop of show cause notices against the

petitioner banks issued by the Enforcement Directorate alleging violation of

the provisions of Section 6(4) and Section 6(5) of the Foreign Exchange

Regulation Act, 1973 (hereinafter referred to as FERA).

3. These writ petitions were filed challenging the show cause notices.

For the sake of convenience we shall be referring to W.P.(C) No. 7144/2002

(Standard Chartered Bank v. Directorate of Enforcement & Others). On

11.11.2002, when the said matter came up for hearing, this Court directed

that the proceedings pursuant to the show cause notice may continue and the

final order may also be passed, but the same should not be implemented. On

18.01.2005, it was again reiterated by this Court that the said proceedings

may continue and that the final adjudication order may be passed but, the

same be placed in a sealed cover. The earlier interim direction was also

reiterated that the order that may be passed would not be implemented till

further orders of this Court. Thereafter, adjudication orders have been

passed in these matters, but the same have not been implemented because of

the said interim orders passed by this Court.

4. During the pendency of these writ petitions, a petition raising an

identical issue came up for hearing before one of us (Badar Durrez Ahmed,

J.) and the same was disposed of on 19.04.2007 on the basis of the statement

made by the counsel appearing for the respondent Union of India. The order

reads as under:-

"The learned counsel for the respondent has taken instructions and she states that prior to 31.7.1995 foreign currency deposits could be made by individuals other than the NRI account holders in the NRE Accounts of such NRIs. In this view all proceedings pursuant to the show cause notice dated 25.2.2002 as also the show cause notice stand set aside.

This writ petition stands disposed of."

5. Thereafter, a review petition was filed by the Union of India on the

ground that there was a „communication gap‟ and that proper instructions

had not been conveyed to the counsel and that the position was otherwise.

The said review petition was dismissed by a detailed order on 16.01.2009.

Aggrieved with the said order, the Union of India preferred an appeal, being

LPA No.117/2009 entitled Union of India & Others v. Citi Bank, N.A.,

before a Division Bench of this Court. The said appeal was decided by

virtue of the judgment dated 26.03.2009 upholding the decision and order of

the Single Judge. Consequently, on the basis of the said Division Bench

decision in the case of Union of India & Others v. Citi Bank, N.A. (supra),

the learned counsel for the petitioners submitted that all these matters stood

covered by the said decision. On the other hand, Mr. A.S. Chandhiok,

learned ASG, appearing on behalf of the Enforcement Directorate, submitted

that certain aspects were not considered by the Division Bench, which are

now sought to be raised by him in the present matters. We shall advert to

those shortly.

6. Before we do that, it would be instructive to examine as to what

exactly was considered and held by the Division Bench in Union of India &

Others v. Citi Bank, N.A. (supra). The Division Bench considering the

appeal against the order dated 16.01.2009, observed that the Single Judge

had concluded that prior to 31.07.1995 there was no clear-cut stipulation that

deposits/credits could not be made in the NRE accounts of NRI account

holders in the absence of the account holders themselves. In this context, the

Division Bench examined paragraph 13B.22 of the Exchange Control

Manual, 1993, prior to its amendment as also after the amendment

introduced by virtue of the notification dated 31.01.1996. We may also note

that the un-amended paragraph 13B.22 of the Exchange Control Manual,

1993 was in pari materia to paragraph 29B.8 of the Exchange Control

Manual, 1987. Reference should also be made to the circular dated

31.07.1995 which has been reproduced in the Division Bench judgment in

the case of Union of India & Others v. Citi Bank, N.A. (supra). The

relevant portion of the circular dated 31.07.1995 is as under:-

"2. During the scrutiny of the NRE accounts conducted by the Reserve Bank, serious irregularities have been noticed in the operations on these accounts, particularly in regard to affording credits of proceeds of foreign currency/bank notes. Authorised dealers are advised to follow scrupulously the following instructions while permitting credits representing proceeds of foreign currency/bank notes and travelers cheques (TCs) to NRE accounts and operations on these accounts by resident power of attorney holders;

(i) The account should be opened by the non-resident account holder himself and not by the holder of power of attorney in India on behalf of a non-resident.

(ii) The credits representing proceeds of foreign currency travellers cheques/foreign currency/bank notes may be allowed provided these are tendered to the authorized dealer maintaining the NRE account in person by the account holder himself. In addition, in the case of travellers cheques, these should be discharged by the account holder in presence of the officials of the bank with whom the account is maintained."

(underlining added)

7. We may also point out that the Division Bench examined the

meaning, scope and purport of paragraph 13B.22 of the Exchange Control

Manual, 1993, both, prior to its amendment and also after its amendment.

The amendment was introduced in paragraph 13B.22(c). Prior to its

amendment, paragraph 13B.22(c) was as under-

"(c) Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided authorized dealer is satisfied that account holder is still normally resident outside India (report on form A4 should be submitted)."

After its amendment, paragraph 13B.22(c) read as under:-

"(c) Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided these are tendered to the authorized dealer in person by the account holder himself and the authorized dealer is satisfied that account holder is still normally resident outside India (report on form A4 should be submitted)."

8. Comparing the amended provision with the unamended one, it is clear

that the words -"these are tendered to the authorized dealer in person by the

account holder himself and the" - have been inserted by way of amendment.

Considering the said circular dated 31.07.1995 and the said amendment

introduced in the Exchange Control Manual subsequently, the Division

Bench came to the following conclusion:-

"It is apparent from the bare reading of the circular dated st 31 July, 1995 that authorized dealers have been advised to scrupulously follow the instructions given therein while permitting credits representing proceeds of foreign currency, bank notes and travelers cheques to NRE accounts and operations on these accounts and operations on these accounts by resident power of attorney holders. The amended instructions provide that the account should be opened by the non-resident account holder himself and not by the holder of power of attorney in India on behalf of a non-resident. It is also provided that credits representing proceeds of foreign currency travelers cheques/foreign currency/bank notes may be allowed provided these are tendered to the authorized dealer maintaining the NRE account in person by the account holder himself. In addition, it was stipulated that in the case of travelers cheques, the same should be discharged by the account holder in the presence of the officials of the bank with who the account is maintained. It is obvious that on and from the date of this circular, i.e., from 31st July, 1995, no NRE account of an NRI could be credited with the proceeds of foreign currency travelers cheques/foreign currency/bank notes unless and until the same was tendered in person by the account holder himself. There is no dispute that on and after 31st July, 1995, this was the position in law. However,

prior to this, there has been no circular or requirement clearly pointing out that deposits in the NRE accounts could not be made by persons other than the NRE account holders themselves."

(underlining added)

9. We may observe that the Division Bench, in no uncertain terms, held

that prior to 31.07.1995 there was no circular or requirement clearly pointing

out that deposit in NRE accounts could not be made by persons other than

NRE accounts holders themselves. At this juncture, it would be pertinent

to point out that the order dated 26.03.2009, as it originally stood, had a

typographical error inasmuch as the word "not" had been left out from the

expression "NRE accounts could not be made by persons...". However, that

lacuna was corrected by the Division Bench by an order dated 31.07.2009

and, consequently, the expression is to be read as including the word "not".

10. So, the position insofar as the said order of the Division Bench is

concerned, is very clear and, that is, that prior to 31.07.1995 there was no

requirement that the deposits in NRE accounts could not be made by persons

other than the NRE accounts holders themselves. For the subsequent period,

that is after 31.07.1995, it is not in dispute that such deposits could only be

made by the account holder himself, in person.

11. In this backdrop, Mr. Chandhiok, sought to argue that certain aspects

were not considered by the Division Bench. The first aspect, according to

him, drawing our attention to paragraph 13B.22, was that the unamended

provision itself required that the foreign currency notes were to be tendered

by the account holder. Secondly, it was also a condition that such tender

must be made during the temporary visit in India of the account holder.

According to Mr. Chandhiok, the Division Bench judgment does not deal

with these issues. He submits that even as per the unamended provisions, it

was implicit that the account holder himself should have made the deposits.

12. We are unable to agree with these submissions made by Mr.

Chandhiok, particularly, in view of the fact that the Division Bench

specifically set out the unamended as well as the amended provision of

paragraph 13B.22 and also specifically referred to notification dated

31.07.1995. There is no material to indicate that the Division Bench did not

consider paragraph 13B.22 in its entirety.

13. Mr. Chandhiok also submitted that the circular dated 31.07.1995 was

only a clarificatory circular and it only clarified something which was

already there in paragraph 13B.22. Thus, according to him, the circular

dated 31.07.1995 and the amendment introduced in paragraph 13B.22 did

not make any difference and nothing new was added.

14. Mr. Chandhiok also argued and submitted that now that the show

cause notices had culminated into adjudication orders, the petitioners, have

the alternative remedy of filing appeals under Section 19 of the Foreign

Exchange Amendment Act, 1999.

15. Insofar as the aforesaid two submissions made by Mr. Chandhiok are

concerned, we are of the view that the Division Bench in Union of India &

Others v. Citi Bank, N.A. (supra), had considered all aspects of the matter

before it rendered its decision. Even at the sake of repetition, we may point

out that the Division Bench specifically set out the provisions of the circular

as well as the amended and unamended provisions of paragraph 13B.22 and

then came to conclusion, that it did. It is obvious that the said Division

Bench did not regard the circular or the amendment as being merely

clarificatory. We, therefore, feel that the issue stands entirely covered by the

said Division Bench decision. With regard to the submission of alternative

remedy, we feel that these writ petitions have been pending before this Court

since 2002 and that by virtue of interim orders passed in these writ petitions,

the show cause notices were permitted to be proceeded with and

adjudication orders were allowed to be passed, however, this Court made it

clear that the same would not be implemented. The logic behind this was

obvious and, that is, the same were subject to any orders that would be

passed in the present writ petitions. In view of the fact that we consider that

the issue raised in these writ petitions stands covered by the decision of the

Division Bench in Union of India & Others v. Citi Bank, N.A. (supra), we

feel that no useful purpose would be served by relegating the petitioners to

seek their alternative remedy of appeal under Section 90 of the FEMA,

particularly, because, according to us, that would not, now, be an equally

efficacious remedy. In view of the foregoing discussion, these writ petitions

are allowed. The show cause notices and the consequent adjudication orders

are set aside. There shall be no order as to costs.

BADAR DURREZ AHMED, J

VEENA BIRBAL, J DECEMBER 18, 2009 srb