1986 (11) TMI 246 - HC - FEMA

Summary

Issues Involved:
1. Interpretation of Section 27(1) of the Foreign Exchange Regulation Act, 1973.
2. Application of the ejusdem generis rule.
3. Determination of mens rea in regulatory offences.
4. Examination of the conduct of Parle (Exports) Pvt. Ltd. in relation to foreign collaborations.
5. Role of Reserve Bank of India and Central Government in granting permissions under the Act.

Issue-wise Detailed Analysis:

1. Interpretation of Section 27(1) of the Foreign Exchange Regulation Act, 1973:
The case revolves around whether the actions of Parle (Exports) Pvt. Ltd. fall under the prohibition stipulated in Section 27(1) of the Act. This section restricts any person resident in India from associating with or participating in any concern outside India engaged in trading, commercial, or industrial activities without prior permission from the Central Government. The court had to determine if Parle's actions constituted such an association or participation.

2. Application of the ejusdem generis rule:
The court considered whether the phrase "associate with or participate in, whether as promoter or otherwise" should be interpreted broadly or narrowly. The prosecution argued for a broad interpretation, while the defense contended that the phrase should follow the principle of ejusdem generis, drawing from the term "promoter." The court favored a narrow interpretation, emphasizing that the conduct should have attributes similar to that of a promoter.

3. Determination of mens rea in regulatory offences:
The judgment distinguished between offences of absolute liability and those requiring proof of mens rea. It highlighted that regulatory offences could fall into categories where mens rea is not necessary but where the accused can avoid liability by proving reasonable care or that their actions do not fall within the prohibited category. The court noted that Parle's conduct was transparent and they had sought necessary permissions, thus lacking any criminal intent.

4. Examination of the conduct of Parle (Exports) Pvt. Ltd. in relation to foreign collaborations:
The court examined Parle's actions, including their negotiations with foreign bottlers, the use of trademarks, and the financing of advertising campaigns. It was noted that Parle had no financial stake in the foreign concerns and did not share in their profits. Their actions were aimed at increasing foreign exchange earnings for India, not personal gain. The court concluded that Parle's conduct did not align with that of a promoter as envisaged under Section 27(1) of the Act.

5. Role of Reserve Bank of India and Central Government in granting permissions under the Act:
The court criticized the lack of coordination between the Reserve Bank of India and the Central Government. It was observed that Parle had forwarded all necessary agreements to the Reserve Bank, which had scrutinized them and released the foreign exchange. The Reserve Bank's failure to object or refer the matter to the Central Government in a timely manner led Parle to reasonably believe their actions were compliant with the law.

Conclusion:
The court found that the learned Magistrate erred in disallowing the application for discharge. The petition succeeded, and the proceedings in Criminal Case No. 149/CW/1984 were quashed, discharging the accused. The judgment emphasized the need for clear communication and coordination between regulatory authorities to ensure compliance and avoid unjust prosecution of businesses acting in good faith.