TMI Blog1962 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... of these events and that until then there was no debt due to him and section 4(1) had no application. The appellant has only a contingent Tight to the amounts standing in credit in account No. 50180 and that the deposits were made in the bank not in the course of normal banking business but under a special arrangement, it must be held that there was no lending of those amounts by the appellant to the bank within section 4(1) of the Act and the order of the Appellate Board imposing a fine of ₹ 5 lakhs on him under section 23(1)(a) must be held to be illegal and set aside. - 319 AND 320 OF 1961 - - - Dated:- 19-4-1962 - B.P. SINHA, P.B. GAJENDRAGADKAR, K.N. WANCHOO, N. RAJAGOPALA AYYANGAR AND T.L. VENKATARAMA AIYAR, JJ. A.V. Viswanatha Sastri, K.L, Misra, B.P. Khaitan, S.K. Kapur and B.P. Maheshwari for the Appellant. M.C. Setalvad, G.N. Joshi and P.D. Menon for the Respondent JUDGMENT Venkatarama Aiyar, J. The appellant in Civil Appeal No. 319 of 1961, Shri S. P. Jain, is the chairman of the board of directors of a company called Sahu Jain Ltd., which holds the managing agency of two companies, the Rohtas Industries Ltd., or more shortl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign currency and includes all deposits, credits and balances payable in any foreign currency, and any drafts, travellers' cheques, letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency ". As Shri Jain had admittedly not obtained the permission, general or special, of the Reserve Bank, for opening the account aforesaid, the Director of Enforcement started proceedings against him under section 4(1) of the Act. The explanation of Shri Jain was that the amounts in question had been deposited into the bank by four German firms' in settlement of claims which two Indian companies, the Rohtas and the New Central Jute Mills Ltd., had against them for delayed and defective supplies of machinery and equipments under previous contracts, that the deposits in question had been made subject to the condition that they should be utilised only for making initial payments towards price of new machineries to be purchased from the German firms and that in consequence there was no loan by the appellant within section 4(1) of the Act. The director rejected this explanation and held that section 4(1) had been contravened and imposed a fine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of adjudging under clause ( a ) of subsection (1) of section 23 whether any person has committed a contravention, the Director of Enforcement shall hold an inquiry in the prescribed manner after giving that person a reasonable opportunity of being heard and if, on such inquiry, he is satisfied that the person has committed the contravention, he may impose such penalty as he thinks fit in accordance with the provisions of the said section 23: Provided that if, at any stage of the inquiry, the Director of Enforcement is of opinion that having regard to the circumstances of the case, the penalty which he is empowered to impose would not be adequate, he shall, instead of imposing any penalty himself, make a complaint in writing to the court." It will be seen that when there is a contravention of section 4(1), action with respect to it is to be taken in the first instance by the director of Enforcement. He may either adjudge the matter himself in accordance with section 23(1)( a ), or he may send it on to a court if he considers that a more severe penalty than he can impose is called for. Now the contention of the appellant is that when the case is transferred to a court, it wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offence should not go without being adequately punished by reason of cognizance thereof having been taken by an inferior authority, the accused should on the other hand have in such cases the benefit of a trial by a superior court. That is the principle underlying section 349 of the Criminal Procedure Code, under which magistrates of the second and third class, are empowered to send the cases for trial to the District Magistrate or Sub-Divisional Magistrate, when they consider that a more severe punishment than they can inflict is called for. In our view the power conferred on the Director of Enforcement under section 23D to transfer cases to a court is not unguided or arbitrary, and does not offend article 14 and section 23( i )( a ) cannot be assailed as unconstitutional. (1) Passing on to the question as to the terms on which the deposits standing to the credit of the appellant in the Deutsche Bank were made, though before the Director, and the Appellate Board, the truth of the settlements between the German firms, and the appellant was itself questioned by the respondents, before us it is not disputed that there were such settlements or that the deposits were made pursuant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these accounts and after some correspondence between them a representative of the German firm, Mr. Zimmermann, came over to India to make an enquiry on the spot, and as a result of the discussion which he had with the Rohtas he recommended on February 21, 1957, that a sum of 17,900 might be paid by the German firm as compensation for delay in shipment. He however declined to admit the claim made by the Rohtas on account of the deficiency in the output of the machines. In accordance with this recommendation Messrs. Voith Co. remitted on March 15, 1958, German Marks equivalent to the sum of 17,900 to the Deutsche Bank to be credited in the name of the appellant and it was so credited on March 20, 1958. The appellant was in due course informed of the deposit, but on May 14, 1958, he wrote to Messrs. Voith Co., that he was not prepared to accept the amount in full satisfaction as no compensation was paid for deficiency in output. Thus the dispute was still unsettled, when the appellant left for Germany. Coming next to the second contract, some time in 1951 the Rohtas had purchased from M/s. Escher Wyss, another firm in West Germany, a Yankee paper-making machine. As soon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te on May 26, 1958, to the Ministry of Commerce Industry and again on June 5, 1958, to the Ministers for Industries and for Finance setting out his proposals for expansions and desiring to know the amounts of foreign exchange which could be made available for these projects. In his reply to the appellant dated June 9, 1958, the Minister for Industries stated : "As you know under the present acute foreign exchange position, no earlier payments before production are permitted ..Also export earnings from the products of a particular plant can only be allowed to be used for payments for that very plant and not for the payment of imports and other capital goods and equipment." Thus the position when the appellant left for the Continent was that he had outstanding claims against four German firms and negotiations for their settlement were pending, and that he had on hand schemes for expansion of industries at Dalmianagar and Varanasi which could be put through only if the requisite machinery could be imported but that the Government of India would not permit imports which involved payments of price at the time of delivery of goods. The appellant left India for Europe on June 30, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of 20% of the ex-works price is, however, for this comparatively small order a pre-condition for our credit insurance. In view of Mr. Jain's assurance that we will enjoy preference for the supply of our machinery in the event that an import licence for the new paper mill will eventually be obtained, and in order to make the early placing of your order for the reconstruction of P.M. I possible, we have finally agreed to meet your claims for the paper machines already supplied to the extent of a total sum of DM. 412,058 including the amount already placed with the Deutsche Bank, Dusseldorf, in March, representing 20% of the price quoted in our offer of January 15th, 1958. We are, therefore, remitting the balance to the Deutsche Bank as per letters addressed to them, translation of which we attach hereto. This settlement of your claims is considered on the definite understanding that the total amount can only be utilised by you to make to us the initial payment of 20% only and when the import licence for the reconstruction of P.M. I is received. The bank is, therefore, instructed to hold both remittances made by us at your disposal for this purpose only". On the same day M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred a sum of DM. 205.000 to the Deutsche Bank communicating to them a copy of the letter addressed to the appellant containing the terms of the deposit with them. The amount was duly credited to the account of the appellant on July n, 1958. On August 11, 1958, a settlement was reached between the appellant and Messrs. Friedrich Udhe Company, who then addressed the following letters to the Deutsche Bank : "We are releasing a sum of DM. 472.866,03 as derived expenses DM. 465.633,63 and interest payment DM. 7,252 40 to meet claims of Mr. S. P. Jain, President, New Central Jute Mills, Calcutta. We request you to hold this amount in the name of Mr. S. P. Jain but it shall not be payable to him and is to be utilised only for payment to us against purchase of expansion machinery by Sahu Chemicals Proprietor New Central Jute Mills after they secure licence and DM. transfer guarantee from their Government". The amount was actually credited in the Deutsche Bank in the name of the appellant on August 15, 1958. Confirming this arrangement Messrs. Friedrich Udhe wrote to the appellant on August 18, 1958, as follows : "As a very special case, to promote our pleasant business relations, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se entries have reference to the nature of the claims on account of which the deposits are made, and would be wholly out of place in the case of ordinary deposits. On the other hand, they would be quite explicable if made under special directions from the depositors. But the matter does not rest there. While the appeal was pending before the Appellate Board both the parties agreed that further information should be elicited from the bank as to several matters concerning the deposits, and on August 21, 1959, a questionnaire agreed to by counsel on either side was sent by the appellant to the bank for its reply. Therein the bank was asked to furnish particulars regarding the heading of account No. 50180, the certified copy of the relevant entries therein, the certified copy of page 1 of the letter dated September 25, 1958, from the bank to Mr. Jain, and the communications which passed between the bank and Mr. Jain in respect of the six items of deposit appearing in the account. Among the questions sent to the bank were the following: "( a )Please state whether the amounts referred to were deposited with you and were held by you on the conditions mentioned in the letters, copies w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are marked to the account concerned by means of internal instructions. That is what has been done in this case too. We give below the exact copy of page 1 of our letter dated 25th September, 1958, except for the portion wherein we communicated to you some particulars of a strictly confidential nature concerning the affairs of a third party, some client of ours. This information we cannot disclose to any other party, as you evidently want us to do ... We, however, state that this omitted part, page I, does not in any way relate either to the account of the six items of deposit or to you". The copies of the communications addressed by the German firms to the bank were enclosed. It is not disputed for the respondents that if the statements contained in the replies given by the bank are to be accepted at their face value then the case of the appellant must be held to be established beyond all reasonable doubt. But they contend that there are circumstances which give rise to a 'suspicion that the above statements might have been "inspired" by the appellant. They argue that the letter of the bank dated September 25, 1958, shows that what we have on record is only the second page of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in that opinion: "We think it possible, however, that in individual cases, agreements of this kind could be arranged between the two contracting partners ... If the contracting parties reach such an agreement, and if the customer instructs his bankers accordingly, the bankers will, as a matter of usual business conduct inform the third party beneficiary accordingly of the instructions and all relevant modalities which they have received ... If it has been ascertained that the Indian beneficiary has not fulfilled or cannot fulfil the stipulations agreed upon, he forfeits his claims to conditional payment and the bank can then, on principle, refund the customer of the secured amount. As in the aforementioned case, proceedings here depend on the terms stipulated, in individual cases, between the customer and his bankers." We have then the opinion of the Dreadner Bank on the practice of the German banks. Therein after observing that they would as a matter of principle avoid handling transactions of the sort referred to lest they should get involved in disputes between the depositor and the payee, the bank proceeds on to state that "we will handle such business only if the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common in German banking practice, and there are therefore no sufficient-grounds for discrediting the statements of the bank, as to the terms on which the deposits were made. But the respondents argue that stripped of all its embellishments, the substance of the agreements between the appellant and the German firms was that the latter were to pay compensation to the Indian companies, not in cash, but in kind, by delivery of goods manufactured by them against new orders, that that object could have been easily achieved by the Indian companies and German firms entering into a simple contract to that effect, without complicating the matter by associating the Deutsche Bank in the transaction, and that there is therefore ground for suspecting that the present version of the terms of the arrangement is an afterthought so conceived as to fit in with deposits which must have been made previously in the normal course. We are unable to accept this argument. The Deutsche Bank occupies, it should be marked, a position analogous to the State Bank in this country, and it is a bank of great international repute, and status. Its statements as regards the conditions on which the deposits were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comply with the German regulations as to payment of 20 per cent, of the price of manufactured goods, before they are exported. This precisely is the sort of arrangement which businessmen might be expected to conclude in the situation in which the parties were placed. It should be noted that when the proposal of Messrs. Voith Company and the deposits made by them were communicated to the appellant, he raised no objection in his reply dated May 14, 1958, to the conditions under which the deposit was made. He declined to accept it only because no compensation was awarded for deficiency in output, and it is this claim which was also settled on August 1, 1958, when a second deposit was made by Messrs. Voith Company. The scheme evolved by the appellant and Messrs. Voith Company set the pattern for settlement with the other three firms, and that is how all the four contracts came to be settled on the same terms. On the evidence above referred to, we are satisfied that the deposits in account No. 50180 were made by the German firms on the conditions stated by the appellant. We have reached this conclusion on a consideration of the evidence on record, without reference to any abst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor and creditor and not trustee and beneficiary. The banker is entitled to use the monies without being called upon to account for such user, his only liability being to return the amount in accordance with the terms agreed between him and the customer. And it makes no difference in the jural relationship whether the deposits were made by the customer himself, or by some other persons, provided the customer accepts them. There might be special arrangement under which a banker might be constituted a trustee, but apart from such an arrangement, his position qua banker is that of a debtor, and not trustee. The law was stated in those terms in the old and well-known decision of the House of Lords in Foley v. Hill [1848] 2 HLC 28 ; 9 ER 1002 (HL) and that has never been questioned. If the point under consideration fell to be decided solely on the basis of account No. 50180 in the Deutsche Bank, there could be no answer to the contention of the respondents that the appellant was a creditor in respect of the amounts deposited in that account and he must be held to have advanced them as loan to the bank. It needs hardly to be stated that(it makes no difference in the legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the future by reason of a present obligation, debitwm inpraesenti, solvendum in futuro. An accruing debt, therefore, is a debt not yet actually payable, but a debt which is represented by an existing obligation The result seems to me to be this; you may attach all debts, whether equitable or legal; but only debts can be attached; and moneys which may or may not become payable from a trustee to his cestui que trust are not debts." "The meaning of 'accruing debt' "observed Lord Blackburn in Tapp v. Jones [1875] 11 QBD 518 , " is debitum in praesenti, solvendum in futuro, but it goes no further, and it does not comprise anything which may be a debt, however probable or however soon it may be a debt." The law is thus well settled that a contingent debt is no debt until the contingency happens, and as the right of the appellant to, the amounts in deposit in his name in the Deutsche Bank arises only on the happening of the contingencies already mentioned, it follow that there is no debt due to him in praesenti and there could be no loan, thereof within section 4(1) of the Act. We should add that our conclusion that there is no present debt owing to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epositor, which may be that of bailee and bailor, but is ordinarily that of debtor and creditor" (page 546). And it is pointed out when money is delivered to a bank "for application to a particular specific purpose" it is not a general deposit creating the relationship of debtor and creditor, but a "specific deposit" creating the relationship of bailee and bailor or trustee and beneficiary: vide page 570. Therefore the fact that money has been put in a bank does not necessarily import that it is a deposit in the ordinary course of banking. We have to examine the substance of it to see whether it is in fact so or not. It is unnecessary for the purpose of this case to elaborately examine what banking business, properly so called, consists in. It is summed up as follows in Halsbury's Laws of England, third edition, volume 2, page 150, paragraph 277 : "... the receipt of money on current or deposit account and the payment of cheques drawn by and the collection of cheques paid in by a customer". Applying these tests, can it be said that account No. 50180 is truly a banking account ? Did the appellant open the account in the bank with a view to deposit his moneys from time to time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiary to follow that amount was lost by the authority given to the trustee to use it in his business. But here the question is whether the bank is a trustee and the fact that they are entitled to use the funds does not clothe them with the character of a trustee. If that were not so, every banker must be a trustee which clearly is not the law. Then again who are the beneficiaries under the trust, the German firms or the appellant ? The fact is that the arrangement under which the monies were deposited in the bank is sui generis and its position in truth is that of a bailee, not a debtor or trustee. It is unnecessary to pursue the discussion further in view of our decision that the relationship between the bank and the appellant is not that of a debtor and creditor. It remains to deal with the contention urged on behalf of the appellant that even if it be held that the appellant had made the deposits in question in the Deutsche Bank as a customer, there had been no contravention of section 4(1) of the Act as the prohibition enacted therein is only against lending of foreign exchange by a person who is resident in India and that at the time of the deposits in question the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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