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TMI Blog2018 (4) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... orized dealer to handle foreign exchange transactions. Shri Prem Khanna and his wife Smt. Naresh Khanna R/o England a Non-resident Indian, had made foreign exchange deposits in the form of NRNR term deposits with the Fort, Mumbai Branch of the Appellant bank from time to time. One Shri Mukesh Jain resident of Gujarat, India approached the said branch of the bank sometimes in 1995 to obtain demand loans from the bank and he offered the above said deposits in the NRNR account as the security. This was duly sanctioned to the said Mr. Mukesh Jain by the bank. This kept happening for some time and the deposits in the said account were taken as the security against the loan addressed by the bank. 3. A show cause notice was issued, inter alia, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is whether the provisions of FEMA and the notification issued by the Reserve Bank of India (RBI) under the provisions of FEMA were violated by the appellant bank or not. From the facts, it is apparent that the appellant bank had granted loans of RS. 40 lakhs in August, 1995 and Rs. 50 lakhs in September, 1995 to a resident borrower Mr. Mukesh Jain against the NRNR CDRs. While the appellant bank states that these are collateral security and hence there has been no violation, the charge is that they were treated as primary security by the bank whereby an indirect foreign exchange consideration in the form of acknowledgement of debt by the borrower in favour of the non-resident depositors was created without the general or special exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny security out of the funds lent by the bank, these deposits in the NRNR account have to be treated as primary security by the bank whereby an indirect foreign exchange consideration in the form of acknowledgement of debt by the borrower in favour of the non-resident depositor was created without the permission of RBI. It was found that the borrower Shri Mukesh Jain had issued cheque dated 16.10.1997 for a sum of Rs. 11,56,500/- and cheque dated 16.07.1997 for a sum of Rs. 90,00,000/- in favour of Shri Prem Khanna and Smt. Naresh Khanna, a fact which is mentioned both in the show cause notice and the impugned order, and which has not been controverted with any evidence either at the initial stage or before me at the appellate stage. This i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anks role, and their acts of omission and commission if any, which has no links with the case of Mr. Prem Khanna. 7. It is abundantly clear from all the above discussions that the bank had lent money against the security of deposits in the NRNR accounts. There was no bar in such type of lending as is apparent from the RBI's Notification. However, the bank was required to comply with the condition attached to such lending as prescribed by the RBI under the FERA/FEMA. One such condition was that the bank could grant loan facilities to resident individuals, firms, companies in India against the collateral of such fixed deposits. In spite of the aforesaid conditions of granting loans against collateral security of such deposits the bank contin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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