TMI Blog2019 (10) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... lwyn Roche, Mr. P.S. Khatu, Mr. T.R. Subramaniam and Mr. Paul Pereira have been held liable under Section 68(2) of FERA for allegedly contravening the provisions of Section 8(1), 9(1)(a), 9(1)(e) and 6(4) read with Section 49, on the ground that the alleged contraventions took place due to their alleged negligence even when section 68(2) was not invoked in the SCNs. The impugned Order has been passed under Section 68(2) of FERA returning a finding that the above-mentioned officers were negligent and have found them guilty under Section 68(2) of FERA. Such a finding, in the absence of any allegation under Section 68(2) in the SCNs is unsustainable in law. It depends upon case to case if the contravention was made by the defaulter with the guilty intention or not. The same is the main test. The guilty intention is missing in the present case on behalf of all the appellants if the statements are read. SCN must be specific and must indicate the precise scope of notice and points on which the officer concerned is expected to give a reply. It is submitted that when the foundation of the charge is not made out in the SCN, then the impugned Order passed under Section 68(2) cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sia, the Bank Officials had no reason to doubt that the State Bank of the Soviet Union like BFEA would issue its own Banker s cheques in an attempt to contravene the provisions of the Act or the Manual. The Bank Officials acted in good faith and the element of mens rea required for a charge of abetment is completely lacking. It is submitted that no penalty could be imposed in respect of the said charge. No material is found to establish that the banks and its official are involved in any conspiracy directly or indirectly, intentionally or deliberately for the said lapse. No doubt it is serious matter and it should not have happened. It did happen 1991 when communication and technology was not so equipped. Even staff or banks officials may not be experts at that point of time. From the conduct of the bank and pleading of all the appellants, it appears that they are feeling their mistakes. Case of the appellants are that being a bank it was only for RBI to impose the penalty if any thought alternative submissions are also made. The money in question has also brought back by the bank before issuance of show cause noticed. Country has not lost any revenue. After 1991 the bank has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANZ Grindlays Bank Ltd. 4,00,00,000/- 2. Shri. Girija P. Pande 18,40,000/- 3. Smt. Preeta Sundaram 92,00,000/- 4. Shri Paul Parela 9,20,000/- 5. Shri Karan Bhalla 4,55,000/- 6. Shri. Rajagopalan Ram Kumar 2,28,000/- 7. Shri. Sunil GanpatSawant 2,28,000/- 3. The second batch of appeals being Appeal Nos. 105-110 of 2007 arise out of adjudication Order dated 04.06.2007 which pertains to ten Show Cause Notices being Nos. 37, 42 ,47, 52, 57, 62, 67, 71, 76 80, wherein the Appellant Bank and its officers namely Girija Pandey, Preetha Sundaram, Allwyn Roche, R.B. Dhage P.S. Khatu have been charged for contravention of Sec. 6(4) 6(5) r/w Sec. 49 of FERA 1973; Sec. 8( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 of 2007 arise out of adjudication Order dated 04.07.2007 which pertains to Show Cause Notice No. SCN-VIII, wherein, the Appellant Bank and its officer namely R.B. Dhage has been charged for contravention of Sec 6(4), 6(5), 8(1), 9(1)(a), 9(1)(e), 49 73(3) of FERA 1973 r/w Para 10.3(ii), 10.12 10.17 of Chapter 10 of ECM 1987. Vide the said adjudication Order dated 04.07.2007 a total penalty of ₹ 44,000 has been imposed upon the Appellants. Appellant wise break up of the penalty imposed is given in the table below: Sr.No. Name of Appellants Penalty (Rs.) 1. ANZ Grindlays Bank Ltd. 40,000/- 2. Shri. R.B. Dhage 4,000/- 6. Apart from the Appellant Bank, a large number of public sector banks such a,s Canara Bank, Indian Overseas Bank, Punjab National Bank etc. have also been charged under FERA, 1973 in respect of the transactions out of which the present Appeals arise. In fact the appeals of Canara Bank being Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the credit of a person resident outside India in contravention of the provisions of sec. 9(1)(e) of FERA, 1973. 9.2. CASE AGAINST STANDARD CHARTERED BANK AS PER RESPONDENT (i) The case against the Standard Chartered Bank emanates from the chain of events where the Bank of Economic Affairs of the USSR issued a cheque bearing No. 401449 dated 08.10.91 for ₹ 79.5 Lakhs favouring M/s Eastern Suburbs Ltd and drawn on M/s ANZ Grindlays Bank, New Delhi from Standard Chartered Bank, Manchester along with schedule/ advice Nos. CP 12/1198, dated 21.11.91 for collection and credit of the proceeds to Standard Chartered Bank (London) account on behalf of Standard Chartered Bank, Manchester. (ii) Thereafter, Standard Chartered Bank, Mumbai made a payment of ₹ 79,49,900/- being the amount on the Cheque bearing No. 401449 dated 08.10.91 by crediting convertible rupee account of Standard Chartered Bank, London on 06.12.91. After having received ₹ 79,49,900/-, the Standard Chartered Bank, Mumbai, an authorized dealer in foreign exchange in India, without the previous general or special permission/ exemption of/ from the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary simply because section 6(3) provides necessary safeguards such as revocation of authorization. It held that revocation of authorisation is neither a penalty nor a punishment for commission of contraventions. Extracts from the judgment: 58. Mr. Diwan, thereafter, contended that the Company is an authorised dealer under section 6 of the Act, 1973. Sub-section (3) of section 6 provides necessary safeguard, such as revoking of authorisation in public interest or on non-compliance of any of the condition. As such, in the submission of learned counsel, prosecution for contravention is totally unnecessary. Submission has hardly any merit. Revocation of authorisation for the grounds shall in future disentitle the dealer from further dealing in foreign exchange. However, it is neither a penalty nor a punishment for commission of contravention. For such contravention, the person concerned is liable to be penalised in addition to revocation of the authorisation 14. The judgment of the Hon ble Bombay High Court was challenged in Civil Appeal Nos. 1748 of 1999 (ANZ Grindlays Bank vs. Directorate of Enforcement) with 1749-51 of 1999. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular issue can only be upset when there is consideration of that issue by a superior court. 19. In absence of such consideration, the findings of the lower court become final and receives the imprimatur of the superior court as well. Furthermore, the final judgment passed by the Supreme Court neither overrides nor sets aside the referral order, as the findings therein were final, and thus, were not further considered in the final judgment. 20. Therefore, it is not tenable for the Appellants to raise the same questions of law before this Tribunal, after having lost before the Hon ble High Court and the Supreme Court. 21. Let me now first deal with the first issue raised on behalf of respondent by Shri A.K. Panda, learned Senior Counsel appearing on behalf of his client. His arguments are that the appellants, in view of decisions rendered, are debarred to agitate the same issues before this Tribunal. 22. On behalf of appellant, Shri Amit Desai, Sr. Advocate who has submitted that the Respondent incorrectly submitted that the following questions of law are covered in the above-mentioned judgments and orders more particularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 and 51, while imposing penalty against the company, being the only person contravening the Act. It is submitted that the issues before the Hon ble High Court were entirely different and have no connection with the issues involved in the present appeals. Further, any observations made by the Hon ble High Court on points such as mens rea, section 6 of the FERA etc., which were otherwise not in issue are not binding and do not have the value of precedent as the same constitute only an obiter dicta. It is a submitted that a judgment is an authority on the point of law it decides and not what logically flows from it. 25. It is submitted that against the judgment of the Hon ble High Court of Bombay, cross appeals were filed by ANZ Grindlays Bank, Standard Chartered Bank and Enforcement Directorate and the matter was clubbed together under the number C.A. No. 1748 of 1999. By judgment dated 24.02.2006 reported in Standard Chartered Bank Ors. vs. Directorate of Enforcement Ors. (2006) 4 SCC 278, the Hon ble Supreme Court dismissed the aforementioned Civil Appeal and upheld the constitutional validity of section 68 of the FERA 1973. Pertinently, the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are: (i) Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. (vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation The Respondent has wrongly relied upon the referral order of the Supreme Court dated 16.07.2004 reported in ANZ Grindlays Bank Ors. vs. Directorate of Enforcement Ors. (2004) 6 SCC 531 in support of its contention that section 8, 9 and 49 of the FERA 1973 are applicable to an authorised dealer. 28. It is a matter of fact that during the proceeding of the above-mentioned Civil Appeal No. 1748 of 1999, the Hon ble Supreme Court vide Order dated 16.07.2004, referred a specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of the constitutionality of Section 68, is obiter dicta and, therefore, not binding. 31. The judgment of Arun Kumar Aggarwal v. State of Madhya Pradesh (2014) 13 SCC 707, has relied upon. The relevant paragraph is reproduced hereinbelow for ready reference: 27. Black's Law Dictionary, (9th Edn., 2009) defines the term obiter dictum as: Obiter dictum.-A judicial comment made while delivering a judicial opinion, but one that is unnecessary to the decision in the case and therefore not precedential (although it may be considered persuasive). - Often shortened to dictum or, less commonly, obiter. Strictly speaking an obiter dictum is a remark made or opinion expressed by a judge, in his decision upon a cause, by the way that is, incidentally or collaterally, and not directly upon the question before the court; or it is any statement of law enunciated by the Judge or court merely by way of illustration, argument, analogy, or suggestion . In the common speech of lawyers, all such extrajudicial expressions of legal opinion are referred to as dicta , or obiter dicta , these two terms being used interchangeably. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57) 2 WLR 404] which is in the following terms: (All ER pp. 593 I-594 C) [I]f the judge gives two reasons for his decisions, both are binding. It is not permissible to pick out one as being supposedly the better reason and ignore the other one; nor does it matter for this purpose which comes first and which comes second. But the practice of making judicial observation obiter is also well established. A judge may often give additional reasons for his decision without wishing to make them part of the ratio decidendi; he may not be sufficiently convinced of their cogency as to want them to have the full authority of the precedent, and yet may wish to state them so that those who later may have the duty of investigating the same point will start with some guidance. This is the matter which the judge himself is alone capable of deciding, and any judge who comes after him must ascertain which course he has adopted from the language used and not by consulting his own preference 33. The Hon ble Court also held in its judgment of Divisional Controller, KSRTC vs. Mahadev Shetty and Another (2003) 7 SCC 197 as under: 23. So far as Nagesha case [( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36. Thus, there is no force in the first submission of the respondent about reliance on the aforementioned judgments and orders by stating that the appellants are estopped raising the said issues before this Tribunal by challenging the impugned order. 37. Let me now decide the above said 18 appeals on merit. The brief facts as pleaded by the appellant is that the appellant was served the Show Cause Notice being SCN Nos. T-4/19-B/93 (SCN 1), T-4/19-B/93 (SCN 5), T-4/19- B/93 (SCN 9), T-4/19-B/93 (SCN 13), T-4/19-B/93 (SCN 17), T-4/19-B/93 (SCN 21), T-4/19-B/93 (SCN 25), T-4/19-B/93 (SCN 29) AND T-4/19-B/93 (SCN 33) (hereinafter collectively called SCNs), dated 25/06/1993 AS AMENDED ON 10/8/1993, 19/1/1994 AND 16/9/1994 along with its officers alleging therein as follows: a) T-4/19-B/93 (SCN 1): The Appellant, an authorized dealer in foreign exchange credited a sum of ₹ 5,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro Bank Plc, London, a non-resident in their books, being the amount covered by TT No. 95/2024 dated 20.07.1991 issued by ANZ Grindlays Bank, Connaught Place, New Delhi out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange credited a sum of ₹ 5,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro Bank Plc, London, a non-resident in their books, being the amount covered by TT No. 2/1826 dated 01.08.1991 issued by ANZ Grindlays Bank, Connaught place, New Delhi out of the funds held with them by the BEFT and thereby transferred he said amount in foreign exchange/ paid the said amount in foreign exchange to Girobank Plc. London, a person resident outside India. It was alleged that in crediting a sum of ₹ 5,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro bank plc, London, a non-resident in their books, being the amount covered by TT No. 2/1826 dated 01.08.1991 issued by ANZ Grindlays Bank, Connaught place, New Delhi out of the funds held with them by the BEFT, USSR the Appellant had committed a contravention fo the provisions of S.6(4), 6(5) read with S. 49; 8(1) read with para 10.3(ii), 10.12 and 10.17 of the Chapter 10 of the ECM; 9(1)(a) and 9(1)(e) of FERA; the Appellant craves leave to refer and submit the same as and when called for. d) T-4/19-B/93 (SCN 13): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leave to refer and submit the same as and when called for. f) T-4/19-B/93 (SCN 21): The Appellant, an authorized dealer in foreign exchange credited a sum of ₹ 3,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro Bank plc, London, a non-resident in their books, being the amount covered by TT No. 34/1920 dated 09.08.1991 issued by ANZ Grindlays Bank, Connaught place, New Delhi out of the funds held with them by the BEFT and thereby transferred the said amount in foreign exchange/ paid the said amount in foreign exchange to Girobank Plc., London, a person resident outside India. It was alleged that in crediting a sum of ₹ 3,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro Bank Plc, London a non-resident in their books, being the amount covered by TT No. 34/1920 dated 09.08.1991 issued by ANZ Grindlays Bank, Connaught place, New Delhi out of the funds held with them by the BEFT, USSR the Appellant had committed a contravention of the provisions of S.6(4), 6(5) read with S.49;8(1) read with para 10.3(ii), 10.12 and 10.17 of the Chapter 10 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of S.6(4), 6(5) read with S.49; 8(1) read with para 10.3(ii), 10.12 and 10.17 of the Chapter 10 of the ECM; 9(1)(a) and 9(1)(e) of FERA. The Appellant craves leave to refer and submit the same as and when called for. i) T-4/19-B/93 (SCN 33): The Appellant, an authorized dealer in foreign exchange credited a sum of ₹ 3,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro bank Plc, London a non-resident in their books, being the amount covered by TT No. 38/1898 dated 09.08.1991 issued by ANZ Grindlays Bank, Connaught place, New Delhi out of the funds held with them by the BEFT and thereby transferred the said amount in foreign exchange/ paid the said amount in foreign exchange to Girobank Plc., London, a person resident outside India. It was alleged that in crediting a sum of ₹ 3,99,99,925/- to the non resident rupee account no. 01CBB8136400 standing in the name of Giro bank Plc, London, a non-resident in their books, being the amount covered by TT No. 38/1898 dated 09-08-1991 issued by ANZ Grindlays Bank, Connaught place, New Delhi out of the funds held with them by the BEFT, USSR t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers for dealing with foreign exchange. In all these transactions by crediting to rupee account of non-resident convertible rupee account by an authorized dealer: i. Is equivalent to remittance of foreign currency from India. ii. Be for specific purpose iii. Can be made only with prior permission of RBI (b) Credit made to a non-resident convertible rupee account, without prior permission of RBI amounts to committing offence within meaning of Sec. 9 of FERA, 1973. (c) The ECMs have been issued in exercise of power conferred on RBI under FERA 1947 / 1973 and it is clear that the circulars and guidelines issued to the authorized dealers how to deal with foreign exchange in a given situation. The authorized dealers are obliged / required to follow these circulars and guidelines. (d) The Appellant has contravened the provisions under Section 8(1) of FERA, 1973 and Chapter 10 of ECM, 1987. As per Sec. 8(1) of FERA, 1973 any amount credited into the account of a nonresident bank is considered as foreign exchange. The record shows that the Grindlays Bank, New Delhi had sent nine TTs to Grindlays Bank, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification, direction or Order made there under. ii. Secondly, if the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorized dealer shall refuse to undertake the transaction. iii. Thirdly, if the authorized dealer has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person report the matter to the reserve bank. (i) The Grindlays Bank has failed to follow the first step and hence they could not follow the second step. When the authorized dealer realized their mistakes, and responsibilities, they requested the account holder to repatriate the amount in foreign exchange to set up the loss of foreign exchange. When realized their mistake, they refused any further transaction and followed the third step by informing the RBI about the transactions already taken place. Thus, the Appellant has contravened the provisions under Sec. 8(1), 9(1)(a), 9(1)(e) and 6(4) read with 6(5) and Sec. 49 of FERA, 1973. (j) Contravention of Provisions of FERA and ECM, 1987 by the officers of the Appellant Bank and Charges under Section 68. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions which have resulted in the contravention of the provisions of the FERA, 1973 were issued by the Bank of Foreign Economic Affairs (BFEA of USSR), which was the central bank of the erstwhile USSR, and the said bank handled all transactions involving imports and exports. 45. The respondent has also relied upon the following:- Letters exchanged between third parties:- (i) Letter dated 19.09.1991 from B. Lewis to Mr. W. Grove Esq. (ii) Letter dated 19.09.1991 from Mr. T.W. O Brien to Mr. Dobby. (iii) Letter dated 20.09.1991 from G.C Dobby to Mr. O. Brien. (iv) Letter dated 12.11.1991 from C.D.D Boswell to P.D Panjwani. (v) Letter dated 13.11.1991 from Mr. Arvind Sethi to Mr. C.D.D. Boswell. (vi) Letter dated 14.11.1991 from Mr. Dobby to Mr. O Brien. 46. The Respondent has also filed the following Documents in Appeal No. 79 of 2009: (i) No objection letter dated 12.02.1983 of the RBI to BFEA for opening representative office at Bombay on 1st March, 1983. (ii) Letter dated nil from Appellant BFEA to the Russian Governmental Authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India under Sec. 40 of FERA, 1973 48. Chain of Events Flow The BFEA (USSR) held a Non-Convertible Indian Rupee Account with ANZ Grindlays Bank, Connaught Place. BFEA issued instruction to ANZ Grindlays Bank, C.P., New Delhi to pay M/s Eastern Suburbs, London from its funds held with bank. On the said instruction, ANZ Grindlays Bank, New Delhi, raised a T.T. to ANZ Grindlays Bank, Bombay Branch (the Authorized Dealer) for transfer of the said amounts to Eastern Suburbs (Account Holder with Girobank Plc., London) ANZ Grindlays, Bombay Branch, acting upon the said T.T., credited the Vostro Account of Girobank Plc., London. Griobank Plc., London upon such credit, transferred local currency Pounds to the account M/s. Eastern Suburbs, London. 49. The Respondent contention is that it is not correct for the appellant to plead that no funds went out of India. The beneficiary, i.e. M/s Eastern Suburbs received funds into its account held with Girobank Plc., London, which were denominated in Great British Pounds. The source of this GB Pounds is from the Non-convertible Rupee Account of BFEA mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the Bank and returns submitted to RBI in this regard. While crediting the account of Girobank Plc., London, he did not follow the procedure for crediting the vostro account as laid down in Exchange Control Manual/ Rules and he also admitted that crediting this amount, was a lapse. 52. It is further submitted that these directions can be changed from time to time without the need to notify any person of the same and the knowledge of the same cannot be imputed to any person. It is further submitted that the violation of these directions can at best result in some administrative action but not penalization in criminal and quasi criminal proceedings. In this regard the following judgments may be seen: a. V.P. Gill Vs. Air India , AIR 1988 Bom 416 at Paragraph 8; b. N. Venktachalapathy Vs. State of Karnataka, 1989 Cr L J 519 at Paragraph 10; c. R. Sai Bharathi v. J. Jayalalitha, (2004) 2 SCC 9 at Paragraphs 49 and 50. 53. The Special Director has in the impugned Orders erroneously accepted the submission of the Department that it has to be presumed that Chapter X has statutory force inasmuch as similar prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present set of contraventions lie in the transfer of non-convertible Indian Rupees (maintained in the accounts of BFEA with various Indian Banks, including ANZ Grindlays Bank, Connaught Place, New Delhi) to a freely convertible foreign exchange Vostro account of Girobank, Plc. (the correspondent Bank) maintained in ANZ Grindlays, M.G. Road, Bombay Branch. It is an admitted position that: (a) The balances maintained in the accounts of BFEA with various Indian banks could not be converted into foreign exchange. FPA-FE-91-97, 105-110, 112-114/MUM/2007, Page 42 of 277 FPA-FE-121-122/MUM/2007 (b) That the said balances of BFEA could be used only for payment to Indian residents against exports to the USSR. (c) That, there was no actual export of goods to the USSR by an Indian resident against which the payments have been made for. (d) USSR is a country in the Bilateral Group and the United Kingdom is a country in the External Group . The Exchange Control Manual (ECM), at several places, clearly prohibits transfers from Bilateral Group to External Group countries. (e) That, payments were made to the person-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an authorized dealer is equivalent to a remittance of foreign currency from India to the country in which the branch or correspondent is situate Thus, the above definition under the ECM is congruent to that of the definitions under Sec. 2(h)(i). 55.2. Chapter 10 of ECM are binding rules and regulations governing opening of and operations on rupee accounts in the names of branches and correspondents outside India, other than those in Nepal and Bhutan, maintained by authorized dealers (Para 10.1). They carry the statutory character under Section 73(3) of the FERA, 1973. 55.3. The implications of Rupee credits to accounts of non-resident banks is contained in Para 10.3(i), wherein the Reserve Bank has permitted credit of rupees to accounts of non-resident banks as one of the methods of payment to persons resident outside India. This permission is subject to the condition that payment made in such manner by any person for the purpose declared by him on the appropriate application form viz. A1 or A2, as the case may be, shall actually be towards that purpose and not any other purpose. If the payment is used towards any other purpose, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Union of Soviet Socialist Republic (USSR) dated 10.12.1980 read with the Banking Agreement between BFEA and RBI dated 18.08.1981. As authorized dealers, the Appellants are required to ensure compliance of the terms of these agreements. As agent of the RBI, they cannot plead ignorance of these agreements, especially in view of the fact that they are public documents. (b) The responsibility for ensuring that the transactions are in conformity with the Exchange Control regulations rests with the Appellants, being the authorized dealers. (c) Therefore, they have failed in discharging their responsibility and thus, have contravened Section 6(4) and 6(5) of the FERA, 1973. (d) After having been an active participant in the effectuation of these transfers, in utterly failing in their duties, they cannot plead themselves to be victims of some external conspiracy. 55.7. Para 10.11 is further explicit in this regard, as it states that transfer of rupees from the account of an overseas branch or correspondent to another is permissible only if the transferor and the transferee banks are situate in the same country or if they are situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of foreign exchange by authorized dealers. Striking down Chapter 10 would also mean that an authorized dealer can run a parallel foreign exchange market and effectively usurp the powers of the RBI. 55.12 There are clear and binding directions and responsibilities imposed on the authorized dealer, and they are mandated by the FERA, 1973 as well as the RBI to follow these directions to the letter. They have contravened Sections 6(4) and 6(5) of the FERA, 1973, and for perpetuating these illegal transactions, they have contravened Sections 8(1) and Section 9(1)(a) and 9(1)(e) of the FERA, 1973, read with the relevant provisions of the Exchange Control Manual, 1987. 56. The Learned Sr. Counsel appearing on behalf of the respondent has referred the preface to the ECM, 1987 and states that the Manual incorporates all directions of a standing nature to authorized dealers (Para 3). It further states that amendments to the Manual will continue to be communicated to authorized dealers in the form of A.D. (M.A. Series) Circulars (Para 5). In Chapter 1 Introduction at Para 1.3, the types of transactions which are affected by the Foreign Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant Bank, which includes the statements of their bank officials. Though an authorized dealer can enter into foreign exchange transactions in terms of their license, the said transactions are governed by the provisions of the FERA, 1973, including Sections 6(4) and 6(5). 58. It is also alleged on behalf of respondent that the Appellants had not made the mandatory and diligent inquiry as postulated in Section 6(4) and 6(5) of the FERA, 1973 - as is apparent from the record, and also from their own admissions made during the course of their arguments. Section 6 of the FERA, 1973 is not a complete code in itself, but is in addition to the other provisions of the FERA, 1973, in view of the fact that authorized dealers have been conferred with greater powers, responsibilities and duties than other persons. 59. It is argued that as an Authorized Dealer (agent), the Appellants cannot act beyond the jurisdiction of the RBI itself, as stipulated in the Agreement entered into between the RBI and BFEA. Therefore, the authorized dealer could not have exchanged currency which the RBI itself could not have done. An Authorized Dealer cannot be treated differentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eorge and MCTM Corporation, in establishing blameworthy conduct on the part of the delinquent/ defaulter for imposing penalty for the breach of civil obligations. The judgments passed by the Division Bench of the Appellate Tribunal for Foreign Exchange in Bank of Ireland and American Express squarely cover the issues in the present appeals and are binding as per the principles of precedence. 65. When the transaction itself is against the provisions of law, the Authorized Dealer cannot plead that they were empowered to conduct and effectuate the transaction in their capacity as an Authorized Dealer. Reliance is placed on Para 1.26, wherein it states that nothing in this manual authorizes any transaction which is contrary to any of the provisions of any statute (including the Foreign Exchange Regulation Act, 1973) or any Rule, Notification, Order, Direction or Regulation issued thereunder 66. The Learned Sr. Counsel appearing on behalf of respondent has supported the impugned orders and submits that the appellant bank is clearly guilty of contravention of various provisions. He also submits as under:- (i) There were clear cut instructions f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible: He was a contractual employee retained by the bank for a specific work related to day to day transactions of clearances in the bank and other regular employees were reporting to him and his orders were being obeyed by them. In his statement dated 02.03.1993 Shri Paul Pereira has confirmed that he had written an endorsement as Please credit GIROBANK in one of the TTs received from New Delhi branch. He had also tried to pass on the responsibility to Smt. Preetha Sundaram that he had given these advices after consulting her. He could have given different opinion in stopping these illegal transactions. (x) Mrs Preetha Sundaram is also responsible for these unauthorized transactions: She was the Country Manager, Correspondent Banking Services. Therefore, for all these transactions she was in charge and responsible. (xi) Shri Rajagopalan Ramkumar is responsible for these unauthorized transactions: He was the officer-in-charge of Remittance Section and Shri Sunil Sawant was one of the officers working under him. He was aware that crediting the non-resident rupee account of Girobank with funds from non-convertible account thereby converting the said fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Trade Agreement which as mentioned above was valid upto 31.12.1985. i) Since the impugned transactions in the subject appeals took place in the year 1991 i.e. after both the Agreements had already expired, as such it cannot be said that the said transactions were covered by the said Agreements and that there is any violation of the said agreements. 69. It is further submitted that it is settled law that an International Treaty can be given the effect of law in India only if the said treaty is given the effect of law in India only if the said treaty is incorporated as a local/municipal law by an act of the Parliament, which has the power has to make laws for giving effect to such treaties under Article 253 of the Constitution of India, 1950. It is submitted that the Treaty dated 10.12.1980 (Trade Agreement between Government of India and the Government of the USSR) has not been given the effect of law by the Parliament and thus, the said treaty does not have the force of law and there is no question of violation of the same. The same argument would also apply to the above-mentioned alleged Agreement between BFEA and RBI dated 18.08.1981. It is stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these statements substantiate the case of the Respondent Department. 74. Admittedly, many alleged facts stated are not mentioned in the Show Cause Notices. It is contended on behalf of the appellant that in view of settled law the said relied upon documents cannot be looked into at this stage of the proceedings. 75. It is stated on behalf of the appellants that the Appellant Bank opened the bank account of BFEA in pursuance to the Bilateral Trade Agreement dated 10.12.1980 and the Banking Agreement dated 18.08.1991 between the BFEA and the RBI. It is submitted that the Appellant Bank had no knowledge of these Agreements as both these agreements are private secretive documents which were not put in circulation. Apart from the same, it is submitted that even if there was a breach of the terms of these agreements, the same would at best be a breach of contract and nothing more. It is also submitted that the concept of VOSTRO and NOSTRO accounts are standard accounts which are available in relation to all foreign trade and cannot be said to have been opened under these agreements. It is further submitted that the said documents are not relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o malafide on the part of the Appellant Bank. 79. It is submitted that the said paragraph is factually incorrect as the funds had been transferred to the other banks locally and further the show cause notices only state that rupees were credited to the Vostro Account of Giro Bank, U.K. and there is no allegation that these rupees were subsequently converted into foreign exchange. The credit of rupees to the Vostro account cannot be considered as dealing in foreign exchange. Vostro accounts are rupee accounts. 80. It is submitted that the Appellant Bank was acting as a collecting bank and was carrying out the instructions received from the correspondent bank/branch. The Appellant Bank did not acquire any right, title or interest in the rupees that were credited to the account of Giro Bank. Furthermore, the officers of the Appellant Bank acted in good faith and the Adjudicating Officer has also not found any malafide on the part of the Appellants. It is submitted that neither the Officers nor the Bank benefited from the said transactions. The Appellants only acted on the instructions of the reputed nationalized Banks and BFEA, which was the central Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t bank conducts business transactions, accept deposits and gather documents on behalf of the foreign financial institution. Thus, it acts as a domestic bank s agent abroad through correspondent acc (iii) Correspondent Banking is one of the core areas of international banking activity which dates as far back as 1800 in the US when interbank deposits were established to provide a means of redeeming bank notes outside of one s own geographical area. Correspondent accounts usually take the form of two accounts called the nostro and vostro accounts. 84. In the facts of the present case, Nostro account is a bank account held in a foreign country (e.g. Girobank) by a domestic bank (e.g. ANZ Grindlays Bank), usually denominated in the currency of that foreign country. The word nostro is borrowed from a Latin word noster which translates to ours . In simple terms, a nostro account is interpreted as our account of our money, held by you . On the other hand, a vostro account derived from voster is a bank account of foreign bank held with a local bank in domestic currency. In simple terms, a vostro account is interpreted as your account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perations of the Vostro Accounts of the Overseas banks, which were maintained by the branches, and came under the direct responsibility of GM Retails Banking. The bank had a strict policy of separating the responsibility between the marketing functions of the CBS, and the Operations relating to transaction processing which was the exclusive responsibility of the Retail Banking Division. The retail banking functions were being carried out at the branches of the Bank where the transactions were processed. It was the stated policy of the Bank of separating marketing and compliance functions between the various Divisions of the Bank. The Vostro Accounts were being maintained in the Retail Banking branches of ANZGB in Mumbai, Delhi, Calcutta and Chennai. The responsibility of handling day to day transactions, ensuring compliance with the Exchange Control Manual and/or other Bank Regulations, and debiting /crediting Vostro Accounts were clearly not within the domain of the CBS Unit. These accounts were maintained by the various retail branches of ANZGB, which formed part of the Retail Banking Division. The CBS was separately staffed and functione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007 arising out of SCN 67, 71 and 80 She at the relevant time, was posted in the corporate office of the Correspondent Banking Services CBS at Bombay. She was the Country Manager Correspondent banking Services Bombay . She was heading the Corporate office of the CBS unit of the Bank. Her role and function in the bank was to develop the business of the bank, and was in charge of the relationship management with other foreign and domestic Banks, marketing and business development. Her responsibility was to carry out re-structuring of the Correspondent Banking Unit to carry out new responsibilities relating to credit- limit for banks, new product development, recruitment of staff and training, etc. On account of the international scenario where India external credit rating was downgraded by global credit rating agencies resulting in cancellation of credit facilities to India and India borrowers by many international banks, ANZ GB undertook to invest a 100 million US # and obtain a similar investment from other international financial institutions/ banks under the FCBOD (Foreign Currency Banks and Other Deposits) Scheme, as a token of its commitment to the national e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authorization in terms of operating procedures, which were handled by the retail branches. The telex and transaction vouchers do not bear her initials or her signatures, nor has she issued any instructions with regard to the crediting the account. 86.4 It is pointed out that of the 17 SCNs on which the impugned Adjudication Orders have been passed, 10 of these Notices pertain to transactions which are took place during the period 10.8.91 to 21.9.91, when she was not admittedly in the country. The 10 Show Cause Notices pertaining to this period of her absence from the country is set out herein below:- SCN # Date of Transaction Penalty (Rs) SCN 17 10.08.1991 60000 SCN 21 10.08.1991 80000 SCN 25 10.08.1991 70000 SCN 29 10.08.1991 150000 SCN 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), since he was not in charge of, or responsible to the Bank, for the conduct of the business of the said Bank in the whole of India, as alleged. It is submitted that the Constitution of India does not permit prosecution or imposition of penalty through a legal fiction. There has been no overt or covert act attributed to him, making him liable for imposition of penalty. The present Appellant was the Manager of the Connaught Place Branch ANZGB during the period October 1990 to December 1992. As the Manager of the Branch, the transactions in question were never placed before the present Appellant or for any other purpose. In fact, there was no requirement to present transactions in question, or any document pertaining to the transactions, before the present Appellant. The present Appellant had no knowledge of any of the impugned transactions in question, nor has the present Appellant signed any vouchers, or any other documents, pertaining to the said payments. 87.1 The procedure that was followed by the Bank in the case of Tested Telexes, which are the subject matter of Show Cause Notice Nos. 1, 5, 9, 13, 17, 21, 25, 29 and 33 was as follows: In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88. RAM KUMAR RAJAGOPALAN Appeal No. 94 / 2007 arising out SCN No. 1, 5, 9, 13, 17, 21, 25, 29, 33 The present Appellant was issued 9 Show Cause Notices being SCN Nos. 1, 5,9, 13, 17, 21, 25, 29 and 33 dated 16.9.94 which pertain to the Tested Telex group of cases, on which the impugned Adjudication Order dated 29.5.2007 has been passed. The present Appellant was at the relevant time, a Grade III Officer in the Remittance Department at the Bombay branch of ANZ in March, 1991. It is submitted that daily transactions in Vostro Accounts were not reported to him. Vostro Accounts were not being handled by the Remittance Department. The Vostro Accounts were being maintained by the branches. The present noticee was a mid-level officer, who was working in the Remittance Department of the Bank at the relevant time. The present Appellant was reporting to the Assistant Manager-Customer Services, who in turn was reporting to the Assistant Manager-Operations, who in turn was reporting to the Senior Manager of the Branch. The Senior Manager was required to report to the Chief Manager, and above the Chief Manager was the General Manager. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Show Cause Notice Nos. 1, 5, 9, 13, 17, 21, 25, 29 and 33 by the Enforcement directorate wherein the provisions of Sec. 68(1) of FERA, 1973 had been invoked on the purported ground that he was also responsible for the proper conduct of the business of ANZ Grindlays Bank at the relevant time, when the aforesaid alleged contraventions took place. It is relevant to point out that there is no allegation in the SCN u/S. 68(2) that the contravention took place either with the consent , or connivance of , or is attributable to any neglect of the officer under S. 68(2) of the Act. Mr. Sunil Ganpat Sawant was a Clerk-cum-Typist till 1.1.90. Thereafter, he was appointed as a Junior Officer, Grade I in 1990. He was working as a Relief Officer from 1.1.90 to 18.1.91 On 19.1.91, he was transferred to the Remittance Dept. as Officer-Funds Transfer (Local Currency). The noticee being a Junior Officer, Grade I could not have been responsible for the conduct of the business of the Bank for the alleged contraventions. 89.1 The Appellant was an Officer at the junior most level in the Remittance Department. The Vostro accounts were not maintained by the Remittance D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Manager (Grade IV) Office in Charge (Grade III) Office (Grade I) 89.5 It is further submitted that when the very first remittance was received from Connaught Place Branch, the present appellant noticed that the A/c No. as per the Telex did not match the A/c title, and hence did not process the same. The present Appellant referred the TT to Mr. Paul Pereira for advice, and informed him of the discrepancy. Mr. Paul Pereira, the Consultant who was engaged on a retainership basis by M/s ANZ Grindlays Bank who had 33 years experienced in Foreign Exchange and International Banking business in SBI. The present Appellant informed Mr. Paul Pareira that he was returning the remittance since the account number and the name of the beneficiary, did not tally. However, Mr. Paul Pereira gave a written endorsement on the Telex to credit the account of Giro Bank as Please Credit Giro Bank . This has been confirmed by Mr. Paul Pareira in his Statement dated 2.3.1993 to the Enforcement Directorate that he had written the said endorsement in one of the telexes received from ANZ, New Delhi. A copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own tile telex dated 20th July, 1991 received from ANZ Grindlays, Connaught Place, New Delhi to ANZ Grindlays, Bombay. In the said telex, it was advised to pay in yourselves a/c Eastern Suburbs Ltd and the a/c no. was given as OIC / BB / 8136400. On the face of the telex some pencil hand written endorsement was there. Against the a/c no. GIRO Bank was written, there was an endorsement to the effect please credit GIRO Bank . Q. In your statement dated 23.2.93 you stated that you made such endorsement in one of the telex received from ANZ Connaught Place branch. Is it the same endorsement you have made on this telex dated 20.7.91 in respect of credit GIRO Bank A/c with ₹ 5,99,99,925/. A. 1 have seen the telex as referred to above and put my signature with date on this ill token of having seen the same. The endorsement made on the telex to the effect, please credit GIRO Bank be me. The date was wrongly put. It was written by me. 91. Statement of Sunil G. Sawant, s/o Arjun Ganpat Sawant Grindlays Bank, M.G. Road, Bombay on 12/2/93 under section 40 of FERA 1993 before the chief enforcement officer I, Sunil G. Sawant S/o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o other vostro a/c maintain with local banks, we prepare F A-3 in duplicate. One copy is sent alongwith the cheque and duplicate is given to the accounts department. 2. When instructions are received from our upcountry branches (like Delhi, Calcutta) to credit vostro a/c, we credit it and F A-3 sent alongwith the voucher by the up branch country not received every time, is taken by the a/c department and voucher is passed on to us to offset entry in our book. If F A-3 is not received alongwith the (CMA) voucher then it is prepared by the accounts department on the strength of the credit voucher initiated by us. 3. When upcountry payment for vostro a/c are made we prepare form F A-3 in duplicate and it is given in a/c dept. I am not fully aware of the procedure laid down under Exchange Control Regulations. I have now been shown the photocopy of the vouchers in respect of crediting account of GIRO Bank maintained with our branch. These vouchers were forwarded to the enforcement directorate by our bank under letter dated 21/1/93. I have put my signatures with date on the photocopy of the vouchers in token of having seen the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne on the basis of the telex received from our Connaught Place branch. I have seen the photocopy of the voucher dated 10/8/91 which was approved by me for crediting a/c of GIRO Bank with ₹ 3,46,10,145/-. This was also done on the basis of telex received from our Connaught place branch. I have again seen the photocopy of the voucher dated 10/8/91 which was approved by me for crediting a/c of GIRO Bank with ₹ 3,99,99,925/-. This was also done on the basis of telex received from our Connaught Place branch. I have again seen the photocopy of the voucher dated 10/8/91 which was approved by me to credit GIRO Bank ale with ₹ 2,58,45,552/-. This was also done on the basis of instructions received from Connaught Place branch. I have seen copy of the telex dated 10/8/91 sent by Mr. Pareira to GIRO Bank. Question: It is now observe that you have credited altogether total sum of ₹ 47,08,98,791/- with a/c of GIRO Bank maintained with your bank on the basis of instruction received from your Connaught Place branch at New Delhi. Before crediting the a/c of GIRO Bank with the above why did you not call for the relevant forms A1, A2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on leave / absent at that relevant time. Question: As you have stated that you were not aware fully the procedure to be adopted before crediting the vostro account, did you consult your superior 'or any officer to know the procedure? Answer: No. Question: As per the procedure laid down in the Exchange Control Regulations you have not submitted A1, A2 as the .the instruction ..for credit Vostro a/c but you have why was . It so? (Not legible). A nswer: I was not aware of the correct procedure. 92. The statement given by me is true and correct to the best of my knowledge. I, Sunil Ganpat Sawant have appeared before Chief Enforcement Officer at his office today and make the statement in reply to questions put to me. I have now been shown credit voucher dated 2/8/91, telex dated 20/7/91, 9/8/91 of ANZ Grindlays Bank Connaught Place, New Delhi branch to Bombay. In the above said credit voucher and telexes the name of GIRO Bank in red ink was written by me as the respective credits was to made to GIRO Bank. I have written this on the basis of written endorsement of Mr. Paul Pareira on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery and timely servicing, monitoring the processing of timely clearings, and reconciliation of accounts, and reporting to the Unit Head. The various products being monitored by the present officer were as under: Outward Clearing Inward Clearing High Value Clearing Inter-bank Clearing Non-Fort, Non MICR and National Clearing. Processing of Interest Warrant, Dividend Warrant and Refund Orders. 93.4 The present Officer was handling large volumes as he was deputed to ensure timely processing of high value transactions. The officer was in charge of the clearing and processing pertaining to MICR clearing / which is Magnetic Ink Character Recognition Clearing, pertaining to cheques presented over the counter from 10 am to 2 pm which were required to be processed on the same day itself, and thereafter forwarded to the RBI. The Department was also in charge of high value clearing instruments which are Cheques of ₹ 1 lac and above of the Fort area, Mumbai, which are deposited over the counter and were required to be processed and sent through a personal messenger to the RBI by 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction, that the funds emanated from the account of BFEA, which was a non-convertible Vostro Account maintained with Canara Bank. This information was only known to Canara Bank. Hence, the present Appellant, and the Bank cannot be held liable for any alleged conversion of funds from a non-convertible account to a convertible account, either willfully, or otherwise. 93.7 It is alleged that the instructions emanated from a nationalized Indian Bank who was an Authorized Dealer, the officers assumed that the transaction was permissible. Hence, there has been no violation by the present Appellant of the alleged conversion of funds from a nonconvertible account to a convertible account, either willfully or otherwise. 93.8 Show Cause Notice No, 57 dated 25.6.1991 pertains to a remittance dated 25.6.1991 for ₹ 3.88 crores which was accepted by the Customer Services Officer, and thereafter forwarded to the Clearing Department with written instructions on the covering letter to credit the account of Giro Bank. These instructions were required since there were discrepancies in the title and account number. The cheque was processed and sent for clearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there was no willful negligence, the Special Director ought not to have imposed a penalty of ₹ 80,000/- on the present Appellant. The said penalty has been imposed under S. 68(2) of the FER Act, 1973. It is submitted that the Show Cause Notice does not even invoke the provisions of S. 68(2). The entire Show Cause Notice is based on the provisions of S. 68(1) i.e. that the officer was also responsible to the Bank for the conduct of its business. It is submitted that the invocation of S. 68(1) pre-supposes that the Company is guilty of an offence. It is well-settled that a Company cannot be guilty of an offence, unless it is alleged that the directing and controlling mind of the Company is guilty of the act or omission which constitutes the offence. S. 68(1) can be invoked through a legal fiction making the officer vicariously liable for the offence. A Company can be guilty of an offence only if the act or omission which constitutes the offence is committed by the directing and controlling mind of the Company. In the present case, the present Appellant was certainly not the directing and controlling mind of the Company. Hence, the imposition of penalty is wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93.13 It is submitted that the Show Cause Notice was issued to the Appellant under Section 68(1) of the said Act on the purported ground that the said Officer, at the relevant time when the alleged contravention had taken place, was responsible to the Bank for the conduct of the business of the said transactions. 93.14 It is submitted that Section 68(1) can be invoked only where a person is in-charge of and was responsible to the Bank for the conduct of the business of the Bank, as well as the Bank. The present Appellant was certainly not in-charge of and responsible for the conduct of the business of the Bank. Hence, the invocation of Section 68(1) is legally misconceived. It is further submitted that the Special Director of Enforcement Directorate vide a Order dated 4.7.2007 erroneously held that there was negligence on the part of the Officers of Grindlays Bank in crediting the non-rupee account of Giro Bank. 94. Statement of Allwyn Roche Appeal No. 108 of 2007 Mr. Allwyn Roche was served with the following Show Cause Notices No. 37, 42, 47, 52, 67, 71 and 76, on which the Adjudication Order dated 4.6.2007 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit slips received. He was also responsible to receive cheques from the Clearing House drawn on Grindlays Bank branches in Bombay, by the Bank's customers, and forward them to Departments for posting into Customer's Accounts. He would receive thousands of instruments each day, and his job was a mechanical one, of totaling the particulars on the instrument, with instructions by way of processing function. 94.3 The SCNs have been issued under S. 68(1) of the FER Act, 1973 on the alleged ground that he was also responsible for the proper conduct of the business of the said ANZ Grindlays Bank. That Sec 68(1) can be invoked only if a person was incharge of and was responsible to the Company for the conduct of the business of the Company . 94.4 It is stated that the Appellant was merely a Relief Officer in Grade I, i.e. at the junior most level, and hence could never be considered to be the Directing Controlling mind of the Company, or responsible for the affairs of the Bank, and hence the proceedings under Sec. 68(1) are wholly misconceived. It is not the case of the department that the present Appellant has done any act of commission or omission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was not even aware of the system of operation of Vostro Accounts. The operation of these accounts were directly under the control of the respective branches in. different cities. Transaction processing / posting, checks, operational controls etc. on the accounts were maintained by the branches, which were under the direct control / charge of the respective branches. The Clearing Department where the Appellant was working, was not in any way involved with the operation of the Vostro Account. It is further submitted that S. 8(1) could not be invoked against the present Appellant in as much there is no allegation on him having acquired or dealt with the foreign exchange, in any manner whatsoever, and thereby contravened the said provisions. It is further submitted that the charge under Sec. 9(1) (a) and 9(1) (e) of the Act, cannot be invoked against the present Appellant in as much as there is no allegation in the Show Cause Notice that the present Noticee had made any payment to, or for the credit of any person resident outside India, or placed any sum to the credit of any person resident outside India. The present Noticee has not placed any funds for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company would be deemed to be guilty of the contravention. It is stated that the abovementioned facts would clearly reveal that the present Appellant was an Officer at the lowest rung of the officer level, and was certainly not In charge of, or responsible to the said Bank, for the conduct of its business. 95.2 The Special Director vide Order dated 4.6.2007 with respect to Show Cause Notice No. 80 has recorded in para 20 of the judgment that Mr. p.s. Khatu was a Staff Relief Officer at the Main Office, Bombay. He was required to work in different places such as the Output Department, Staff Department, Safe Custody and Correspondent Department in the absence of any officer in the respective Department. It is alleged that on the fateful day, he merely verified the Credit Voucher by tallying the particulars of the instrument with the Voucher, and initial the Voucher. The Voucher initialed by him related to a Demand Draft drawn by Punjab National Bank, Main Branch, He was wholly unaware that the Voucher approved by him related to a Demand Draft drawn by PNB, Main Branch favouring Giro Bank. The Demand Draft was treated as a local transaction, since there was nothi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be exercised judiciously, and on a consideration of all the relevant circumstances. It is submitted that there has been no default by the Appellant whatsoever, in merely tallying the particulars of the demand drafts with the instructions while acting as a relief officer for half an hour. 96. Statement of Navin Puri Appeal No. 113 of 2007 The Appellant was served with Show Cause Notice No. I under S. 68 (1) of the FERA, 1973 on the basis of him being the Branch manager of the D.N. Road Branch in Mumbai. It is alleged in the Show Cause Notice that the present Noticee was allegedly in charge of and was responsible to the Bank for the conduct of the business of the said Bank . The present Appellant has been held vicariously liable for the credit made to an NRE account by an officer of his branch. It is denied that the Appellant was in charge of, and responsible to the Bank, for the conduct of the business of the bank. The Show Cause Notice issued under S. 68(1) is misconceived in law, and in fact. It is submitted that in the present case there has been no contravention even by the Bank. The pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted in an arbitrary and wholly unjustified manner in imposing penalty on the present Appellant, and holding him liable under S. 68(1). 97. Statement of T.R. Subramaniam Appeal No. 114 of 2007 The subject Show Cause Notice has been issued to Mr. T.R. Subramanian under S. 68 of the FERA, 1973. It is alleged in the Show Cause Notice that the present Appellant was allegedly responsible for crediting the said account of a non-resident person Hence, Show Cause Notice I was issued by holding the present noticee vicariously liable for an offence alleged to have been conducted by the Bank. It is stated that there has been no contravention whatsoever, either by the Bank, or by the present notice as the D.N. Road Branch, Mumbai received a telex from the Connaught Place Branch, New Delhi to credit the account of Mr. Gyanendra Bhandari, by Order of Linparko, USSR towards commission payable to him. The D.N. Road Branch, Mumbai credited an amount of ₹ 4,51,145/= to the non-resident external Account of Gyanendra Bhandari. It is relevant to mention that rupees were credited to the account of Gyanendra Bhandari. Out of this account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. He could have asked the Russian authorities for necessary documents to confirm the purpose of this remittances. 99. Shri Sunil Sawant is responsible for these unauthorized transactions: He was primarily responsible to verify the fund transfers and the right person who should have stopped these transactions. In his statement he stated that he had noticed the difference in account number and account holders name and sought the advice of his superior Shri Paul Pereira to whom he was reporting. When the account number did not match with the beneficiary s name, he should have straight away rejected the transaction. 100. Shri Paul Pereira is also responsible: He was a contractual employee retained by the bank for a specific work related to day to day transactions of clearances in the bank and other regular employees were reporting to him and his orders were being obeyed by them. In his statement dated 02.03.1993 Shri Paul Pereira has confirmed that he had written an endorsement as Please credit GIROBANK in one of the TTs received from New Delhi branch. He had also tried to pass on the responsibility to Smt. Preetha Sundaram that he had given these advices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se; and Mr. Allwyn Roche all of ANZ Grindlays Bank, Bombay were responsible to the Bank for the conduct of the business of the said transactions, and hence, liable for the above contraventions u/s 68 of the FERA, 1973. The differences between the set of transactions Noticed in the first batch of SCNs (from SCN No. 1) and the present batch of SCNs, is the mode of transfers. In the SCN No. 1, etc. batch of transactions, the TTs emanated from ANZ Grindlays Bank, C.P., New Delhi Branch. In the present SCN No. 37, etc. batch of transactions, payment instructions (through Cheques; Demand Drafts and T.T.s) were received by ANZ Grindlays Bank, Bombay from other Banks i.e. Canara Bank; Bank of Baroda; Indian Overseas Bank and Punjab National Bank. Therefore, broadly, the analysis of SCN No. 1 would be applicable to the present SCN No. 37 as many of the documents and statements are identical, and for brevity and convenience, only the relevant additional documents and statements as contained in SCN No. 37 are being highlighted in this set of submissions, which are as per the following: Findings of Fact in the Order dated 04.06.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E Corr. Bank of Girobank. 6. 62 3,99,99,8875 Chq. No. 4/1879/91 dt. 05.07.91 issued by the Canara Bank, on the instruction of BFEA of the USSR favouring Grindlays Bank sub A/c Current Account NRE Corr. Bank of Girobank. 7. 67 49,500 Demand Draft No. 570493 dt. 14.06.91 purchased by Shri S.K. Sood from Bank of Baroda, Chanakyapuri branch New Delhi drawn on its Churchgate branch at Mumbai. The same was sent by the Girobank plc. London to the Grindlays Bank Mumbai with a request to credit the same to the sub account of Eastern Suburbs Ltd. 8. 71 40,48,485 The IOB, Mahalingapuram had issued a TT on their Bombay branch on behalf of Shri Hariram of Nucleus Consultancy Services, Madras with instruction to transfer the amount to credit the ANZ Grindlays Bank account Girobank. The IOB Bombay issued ankers cheque No. 3426 dated 24.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RA, 1973. All these illegal transactions had taken place due to negligence of these bank officers only. They handle these transactions in a routine manner. Had they been vigilant in the first place, these transactions would not have taken place. (b) Mrs Preetha Sundaram is also responsible for these unauthorized transactions in terms of Sec. 68(1) of FERA, 1973: She was the Country manager, Correspondent Banking Services. Therefore, for all these transactions she was in charge and responsible. (c) Shri Allwyn Roche is responsible for these violations in terms of Sec. 68(2) of FERA, 1973: Shri Allwyn Roche was the officer who cleared the credits in respect of SCN 37, 42, 47, 52, 76 71. He claimed ignorance of law. However, ignorance of law is no excuse. (d) Shri R.B. Dhage is responsible for these violations in terms of Sec. 68(2) of FERA, 1973: Shri R.B. Dhage was the officer who cleared the credits in respect of SCN 57 62. He claimed ignorance of law. However, ignorance of law is no excuse. (e) Shri P.S. Khatu is responsible for these violations in terms of Sec. 68(2) of FERA, 1973: Shri P.S. Khatu Roche was the officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contacted in his Dubai address and asked to repatriate the amount. US Dollars 15,000.00 TT received. The ANZ Grindlays Bank realised its mistake and asked to repatriate the amount 28 4 Feb 1993 M/s. ANZ Grindlays Bank credited ₹ 4,76,569.00 an equivalent of US Dollars 15,000.00 from its Sharjah Branch to the Account of Mr. Gyanendra Bhandari. For repatriate the amount the ANZ Grindlays Bank credited an equivalent of US Dollars 15,000.00 to the Account of Mr. Gyanendra Bhandari. 24 25 4 Feb 1993 The entry of 11 November 1991 reversed by debiting the account of Mr. G Bhandari to rectify the mistake of credit. This shows the bank admitted its mistake. 26 10 Feb 1993 Bank wrote to RBI about the mistake and advised that the funds repatriated back by the customer. This the admission on the part of the bank that they have rectified their mistake. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verified the instruction before crediting the NRE account. 57-58 (a) SCNS: T-4/16-B/94 (SCN I) dated 15.02.1994, Transaction amount ₹ 4,51,145/- to the credit of Mr. Gyanendra Bhandari, Dubai as instructed by BFT, USSR. The allegation is that ANZ Grindlays Bank, without the general or special permission / exemption of/from the RBI, credited a sum of ₹ 4,51,145/- to the NRE account No. 01SDP0689300 standing in the name of Shri Gyanendra Bhandari of M/s Emirates Trading Agency, Dubai, UAE, a non-resident in their books, being the amount covered by TT No. 45/1485 dated 08.11.91 issued by ANZ Grindlays Bank, Connaught Place, New Delhi out of the funds held with them by the Bank for Foreign Trade, USSR and thereby transferred the said amount in foreign exchange / paid the said amount in foreign exchange to Shri Gyanendra Bhandari, person resident outside India. Therefore, the ANZ Grindlays Bank Ltd. was charged u/s 6(4) 6(5) read with Section 49, 8(1) read with Para 29B.8 of the ECM 1987 Vol. 1; Section 9(1)(a) and 9(1)(e) of the FERA, 1973. Shri Navin Puri, the ten Branch Mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Department. Learned Sr. Counsel has referred the case of Shri Girdhari Lal Gupta v. DH Mehta Anr AIR 1971 SC 28 at Paragraph 13). 109. It is submitted that in the impugned Orders the Adjudicating Officer has erroneously held Mr. G.P. Pandey, Ms. Preetha Sundaram and Mr. Karan Bhalla as being liable under Section 68(1) of FERA. It is submitted that the said officers cannot be said to be persons in charge of, and responsible for the conduct of the business of the Bank/ Company. In this regard a reference may be made to the Organisational Chart of ANZ Bank at the relevant point of time which is annexed hereto and marked as Annexure A. Further, individual submissions on behalf of the said officers, as given later in these submissions, may also be referred to in this regard. 110. Admittedly, in the impugned Orders Mr. Rajgopalan Ramkumar, Mr. Sunil G. Sawant, Mr. R.B. Dhage, Mr. Allwyn Roche, Mr. P.S. Khatu, Mr. T.R. Subramaniam and Mr. Paul Pereira have been held liable under Section 68(2) of FERA for allegedly contravening the provisions of Section 8(1), 9(1)(a), 9(1)(e) and 6(4) read with Section 49, on the ground that the alleged contraventions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (d) Biecco Lawrie Ltd Anr v. State of Bengal Anr (2009) 10 SCC 32 at Paragraphs 24-25 (e) Gorkha Security Services v. Government NCT of Delhi (2014) 9 SCC 105, Paragraphs 21-22 (f) SACI Allied Products v. CCE (2005) 7 SCC 159 at Paragraph 16 It is submitted that the finding of the Adjudicating Officer holding the above-mentioned officers liable under Section 68(2) is beyond the SCNs and ought to be set aside on this ground alone. Assuming while denying that the above-mentioned officers could have been held liable under Section 68(2), it is submitted that the Ld. Adjudicating Officer has erred in returning the finding that the said officers were grossly negligent . The Hon ble Supreme Court in the case of Jacob Mathew v. State of Punjab Anr 2005 (6) SCC 1 at Paragraphs 12 and 48(5) has held that to fasten liability in criminal law, the degree of negligence has to be higher than that of negligence enough to fasten liability for damages in civil law. The essential ingredients of mens rea cannot be excluded from consideration when the charge in a criminal court consists of criminal negligence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icers (o) no case for impostion of penalty (p) Adjudicating Authority bound by decision of the board/higher courts 116. Shri A.K. Panda, learned Sr. Counsel appearing on behalf of Respondent has argued for long time and has also filed written-submissions. He has also supported the impugned orders passed by the trial court. He also refuted all the arguments addressed on behalf of the appellants. His submission is that all the appeals are liable to be dismissed with costs. His main submission is that in the present set-of cases, the appellants are guilty of contraventions of all the provisions mentioned in the show-cause notices issued to the parties. 117. Before discussion of legal issues and dealing with the argument of the parties, it is necessary to refer certain admitted position in the matter. ANZ Grindlays Bank on becoming aware of the fraud played on it, made a proposal to make repatriate the foreign exchange equivalent to the rupees credited to the Vostro account. The said proposal was accepted by the Reserve Bank of India who imposed certain conditions as communicated to the Bank by a letter of Reserve Bank of India da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deal in foreign exchange Section 6(1) provides as under : 6. Authorised dealers in foreign exchange. (1) The Reserve Bank may, on an application made to it in this behalf, authorise any person to deal in foreign exchange. 122. Section 74 which enables the Reserve Bank of India to delegate its powers and functions under Sections 8 and 9 to any authorised dealer, the authorised dealer becomes the agent of the Reserve Bank of India and has all the powers of dealing in foreign exchange as possessed by the Reserve Bank of India. 123. After delegation of powers by the RBI to authorised dealer under Section 74 of the Act, the authorised dealer is authorise to deal in foreign exchange under Section-6 of the Act, subject to conditions, there is a restriction on dealing in foreign exchange under section 8 of the Act and restriction of payment under section 9 of the Act, subject to other provisions. 124. Section 8(1) of the FERA, 1973 is reproduced as follows: 8. Restrictions on dealing in foreign exchange - (1) Except with the previous general or special permission of the Reserve Bank, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, sale, lending, acquisition, exchange or transfer of any foreign exchange, and thereby, excluding the application of S.8(1). 126. It is submitted by Mr. Panda, learned senior counsel appearing on behalf of respondent that an Authorized Dealer holding special powers and permissions from the RBI, must be subjected to a greater degree of care and accountability. An Authorized Dealer transacts in foreign exchange on a near daily basis. Thus, it must ensure that they operate well within the confines of the law and rules. They must employ a great level of caution when dealing with foreign exchange and their procedure must be immaculate. An Authorized Dealer Bank gains additional and extraordinary rights as compared to others. Thus, applying the principles of natural justice, they must also gain additional liabilities, especially when considered in light of the FERA. Such liabilities may interpreted to be in the form of strict applications of the FERA. The Authorized Dealer does not receive a blanket protection for its acts for being in a special position. It is indecorous to defend the wrongful transactions, claim protection through status and to escape liability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 50,000 (a) Between 09.03.91 to 11.03.91: M/s. Standard Chartered Bank, Bombay, received the above four Demand Drafts, and in turn presented the Demand Drafts for clearing. The Drawee Banks received the Demand Drafts through RBI clearing, and cleared the same. Pursuant to this, SCB Bombay realized the proceeds of the Demand Drafts, totalling ₹ 2,00,000. Standard Chartered Bank. 12.03.1991: Standard Chartered Bank, Bombay (hereinafter SCB, Bombay ) this amount (₹ 2 Lakhs) to the Non-Resident Rupee Account (No. 014/09/32668) of Girobank Plc. (vostro account), which was being maintained by Standard Chartered Bank, Bombay Branch. 30.03.1991: SCB, Bombay reversed the ₹ 2 Lakhs credit made to the Girobank Plc Vostro Account and issued Draft No. 062349 in favour of M/s Eastern Suburbs Ltd, payable at New Delhi. 29.04.1991: Standard Chartered Bank cancelled the Draft No. 062349 and issued a Pay Order No. 151498 for ₹ 2 Lakhs favouring ANZ Grindlays Bank, Bombay A/c M/s Eastern Suburbs. Thereafter, on 30.04.1991, ANZ Grindlays Bank, Bombay credited the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.09.93 SCB, Bombay issued a letter to the E.D. in reply to E.D. s request for documents. SCB, Bombay, has conveniently stated that it could not trace the covering letter with regard to four cheques favouring Eastern Suburbs Ltd. Furthermore, SCB stated that it could not find any instructions for reversing the credit made into Girobank, Plc. against the local Demand Drafts. 28.09.93 Mr. Sandeep Kothare, Staff Officer of SCB, Bombay tendered his statement u/s 40 of the FERA, 1973. In this statement, he has, inter alia, stated that SCB received 4 drafts of ₹ 50,000/- each. These drafts wwere drawn in their respective branches in Bombay and the proceeds of the said drafts were to be credited to the Girobank, Plc. account. When confronted with the endorsement Recd. From Transworld International written on the Drafts in red ink, he stated that he had written the same. When asked to elaborate this endorsement, he stated that there would be some covering letter, which is now not traceable. He further stated that he did not receive any Forms alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he had effected the credit to Girobank Plc., against the Pay Order and is responsible for the same. (c) On 30.04.1991, ANZ Grindlays Bank Ltd. without the general or special permission / exemption of/from the RBI, credited a sum of ₹ 2,00,000/- to the non-resident rupee account No. 01CBB8136400 standing in the name of Giro Bank Plc, London, being the amount covered by Pay Order No. 15/498 dated 29.04.91 issued by Standard Chartered Bank, Mumbai favouring ANZ Grindlays Bank sub-account M/s. Eastern Suburbs Ltd. Out of the funds received by them in the form of 4 Demand Drafts deposited by Shri Kuldip Singh Sood of M/s Transworld International, New Delhi; and thereby transferred the said amount in foreign exchange / paid the said amount in foreign exchange to M/s Giro Bank Plc. London, a person resident outside India. (d) In the impugned order, it was observed from the records that there was a deliberate attempt to transfer foreign exchange illegally out of India in this case: Shri Kuldip Singh, Proprietor of M/s Transworld International had purchased the above 4 drafts for a total amount of ₹ 2 Lakhs; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange out of India clandestinely. 128. It is alleged by Mr. Panda that the appellants have wrongly contended that they are the agents and delegates of the RBI, and through such relationship, S.8 and S.9 are not applicable to them. The appellants have elucidated this contention by drawing focus to S. 74, therein interpreting the same, to exclude authorized dealers from person as so used in S. 9 of the Act. 129. It is argued that Section 74 provides the Reserve Bank may and with the previous approval of Central Government, by order delegate any of its powers or functions u/s 8, 9 or 10 or 18(2A)(b) of the FERA to any authorised dealer. 130. Thus, Section 74 does not delegate the powers and functions under Section 8 9 to the Authorized Dealer. It merely envisages that such powers may be delegated. Thus, if such powers have indeed been delegated, such delegation must be express and clearly stated. Furthermore, the mere licence obtained by the Authorized Dealer under S. 6 of the Act, does not ipso facto grant such delegation of the functions, as it is clear, that it is a separate power and function and distinct from S. 6. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the statute. The Appellant has relied upon the following cases in support of its submissions: a. Darshan Singh vs. State of Punjab, (AIR 1953 SC 83) at Paragraph 10 10. These arguments though somewhat plausible at first sight, do not appear to us to be sound or convincing. It is a cardinal rule of interpretation that the language used by the Legislature is the true depository of the legislative intent, and that words and phrases occurring in a statute are to be taken not in an isolated or detached manner disassociated from the context, but are to be read together and construed in the light of the purpose and object of the Act itself b. Mangoo Singh vs. Election Tribunal (AIR 1957 SC 871) at Paragraph 9 9. When the context makes the meaning of a word quite clear, it becomes unnecessary to search for and select a particular meaning out of the diverse meanings a word is capable of according to lexicographers c. P.K. Renguntawar vs. Deputy Director of Enforcement ([1981] 51 Comp Case 163 (Bom)) at Paragraph 14 14. The provisions of s. 4 enact restrictions on the persons with regard to deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorised dealer and money-changer has been defined under the Act. The respondent 1 admittedly does not fall in that category. Similarly, admittedly no permission was obtained from the Reverse Bank and lastly fact that the respondent is not a resident of India would hardly make any difference since he can be covered by the other clause about his capacity as being a person not being an authorised dealer e. Marubeni India v.. Special Director of Enforcement (MANU/DE/0404/2014) at Para 10, 10. The Court does not wish to repeat, what has already been held by it in Mitsubishi Corporation and Fuji Bank Ltd. However, the following portion of the judgment in Mitsubishi Corporation in the context of exparte employees of foreign corporation being seconded to Indian liaison offices (LOs) would equally apply to the present appeals as well: 17. 18. Under Section 8(1)(b) FERA, there is a prohibition on a person other than authorized dealer purchasing, acquiring or borrowing or selling otherwise transferring or lending or exchange with any person not being an authorized dealer, any foreign exchange either in India or outside Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the FERA Act as against the appellant cannot be said to be ex-facie illegal. Therefore, in my considered opinion, there is no need for the respondent, by treating the appellant as an authorised agent, to issue notice under different section, namely, 6(4) of the Act 136. It is submitted that section 6 of the FERA 1973 is a complete code in itself for an authorised dealer. Further, even otherwise there has been no contravention of the Act as there has been no outflow of foreign exchange and no loss of foreign exchange has been caused. Admittedly, the Appellant has already brought back the foreign exchange, which is the subject matter of the present proceedings, into India. The word person used in section 50 is to be interpreted to persons who are subject to the prohibition/restriction contained in Sections 8 to 31 of the Act i.e., persons other than authorised dealers. The Legislature distinguishes between authorised dealer and other persons. The authorised dealer is a delegated of the Reserve Bank of India by virtue of Section 74 and having powers to deal with foreign exchange in accordance with the terms of the authorization under Section 6, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein, there is no valid reason for extending Section 50 to an authorised dealer. Section 6 deals with the appointment of an authorised dealer, punishment by revocation of licence and the obligations and duties of an authorised dealer. Since this section is all encompassing, there appears to be no need to import the provisions of Section 50 for actions of the authorised dealer because the authorised dealer being a delegate/agent of the Reserve Bank of India and carries on the functions of the Reserve Bank of India as its agent. The authorised dealer, under Section 6 (4), is required to comply with general or special directions or instructions issued by the Reserve Bank of India from time to time. This would generally relate to dealings in foreign exchange pursuant to the powers delegated under Section 74. The Reserve Bank of India also has the power to conduct inspection of authorised dealer since all authorised dealers are scheduled banks (see para 1.4 of the Exchange Control Manual) who are governed by the Banking Regulations Act. Furthermore, the Reserve Bank of India is the most appropriate authority to understand, appreciate and deal with the breaches of the obligations of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the FERA board will be binding on this Tribunal unless it is distinguished or varied or overruled by the Tribunal. Further, the said judgment lays down the meaning and scope of foreign exchange independently of the person who is being charged for the offence of acquiring foreign exchange and will therefore be applicable to the present case also involving an authorised dealer. 141. The Appellant also placed the reliance upon the judgment in the case of R.R. Holdings Vs. Director of Enforcement, ([1997] 90 Taxman 322) wherein the Hon ble Court held that it is well established that the question of transferring the property or foreign exchange in violation of Section 8 would arise only if the person charged is already in complete control of the same. It is stated on behalf of the appellants that the respondent has tried to distinguish the said case on the ground that it is a FERA Board Order and hence, is not binding upon this Tribunal. The Respondent has stated that the charges levied against the appellants are on par and compatible with the rationale derived in the above order. The case of RR Holdings deals with the said situation as is clear from the aforesaid para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. The Appellant Bank had exercised due diligence to satisfy itself that the transaction was not designed for the purpose of any contravention, or evasion of the provisions of the FERA Act, 1973, or of any rule, direction, notification or order made thereunder. The Appellant has relied upon the judgments in the case of Eastern Agencies Vs. Union of India ([1935] 58 Comp. Cas. 267) and P.K. Renguntawar Vs. Deputy Director of Enforcement, ([1981] 51 Comp Cas 163 (Bom)) (Para19). 144. No doubt, the Respondent has relied on the case of Needle Industries vs N.I.N.I.H Ltd. (AIR 1981 SC 1298) to submit that a permission granted subject to certain conditions would cease to exist in the event of non-compliance of the conditions. On breach of this condition, the license will cease to exist. The judgment in the case of Needle Industries is not applicable to the facts of the present case. The factual matrix of the Needle Industries case is different and the ratio of Needle Industries has to be restricted to the facts of that case itself. Needle Industries case was rendered in the context of section 29 which provides for condition precedents for establishment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange. There is no concept of non-convertible rupees inasmuch as all rupees are capable of being converted into foreign exchange pursuant to general or special permission granted by the Reserve Bank of India. In view thereof, rupees lying in a bank account are always convertible freely subject to the limits imposed by the Reserve Bank of India from time to time. For example, in view of the recent Circular dated 26th December, 2006 of the Reserve Bank of India every resident individual is allowed to freely remit upto US Dollars 50,000 out of the country. Consequently, all rupees lying in the accounts of individuals to the extent of US Dollars 50,000 would be capable of being freely converted into foreign exchange. Balances payable in foreign exchange within the meaning of Section 2(h) would refer to balances denominated in foreign currency such as are lying NRE Foreign Currency Account and like the Nostro Account, EEFC Account RBI approved foreign currency account, Escrow Dollars account, RSC Account etc. 149. It is stated that when balances in rupee account are to be converted into any permitted currency as per para 10.12, all such transactions are to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... administrative fiction give rise to penal consequences. This is more so if FERA is to be treated as a statute creating strict/absolute liability (which is denied). 150. From the above said submission, it appears that the right to convert rupees into foreign exchange does not make the rupees foreign exchange within the meaning of section 2(h). The FERA Board in H.H. Naeems Co. vs. B.O.E. ([1989] 46 Taxman 32) observed as under: 31 In the present case, the application was for permission to transfer rupees for the payment of goods imported or to be imported into India. While the object of filing in the form might be to make payment to a non-resident, the form by itself is not a request for the acquisition of foreign exchange or for its transfer to nonresident. Even if the necessary permission is granted under it, the applicant does not become the owner of foreign exchange even for a moment nor does he become entitled to own foreign exchange. This is clear from the wording of the from itself. Rupees are transferred from the account of the applicant to another person who is the transferee, but who happens to be a non-resident 34. Shri So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrency where in the applicant seeks permission to purchase foreign currency. Similarly, SA-1 Form is an application for permission to make a payment in sterling or in a sterling area country. A-6 Form is also an application to purchase foreign currency in London against sterling. In all these cases, the form contemplates the making of payment for goods imported or to be imported into India as in the case of transactions for which A-7 Form is used. However, the main difference between them is that in cases of transactions covered by A-7 Form, what is transferred is only rupees. 39. It is no doubt true that a transfer of rupees is not inconsistent with the acquisition of foreign exchange. In fact, rupees may have to be transferred as the purchase price of foreign exchange. But the real question is whether there has been any acquisition of foreign exchange on the part of the appellants at any time. The term acquire has various meanings. According to Ramanatha Aiyar s Law Lexicon, the term acquire would be to become the owner of property; to make property one s own . According to Black s Law Dictionary, the term acquire means: To gain by any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d)Foreign exchange means foreign currency and include all deposits, credits and balances payable in any foreign currency, and any drafts, trayeller s cheques letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; 48. In the present case, there is no question of any drafts, traveller s cheques, letters of credit or bills of exchange being expressed or drawn Indian currency or in any foreign currency. It is true that the definition includes all deposits, credits and balances payable to any foreign currency. Possibly, insofar as the nonresident was concerned, his rupee holdings were payable to him if he so chose, in foreign currency. But that would at the most only mean that the non-resident had acquired foreign exchange in the form of a deposit, although it is not necessary for the purposes of this appeal to express any final opinion on that issue 49. But none of the appellants had any interest in the non-resident accounts. The moment their accounts were debited or the cash paid by them or on their behalf was credited to the account of the non-resident, it was the non-resident al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al possession and is in a position to appropriate the same. It is taking in law for all purposes. The question if transferring property or foreign exchange in violation of Section 8(1) would arise only if the person charged is already in complete control of the same. Reference is invited to Pandharinath Kishtnah Reguntawar v. Dy. Director of Enforcement. [(1981] 51 Comp. Cas. 163 (Bom). The transfer involves actual giving away. A mere right created by words of mouth or otherwise will not amount to a transfer of property as such. In the instant case the appellant not having complete domain on the amounts which were simply payable to them, cannot be said to have otherwise transferred the same to APA (b) The Bombay High Court in Eastern Agencies v. Union of India ([1- 35] 58 comp Case. 267) held as follows: 6. The interpretation of the phase owns or holds in s. 9 would appear to be res integra. The phrase must be interpreted in the context of the fact that it refers to moneys in foreign currencies and s. 9. Requires the tender thereof for sale to the Reserve Bank. The phrase must also be interpreted in the light of S.10 which sets out the duty of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were initially credited into the account of the Noticee bank (as a collecting bank) it acquired a limited right in respect of those rupees later on if the said rupee amount is converted into foreign exchange by the the Giro Bank Account. The entire blame cannot be attributed to bank who never acquired any right to appropriate the rupees. 153. It is submitted that the said provisions may not be applicable to an authorised dealer under such situation. The prohibitions under section 8 9 are against a person other than an authorised dealer. Under the scheme of FERA all dealings in foreign exchange are conducted by the Reserve Bank of India through an authorised dealer. The Act has drawn a distinction between an authorised dealer and other persons who deal in foreign exchange. Section 74 read with Section 6 makes this obvious. The Legislature has carved out from the generalized category of persons an authorised dealer. It is not correct on the part of respondent to argue that section 74 does not delegate the power and function to the authorized dealers. 154. In view of Section 74 which enables the Reserve Bank of India to delegate its powers and functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act 158. The next submission of the respondent is that appellants have contravened Sec. 9(1)(a) 9(1)(e) of the FERA, 1973. These provisions have been reproduced below: 9. Restrictions on payments.- (1) Save as may be provided in, and in accordance with any general or special exemption from the provisions of this sub-section which may be granted conditionally or unconditionally by the Reserve Bank, no person in, or resident in, India shall- (a) make any payment to or for the credit of any person resident outside India; *** (e) place any sum to the credit of any person resident outside India; 159. On the other hand, submissions are made on behalf of respondent that the Appellant has contravened the provisions under Sec. 9(1)(a) and 9(1)(e) of FERA, 1973. i) From the wording of the section, it is clear that Sec. 9 is applicable to any person. As submitted earlier, the term person includes an authorized dealer . ii) The Appellant had not taken any general or special exemption from the RBI under this section while transferring the said amount to Giroban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred Indian currency by demonstrating that the amounts reflected in the books of the Vostro Account of Girobank Plc. were in rupees. However, this contention is not tenable as it is not permissible in law to maintain Vostro Account balances in foreign exchange, as clear from Note A to Para 10.2 of the ECM: Opening of accounts expressed in any foreign currency in the names of overseas banks in the books of authorized dealers in India in not permitted Therefore, the balances in Vostro Accounts must necessarily be maintained in Indian currency, which may be drawn into foreign exchange at the spot exchange rate. 164. In this connection, the Appellant s contention that Chapter X of the ECM is ultra vires the FERA, 1973 is also not tenable. If the said contention were to be accepted, it would mean that an Authorized Dealer can effectively send out the entire country s foreign exchange to a correspondent bank; and that they also can maintain balances in foreign currency of their correspondent banks, thereby creating a lien over the foreign exchange reserves of the country, which defeat all the objects and purposes of FERA, 1973, and also would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the concerned regional office of the Exchange Control Department on a day-to-day basis. These directions shall come into force with effect from April 23, 1991 and shall also apply to the sale of foreign exchange or making payment as the case may be, pursuant to any permission already issued by Reserve Bank and subsisting on the date of these directions. Applications should be made, with full particular supported by necessary documentary evidence sufficiently in advance, to the office of the Exchange Control Department within whose jurisdiction the applicant person, firm or company resides or functions. It is stated by the counsel that from the Notification, any subsisting permission would not be operative for transactions above ₹ 2.5 Crores. The individual transactions were above the said amount, and thus, the permission had to be obtained, prior to effecting such transfer, as the transfers were effected post publication of the said notification. Furthermore, given the nature of transactions, it is not that of inter-bank transfers, as the Bank Accounts were not at par with each other. Merely because the appellants has filed the said transfer as inter-bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction will lead to an absurdity while another will give effect to what common sense would show was obviously intended, the construction which would defeat the ends of the Act must be rejected even if the same words used in the same section, and even the same sentence, have to be construed differently. Indeed, the law goes so far as to require the Courts sometimes even to modify the grammatical and ordinary sense of the words if by doing so absurdity and inconsistency can be avoided. 170. Applying this principle to the present scenario, the blanket exclusion of Authorized Dealers from the purview of S. 9 gives rise to an absurdity, and goes against the object of the Act, in the frame that specific exclusion has been made in Sec. 8. Hence, the effect of common sense is that Sec. 74 does not exclude Authorized Dealers from the purview of Sec. 9. This is supported by the Apex Court s understanding as expressed in LIC Vs. Escorts (AIR 1986 SC 1370): 7.2 The proper way to interpret statutes is to give due weight to the use as well as the omission to use the qualifying words in different provisions of the Act. The significance of the use of the qualifyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of the license of the Appellant Bank is erroneous. 173. DELEGATION OF POWER It is submitted on behalf of appellant that as per Section 74 which enables the Reserve Bank of India to delegate its powers and functions under sections 8 9 to any authorised dealer, the authorised dealer becomes the agent/delegate of the Reserve Bank of India and has all the powers of dealing in foreign exchange as possessed by the Reserve Bank of India. Consequently, Sections 8 9 which deal with prohibitions on dealings in foreign exchange inherently cannot apply to an authorised dealer whose power to deal in foreign exchange is overriding in view of Section 74 read with Section 6. The act does not define person , however, in section 2(p) is defined person resident in India and in Section 2(q) defined person resident outside India . It is submitted that in the various provisions of the Act, the term Authorised Dealer has been used in contradistinction to person . It is submitted that there is a clear distinction in the entire scheme i.e., all sections containing prohibitions (S.8 to S.32) are applicable to persons other than Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d such payment otherwise than through an authorised dealer; Therefore, as per the explanation, it is clear that when the legislative intent was to include authorized dealers within the ambit and scope of the term Person , the legislature did so by using qualifiers to emphasise the same. Like, in the explanation above, where the drafters of the statute deemed it necessary to include authorized dealers as any other person from whom any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India, they indicated so by placing a qualifier/inclusive clause. It is submitted that had the drafters of the Act wanted the authorized dealers to be included within the ambit the person who were to be liable in case of contravention of Section 9, they would have done the same by using the inclusive clause/qualifier to indicate the same like they did with Explanation to Section 9(1). The Appellant argues that no external aid of construction is required to interpret the terms of the Act when the drafters of the provisions have made the context in which the words are being used quite clear and plain. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing in the present Appeals and thus, could not be considered as binding precedents for the purposes of the present Appeals. The said Case, para 17-28 do not deal with the submissions made before the Tribunal in the present proceedings and that the said case applies incorrect principles of Law. The said Case is in appeal before the Bombay High Court in FERA Appeal No. 27- 31 of 2007. It is stated on behalf of appellants that the judgment in the case of American Express Case is not applicable because it did not consider the arguments which were made before the Tribunal and such a ground had been taken in the said Appeal itself. Furthermore, in the judgment of American Express a finding had been returned that the term person includes an authorized dealer. 179. It is submitted that such a submission was never canvassed before the Tribunal in the said case and the submission in fact made was that Authorized Dealers were treated as a separate class under the provisions of FERA, 1973 and, therefore, the only provisions which applied to authorized dealers were Section 6 read with Section 73A and 74. It is submitted that the above findings of the Ld. Special Director are per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exclusive jurisdiction created thereunder. There is also reference to Section 407 of the Criminal Procedure Code. Can such a decision be characterized as one reached per incuriam? Indeed, Ranganath Misra, J. says this on the point: (para 105) Overruling when made by a larger Bench of an earlier decision of a smaller one is intended to take away the precedent value of the decision without effecting the binding effect of the decision in the particular case. Antulay, therefore, is not entitled to take advantage of the matter being a larger Bench 180. The Appellants has distinguished the Judgment in the case of Bank of Ireland v Enforcement Directorate (Appeal No. 70 of 2009) which has been relied upon by the Respondent Department. The Judgment in the case of Bank of Ireland (supra) is per incurium as it does not take into account the binding judgments inter-alia in reference to Section 6 of FERA, 1973. The Judgment in the case of Bank of Ireland is distinguishable on facts. In the case of Bank of Ireland (supra), although the amount which had been transferred abroad was brought back by the Indian Overseas Bank (IOB), however, IOB did so under the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been relied upon by the Respondent/ Enforcement Directorate, but in the Adjudication Order, no Order/ Direction for repatriating the amounts was passed because as mentioned above the said amounts had already been repatriated by the Appellant Bank in 1993 and therefore in 2007, when the Adjudication Orders were passed, there was no occasion for the Special Director to pass such a direction. 180.2 The other fact in the case of Bank of Ireland (supra) the charge was that an amount of ₹ 4 Crores had actually been transferred abroad and that foreign exchange had left the shores of India, whereas in the present Appeals, it is not even a charge in the SCNs that any amounts were transferred abroad. In the present Appeals the charge is limited to crediting a convertible vostrow account. Further, there is nothing on record to show that any amounts were transferred abroad from the said convertible vostrow account. Admittedly, Bank of Ireland was not an Authorized Dealer and was subject to the provisions of FERA unlike the Appellant Bank in the present matter which was an Authorized Dealer and to whom all the provisions of FERA did not apply. Detailed submissions in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to it by the RBI and admittedly the RBI did not cancel the license of the Appellants for the alleged contraventions. It is thus submitted that entire premise that there was a deemed cancellation of the license of the Appellant Bank is erroneous. 182. In the present case, admittedly the license was issued to the bank without any such conditions as conditions of Needle Industries, Secondly, the licence in the present case has not been cancelled under Section 6(2) of the Act. Thirdly after impugned transactions, the appellant banks have done thousand of transactions without any objections. Thus, the same does not help the case of the respondent. 183. The act does not define person , however, in section 2(p) is defined person resident in India and in Section 2(q) defined person resident outside India . The term Authorised Dealer has been used in contradiction to person . In the light of above, it is found that there is a clear distinction in the entire scheme i.e., all sections containing prohibitions (S.8 to S.32) are applicable to persons other than Authorised Dealers and that S.6 and Section 73A are applicable to Authorised Dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im 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. 186. It is the case of the Respondent that Section 6(4) is a far reaching clause imposing multiple duties on the authorized dealer. The points that come to significance in the present case is the clause comply with such general or special directions or instructions . The validity has already been upheld in the earlier section of the memorandum. Without prejudice to the Respondent s submissions, it is submitted that even if the ECM does not gain the authority of a notification, it is to the very least to be interpreted as instructions, as clear from the grammatical construct of the cited Paras. Hence, the non-compliance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udent may easily deduce that the appellants have not applied their mind when effecting the transaction. Instead of refusing the transaction, as so mandated under the clause, the appellants have acted in consort with the transferor. The appellants thereon, have failed to perform their duty of reporting the matter to the RBI. In light of all the stated, the appellants stand in contravention of the Sec. 6(5) of the FERA, 1973, on multiple aspects. 189. It is submitted that the reliance of the judgment by the appellants have relied on M.C. Wagh v Jay Engineering Works, which is not applicable as the Apex Court in the said case held that Sec. 12 was a complete code and envisioned all possibilities in the scope of imports. Hence, a person was liable to be charged with the contravention of Section 12 and Section 10 of the erstwhile Act. They have used the word all to determine it as a complete code. There is a differentia between the repealed 1947 Act and the 1973 Act. 190. It is submitted that there is a distinction wherein there is no correlation between S.12 and S.10. Those are independent provisions designed to ensure performance in the two separate cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween Sec. 12 and Sec. 6. Section 12 discusses in complete regard to exports . Such is possible as the exports is inanimate, therein having no intrinsic will. Thus, there is limited scope on the subject and possibilities are capable to be enumerated within the Section. However, Authorised Dealers are animate and are capable of exercising will. Hence, it is not possible to control the entirety of their actions within the scope of Section 6. Therefore, it was the wisdom of the legislature to cast a narrow net to ensure the control of specific functions, powers and duties of authorised dealers, whilst still ensuring that they are caught in the wide net of the remainder provisions of the Act. Hence, as there is no assertion of the legislature through Section 6 that it is a complete code, as per the cited authority, it is not appropriate to interpret Section 6 as a complete code, therein immunizing the authorized dealer from the other provisions of the Act. 192. It is submitted on behalf of respondent that the applicability of Section 6 gains further force when read with the provisions of Sec. 49(i) Sec. (ii)(a), as reproduced below: 49. Failure to comply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) A.D. (COX Series) circulars notifying names of exporters placed in Exporters Caution List and deletions therefrom. It is submitted that the Reserve Bank of India has been treating the Exchange Control Manual as the rule book as far as exchange control is concerned; and that it will be issuing only amendment to the ECM. The AD (MA Series) Circulars are always issued by the Reserve Bank of India under Sec. 73(3) of FERA, 1973. Furthermore, the ECM is a compendium or collection of various statutory directions, administrative instructions, advisory opinions, comments, notes, explanations suggestions, etc Hence, the entirety of the ECM may not be merely dismissed as guidelines, as so attempted by the appellants. 192.2 The validity is further reinforced through the interpretation of the powers of the RBI, made in Shakir Hussain v. Candoo Lal Ors., (AIR 1931 All. 567) and subsequently Vasudev Ramachandra Shelat v. Pranlal Jayanand Thakur, ([1975] 1 S.C.R. 534) wherein it was held that: Further a power possessed by the Reserve Bank under a Parliamentary legislation cannot be so cut down as to prevent its exercise altogether. It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters and is prevalent even now under the present Foreign Exchange Management, 1999. Under the FEMA 1999, the RBI had issued a Circular No. A.P. (Dir Series) Circular No. 92 dated 4.4.2003 under Sec. 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999. 192.7 Focusing on the Notes to Form A3, the validity of the ECM, is heightened: While forwarding the application to Reserve Bank for approval, reference to Exchange Control Manual paragraph/AD circular in terms of which the reference is being made should invariably be cited Further persuasive value is attributed to the validity of the Chapter /*X, ECM, 1987, by analyzing the provisions of the Non-Resident (External) Account Rules, 1970 (Annexure 4), wherein transfers, in similar nature to the ones presently effected, into such accounts are prohibited. The basic nature of a Vostro Account and a NRE Account are the same. Hence, a parallel may be drawn to the same, wherein it is clear that crediting NRE Accounts are subject to the permission of the RBI. There is no such intelligible differentia between the two accounts, when scrutinizing the basic structure and nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FERA, 1973. Para 10.17 has been reproduced as below: Following credits may be made to accounts of non-resident banks, subject to conditions stated against each: (Form A1, A2 or A3, as indicated, should be completed in every case) FPA-FE-91-97, 105-110, 112-114/MUM/2007, Page 186 of 277 FPA-FE-121-122/MUM/2007 (a) Payments against imports into India covered by bills drawn in rupees and falling within the authority given to authorised dealers (Form A1) (b) Payments for other purposes by residents of India of a type which authorised dealers are permitted to approve without prior reference to Reserve Bank (Form A2) (c) Payments against TTs etc. in any permitted currency purchased by authorised dealer from overseas bank (Form A3) (d) Transfers from other rupee accounts of overseas banks permitted under paragraphs 10.10 and 10.11 (Form A3) (e) Transfers from Ordinary Non-resident Rupee accounts of individuals, firms and companies (other than banks) of a type which authorised dealers are permitted to approve without prior reference to Reserve Bank, provided both transferor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * c) Interest on overdraft, if any, on the account d) Transfers to other rupee accounts of overseas banks permitted under paragraphs 10.10 and 10.11 (Form A3) e) Transfers in foreign currency permitted under paragraph 10.12 (Form A3). (Form A2 should also be completed for the foreign currency leg) f) Any other debit specifically approved by Reserve Bank on form A3, provided conditions, if any, laid down by Reserve Bank are complied with. This provision is clearly exhaustive in nature, and the debits made by the appellants do not fall under any of the above-listed provisions. Hence, the debit of the Non-Convertible (Bilateral) Account of USSR against the credit of the Convertible (External) Account of Girobank was not permissible, and with the application of this, stand in contravention of Sec. 8(1) of FERA, 1973. 192.13 The validity of the Exchange Control Manual of the Chapter X provisions are interpretively validated and supported by Notification No.: A.D. (G.P. Series) Circular No. 1 dated 19.01.1991, issued by the Exchange Control Department. This circular was issued prior to the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed Dealer violated the directions of the RBI, through the violation of Chapter X of the ECM. Any doubt and contra opinion is completely abolished by way of Notification No.: A.D. (G.P. Series) Circular No. 2, dated 16.02.1993 (Annexure 2), wherein the relevant clauses are reproduced below: 1. Attention of authorised dealers is invited to A.D. (G.P. Series) Circular No. 1 dated 29th January, 1991 wherein they were advised to avoid irregularities/discrepancies in compilation of R Returns and enclosures thereto before submission to Reserve Bank. Our Regional Offices have also been advising concerned branches of authorised dealers from time to time to strictly follow the instructions/provisions laid down in the Exchange Control Manual (1987 Edition). 3. In this connection attention of authorised dealers is particularly drawn to provisions contained in Chapter 10 of Exchange Control Manual in regard to rupee accounts of non-residents banks (i.e. Vostro Accounts). As credits in the rupee accounts in the names of branches/correspondents outside India tantamount to remittance of funds outside the country, authorised dealers must obtain and submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s like Canara Bank etc. and BFEA the Central Bank of erstwhile USSR (equivalent to the RBI)and there was no reason to believe that the instructions being given by Public Sector Banks and the Central Bank of USSR were incorrect instructions and the said transactions were undertaken by the Appellants in good faith. (iii) None of the transactions involved foreign exchange and the Appellant bank merely dealt with rupees and no other currency. (iv) Assuming without admitting, it is submitted that every procedural irregularity does not amount to a contravention of a provision and does not attract adjudication proceedings. In support of the said contention, the Appellant has relied upon on the following judgments cited: (a) Mohibali Naser vs. DOE (AIR 1989 Bom 237) (Paras 17 and 20).)(Pg. 127 of Vol. I) 17. In view of the above decisions it must be held that it is not each and every infringement of any and every direction and instruction of the Reserve Bank which can attract adjudicating proceedings under FERA 20. It is apparent from the aforesaid decisions that it is not each and every infringe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Reserve Bank may, from time to time, think fit to give and except with the previous permission of the Reserve Bank, an authorized dealer shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of his authorization under this Section 195. Section 6 (4) contains two limbs: (a) the duty of the authorised dealer in all his dealings in foreign exchange to comply with such general or special directions or instructions of the Reserve Bank; and (b) the duty of the authorised dealer not to engage in any transaction involving foreign exchange that falls outside the terms of its authorization to deal in foreign exchange. 196. It is submitted that the Noticee Bank in the present case has not breached either of these conditions. That the present Show Cause Notice does not refer to any particular general or special directions or instructions of the Reserve Bank that has been violated by the Noticee Bank. The Show Cause Notice has merely alleged contravention of certain provisions of the Exchange Control manual without any reference to any notification issued by the reserve bank cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a single foreign currency transaction out of the said funds. 199. It is also submitted that ever procedural irregularity could not be said to be an offence, and especially an inadvertent irregularity. In the instant case there was an external conspiracy of which the Bank became a victim. The Noticee has gained absolutely nothing and in fact has suffered losses. On plain reading of section 8 makes it apparent that the provisions of section 8 do not have any application to an authorised dealer and the prohibitions under section 8 are against a person other than an authorised dealer. 200. The Act has specifically drawn a distinction between an authorised dealer and other person who deals in foreign exchange as is apparent from section 74 read with section 6. The Appellant being delegates of RBI authorised to deal with Foreign exchange under section 8 and 9. An authorised dealer has powers under sections 8 and 9 which requires a person to deal in foreign exchange only through or with an authorised dealer, an authorised dealer cannot commit a contravention of the said section. The adjudicating officer failed to consider that the Supreme Court in Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is that when he was an employee under the authorised dealer, the show cause notice issued under the provisions of Sections 8(1) and (2), which are meant for other than the authorised officer, is not legally sustainable. In this regard, I find that the allegation against the appellant is that he had purchased the foreign currencies by using his own money with an intention to sell the same for a higher price. Moreover, as the employee of the authorised dealer, namely, State Bank of India, Extension Counter, Anna International Airport, he is dealing with the foreign currencies. When once he contravenes or violates the provisions of the FERA Act, his action is totally independent in nature and not connected with the activities of the authorised dealer, namely, the State Bank of India. Therefore, in my considered opinion, the notice issued by the respondent under Sections 8(1) and 8(2) of the FERA Act as against the appellant cannot be said to be ex-facie illegal. Therefore, in my considered opinion, there is no need for the respondent, by treating the appellant as an authorised agent, to issue notice under different section, namely, 6(4) of the Act 203. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Section 6 8 are connected sections if those are read co-jointly. While Section 6 provides only and only for the duties and obligations of an authorized dealers in matters of foreign exchange, Section 8 deals with the restrictions that a person has to face while dealing with foreign exchange. In Section 6(4) the word instructions are also used. Section 50 only refers to the term direction but the word instruction is not mentioned therein and as such the Enforcement Directorate cannot penalise a person for not following instruction under Section 50 and it is only the RBI which can take action for breach of such instructions under Section 6, who even cancelled the licence depending upon the seriousness of the matter. Since Section 6 deals with every possible situation and provides for appropriate action against authorised dealers is specifically and specially dealt with therein, there is no valid reason for extending Section 50 to an authorised dealer. Section 6 deals with the appointment of an authorised dealer, punishment by revocation of licence and the obligations and duties of an authorised dealer. Since this section is all encompassing, there appears to be no need to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rupees foreign exchange within the meaning of section 2(h). It is further submitted that in light of the judgment in the case of H.H. Naeems the aforesaid issue was no longer res integra and the adjudicating officer ought to have followed the same. In this regard the judgment in the case of Safiya Bee vs. Mohd. Vajahath (2011) 2 SCC 94 (Paras 27, 28, 29 and 30) is also referred. 211. The Respondent has tried to distinguish this case on the ground that it is a FERA Board Order and that it is not binding upon this Tribunal. 212. It is rightly submitted that the subject matter was with regard to a contravention made by a Company, not an authorized dealer and that an Authorized Dealer is inherently in a position to acquire, maintain dominion and disposition over the foreign exchange, unlike that of a company. The contention of the Respondent has no force as the order of the FERA board will be binding on this Tribunal unless it is distinguished or varied or overruled by the Tribunal. Further, the said judgment lays down the meaning and scope of foreign exchange independently of the person who is being charged for the offence of acquiring foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to them, cannot be said to have otherwise transferred the same to APA 215. The Appellant Bank had merely dealt with rupees and no other currency. In the said account all moneys were maintained in India Rupees only with a right to receive the same in foreign currency. The Foreign Constituent had merely received a right to receive foreign exchange but the same was not converted into foreign exchange and there is not even an allegation to this effect. The Appellant having thus not acquired any interest in the property could not have committed the contravention of transferring the same within the meaning of section 8 of FERA. 216. It is further submitted that Appellant Bank had in fact returned the instructions from Canara Bank for crediting the VOSTRO convertible account, since it found that there was a discrepancy/ error in the instructions. The Appellant Bank had exercised due diligence to satisfy itself that the transaction was not designed for the purpose of any contravention, or evasion of the provisions of the FERA Act, 1973, or of any rule, direction, notification or order made thereunder. 217. The Appellant has relied upon the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 221. It is alleged on behalf of appelalnts that in all the transactions covered by SCNs 1,2,5,7,9,13,17,21,25,29,33,37,42,47,52,57,62,67,71 and 80, the beneficiary was M/s Eastern Suburbs Limited . The Modus Operandi that was adopted by Keith Fairborther of M/s Eastern Suburbs in collusion with Kuldeep Singh Sood of Transworld International, was that in all cases, Bankers cheques were issued and presented to the Paying Bank which was maintaining the VOSTRO Account of BFEA. The Paying Bank would issue instructions to the collecting bank, which was maintaining the convertible rupee Account of Giro Bank to effect the credit. M/s Eastern Suburbs was maintaining an account with GIRO Bank. In the very first transactions covered by SCN 57, 62, 76 Bankers Cheques, Demand Draft (in SCN 76) were issued by Canara Bank, Nationalized Indian Bank; In SCN 2,7,37,42,47,52,67,71 and 80 Bankers Cheques from BFEA were issued. It is pertinent to mention that BFEA was the Nationalized Bank of USSR. The aforesaid would reveal that these transactions occurred in the course of Inter-Bank Transactions. It is pertinent to mention that the first three t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were credited to the local accounts of non-resident banks in good faith, in the course of inter-bank transactions with reputed banks, including nationalized banks such as Canara Bank, Indian Overseas Bank, Bank of Baroda, Punjab National Bank, and overseas Banks like Standard Chartered Bank, on their clear advice. 228. It is further submitted that M/s ANZGB had in the case of the earliest transaction viz Canara Bank returned the Instructions for crediting the VOSTRO convertible account, since it found that there was a discrepancy/error in the instructions. However, Canara Bank subsequently issued fresh instructions to M/s ANZGB along with its covering letter and offered to provide the FIRC, if required. As a consequence, the transaction was processed. 229. Even in the case of the two transactions, covered by M/s SCB i.e. SCN 2 and 7, M/s ANZGB returned the advice. However, subsequently the cheques were put through National Clearing of RBI with almost 1000 other cheques resulted in the processing of the transactions. Thereafter, no further transactions were processed by ANZGB. 230. In fact the Connaught Place Branch of ANZGB returned inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertent lapse. The bank or any of its officials were not involved in any conspiracy. They do not have any link or nexus either with Keith Fairbrother, Kuldeep Singh or any employee of his company. It is a matter of fact that Easgtern Suburbs was maintaining an account with Giro Bank. SECTION 63 OF FERA 235. S. 63 provides for confiscation by a Court or any adjudicating officer of currency, security or any other money or property in respect of which contraventions have taken place. It is submitted that S.63 has no application to an authorised dealer as they are merely agents of the Government/ Reserve Bank of India and the foreign exchange held by the authorised dealer really belongs to the Government and the authorised dealer is dealing in the same only in the capacity as a delegate of the Reserve Bank of India. Admittedly, ANZ Grindlays Bank on becoming aware of the fraud played on it, made a proposal to make repatriate the foreign exchange equivalent to the rupees credited to the Vostro account. The said proposal was accepted by the Reserve Bank of India who imposed certain conditions as communicated to the Bank by a letter of Reserve Bank of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Air India Vs. Union of India (AIR 1996 SC 666) at Paragraph 8 may be seen. 235.5 The appellant has denied that the Exchange Control Manual constitutes a form delegated legislation, it is submitted that the same must be expressly and specifically saved. Section 49(4) of the FEMA, 1999 whilst setting out the various notices and permissions, etc. issued under FERA 1973 could be saved insofar as they are not inconsistent with the provisions of FEMA. However, S.49(4) has not specifically named the Exchange Control Manual. In view of the aforesaid decision, the Exchange Control Manual, 1987 is not saved and hence, no alleged contravention of the same can be made out. 235.6 The various show cause notices allege contravention of paras 10.3 (ii), 10.12 (ii) and 10.17. It is submitted that 10.3 (ii) of the Exchange Control Manual merely deals with the crediting a Vostro Account and it provides that any remittance to rupee account of non resident branch or correspondent would be equivalent to remittance of foreign currency. However, the Exchange Control Manual does not provide that the same would be an offence under the Manual or under any prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are not there in the parent statue as the same would be a case of excessive delegation. It is submitted that an offence must have a sense of permanence. It is pertinent to note that neither the ECMs are made public nor are they gazetted but are only given to the Authorised Dealers. It is submitted that the adjudication proceedings under FERA are quasi-criminal in nature and therefore the provisions of the said statute have to be strictly construed. It is thus submitted that the scope and application of FERA cannot be widened by a delegated piece of legislation and the delegated piece of legislation i.e. the Chapter X of the ECM, 1987 is ultra vires the FERA, 1973 to that extent. 235.11 It is submitted that Chapter X of ECM, 1987 does not widen the scope of FERA, 1973 and that FERA contemplates the credit to a convertible rupee account to be a transaction in foreign exchange. The respondent on the other hand interprets Sec. 2(g) (h) of FERA 1973 to submit that as Foreign Exchange means Foreign Currency . It is submitted that the aforesaid interpretation is totally fallacious as there is no concept of non-convertible rupees inasmuch as all rupees are capabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(h). It is thus submitted that crediting a convertible rupee vostro account does not constitute a foreign exchange transaction. 236. The approach of the Special Director in the impugned Orders that purposive construction ought to be given to the penal provisions of FERA, 1973 is fundamentally against the basic tenets of interpretation of penal provisions. It is submitted that the penal provisions in FERA have to be strictly construed and cannot be purposively construed, but it has to be strictly contemplated under the statute itself. It is submitted that the deeming fiction as given in Chapter X of ECM, 1987 that a credit to the convertible rupee account is equivalent to a transaction in foreign exchange cannot be read into FERA, 1973 by purposively construing the said Act and the Special Director has committed a fatal mistake in doing so in the impugned Orders. 237. It is submitted that it is well settled law that the doctrine of purposive construction can be resorted to only if there is ambiguity or difficulty in interpreting the provisions of a statute. The golden rule of interpretation of a statute is to give the provision its plain and literal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned Section must be interpreted to mean persons who are subject to the prohibition/restriction contained in Sections 8 to 31 of the Act i.e., persons other than authorised dealers. As submitted above, the Legislature distinguishes between authorized dealer and other person. The authorized dealer being a delegate/agent of the Reserve Bank of India by virtue of Section 74 and having all powers to deal with foreign exchange in accordance with the terms of authorization under section 6, legislature did not intend for the investigative wing to discipline/punish a delegate of the Reserve Bank of India. Section-6 of constitutes a complete code for authorized dealer. The Section provides all aspects in relation to the functioning of an authorised dealer. 240. On an examination of the provisions of section 6(2) which is set out below, it is apparent that the Reserve Bank of India has the power to hold an authorized dealer liable in the event of a contravention of the act, rule, direction or order made under it. Section 51 empowers the adjudicating authority to impose penalty for a contravention of the provisions of the Act . Rule, direction or order made there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would attract the provisions has not been mentioned, would attract, on the one hand, a penal provision under section 23(1)(a) of the said Act, which is to be dealt with by the adjudicating authority under the Act and on the other hand for such violation, the RBI would proceed to deal with the matter under section 10(2) of the said Act by passing necessary directions. So, practically for violation of section 10(1)(a) of the said Act, it would result in two consequences for one cause of action, which is contrary to the settled legal concept. In other way, another situation would crop up, namely, if Section 10(1)(a) of the said Act is considered as an independent provision to attract the penal provisions of Section 23 of the said Act, a citizen would face a further penal consequence under the said Section 23 not only for failure to comply with Section 10(1)(a) of the said Act, but also for violation of Section 10(2) of the said Act, when such direction as would be passed by the Reserve Bank of India, would be violated. Hence, for one cause of action of delay in terms of Section 10(1)(a) of the said Act, a citizen would be penalized twice, one for violation of Section 10(1)(a) of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extreme penalty of revocation of license could be imposed against an Authorized Dealer. Hence, the legislature, by an amendment to the Foreign Exchange Regulation (Amendment) Act, 1993 w.e.f. 8.1.93 inserted S. 73A, whereby the RBI was empowered to impose penalty on an Authorized Dealer for contravention of any direction given by the RBI or for failure to file any Return. 245. A perusal of Sections 8 to 31 which imposes various restrictions on person in dealing with foreign exchange, are by their very nature, inapplicable to Authorized Dealers, whose very business as authorized by the Reserve bank of India, is to deal in foreign exchange. Under S.18, an Authorized Dealer is even empowered to ensure compliance of the Section by another person . Hence, the penalty imposable under S.50 and 51 are not applicable to an Authorized dealer. That any violation of S.6, which is the only Section that applies to an Authorized Dealer cannot attract penalty under S.50 as S.50 applies to a person other than an Authorized dealer 246. The Supreme court in M.G. Wagh and others vs. Jayesh engineering works limited, (AIR 1987 SC 670) had occasion to hold that Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange earnings also, be embodied in section 12, which appears to us to be a complete Code in itself, why leave this important vital matter of no less importance to be dealt with by Section 10 which essentially deals with foreign exchange receivable from individuals and has nothing to do with export of goods 247. It is alleged on behalf of the appellants that if the same principles are applied to Section 6 which deals with every possible situation and provides for appropriate prophylactic measure and the entire subject of authorized deals is specifically and specially dealt with therein, there is no valid reason for extending Section 50 to an authorized dealer. Section 6 deals with the appointment of an authorized dealer, punishment by revocation of licence and the obligations and duties of an authorized dealer. Since this section is all encompassing, there appears no need to import the provisions of Section 50 for actions of the authorized dealer. The authorized dealer being a delegate/ agent of the Reserve Bank of India and carrying on the functions of the Reserve Bank of India, the Legislature obviously thought it most appropriate for the Reserve Bank of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and was, therefore, entitled to our acceptance. The basis for the first part of the submission was the statement in the preface to be Exchange Control Manual to the effect: 247.3 It is stated that the present edition of the Manual incorporates all the direction of a standing nature issued to authorised dealers in the form of circulars up to 31st May, 1978. The directions have been issued under Section 73(3) of the Foreign Exchange Regulation Act which empowers the Reserve Bank of India to issue directions necessary or expedient for the administration of exchange control. Authorised dealers should hereafter be guided by the provisions contained in this Manual. 247.4. On behalf of appellants, it is submitted that a perusal of the Manual shows that it is a guide book for authorised dealers, money changers etc and is a compendium or collection of various statutory directions, administrative instructions, advisory opinions, comments, notes, explanations suggestions, etc. For example, paragraph 24-A.1 is styled as Introduction to Foreign Investment in India. There is nothing in the whole of the paragraph which even remotely is suggestive of a direction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Notification, Direction or Order made thereunder Para 1.23 of the Exchange Control manual provides as follows: 1.23. if any non-resident branch or correspondent of an authorised dealer is found to have contravened or attempted to contravene any of the Exchange Control Regulations in force in India, all rupee transfers on its account may be made subject to prior permission of Reserve Bank or totally prohibited 247.6 It is further submitted that these direction can be changed from time to time with out the need to notify any person of the same and the knowledge of the same cannot be imputed to any person. It is further submitted that these violation of these directions can at best result in some administration action but not penalisation in criminal and quasi criminal proceedings. 247.7. The High court of Bombay in V.P.S. Gill v. Air India, (AIR 1988 Bom 416) while dealing with similar directions under the Air Corporations Act held as follows: 8 . In law direction would mean guidance or command Section 34 speaks of such directions as to the exercise and performance of their functions by the Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Chapter 10 of the Exchange Control Manual, 1987 were omitted in the next Exchange Control Manual i.e., 1993. Annexed herewith is a comparison of the relevant chapters of the Exchange Control Manual 1987 and 1993 are marked as Annexure D. 247.10 It is submitted that the omission is not accompanied with any saving clause. Section 6 of the General Clauses Act does not come to the aid of the omitted directions as it is applicable only to repeal of Acts and not to repeal of rules; also because s. 6 is not applicable to omissions but only to repeals. The following judgments are apposite in this regards: (a) In Rayala Corporation (P) Ltd. And M. R. Pratap v. Director of Enforcement, New Delhi, (AIR 1970 SC 494) the Apex Court while dealing with the omission of rule 132 of the Defense of India Rules and the applicability of Section 6 of the General Clauses Act to such omission . The Court held as follows: 15. Reference was next made to a decision of the Madhya Pradesh High Court in State of Madhya Pradesh vs. Hiralal Sutwala but, there again, the accused was sought to be prosecuted for an offence punishable under an Act on the repeal of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule for continuing the pending proceedings. It is also not correct to say that the test is whether there is any provision in the rules to the effect that pending proceedings will lapse on omission of the rule under which the notice was issued. It is our considered view that in such a case the Court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceeding shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by S.6 of the General Clauses Act or there is a part material provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the Rule. In the absence of any such provision in the statute or in the rule the pending proceedings would lapse on the rule under which the notice was issued or proceedings was initiated being deleted/omitted 38. The position is well-known that at common law, the normal effect of repealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various Chapters of this Manual. Applications for rupee transfers which are not covered by powers delegated to authorised dealers should be forwarded to Reserve Bank on form A1 if purpose of remittance is to meet cost of import into India and form A2 if it is for other purposes, for prior approval together with appropriate documentary evidence. Transfer of rupees to the account of the non-resident branch or correspondent should not be made until a copy of the application form (A1 or A2, as the case may be) has been returned by Reserve Bank together with a permit authorizing the transfer The Exchange Control Manual does not provide that the same would be an offence or criminal liabilities against the authorised dealer specifically, if the transactions are done without any mens rea, under the Manual or under any provision of FERA. Therefore, it might be violation in case of the Chapter X and other provisions, it may give a cause of action to the RBI to initiate disciplinary proceedings against the Bank, if at all, but would not constitute any offence. 247.13 It is submitted that para 10.12(ii) prohibits only converting of rupee balances of non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is prevalent under FEMA, 1999. The FERA board in para 35, also accepted the same in the case of H.N. Naeems Co. vs. D.O.E. (1989) 46 Taxman 3. As per the guidelines issued by the RBI, the money lying in the non-resident account whether it is maintained in Indian currency or foreign currency, can be taken out of India at the will of the account holder. The said Indian currency can be converted to any foreign currency at any time and sent out of India. The ECMs have been issued in exercise of power conferred on RBI under FERA 1947 / 1973 that the circulars and guidelines issued to the authorized dealers how to deal with foreign exchange in a given situation. The authorized dealers are obliged / required to follow these circulars and guidelines. It is submitted on behalf of appellants that the word person used in section 50 must be interpreted to mean persons who are subject to the prohibition/restriction contained in Sections 8 to 31 of the Act i.e., persons other than authorised dealers. The Legislature distinguishes between authorised dealer and other persons. The authorised dealer being a delegate/agent of the Reserve Bank of India b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the 1993 amendment act and is to operate prospectively. Therefore, the transactions which were done in 1991 cannot be covered by the section. 247.18 The provisions of Section 6 (2) which is set out below, it is apparent that the Reserve Bank of India has the power to hold an authorised dealer liable in the event of a contravention of the act, rule, direction or order made under it. Section 51 empowers the adjudicating authority to impose penalty for a contravention of the provisions of the Act, .rule, direction or order made thereunder . An authorised dealer can be dealt with by the Reserve Bank of India u/s 6 (2) for a contravention of the provisions of the Act, rule, direction or order made thereunder In that event, for the same act, an authorised dealer cannot be punished again by an adjudicating authority. 248. It is submitted that violation of the alleged paras of Exchange Control Manual does not constitute an offence. As far as interventions of Exchange Control Manual and Circular is concerned, it has happened but these are not the part of the provisions of the statute and can not be read with the statutory provisions of Section-6 and 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalties on the same person for the same act. If such an interpretation is imputed on section 73A, it would render the section ultra vires the constitution. However, there is a presumption of constitutionality in every statue which prohibits any interpretation which will render the statute unconstitutional. 251. It is stated that there can only be one civil penal remedy available for the contravention of any Act, Rule, Direction, as the Authorised Dealer being the delegate of RBI ought to be dealt with by the RBI under section 6 read with section 73A of FERA. 252. The Respondent has failed to distinguish the said judgments. The Respondent is not correct when says that the Appellant has not furnished a copy of its license as an Authorised Dealer. There is no charge in relation to the same and the same is not even a relied upon document in the Show Cause Notices. 253. The burden is on the Department to produce the same if it wanted to rely upon the document. A copy of the license is available at SCN 47. There are no conditions/ directions/ instructions that were given to the Appellant Bank in the same. License as of today has not been canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce or vide subsequent notification, S.49 is wholly inapplicable and therefore the Bank cannot be held liable under Section 49 for failure to comply with any conditions subject to which the licence have been given. 257. MENS REA It is argued on behalf of respondent that Mens rea is not an essential ingredient when charging an individual or company for contravening the provisions of the Act. In LIC Vs. Escorts (AIR 1986 SC 1370), it is observed that FERA, 1973 being a special legislation, and the burden of proof falling on the offender, mens rea is interpretively be ruled out. Our attention was drawn to the very serious nature of the consequences that follow the failure to obtain the permission of the Reserve Bank, and the circumstance that even the burden of proof that requisite permission had been obtained, was on the person prosecuted or proceeded against for contravening a provision of the Act or rule or direction or order made under the Act thus ruling out mens rea as an essential ingredient of an offence. It is true that the consequences of not obtaining the requisite permission where permission is prescribed are serious and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature before a Court of law or a judicial tribunal in accordance with the procedure prescribed in the statute which creates the offence and regulates the procedure. The Court then laid down various tests for determining when a tribunal can be considered to be a judicial tribunal and after referring to a catena of authorities relevant provisions of the Sea customs Act, 1878 and the nature of the adjudicator proceedings as contained in that Act, opined that an adjudicator authority functioning under the Act was merely an administrative machinery for the purpose of adjudging confiscation, determination of duty or the increased rate of duly and for imposition of penalty as prescribed under the Act and not a judicial tribunal. The Constitution Bench then laid down that though the administrative authorities functioning under the Sea Customs Act had the jurisdiction to confiscate gold, illegally brought into the country, and levy penalty on the defaulter, none the less the authorities were not trying a criminal case but deciding only the effect of a breach of the obligations by the defaulter under the Act. On a parity of reasoning what holds true for the adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contraventions committed by companies in State of Maharashtra V. Mayor Hans George (AIR 1965 SC 722), when the old Act, FERA, 1947 was in force. It held that mens rea in the sense of actual knowledge that the act done is contrary to law is not an essential ingredient of the offence. If mens rea is intended to be an essential ingredient of the primary offences under this statute, companies cannot be found guilty. It is clear from S. 68 of the Act that companies are liable for offences under the Act 260. The importance of penalties and therein, the lack of mens rea was highlighted in The Chairman, SEBI V. Sriram Mutual Fund Anr. (JT 2006 (11) SC 164), when discussing the powers of SEBI, and the consequences that results from curtailing it: In our view, the impugned judgment of the Securities appellate Tribunal has set a serious wrong precedent and the powers of the SEBI to impose penalty under Chapter VIA are severely curtailed against the plain language of the statute which mandatorily imposes penalties on the contravention of the Act/Regulations without any requirement of the contravention having been deliberated or contumacious. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless specifically excluded by the legislature. 264. Section 59 of the FERA 1973 puts it beyond any doubt that mens rea is an essential ingredient even for adjudication proceedings. The said Section reads as under: 59. Presumption of culpable mental state (1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation. -In this section, culpable mental state includes intention, motive, knowledge of a fact and belief in, or reason to believe, a fact. (2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability. (3) The provisions of this section shall, so far as may be, apply in relation to any proceeding before an adjudicating officer as they apply in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47. The Supreme Court in Sriram Mutual dealt with the SEBI Act. It neither of the two statutes had a provision equivalent of S. 59 of FER 1973 and is therefore the said judgments are distinguishable and not applicable to the present case. 268. The Supreme Court in Bharjatiya Steel Industries v. CST, (2008) 11 SCC 617has doubted the law laid down in Directorate of Enforcement Vs. MCTM Corporation (AIR 1996 SC 1100) and held as follows: 17. Reliance has also been placed on Director of Enforcement v. M.C.T.M. Corpn. (P) Ltd. [(1996) 2 SCC 471 : 1996 SCC (Cri) 344 : JT (1996) 1 SC 79] This Court was dealing therein with the Foreign Exchange Regulation Act, 1947. It was opined that Section 23(1)(a) of the Act confers adjudicatory function on the conduct of the delinquent, stating: (SCC p. 478, para 8) 8. 18. The attention of the Court therein, however, was not drawn to the earlier binding precedent in Hindustan Steel [AIR 1970 SC 253]. Furthermore, the question as to whether mens rea is an essential ingredient or not will depend upon the nature of the right of the parties and the purpose for which penalty is sought to be imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production under the provisions of Section 4-B, while utilising the same for the same purposes, was sold away in the same condition, which is a violation of the provisions of Section 4-B, and is punishable under the aforesaid sub-section of the Act 23. 24. We, however, are of the opinion that in the facts and circumstances of this case, existence of mens rea on the part of the appellant is evident. 269. If the argument of the Respondent is accepted for penalising the authorised dealer twice for the same act, as the E.D. will charge an authorized dealer for the violation of the provisions of FERA. The RBI will impose a penalty for the violation of its directions and instructions. The same is not the intention of the statute pertaining to authorised dealer. 270. The Respondent has placed reliance on the following judgments: (i) In Maqbool Hussain V. State of Bombay (AIR 1954 SC 325), their Lordships held that the principle of double jeopardy will not come into play when the proceedings were before a tribunal which entertained departmental or an administrative enquiry even though set up by a statue and where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub clause 1 of this section. In fact a full bench of the Supreme Court in a recent Judgment in S.M.S. Pharmaceuticals v. Neeta Bhalla, (AIR 2005 SC 3512) settled the law on this issue when dealing with an identical provision under the Negotiable Instruments Act. The court held as follows: 15. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before persons can be subjected to original process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent tails within parameters by of section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-charge of a business. It seems to us that in the context a person in-charge must mean that the person should be in over all control of the day to day business of the company or firm. This inference follows from the wording of S. 23C (2) 7 It mentions director, who may be a party to the policy being followed by a company and yet not be in charge of the business of the company. Further it mentions manager, who usually is in charge of the business but not in over-all-charge. Similarly the other officers may be in charge of only some part of business The Supreme Court in State of Haryana v. Brijlal Mittal, (AIR 1998 SC 2327) held as follows : 8 it is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the act by a company arises if at the material time he was in-charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfils both that the above requirements so as to make him liable. Conversely, without being a director a person can be in-charge of and responsible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... good faith of the officers, by the Adjudicating Officer. The transactions were effected by the officers in good faith, in the bonafide belief that the transactions are legal and permissible. The Officers acted in pursuance of instructions received from reputed nationalized Banks which are Authorized Dealers, or the centralized Bank of Soviet Union i.e., BFEA, or Giro Bank of London. Admittedly, the transactions were done in good faith and as such no penalty can be imposed on the Officers. The acts of the officers would be covered by good faith as per Section 3(22) of the General Clauses Act. Therefore, by virtue of Section 3(22) of the General Clauses Act read with Section 78 of FERA, the officers are entitled to statutory protection provided by Section 78 of FERA. The following judgment may kindly be referred to in this regard:- a. General Officer Commanding v. CBI Anr. (2012) 6 SCC 228 at Paragraphs 70, 71, 73, 74, 75 and 78. 273.1 The officers have throughout acted honestly in discharging their duties. There is no adverse finding pertaining to lack of honesty or good faith of the officers, by the Adjudicating Officer. The transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he directing mind and will of the corporation, the very ego and center of the personality of the corporation It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondent superior, but somebody from whom the company is liable because his action is the very action of the company itself b) The House of Lords in Tesco Supermarkets ltd. Vs. nattrass (1971 (2) All.E.R. 127), which has been followed by the Indian Supreme Court, has held as under: In my view, therefore, the question: what natural persons are to be treated in law as being the company for the purpose of act done in the course of its business, including the taking of precautions and the exercise of due diligence to avoid the commission of a criminal offence, is it be found by identifying those natural persons who by the memorandum and articles of association or as a result of action taken by the directions, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affairs of the corporation, the alter ego, is liable to prosecuted for such an offence. I am fully in agreement with the view expressed on this aspect of the matter in the judgment of Brother Mathur, J. What troubles me is the question whether a corporation can be prosecuted for an offence even when the punishment is a mandatory sentence of imprisonment Justice Rajendra Bahu in para 56 of the Judgment has held as follows ; In order to trigger corporate criminal liability for the actions of the employee (who must generally be liable himself), the actor-employee who physically committed the offence must be the ego, the centre of the corporate personality, the vital organ of the body corporate, the alter ego of the employer corporation or its directing mind. Since the company/corporation has no mind of its own its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. To this extent there are no difficulties in our law to fix criminal liability on a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and further, spell out the offence committed by such officer. Only certain junior officers have been namedin the SCNs who can under no circumstances be said to be incharge and responsible for the bank or for conduct of its business. Further, onus to prove that a person was responsible for conduct of business of company is on the Department, which it has failed to discharge. 276. In the impugned Orders Mr. Rajgopalan Ramkumar, Mr. Sunil G. Sawant, Mr. R.B. Dhage, Mr. Allwyn Roche, Mr. P.S. Khatu, Mr. T.R. Subramaniam and Mr. Paul Pereira have been held liable under Section 68(2) of FERA for allegedly contravening the provisions of Section 8(1), 9(1)(a), 9(1)(e) and 6(4) read with Section 49, on the ground that the alleged contraventions took place due to their alleged negligence even when section 68(2) was not invoked in the SCNs. Section 68(2) uses the terms consent, connivance and negligence disjunctively since each of these charges is distinct and mutually exclusive. It is submitted that the Show Cause Notices do not contain any allegation of consent, connivance, or any action attributable to any neglect on the part of the officers in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court is justified to this extent. However, it is equally important to mention as to what would be the consequence if the noticee does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show-cause notice should meet the following two requirements viz: (i) The material/grounds to be stated which according to the department necessitates an action; (ii) Particular penalty/action which is proposed to be taken. It is this second requirement which the High Court has failed to omit. We may hasten to add that even if it is not specifically mentioned in the show-cause notice but it can clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement b) Commissioner of Central Exercise, Bangalore vs. Brindavan Beverages (P) Ltd (2007) 5 SCC 388 13. We find that in the show-cause notice there was nothing specific as to the role of the respondents, if any. The arrangements as alleged have not been shown to be within the knowledge or at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the essential ingredients of fair hearing is that a person should be served with a proper notice i.e. a person has a right to notice. Notice should be clear and precise so as to give the other party adequate information of the case he has to meet and make an effective defence. Denial of notice and opportunity to respond result in making the administrative decision as vitiated. 25. The adequacy of notice is a relative term and must be decided with reference to each case. But generally a notice to be adequate must contain the following: (a) time, place and nature of hearing; (b) legal authority under which the hearing is to be held; (c) statement of specific charges which a person has to meet e) SACI Allied Products Ltd., U.P. vs. Commissioner of Central Exercise, Meerut (2005) 7 SCC 159 16. It was argued that the first proviso to Section 4(1)(a) of the Act was never invoked by the Department either in the show-cause notice or in the impugned order and it was for the first time that the Appellate Tribunal in the impugned order has sought to sustain the impugned order by invoking the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rued strictly. 1. What then does the expression a person in-charge and responsible for the conduct of the affairs of a company mean? It will be noticed that the word company includes a firm or other association, and the same test must apply to a director in-charge and a partner of a firm in-charge of a business. It seems to us that in the context a person in-charge must mean that the person should be in over-all control of the day to day business of the company or firm. This inference follows from the wording of Section 23-C(2). It mentions director, who may be a party to the policy being followed by a company and yet not be in-charge of the business of the company. Further it mentions manager, who usually is in charge of the business but not in over-all charge. Similarly the other officers may be incharge of only some part of business. 2. In State v. S.P. Bhadani [AIR 1959 Pat 9 : 1958 BLJR 436 : 1959 Cri LJ 68 : (1959) 1 Lab LJ 157] Kanhaiya Singh, J., in construing a similar provision of the Employees Provident Fund Act (1952), Section 14-A - held that the first sub-section would be confined only to officers in the immediate charge of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraphs 15 17) 15. Faced with the position that the wounds were not self-inflicted and the killing could have been, and indeed was, in self-defence, the submission is that protection of Section 155, nonetheless, is not available because killing of a smuggler is not a part of the official duty, which alone is protected by this section. It is laboured hard to impress that the official duty, in the present case, was confined to stop the movement of the vehicle and no farther. After the vehicle was got stopped, the submission is, that the act in performance of official duty was over and the appellant could not have scuffled with the deceased leading to the latter's death. We cannot agree inasmuch as on 16-5-1991 itself it was stated at the spot by some watchers to the police officer who came there that the appellant was trying to grab the ignition key of the vehicle which was being driven by the deceased. This shows that the appellant was trying to prevent the mobility of the vehicle. If while engaged in such an act, the appellant was assaulted, and 22 times at that, with an instrument like knife causing bruises, abrasions, incised wounds on various parts of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Section 49, on the ground that the alleged contraventions took place due to their alleged negligence . It is submitted that the said finding of the Adjudicating officer is not only erroneous but perverse in law because Section 68(2) of FERA was not even invoked in the Show Cause Notices issued to these officers. Section 68(2) uses the terms consent, connivance and negligence disjunctively since each of these charges is distinct and mutually exclusive. It is submitted that the Show Cause Notices do not contain any allegation of consent, connivance, or any action attributable to any neglect on the part of the officers in the SCNs. The Show Cause Notices did not make any such allegation but merely stated that the officer was incharge of and responsible for the conduct of the business of the bank. It is submitted that the said Appellants could not have been proceeded against under S. 68(2) in the absence of any allegations in the Show Cause notice. The following judgments are apposite in this regards: (a) K. K. Ahuja v. V.K. Vora and Anr. (2009) 10 SCC 48 at Paragraphs 25- 27 and 30. (b) R. Banerjee v. H. D. Dubey, (1992) 2 SCC 552 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation Board/High Court of various states/the Supreme Court and the adjudicating officer is bound to follow the said decisions. It is submitted that the impugned Order is perverse inasmuch as it did not deal with many of the Judgments of the Supreme Court and various High Courts that were cited and which were binding upon the Adjudicating Officer. For the proposition that the adjudicating authority is bound by the decision of the Board and Higher Courts, the following judgments can be referred to: a. Wimco Ltd. Vs. Director of Enforcement, 1997 [94] Taxman 542 at Page No. 547 b. Union of India Vs. Kamalakshi Finance Corporation Ltd., 1992 Supp (1) SCC 648) at Paragraphs 6 and 8. 283. It is the admitted position that power of RBI to punish an Authorised dealer was included in FERA only in the year 1993 whereas these contraventions were taken place in the year 1991. 284. Counsel appearing on behalf of appellants has also argued in the alternative, it is submitted that in any event assuming without admitting that any contraventions as alleged have taken place, no case for imposition of penalty is made out in the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.06 Less interest paid on CRR @ 3% and SLR around 7% for two years to the Bank (5.04) Net loss of interest to the Bank on ₹ 42.65 crores 12.02 288. Annexures F,G,H and I are copies of the letters dated 21st January 1993, 11th February, 1993, February 17, 1993 and March 22, 1993 and the RBI s acceptance of the offer on 30th March 1993 respectively. 289. It is a well settled principle of law that merely because penalty may be imposed, unless there is a deliberate defiance of law or the party is guilty of contumacious conduct or dishonest conduct or has acted in conscious disregard of its obligation. 290. The Supreme Court in Hindustan Steel v. State of Orissa, (AIR 1970 SC 253) held as follows: 7. Under the Act penalty may be imposed for failure to register as a dealer Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being of technical or venial breach of the provisions of Act and since it was under a bona fide belief that the Appellants were not liable to get permission of the Reserve Bank of India for the said transaction, there would be no question of imposing the penalty. Accordingly, the appeal would succeed in so far as Show Cause Notice No. 29 is concerned 293. The High Court of Delhi in Nestle India Limited v. State, (2000 (101) Comp Cas 263) held as follows: 20. In M/s. Hindustan Steel Ltd. Vs. The State of Orissa MANU/SC/0418/1969, there was failure to register as a dealer under the Sales Tax Act which could entail penalty. However, it was held that the imposition of penalty will not be always necessary. Penalty will also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of, the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown to have intentionally aided the commission of the crime. Mere proof that the crime charged could not have been committed without the interposition of the alleged abettor is not enough compliance with the requirements of Section 107 c) In Faguna Kana Nath vs. State of Assam, (AIR 1959 SC 673) observed as under: 5 . Abetment is defined in S.107 and a person abets the doing of a thing when (1) he instigates any person to do that thing or (2) engages with one or more other person or persons in any conspiracy for the doing of that thing .or (3) intentionally aids, by any act or illegal omission, the doing of that thing 295. It is stated on behalf of appellants that in the entire show cause notice, there is no material to suggest even remotely that the Noticee allowed the debit to the BFEA Bank Account with an intention to contravene the provisions of the act or the Manual as alleged. The Bank Official who processed the transaction for debit to the account of BFEA merely carried out the instructions of the constituent viz. BFEA as reflected in the cheque issued by and drawn on its account with the Noticee Bank. These instruments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Collector (Appeals) and the other the Tribunal. The High Court has, in our view, rightly criticized the conduct of the Assistance Collections and the harassment to the assesse caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost important that, in disposing of quasi-judicial issues before hem, revenue officers are bound by the decisions of the appellate authorities the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The observations of the High Court should be kept in mind in future and the utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them 297. The Respondent has also relied upon the judgments to state that a Show Cause Notice need not be exhaustive in nature, it may be correct but at least, the allegations contained in the show cause no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Adjudication Orders are set aside and the Appellant Bank and its Officers are exonerated as a consequence of which the above-mentioned deposited penalty amounts become refundable to the Appellants, the Appellants will not apply for a refund of the said penalty amounts. The statement was madde without prejudice to the rights and contentions of the Appellants, but it should not be considered as admission of any violation of any provision of FERA by the Appellants. 301. There is no disputes that contravention in the above said case have happened. From the entire gamut of the case, no material is found to establish that the banks and its official are involved in any conspiracy directly or indirectly, intentionally or deliberately for the said lapse. No doubt it is serious matter and it should not have happened. It did happen 1991 when communication and technology was not so equipped. Even staff or banks officials may not be experts at that point of time. From the conduct of the bank and pleading of all the appellants, it appears that they are feeling their mistakes. 302. In nutshell, the case of the appellants are that being a bank it was only for RBI to i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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