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Sunday, January 19, 2014

Sections 6(4), 6(5), 7 & 8 of the Foreign Exchange Regulation Act, 1973 (hereinafter called “FERA”) as well as paragraph 3 of the Memorandum of FLM issued by RBI.- Section 50 of FERA read with Section 49 (3) & (4) of Foreign Exchange Management Act (hereinafter called “FEMA”). - No Violation of provisions when a sale for higher price more than market value is immaterial- the sale transaction between two Licensed FFMCs carried out by exchange of foreign currency by way of payment in the form of pay orders- not an offence and as such it can not be called violation of provisions of FERA &FLM .Apex court allowed the appeal and order to refund of penalty with interest = Tulip Star Hotels Ltd. ….Appellant VERSUS Special Director of Enforcement .…Respondent = 2014 ( January - Vol - 1-D.B.) Judis.nic.in/ S.C./ file name =41156

Sections  6(4),  6(5),  7  &  8  of  the  Foreign Exchange Regulation Act, 1973 (hereinafter  called  “FERA”)  as  well  as paragraph 3 of the Memorandum of FLM issued by RBI.-  Section 50 of FERA read with  Section  49  (3)  &  (4)  of  Foreign Exchange Management Act (hereinafter  called  “FEMA”).  - No Violation of provisions when a sale for higher price more than market value is immaterial-  the sale transaction between two Licensed FFMCs carried out  by exchange of foreign currency by way of payment in the form of pay orders- not an offence and as such it can not be called violation of provisions of FERA &FLM .Apex court allowed the appeal and order to refund of penalty with interest = 

whether in a case of this nature where such  a transaction had taken place in between two licensed FFMCs  and  the  said transaction was carried on by exchange of  foreign  currency  by  way  of payment in the form of pay-orders and  that  the  sale  effected  by  the Appellants and the purchase made by the other FFMC, namely, M/s Hotel Zam  Zam was not disputed, can it still be held that there was  any  violation at all in order to proceed against the Appellants for imposing a penalty? = Apex court held No - set aside the orders of Authorized officer, Tribunal and D.B. of High court =

The Respondent issued a
   show cause notice against the Appellants dated 29th April  2002,  wherein
   it was alleged that the Appellant in SLP No.7655  of  2011  sold  foreign
   currency to the value of 1,47,000 US$ and 1000 Sterling £ of  UK  between
   29.4.1997 to 5.6.1997 through unauthorized persons deputed by  M/s  Hotel
   Zam Zam in violation of Sections  6(4),  6(5),  7  &  8  of  the  Foreign
   Exchange Regulation Act, 1973 (hereinafter  called  “FERA”)  as  well  as
   paragraph 3 of the Memorandum of FLM issued by RBI. 
The  Appellants  were
   called upon to show-cause why penalty should not be imposed against  them
   under Section 50 of FERA read with  Section  49  (3)  &  (4)  of  Foreign
   Exchange Management Act (hereinafter  called  “FEMA”).  Subsequently,  by
   order dated 28.10.2004 the Respondent imposed a  penalty  of  Rs.50,000/-
   each on both the Appellants. 
The Appellants preferred appeals before  the
   Appellate Tribunal for Foreign Exchange in Appeal Nos.1259  and  1260  of
   2004, which were also dismissed by order dated 2.7.2008. The  above  said
   orders of the Original Authority, as well  as  the  Appellate  Authority,
   were the subject matter of challenge before the  Division  Bench  of  the
   High Court in FEMA Appeal Nos.3 & 4 of 2008. The  Division  Bench  having
   confirmed the orders of the lower authority, as well as the tribunal, the
   Appellants have come forward with these appeals.  =

A  close
   scrutiny of paragraph 3 disclose that the said paragraph has been  issued
   by the RBI to state as to who can be called as ‘authorized officials’  of
   money changers. 
The said paragraph also  imposes  a  restriction  to  the
   effect that other than an authorized representative, nobody  else  should
   be allowed to transact money changing business on  behalf  of  the  money
   changer.

11. Paragraph 9 virtually gives a  free  hand  for  the  money  changers  to
   indulge in purchase of foreign currency etc., and the only restriction is
   that while making such purchase, the purchase value should be  paid  only
   by way of an instrument and not by way of cash.

12. Keeping the above provisions in mind, when we refer  to  the  nature  of
   transaction that had taken place as between the Appellants and M/s  Hotel
   Zam Zam, the following facts are not
in controversy:
            a) The Appellants, as well as M/s Hotel Zam Zam,  are  licensed
               FFMC.
            b) The Appellants sold foreign exchange of 1,47,000  US  $  and
               1,000/- sterling £ of UK as between April 1997 to June  1997
               to M/s Hotel Zam Zam.
            c) The purchase value of the above foreign currency  was  at  a
               higher rate than the existing retail rate that prevailed  in
               the market.
            d) The purchase value was paid by M/s Hotel Zam Zam by  way  of
               Pay Orders.
            e) Prior to the transaction, at the instance of the Appellants,
               a Xerox copy of the RBI license of M/s  Hotel  Zam  Zam  was
               produced and based on which the transaction was effected.
            f) The transactions were effected  on  29.04.1997,  06.05.1997,
               29.05.1997 and 05.06.1997 and the  amounts  transacted  were
               7,000 US$, 1000 Sterling £ of UK, 40,000  US$  and  1,00,000
               US$ on the respective dates. In all 1,47,000  US$  and  1000
               Sterling £ of UK were sold by the Appellants  to  M/s  Hotel
               Zam Zam.
            g) All  the  above  transactions  were  made  and  the  foreign
               currency  was  handed  over  to  Shri  Rakesh   Mahatre,   a
               representative of M/s Hotel Zam Zam.
Orders of Original Authority
Based on the above undisputed facts relating  to  the  transaction  as
   between the Appellants and M/s Hotel  Zam  Zam,  
the  Original  Authority
   reached  a  conclusion  that  
the  Appellants  failed   to   verify   the
   authorization in favour of the  persons  concerned  to  buy/sell  foreign
   exchange on behalf of the said money changers as contemplated  under  the
   relevant provisions. 
In  other  words,  it  was  concluded  that  it  was
   incumbent upon the Appellants by virtue  of  the  terms  of  instructions
   contained in paragraph 3 of the Memorandum of FLM issued by RBI  to  have
   verified the bonafides of the persons deputed to them by  M/s  Hotel  Zam
   Zam before handing over the foreign currencies to such persons.  
It  was,
   therefore, ultimately concluded that the said failure on the part of  the
   Appellants resulted in  contravention  of  the  directions  contained  in
   paragraph 3 of the Memorandum of FLM read with Section 6(4), 6(5)  and  7
   of FERA. 
Ultimately  the  Appellants  were  found  guilty  for  the  said
   contraventions and the penalty came to be imposed.  =
The said order of  the
   Original Authority was confirmed by the Tribunal, as well as the Division
   Bench of the High Court.

Apex court conclusion :-
The  above  impugned  orders  disclose  that  
the  only  violation   or
   contravention related to the stipulations contained in paragraph  3  read
   with Section 6(4) and 6(5) of FERA. 
It will be relevant to note that  the
   variation in the rates of purchase value of the foreign currency was  not
   the basis for  the  ultimate  conclusion  about  the  contravention  held
   against the Appellants. 
Therefore, keeping aside the said aspect, when we
   examine the contravention held proved against the Appellants, we feel  it
   appropriate to make a reference to paragraph 9 in  the  forefront.  
Under
   paragraph 9 of the FLM as between the money changers,  a  free  hand  has
   been given for purchase and sale of any foreign currency  notes  etc.  in
   rupee value. 
The only restriction imposed  therein  is  that  the  Indian
   rupee value of the foreign currency should not be paid by  way  of  cash,
   but should always be paid in the form of an instrument such  as  banker’s
   cheque/pay-order/demand draft etc., or by  debiting  to  the  purchasers’
   bank account. 
Therefore, if under paragraph 9 such a free hand  has  been
   given to the money changers, namely, FFMCs in the matter of  purchase  of
   foreign currency etc., by making  payments  in  the  form  of  negotiable
   instruments under the relevant statutes, the question  that  would  arise
   for consideration would be 
whether in a case of this nature where such  a
   transaction had taken place in between two licensed FFMCs  and  the  said
   transaction was carried on by exchange of  foreign  currency  by  way  of
   payment in the form of pay-orders and  
that  the  sale  effected  by  the
   Appellants and the purchase made by the other FFMC, namely, M/s Hotel Zam
   Zam was not disputed, 
can it still be held that there was  any  violation
   at all in order to proceed against the Appellants for imposing a penalty? =
   When we examine the said issue, we are unable to  accede  or  countenance
   the stand of the Respondent that the foreign  currencies  to  the  values
   mentioned  in  the  earlier  paragraphs   were   handed   over   to   the
   representative of M/s Hotel Zam  Zam  by  one  Mr.  Rakesh  Mahatre  and,
   therefore, the whole transaction was in contravention  of  Sections  6(4)
   and 6(5) of FERA and paragraph 3 of FLM.
Once we steer clear of the above position, we come to  the  question  of
   the higher value at which the foreign currency was alleged to  have  been
   sold by the Appellants to M/s  Hotel  Zam  Zam.  
As  pointed  out  by  us
   earlier, the said act  was  not  the  basis  for  the  contravention  and
   imposition of the penalty as against the  Appellants.  
To  rule  out  any
   controversy, the conclusion of the Original Authority as recorded in  its
   order for finding the Appellants guilty of paragraph 3 of  the  FLM  read
   with Sections 6(4), 6(5) and 7 of FERA, can be usefully  extracted  which
   reads as under:
      “…….Thus by not insisting on the authorization from the said Hotel Zam
      Zam disclosing the names, address and other particulars of the persons
      deputed by them for purchasing foreign exchange from M/s Cox and Kings
      Travel & Finance Ltd., the said M/s Cox and  Kings  Travel  &  Finance
      Ltd. has contravened  the  directions  contained  in  para  3  of  the
      Memorandum FLM R/w SEC. 6(4),  6(5)  and  7  of  the  FERA,  1973.  I,
      therefore hold them guilty for the said contraventions.”
 This apart, 
when we refer  to  the  confiscation  order  passed  by  the
   Commissioner of Customs in  its  order  dated  21.08.1998,  it  has  been
   specifically stated as under:
      “The statements of Mr. Chitrang Mehta, Manager of M/s LKP dated  06/7-
      08-97 indicated that there is transaction at prices higher than  those
      prevailing market rates. 
However, it is also a  known  fact  that  the
      rates for the foreign exchange can be fluctuating and there is  hardly
      any transaction effected at the rates which are recorded for that  day
      to be prevailing in the market not only for the foreign  currency  but
      also for to be other goods e.g. shares in  the  stock  market  or  the
      metals and other commodities being traded in the specific markets. 
 It
      is also to be considered that large transactions  were  being  entered
      into by them and profit made on the sales of such  large  transactions
      would not ipso facto induce me to conclude that the mere fact of sales
      at higher prices would be a preconcerted knowledge  that  the  dollars
      sold are to be smuggled out of India. 
I find that the price  at  which
      Ms. Pinky Jaisinghani was purchasing the dollars from other FFMCs were
      settled between  her  mentor  Shri  Suleman  Tajuddin  Patel  and  not
      considerations of any other kind.”


21. Therefore, in the impugned orders of the Original Authority, as well  as
   the Tribunal and the Division Bench, 
the sale effected by the  Appellants
   on a rate higher than the rate prevailing in the market was not the basis
   for the alleged violation of paragraph 3 of the FLM  read  with  Sections
   6(4), 6(5) and 7 of FERA. 
In the confiscation order passed by the Customs
   Authorities, where again the Appellants were also one of the noticees, no
   fault was found as against the Appellants on that ground. 
In the light of
   our above conclusions, as regards  the  higher  value  at  which  foreign
   currency alleged to have been sold by the appellant to Hotel Zam Zam, the
   reliance placed upon the decision in 
P.V. Mohammad  Barmay  Sons  (supra)
   has also no application. The said decision came to be  rendered  entirely
   under different facts which cannot be applied to the facts of the present
   case.

Having  reached  the  above  conclusions,  we  are  convinced  that  the
   impugned orders  by  which  the  Appellants  were  found  guilty  of  the
   violation of paragraph 3 of FLM read with Sections 6(4), 6(5)  and  7  of
   FERA and the consequential  imposition  of  penalty  of  Rs.50,000/-  was
   wholly unjustified. 
The impugned orders are liable to be  set  aside  and
   they are accordingly set aside. 
If the Appellants have  parted  with  the
   penalty amount imposed under  the  impugned  orders,  the  Respondent  is
   directed to refund the same to the Appellants along with simple  interest
   at the rate of 6% per annum, within two months  from  the  date  of  this
   judgment. The appeals are allowed with the above directions.

2014 ( January - Vol - 1-D.B.) Judis.nic.in/ S.C./ file name  =41156   
   

                                                        Reportable

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 680 OF 2014
                         (@ SLP (C) No.7655 OF 2011)


Tulip Star Hotels Ltd.                       ….Appellant

                                   VERSUS

Special Director of Enforcement                .…Respondent

                                    With

                        CIVIL APPEAL NO. 681 OF 2014
                         (@ SLP (C) No.7657 OF 2011)

Peter Kerkar                                       ….Appellant

                                   VERSUS

Special Director of Enforcement                .…Respondent

                               J U D G M E N T


Fakkir Mohamed Ibrahim Kalifulla, J.

1. Leave granted.

2. In these two appeals, the challenge  is  to  a  common  judgment  of  the
   Division Bench of the High Court of Judicature at Bombay in  FEMA  Appeal
   Nos.3 & 4 of 2008, dated 14th October 2010.

3. Brief Facts which led to the  culmination  of  the  present  appeals  are
   required to be stated.
The Appellant  in  SLP  No.7655  of  2011  is  the
   company and
the Appellant in SLP  No.7657  of  2011  was  also  proceeded
   against as the Executive Director of the company.
The Respondent issued a
   show cause notice against the Appellants dated 29th April  2002,  wherein
   it was alleged that the Appellant in SLP No.7655  of  2011  sold  foreign
   currency to the value of 1,47,000 US$ and 1000 Sterling £ of  UK  between
   29.4.1997 to 5.6.1997 through unauthorized persons deputed by  M/s  Hotel
   Zam Zam in violation of Sections  6(4),  6(5),  7  &  8  of  the  Foreign
   Exchange Regulation Act, 1973 (hereinafter  called  “FERA”)  as  well  as
   paragraph 3 of the Memorandum of FLM issued by RBI.
The  Appellants  were
   called upon to show-cause why penalty should not be imposed against  them
   under Section 50 of FERA read with  Section  49  (3)  &  (4)  of  Foreign
   Exchange Management Act (hereinafter  called  “FEMA”).  
Subsequently,  by
   order dated 28.10.2004 the Respondent imposed a  penalty  of  Rs.50,000/-
   each on both the Appellants.
The Appellants preferred appeals before  the
   Appellate Tribunal for Foreign Exchange in Appeal Nos.1259  and  1260  of
   2004, which were also dismissed by order dated 2.7.2008. The  above  said
   orders of the Original Authority, as well  as  the  Appellate  Authority,
   were the subject matter of challenge before the  Division  Bench  of  the
   High Court in FEMA Appeal Nos.3 & 4 of 2008. The  Division  Bench  having
   confirmed the orders of the lower authority, as well as the tribunal, the
   Appellants have come forward with these appeals.

4. We heard Mr. H.N. Salve, learned Senior Advocate for the  Appellants  and
   Mr. S.K. Bagaria, learned Addl. Solicitor General for the Respondent.  We
   also perused the written submissions filed on behalf of the appellant  as
   well as the respondent.  We  also  perused  the  order  of  the  Original
   Authority, the Tribunal, as well as the Division Bench and  having  heard
   the counsel for  the  respective  parties  we  proceed  to  decide  these
   appeals.
5. Mr. Salve, learned senior counsel, appearing on behalf of the  Appellants
   in his submissions mainly contended that there was no violation at all in
   the matter of Sale and Purchase by the Appellant company to M/s Hotel Zam
   Zam in relation to the sale of 1,47,000 US$, as well as 1000  Sterling  £
   of UK in between 29.4.1997 and 5.6.1997, inasmuch as both  the  Appellant
   company, as well as M/s Hotel Zam Zam  are  duly  licensed  Full  Fledged
   Money Changers, in short FFMC. 
According to the learned  senior  counsel,
   such transactions as between the licensed  FFMCs  are  wholly  authorized
   under the provisions of FERA, as well as the Memorandum  of  FLM  of  the
   Reserve Bank of India.
The learned senior counsel further contended  that
   in the confiscation proceedings initiated against the Appellants, as well
   as M/s Hotel Zam Zam, as per the order dated 21.8.1998 it was found  that
   no statutory violation can be attributed to the Appellants and therefore,
   the imposition of penalty as  against  the  Appellants  by  the  Original
   Authority and the confirmation of  the  same  by  the  Tribunal  and  the
   Division Bench are therefore liable to be set aside.

6. As against the above submissions, Mr. Bagaria,  learned  Addl.  Solicitor
   General would contend  that  by  virtue  of  the  statutory  stipulations
   contained in sub-sections (4) and (5) of Section 6, Section 7  and  8  of
   FERA read along with paragraph 3 of the Memorandum of  FLM  of  the  RBI,
   there was a clear violation of the statutory provisions committed by  the
   Appellants, hence the  penalty  imposed  by  the  Original  Authority  as
   confirmed by the Appellate Authority, as well as the High Court cannot be
   faulted. It was also submitted that the Original Authority, the Appellate
   Tribunal and the High Court have reached a concurrent  finding  based  on
   documents, materials, as well  as  statements  on  record  and  the  said
   conclusions are not perverse and therefore, the  same  do  not  call  for
   interference.  Reliance was placed upon the  decisions  in  Collector  of
   Customs  vs.  Swastic  Woollens  Pvt.  Ltd.  -  1988  (Supp)   SCC   796,
   Commissioner of Central Excise vs. Charminar Non-Wovens Ltd. – (2009)  10
   SCC 770 and Ghisalal vs. Dhapubai (dead) by LRs & Ors.  –  (2011)  2  SCC
   298.
It was also contended that  Hotel  Zam  Zam  purchased  the  foreign
   exchange from the appellant at a higher rate than the exchange rate fixed
   by the RBI and on this ground as well the proceedings  initiated  against
   the appellant and the imposition of penalty was justified. 
To support the
   said contention, reliance was placed upon the decision in  P.V.  Mohammad
   Barmay Sons vs. Director of Enforcement – 1992 (61) ELT 337.

7. When we consider the  submissions  of  the  respective  counsel  we  find
   Sections 6(4), 6(5), 8(2) of FERA and Para 3 and 9 of the  Memorandum  of
   FLM of RBI, are required to be noted which are as under:

      “Section 6 Authorised dealers in foreign exchange:-


      6(4)  An authorized dealer shall,  in  all  his  dealings  in  foreign
      exchange and in the exercise and discharge of the powers  and  of  the
      functions delegated to him under Section 74, comply with such  general
      or special directions or instructions as 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.


      6(5)  An authorized dealer shall, before undertaking  any  transaction
      in foreign exchange on behalf of any person, require  that  person  to
      make such declaration and to give such information as will  reasonably
      satisfy him 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
      authorized 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.


      Section 8: Restrictions on dealings in foreign exchange:-


      (2)   Except with the previous general or special  permission  of  the
      Reserve Bank, no person, whether an  authorized  dealer  or  a  money-
      changer or otherwise, shall enter into any transaction which  provides
      for the conversion of Indian currency into foreign currency or foreign
      currency into Indian currency at rates  of  exchange  other  than  the
      rates for the time being authorized by the Reserve Bank.


      Paragraphs 3 and 9 of the FLM


      Authorised Officials
     3. All money-changers should arrange  to  forward  lists  giving  full
        names and designations of their representatives who are  authorized
        to buy and sell foreign currency notes, coins and travelers cheques
        on their behalf together with their specimen signatures, at the end
        of each calendar year to the office of  Reserve  Bank  under  whose
        jurisdiction they are functioning. Any changes in their list should
        also be brought to the notice of Reserve Bank. No person other than
        the authorized representative should be allowed to transact  money-
        changing business on behalf of the money-changer


      Purchases from other Money-changers and Authorized Dealers:-


     9. Money-changers may freely purchase from  other  money-changers  and
        authorized dealers in foreign exchange or  their  exchange  bureau,
        any foreign currency notes and coins tendered by the letter.  Rupee
        equivalent of the amount  of  foreign  currency  purchased  should,
        however, be paid by way of a  cross  cheque  drawn  on  their  bank
        account or if made by way of  a  bankers’  cheque/pay  order/demand
        draft, it should be accompanied by  a  certificate  from  the  bank
        issuing the relative instrument certifying that the funds  for  the
        instrument have been received by it by debit to the applicants bank
        account. In no circumstances should payments  in  respect  of  such
        sale be made in cash.”

8. Under Section 6(4) it is stipulated that a  full  fledged  money  changer
   (FFMC) as an authorized dealer in foreign exchange should strictly comply
   with the general or special directions or instructions that may be issued
   by the RBI and that except with  the  previous  permission  of  the  RBI,
   authorized dealers should not engage in any transaction involved  in  any
   foreign exchange, which is not  in  conformity  with  the  terms  of  his
   authorization. Under Section 6(5) it is  stipulated  that  an  authorized
   dealer should before undertaking  any  transaction  in  foreign  exchange
   should ensure verification on certain aspects in  order  to  ensure  that
   there is no contravention of the provisions of FERA and if the  FFMC  has
   any  reason  to  believe  that  any  such  contravention  or  evasion  is
   contemplated by a person who seeks  to  indulge  in  any  transaction  in
   foreign exchange, the FFMC should report the matter to the RBI.

9. Section 8 of FERA imposes restrictions on dealings in  foreign  exchange.
   The said provision imposes restriction to the effect that no person other
   than the authorized dealer in India, shall purchase or otherwise  acquire
   or borrow any foreign exchange.
Under sub section  2,  it  is  stipulated
   that except with the previous general or special permission  of  RBI,  an
   authorized dealer or a money changer should enter  into  any  transaction
   providing conversion of Indian currency into  foreign  currency  or  vice
   versa, at rates of exchange other  than  the  rates  for  the  time-being
   authorized by RBI.

10. De  hors  the  above  provisions,  the  other  relevant  provisions  are
   paragraphs 3 & 9 of the Memorandum of FLM issued  by  the  RBI.
A  close
   scrutiny of paragraph 3 disclose that the said paragraph has been  issued
   by the RBI to state as to who can be called as ‘authorized officials’  of
   money changers. 
The said paragraph also  imposes  a  restriction  to  the
   effect that other than an authorized representative, nobody  else  should
   be allowed to transact money changing business on  behalf  of  the  money
   changer.

11. Paragraph 9 virtually gives a  free  hand  for  the  money  changers  to
   indulge in purchase of foreign currency etc., and the only restriction is
   that while making such purchase, the purchase value should be  paid  only
   by way of an instrument and not by way of cash.

12. Keeping the above provisions in mind, when we refer  to  the  nature  of
   transaction that had taken place as between the Appellants and M/s  Hotel
   Zam Zam, the following facts are not
in controversy:
            a) The Appellants, as well as M/s Hotel Zam Zam,  are  licensed
               FFMC.
            b) The Appellants sold foreign exchange of 1,47,000  US  $  and
               1,000/- sterling £ of UK as between April 1997 to June  1997
               to M/s Hotel Zam Zam.
            c) The purchase value of the above foreign currency  was  at  a
               higher rate than the existing retail rate that prevailed  in
               the market.
            d) The purchase value was paid by M/s Hotel Zam Zam by  way  of
               Pay Orders.
            e) Prior to the transaction, at the instance of the Appellants,
               a Xerox copy of the RBI license of M/s  Hotel  Zam  Zam  was
               produced and based on which the transaction was effected.
            f) The transactions were effected  on  29.04.1997,  06.05.1997,
               29.05.1997 and 05.06.1997 and the  amounts  transacted  were
               7,000 US$, 1000 Sterling £ of UK, 40,000  US$  and  1,00,000
               US$ on the respective dates. In all 1,47,000  US$  and  1000
               Sterling £ of UK were sold by the Appellants  to  M/s  Hotel
               Zam Zam.
            g) All  the  above  transactions  were  made  and  the  foreign
               currency  was  handed  over  to  Shri  Rakesh   Mahatre,   a
               representative of M/s Hotel Zam Zam.


13.   Based on the above undisputed facts relating  to  the  transaction  as
   between the Appellants and M/s Hotel  Zam  Zam,  
the  Original  Authority
   reached  a  conclusion  that  the  Appellants  failed   to   verify   the
   authorization in favour of the  persons  concerned  to  buy/sell  foreign
   exchange on behalf of the said money changers as contemplated  under  the
   relevant provisions. 
In  other  words,  it  was  concluded  that  it  was
   incumbent upon the Appellants by virtue  of  the  terms  of  instructions
   contained in paragraph 3 of the Memorandum of FLM issued by RBI  to  have
   verified the bonafides of the persons deputed to them by  M/s  Hotel  Zam
   Zam before handing over the foreign currencies to such persons.  
It  was,
   therefore, ultimately concluded that the said failure on the part of  the
   Appellants resulted in  contravention  of  the  directions  contained  in
   paragraph 3 of the Memorandum of FLM read with Section 6(4), 6(5)  and  7
   of FERA. 
Ultimately  the  Appellants  were  found  guilty  for  the  said
   contraventions and the penalty came to be imposed. The said order of  the
   Original Authority was confirmed by the Tribunal, as well as the Division
   Bench of the High Court.

14.  The  above  impugned  orders  disclose  that
the  only  violation   or
   contravention related to the stipulations contained in paragraph  3  read
   with Section 6(4) and 6(5) of FERA. 
It will be relevant to note that  the
   variation in the rates of purchase value of the foreign currency was  not
   the basis for  the  ultimate  conclusion  about  the  contravention  held
   against the Appellants. 
Therefore, keeping aside the said aspect, when we
   examine the contravention held proved against the Appellants, we feel  it
   appropriate to make a reference to paragraph 9 in  the  forefront.  
Under
   paragraph 9 of the FLM as between the money changers,  a  free  hand  has
   been given for purchase and sale of any foreign currency  notes  etc.  in
   rupee value.
The only restriction imposed  therein  is  that  the  Indian
   rupee value of the foreign currency should not be paid by  way  of  cash,
   but should always be paid in the form of an instrument such  as  banker’s
   cheque/pay-order/demand draft etc., or by  debiting  to  the  purchasers’
   bank account. 
Therefore, if under paragraph 9 such a free hand  has  been
   given to the money changers, namely, FFMCs in the matter of  purchase  of
   foreign currency etc., by making  payments  in  the  form  of  negotiable
   instruments under the relevant statutes, the question  that  would  arise
   for consideration would be 
whether in a case of this nature where such  a
   transaction had taken place in between two licensed FFMCs  and  the  said
   transaction was carried on by exchange of  foreign  currency  by  way  of
   payment in the form of pay-orders and  
that  the  sale  effected  by  the
   Appellants and the purchase made by the other FFMC, namely, M/s Hotel Zam
   Zam was not disputed, 
can it still be held that there was  any  violation
   at all in order to proceed against the Appellants for imposing a penalty?
   When we examine the said issue, we are unable to  accede  or  countenance
   the stand of the Respondent that the foreign  currencies  to  the  values
   mentioned  in  the  earlier  paragraphs   were   handed   over   to   the
   representative of M/s Hotel Zam  Zam  by  one  Mr.  Rakesh  Mahatre  and,
   therefore, the whole transaction was in contravention  of  Sections  6(4)
   and 6(5) of FERA and paragraph 3 of FLM.
15. When we examine paragraph 3 of FLM, we find  that  the  caption  of  the
   said paragraph  is  “Authorized  Officials”.  The  purport  of  the  said
   paragraph was to ensure that any licensed  money  changers  should  allow
   transaction of its money changing business in its premises  only  through
   such persons who are the listed authorized officials as certified by  the
   office of the Reserve Bank under whose jurisdiction such  money  changers
   operate their business.
The last part of paragraph 3 makes the position a
   little more clear which states that “no person other than the  authorized
   representative should be allowed to transact money-changing  business  on
   behalf of the money-changer”.
Apparently when a  money  changer  operates
   its business from its  premises,  any  transaction  by  way  of  sale  or
   purchase as part of its money changing business  should  be  carried  out
   only through an authorized representative.

16. When we extend the application of the said stipulation to  the  case  of
   present nature, it can only be said that if such  transaction  had  taken
   place as between the Appellants and the purchaser M/s Hotel Zam  Zam,  it
   should have been carried on  only  through  their  respective  authorized
   representatives.
The statement of Mr. Peter Kerkar, the Appellant in  SLP
   (C) No.7657 of 2011, disclose that on each occasion the  transaction  was
   negotiated by the Branch Manager of the Appellant with one Ms.  Pinky  of
   M/s Hotel Zam Zam.
It is not the case of the Respondent that  neither  of
   these two persons who indulged  in  the  transaction  of  money  changing
   business  were  not  the  authorized  officials   of   their   respective
   establishments.
If the said factum relating to the business transactions,
   which had taken place as between the Appellants and M/s Hotel Zam Zam  is
   not in controversy, we fail to see how a violation of paragraph 3 can  be
   alleged as against the Appellants.

17. It is stated that after the transaction as between  the  Appellants  and
   M/s Hotel Zam Zam concluded, M/s Hotel Zam Zam stated to have indulged in
   some transaction, which was in violation of the provisions of  FERA  with
   which the Appellants were not in any way concerned. It can also be safely
   held that for any violation or contravention of the provisions of FERA or
   FEMA at the instance of M/s  Hotel  Zam  Zam  after  the  money  changing
   transaction as between the Appellants and the said concern had come to an
   end, the Appellants cannot in any way be held  responsible  or  proceeded
   against.

18. In our considered opinion that in the peculiar facts of  this  case  and
   having regard to the nature of transactions  which  had  taken  place  as
   between the Appellants and M/s Hotel Zam Zam in the manner  in  which  it
   has been narrated in the impugned order  of  the  Original  Authority  as
   noted by the Tribunal, as well as the Division Bench of the  High  Court,
   we are convinced that there  was  no  scope  to  allege  a  violation  of
   paragraph 3 of the FLM or for that matter Sections 6(4) and 6(5) of FERA,
   1973. Based on the interpretation of Sections 6(4), 6(5)  of  FERA,  1973
   and paragraphs 3 &  9  of  the  FLM,  we  have  held  that  the  Original
   Authority, the Appellate Tribunal as well as the Division  Bench  of  the
   High Court failed to appreciate the issue in the proper perspective while
   holding the appellant guilty of the violation alleged. 
Therefore, none of
   the judgments relied upon by the respondents  for  the  proposition  that
   concurrent findings of fact should not be interfered with does not  apply
   to the facts of this case.

19. Once we steer clear of the above position, we come to  the  question  of
   the higher value at which the foreign currency was alleged to  have  been
   sold by the Appellants to M/s  Hotel  Zam  Zam.  As  pointed  out  by  us
   earlier, the said act  was  not  the  basis  for  the  contravention  and
   imposition of the penalty as against the  Appellants.  To  rule  out  any
   controversy, the conclusion of the Original Authority as recorded in  its
   order for finding the Appellants guilty of paragraph 3 of  the  FLM  read
   with Sections 6(4), 6(5) and 7 of FERA, can be usefully  extracted  which
   reads as under:
      “…….Thus by not insisting on the authorization from the said Hotel Zam
      Zam disclosing the names, address and other particulars of the persons
      deputed by them for purchasing foreign exchange from M/s Cox and Kings
      Travel & Finance Ltd., the said M/s Cox and  Kings  Travel  &  Finance
      Ltd. has contravened  the  directions  contained  in  para  3  of  the
      Memorandum FLM R/w SEC. 6(4),  6(5)  and  7  of  the  FERA,  1973.  I,
      therefore hold them guilty for the said contraventions.”


20. This apart,
when we refer  to  the  confiscation  order  passed  by  the
   Commissioner of Customs in  its  order  dated  21.08.1998,  it  has  been
   specifically stated as under:
      “The statements of Mr. Chitrang Mehta, Manager of M/s LKP dated  06/7-
      08-97 indicated that there is transaction at prices higher than  those
      prevailing market rates. 
However, it is also a  known  fact  that  the
      rates for the foreign exchange can be fluctuating and there is  hardly
      any transaction effected at the rates which are recorded for that  day
      to be prevailing in the market not only for the foreign  currency  but
      also for to be other goods e.g. shares in  the  stock  market  or  the
      metals and other commodities being traded in the specific markets. 
 It
      is also to be considered that large transactions  were  being  entered
      into by them and profit made on the sales of such  large  transactions
      would not ipso facto induce me to conclude that the mere fact of sales
      at higher prices would be a preconcerted knowledge  that  the  dollars
      sold are to be smuggled out of India. 
I find that the price  at  which
      Ms. Pinky Jaisinghani was purchasing the dollars from other FFMCs were
      settled between  her  mentor  Shri  Suleman  Tajuddin  Patel  and  not
      considerations of any other kind.”


21. Therefore, in the impugned orders of the Original Authority, as well  as
   the Tribunal and the Division Bench, 
the sale effected by the  Appellants
   on a rate higher than the rate prevailing in the market was not the basis
   for the alleged violation of paragraph 3 of the FLM  read  with  Sections
   6(4), 6(5) and 7 of FERA. 
In the confiscation order passed by the Customs
   Authorities, where again the Appellants were also one of the noticees, no
   fault was found as against the Appellants on that ground.
In the light of
   our above conclusions, as regards  the  higher  value  at  which  foreign
   currency alleged to have been sold by the appellant to Hotel Zam Zam, the
   reliance placed upon the decision in 
P.V. Mohammad  Barmay  Sons  (supra)
   has also no application. The said decision came to be  rendered  entirely
   under different facts which cannot be applied to the facts of the present
   case.

22. Having  reached  the  above  conclusions,  we  are  convinced  that  the
   impugned orders  by  which  the  Appellants  were  found  guilty  of  the
   violation of paragraph 3 of FLM read with Sections 6(4), 6(5)  and  7  of
   FERA and the consequential  imposition  of  penalty  of  Rs.50,000/-  was
   wholly unjustified. 
The impugned orders are liable to be  set  aside  and
   they are accordingly set aside. 
If the Appellants have  parted  with  the
   penalty amount imposed under  the  impugned  orders,  the  Respondent  is
   directed to refund the same to the Appellants along with simple  interest
   at the rate of 6% per annum, within two months  from  the  date  of  this
   judgment. 
The appeals are allowed with the above directions.




                                                      …..……….…………………………...J.
                                                     [Surinder Singh Nijjar]


                                                        …………….………………………………J.
                              [Fakkir Mohamed Ibrahim Kalifulla]


New Delhi;
January 16, 2014

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