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.
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
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 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 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.
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
