Calcutta High Court
Texmaco Limited And O.P. Jhunjhunwalla vs Deputy Director, Enforcement ... on 21 March, 1995
Equivalent citations: [1997]88COMPCAS228(CAL), 1998(60)ECC504
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Ruma Pal, J.
1. These appeals involve the interpretation of Section 16 of the Foreign Exchange Regulation Act, 1973. Section 16 reads as follows :
"16. Duty of persons entitled to receive foreign exchange, etc.-(1) No person who has a right to receive any foreign exchange or to receive from a person resident outside India a payment in rupees shall, except with the general or special permission of the Reserve Bank, do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing -
(a) that the receipt by him of the whole or part of that foreign exchange or payment is delayed, or
(b) that the foreign exchange or payment ceases in whole or in part to be receivable by him.
(2) Where a person has failed to comply with the requirements of Sub-section (1) in relation to any foreign exchange or payment in rupees, the Reserve Bank may give to him such directions as appear to be expedient for the purpose of securing the receipt of the foreign exchange or payment, as the case may be."
The question is whether the "general or special permission" of the Reserve Bank referred to in Sub-section (1) of Section 16 may be given ex post facto or whether such permission must precede the acts prohibited under Section 16(1)(a) and (b).
3. The factual background is common to both the appeals. The appellant in the second appeal is a senior officer of the appellant in the first appeal (hereinafter referred to as "the appellant company"). In 1970, the appellant company entered into a contract with India-Malaysia Textiles by which the appellant company was to supply machinery and equipment and spares and erect the same in Malaysia. The appellant company exported the machinery, etc., to the Malaysian concern and erected the same in terms of the contract. The machinery, etc., supplied was of the CIF value of Rs. 23,03,999.57. A separate bill for Rs. 62,405 was raised by the appellant company on account of erection charges. Between 1972-73, the Malaysian concern complained regarding the defective machinery. In 1976, the Malaysian concern called upon the appellant company to withdraw its claim on account of erection charges and also raised a counter claim against the appellant company on account of replacement of defective materials amounting to Malaysian dollars 83,773.37. The appellant wrote off its claim of Rs. 57,087.50 on account of erection charges and the Malaysian concern restricted its claim on account of defective material to Malaysian dollars 45,594.02. In 1977, the appellant applied to the Reserve Bank of India for permission to remit Malaysian dollars 45,594.02 to the Malaysian concern. This was refused by the Reserve Bank of India on March 13, 1979. The appellant made a further representation to the Reserve Bank of India for permission to make the remittance. In 1981, the Reserve Bank of India wrote to the appellant asking under what circumstances the appellant had agreed to write off the dues on account of erection charges and whether the Reserve Bank's approval to write off the debt had been obtained. In answer to this letter, the appellant sought to explain the circumstances under which the erection charges were written off and requested for grant of approval for non-payment of its claim on account of erection charges. This answer was followed by a reminder.
4. On August 25, 1982, the Reserve Bank wrote to the appellant company stating that it was not agreeable to allow remittance of the claim of the Malaysian concern amounting to Malaysian dollars 45,594.02 unless the claim was established on the basis of proper evidence. As far as the approval regarding the non-payment on erection charges of Rs. 57,087.50 by the Malaysian concern, it was stated that the matter was still under consideration.
5. On July 29, 1983, the Reserve Bank wrote to the appellant company with regard to the permission to write off the claim of Rs. 57,087.50 stating that its case would be considered only on receipt of the investigation report from the Enforcement Directorate, Calcutta.
6. In the meanwhile, on April 12, 1982, a show-cause notice was issued by the Enforcement Directorate under the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as "the Act"), by which the appellant company was charged with violation of the provisions of Section 16(1)(b) of the Act on the ground that the appellant company had refrained from doing anything or taking any action to recover and had written off the amount of Rs. 57,087.50 without obtaining any general or special permission of the Reserve Bank. An answer was given to the show-cause notice and an adjudication proceeding was held.
7. On October 24, 1983, an adjudication order was passed by the Deputy Director, Enforcement Directorate, holding that the charges against the appellant company and its officer as contained in the show-cause notice stood proved. A penalty of Rs. 57,000 was imposed on the appellant company and an amount of Rs. 5,000 on the officer.
8. Both the appellants have deposited the amount imposed by way of penalty. Separate appeals were preferred from the adjudication order by the appellant company and its officer before the Foreign Exchange Regulation Appeal Board. Apart from contending that the appellant company had not in fact given up its claim against the Malaysian concern, it was also contended by the appellant company and its officer before the Board, that it had applied to the Reserve Bank of India for permission to give up the claim for erection charges in view of the counter claim of the Malaysian firm. It was argued before the Board that as the matter was still pending consideration by the Reserve Bank the impugned order of the adjudicating authority was premature. The Board rejected this contention by stating that the mere fact that the appellant company had approached the Reserve Bank during the pendency of the adjudication proceedings could not by itself render such proceedings infructuous or premature. The Board said that the fact remained that no permission of the Reserve Bank of India had been obtained till then and, accordingly, the impugned order could not be said to be premature or erroneous.
9. The decision of the Board has been challenged before this court under Section 54 of the Act. It has been contended by the appellants on the basis of the Supreme Court's decision in the case of LIC of India v. Escorts Ltd. , that the finding of the Board could not be sustained. According to the appellants, the Supreme Court had made it clear that except in those sections of the Act where the word "previous" preceded the word "permission", any permission under the Act could be given ex post facto. It is, therefore, argued that the Board erred in not holding that the adjudication proceedings were premature and misconceived. Reliance has also been placed on the decisions of the Board in Bhari Industrial Promoters (P.) ltd v. Director of Enforcement [1994] 45 ECC 151 ; Consmique Exports Ltd. v. Director of Enforcement [19941 76 Taxman 299 ; Tata Engineering and Locomotive Co. Ltd. v. Special Director of Enforcement [1991] 55 Taxman 85 and Siraj Sons v. Director of Enforcement [1992] 63 Taxman 178. In addition, the appellants have also relied upon a judgment of the Karnataka High Court in United Breweries Ltd. v. Assistant CIT [1995] 211 ITR 256 and of the Madras High Court in M. Ct. M. Corporation Pvt. Ltd. v. Director of Enforcement, .
10. The respondents on the other hand have contended that as the offence had already been committed under Section 16(1)(b), the Board had the jurisdiction to hold the appellants guilty of the offence and that the decision of the Board could not be assailed on that ground. Secondly, it is argued that the stand taken before the Board was that the offence had not been factually established. It is stated that this factual contention has been negatived by the Board and the adjudicating authority on a consideration of the evidence and could not be assailed in appeal before the High Court.
11. The last ground of the respondents does not appear to be correct. As already noted the impugned order of the Board itself records the submission of the appellant that the adjudication proceedings were premature as the application for approval made by the appellant company before the Reserve Bank of India had not yet been disposed of. This question is a pure question of law and is not dependent on any factual finding that the appellant company had taken any action as contemplated under Section 16(1)(b). The submission is accordingly rejected.
12. As regards the first submission of the respondent, it also cannot be sustained in view of the decision of the Supreme Court in the case of LIC of India v. Escorts Ltd. [1986] 59 Comp Cas 548. No doubt the Supreme Court was considering the language of Section 29(1) of the Act. Nevertheless in deciding whether the permission under Section 29(1) had necessarily to be previous to the prohibited action, the Supreme Court construed the other provisions of the Act itself to arrive at the conclusion that the expression "general or special permission" when not qualified by the word "previous" means that the permission in such case could be previous or subsequent to the fact in respect of which permission is to be granted. The reasoning is applicable in its entirety to the provisions of Section 16 of the Act where the word "permission" is not subject to any qualification or limitation that it could only be previous. Thus, following the Supreme Court judgment permission may be sought for at any time even subsequent to the act sought to be restricted.
13. In other words, it would appear that the commission of the acts envisaged under Section 16(1)(a) and (b) does not complete the offences under those sub-clauses. The offence would be completed if the acts are done without permission of the Reserve Bank of India. Unless there is a positive decision on the part of the Reserve Bank either granting or refusing the permission, the offence cannot be said to be complete. The view of the board that the person doing the acts contemplated under Section 16(1)(b) must obtain the permission of the Reserve Bank before doing so is contrary to the decision of the Supreme Court. All that a person is now called upon to do under Section 16 is to apply for such permission whether before or after the act complained of.
14. In this case, the Board's observation that the application for permission had been made by the appellant company during the pendency of the adjudication proceedings is, as a matter of fact, wrong. The records show that the application for permission for non-payment of the erection charges was made prior to the issuance of the show-cause notice. Be that as it may, the fact that such application was made is not in dispute. It is also not in dispute that when the proceedings were initiated the matter was pending consideration before the Reserve Bank of India. In the circumstances, the relevant consideration by the Board was not whether the permission had been granted prior to the adjudication proceedings but whether the permission had been refused prior to the initiation of the adjudication proceedings.
15. The impugned decision of the Board in this case was taken before this decision of the Supreme Court in LIC of India v. Escorts Lid. [1986] 59 Comp Cas 548. After the decision in LIC of India v. Escorts Ltd. [1986] 59 Comp Cas 548, the Foreign Exchange Regulation Appellate Board has itself held that the initiation of adjudication proceedings prior to the Reserve Bank of India taking a final decision on an application for permission where such permission is not expressly required to be previous, is premature and misconceived.
16. In that view of the matter, the appeals must succeed. The appellants have, however, fairly conceded before us that they would not press for setting aside the entire adjudication proceedings but that the impugned order of the Board should be set aside and the matter be remanded back to the Board for the purpose of being decided in accordance with the decision of the Supreme Court in LIC of India v. Escorts Ltd. [1986] 59 Comp Cas 548.
17. Accordingly, the appeals are allowed and the impugned order of the Board dated May 8, 1987, is set aside. The matters are remanded back to the Board for the purpose of reconsideration of the same after the Reserve Bank of India disposes of the application of the appellant-company for permission under Section 16 of the Act for non-payment of erection charges by the Malaysian concern. It is expected that the Reserve Bank of India will dispose of the application as expeditiously as possible.
K.C. Agarwal, C.J.
18. I agree.