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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.

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.

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.

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.