Civil Appeal No 797 of 1976
From the Judgment and Order dated 1471972 of the Calcutta High Court in Appeal No 59 of 1971 VC Mahajan Mrs Subhadra and CV Subba Rao for the Appellants
Harish N Salve Ravinder Narain PK Ram DN Mishra and K Sukumaran for the Respondent
The Judgment of the Court was delivered by THAKKAR J
Whether Section 1221 of Foreign Exchange Regulation Act of 1947 Act designed to prevent wholesale or partial evasion of repatriation of earnings from export of goods covers only sale proceeds of goods exported for sale  as held by the High Court of Calcutta by the judgment under appeal or to sale proceeds of goods exported on sale in the context of sales completed before export also as held by the Madras High Court2 and as contended by the appellants is the problem
122 Where any export of goods has been made to which a notification under sub section 1 applies no person entitled to sell or procure the sale of the said goods shall except with the 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 that a the sale of the goods is delayed to an extent which is unreasonable having regard to the ordinary course of trade or b payment for the goods is made otherwise than in the prescribed manner or does not represent the full amount payable by the foreign buyer in respect of the goods sub ject to such deductions if any as may be allowed by the Reserve Bank or is delayed to such extent as aforesaid
Provided that no proceedings in respect of any contravention of this sub section shall be instituted unless the pre scribed period has expired and payment for the goods repre senting the full amount as aforesaid has not been made in the prescribed manner
 2 R Venkatasubbu and Ors
vs The Director of Enforcement
Enforcement Directorate New Delhi and Anr ILR Vol
3MAD 1968 p18 985 The learned Single Judge of the Calcutta High Court dismissed a Writ Petition instituted by the Respondent Company and refused to quash two show cause notices dated November 5 1966 issued under Section 12 2 of the Act as it stood at the material time on taking the view canvassed by the appellants in this appeal
A Division Bench of the High Court however allowed the appeal preferred by the Respondent Company reversed the order of the learned Single Judge dismissing the Writ Petition and issued a Writ of Mandamus commanding the competent authorities under the Act appellants herein to forbear from giving effect to the said notices and from commencing any proceedings pursuant thereto
The competent authorities under the Act have ap proached this Court by way of the present appeal by a cer tificate under Article 133 1a of the Constitution of India
The hub of the argument addressed by the respondent company which found favour with the Calcutta High Court but failed to impress the Madras High Court is the expres sion no person entitled to sell or procure the sale of the said good employed by the legislature in the opening part of Section 122 of the Act which to the material extent deserves to be quoted 122 Where any export of goods has been made to which a notification under sub section 1 applies no person enti tled to sell or procure the sale of the said goods shall except with the permission of the Reserve Bank do or re frain from doing anything or take or refrain from taking any action which has the effect of securing that   The argument runs thus Section 12 2 of the Foreign Exchange Regulations Act 1942 on its plain terms applies only to persons who are entitled to sell or procure the sale of the said goods
 The word entitled governs the word sell as well as the expression procure the sale of
Further both these ex pressions are used with respect to the said goods which means the goods which have already been exported
It is in these premises submitted that Section 122 applies only to such persons who are entitled to sell or procure the sale of goods which have already been exported
We are not impressed by this submission that the afore said expression can be so narrowly construed so as to govern the scope of Section 12 2 in such a truncated manner which renders it virtually 986 impotent in so far as transactions of exports on sale are concerned
Too much is being read into too little for no more laudable a purpose than to paralyze the provision
It appears to us that this expression does not necessarily induce one to the conclusion that the legislature wanted to prevent abuse in the context of exports for sale  only
The expression is meaningful relevant and can co exist in the context of abuse arising from exports on sale  from com pleted transactions as well
The expression no person entitled to sell or procure the sale of the said goods is merely descriptive of the person who is accountable under the said provisions as has been held by the Madras High Court in R Venkata Subbu s case ILR Vol
3 Madras  which has made a correct meaningful and purposeful approach with which we unhesitatingly agree
The whole purpose is to identify  the accountable persons to prevent malpractises and ensure compliance
It is conceivable that the exports might be made in the name of or through the agency of a person other than the owner of goods  or the person entitled to sell the goods arising out of an export on sale
In our view Anantaraman C J who spoke for the Madras High Court in Venkatasubbu s case supra was right in taking the view that the words no person entitled to sell or procure the sale of the goods are descriptive words which refer to the person in the capacity of the seller of the goods or the person entitled to procure the sale of the goods after the export of the goods has been made and that this expression does not necessarily imply that the export must be to a nominee of the consignor at the other end in pursuance to a contemplated transaction of sale
We are therefore unable to accede to the submission urged on behalf of the Respondent Company original Writ Petitioner that Section 12 2 can apply only to such persons who are enti tled to sell or procure the sale of goods which have already been exported for sale and not to the exports made in pursu ance to sales which have already been effected to a foreign buyer before the exports
In our opinion the said expres sion has been employed by the Legislature merely in order to identify the accountable persons and is merely descriptive in that sense
The said expression does not restrict the operation of the Act to the persons who have not yet sold the goods
One would have to take a quantum jump in order to conclude that persons referred to in Section 12 2 are the persons who have not yet sold the goods but are entitled to sell the goods in future merely because the expression entitled to sell  has been employed
The persons who have exported the goods to a foreign buyer in our view are not sought to be excluded from the operation of section 12 2
This conclusion is reinforced if clauses a and b of Section 122 are taken into account
Clause a in terms adverts to the sale of goods being delayed
Clause b of Section 122 adverts to payment for the goods otherwise than in the 987 prescribed manner and also envisions a case where the payment does not represent the full amount payable by the foreign buyer in respect of the goods
Clauses a and b are compatible both with transactions of export on sale as also to transactions of export for sale
They are compatible with all transactions pertaining to both types of sales
There is no warrant to assume that the Legislature has not made any provision in order to ensure that the full amount of the sale price is repatriated and foreign exchange earned therefrom is not lost to the Nation regardless of whether it is in respect of export on sale  or export for sale 
The avowed and the evident object of Section 12 is to ensure that that the Nation does not lose foreign exchange which is very much essential for the economic survival of the Nation
The exporter cannot be allowed to syphon away a part of the foreign exchange or to deprive the Nation of the foreign exchange earned by the exports
Such is the philosophy of Sec 12
To take the view that the legitimate National interest in the sphere of preservation of foreign exchange has relevance only in the context of transactions of exports for sales and that the Legislature exhibited total unconcern for the foreign exchange earned in the context of transac tions of completed sales or consignment sales is to at tribute to the Legislature irrationality
And to impute to the Legislature that it did not know its job inasmuch as it has tackled the problem only partially without any rational basis for excluding the transactions of completed sales from the purview of the legislation which would substantially erode or defeat the purpose of the legislation
When it is equally possible to take the view which would be conducive to the conclusion that there is no lacuna in the legisla tion it would be unreasonable to take the view that the Legislature has left a lacuna either by negligence or by lack of foresight or because it did not know its job
In order to escape from the clutches of this answer less argu ment learned counsel for the Respondent Company contended that in so far as completed sales are concerned they would be governed by Section 10 1and that the lacuna argument would 1
Duty of persons entitled to receive foreign exchange etc 1 No person who has a fight to receive any foreign exchange or to receive from a person resident outside India a payment in rupees shall except with the general or spe cial 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 require ments of sub section1 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 988 accordingly lose significance
It is our firm opinion that Sec 10 has no application in respect of foreign exchange earnings related to export of goods
Section 10 is designed primarily to impose an obligation on persons who have a right to receive any foreign exchange from a person resident outside India
This section has nothing to do with the foreign exchange earned by export of goods
The entire matter pertaining to payments for exported goods and the foreign exchange earnings arising therefrom in our consid ered opinion has been dealt with in Section 12 which is a complete Code in itself
It would be an irrational approach to make to hold that while Section 12 deals with payments for exported goods and foreign exchange earnings arising therefrom in all situations it excludes from its purview one particular situation namely that arising in the context of failure to repatriate the sale proceeds of goods exported pursuant to a completed transaction of sale
Evidently Section 12 has been very carefully designed
Every possible situation has been conceived of and appropriate prophylactic measures to ensure the preservation of foreign exchange and prevention of syphoning off the foreign exchange which is very much essential to the economic life of the Nation have been embeded therein
The entire subject of foreign exchange earnings relatable to export of goods has been specifically and specially dealt with in Section 12
It would therefore be futile to search for an alibi in Section 10 merely in order to support the plea that Section 12 does not take within its fold the foreign exchange earnings relatable to transactions of completed sales
Pray what is the reason or the purpose for doing so Why take care to deal with all  matters pertaining to export of goods and foreign exchange earnings therefrom in Section 12 but even so exclude for eign exchange earnings arising out of completed transaction of sale from its scope and ambit When there is a specific provision which can reasonably be interpreted to cover this aspect of foreign exchange earnings also be embodied in Section 12 which appears to us to be a complete Code in itself
why leave this important vital matter of no less importance to be dealt with by section 10 which essentially deals with foreign exchange receivable from individuals and has nothing to do with export of goods On a plain reading of Section 10 the matter pertaining to the foreign exchange earned by exports in the context of completed sales will not directly fail within the ambit of it
It will have to be strained beyond the point of endurance in order to accommo date this aspect
Section 10 is akin to a complementary provision which deals with preservation of foreign exchange which does not fall within a specific provision like Section 12
What is more if completed transactions are excluded from Section 12 the purpose of the legislation 989 will not be served because sub section 6 of Section 121 which has been designed to ensure compliance with the provi sions made in Section 12 1 to Section 125 cannot be availed of
In that event in regard to the persons who syphon off foreign exchange earned out of the transactions in the context of a completed sale or export on sale they cannot be dealt with under Section 12 6 and no sanction to ensure compliance will be available
The Act will be thus rendered toothless to ensure compliance with evasion in the context of a completed sale
There is accordingly no compul sion of law logic or philosophy to adopt such a view
We accordingly allow this appeal and set aside the order of the High Court quashing the show cause notices impugned in the Writ Petition by the original Writ Petitioner
The matter will now go back to the competent authority for proceeding in accordance with law
The competent authority will extend the time for showing cause to the Respondent Company and after affording a reasonable opportunity of hearing proceed to pass appropriate orders in accordance with law as may be called for by the relevant records and the material and such materials as may have been produced before him in the light of the cause shown by the Respond ent Company on merits in response to the show cause notice
It will be open to the competent authority to pass appropri ate order uninhibited by any observations which may have been made by the High Court touching the facts or merits of the case or in regard to the incidental matters
We issue this direction having regard to the fact that it was in the first instance for the competent authority to form an opin ion on merits on the basis of the relevant material in so far as the factual aspect was concerned
Since the High Court was quashing the notice on a jurisdictional issue there was no occasion for making any observation touching the facts of the case or the merits of the other contentions incidental thereto
We also wish to make it clear that the question regarding the validity or otherwise of the views expressed by the High Court in regard to points other than the aforesaid point regarding the applicability of Section 122 have been kept open for decision in future as and when an occasion arises
126 For the purpose of ensuring compliance with the provisions of this section and any orders or directions made thereunder the Reserve Bank may require any person making any export of goods to which a notification under sub sec tion 1 applies to exhibit contracts with his foreign buyer or other evidence to show that the full amount payable by the said buyer in respect of the goods has been or will within the prescribed period be paid in the prescribed manner
 990 We should not be understood as having pronounced on these matters one way or the other
We therefore allow this appeal set aside the order passed by the High Court and dismiss the Writ Petition instituted by the Respondents with liberty to the parties to raise all contentions on facts and law barring the con tention that Section 122 of the Act is not attracted
No order as to costs
Appeal allowed


Summary:
Section 122 of the Foreign Exchange Regulation Act 1947 which is designed to prevent wholesale or partial evasion of repatriation of earnings from export of goods is to the effect that where any expert of goods has been made to which a notification under sub section 1 applies no person entitled to sell or procure the sale of the said goods shall except with the permission of the Reserve Bank   
In R Venkata Subbu  Ors
vs The Direc torate of Enforcement Enforcement Directorate New Delhi  Anr ILR Vol p 18 the Madras High Court held that section 122 covers not only sale proceeds of goods exported for sale but also on sale in the context of sales completed before export while the Calcutta High Court in the judgment under appeal held that it covers sale pro ceeds of goods exported for sale only
In view of the conflict of the opinions the present appeal is by certifi cate
Allowing the appeal and remitting the matters to the Competent Authority the Court HELD 11 The expression no person entitled to sell or procure the sale of the said goods  cannot be so narrowly construed as referable to goods which have already been exported so as to govern the scope of section 122 in such a truncated manner which renders it virtually impotent in so far as transactions of exports on sale  are con cerned
Too much is being read into too little for no more laudable a purpose than to paralyze the provision
The expression does not necessarily induce one to the conclusion that the legislature wanted to prevent abuse in the context of export for sale  only
The expression is mean 982 ingful relevant and can co exist in the context of abuse arising from exports on sale  from completed transactions as well
985H986B 12 The said expression has been employed by the Legis lature merely in order to indentify the accountable persons and is merely descriptive in that sense
The said expression does not restrict the operation of the Act to the persons who have not yet sold the goods
One would have to take a quantum jump in order to conclude that persons referred to in section 122 are the persons who have not yet sold the goods but are entitled to sell the goods in future merely because the expression entitled to sell  has been employed
The persons who have exported the goods to a foreign buyer are not sought to be excluded from the operation of section 122
Clause a in terms adverts to the sale of goods being delayed
Clause b of section 122 adverts to pay ment for the goods otherwise than in the prescribed manner and also envisions a case where the payment does not repre sent the full amount payable by the foreign buyer in respect of the goods
Clauses a and b are compatible both with transactions of export on sale as also to transactions of export for sale
They are compatible with all transactions pertaining to both types of sales
There is no warrant to assume that the Legislature has not made any provision in order to ensure that the full amount of the sale price is repatriated and foreign exchange earned therefrom is not lost to the Nation regardless of whether it is in respect of export on sale  or export for sale 
986F 987A C 13 The avowed and the evident object of section 12 is to ensure that the Nation does not lose foreign exchange which is very much essential for the economic survival of the Nation
The exporter cannot be allowed to syphon away a part of the foreign exchange or to deprive the Nation of the foreign exchange earned by the exports
Such is the philoso phy of section 12
To take the view that the legitimate National interest in the sphere of preservation of foreign exchange has relevance only in the context of transactions of exports for sales and that the Legislature exhibited total unconcern for the foreign exchange earned in the context of transactions of completed sales or consignment sales is to attribute to the Legislature irrationality
And to impute to the Legislature that it did not know its job inasmuch as it has tackled the problem only partially with out any rational basis for excluding the transactions of completed sales from the purview of the legislation which would substantially erode or defeat the purpose of the legislation
When it is equally possible to take the view which would be conducive to the conclusion that there is no lacuna in the legislation it would be unreasonable to take the view that the Legislature has left a lacuna eitber by 983 negligence or by lack of foresight or because it did not know its job
987B F 21 Section 10 has no application in respect of foreign exchange earnings related to export of goods
Section 10 Is designed primarily to impose an obligation on persons who have a right to receive any foreign exchange from a person resident outside India
This section has nothing to do with the foreign exchange earned by export of goods
The entire matter pertaining to payments for exported goods and the foreign exchange earnings arising therefrom has been dealt with in section 12 which is a complete Code in itself
Section 12 has been very carefully designed
Every possible situation has been conceived of and appropriate prophylactic measures to ensure the preservation of foreign exchange and prevention of syphoning off the foreign exchange which is very much essential to the economic life of the Nation have been embedded therein
The entire subject of foreign ex change earnings relatable to export of goods has been spe cifically and specially dealt with in section 12
It would therefore be futile to search for an alibi in section 10 merely in order to support the plea that section 12 does not take within its fold the foreign exchange earnings relatable to transactions of completed sales
988A E 22 On a plain reading of section 10 the matter per taining to the foreign exchange earned by exports in the context of completed sales will not directly fall within the ambit of it
It will have to be strained beyond the point of endurance in order to accommodate this aspect
Section 10 is akin to a complementary provision which deals with preserva tion of foreign exchange which does not fall within a spe cific provision like section 12
What is more if completed transactions are excluded from section 12 the purpose of the legislation will not be served because sub section 6 of section 12 which has been designed to ensure compliance with the provisions made in section 121 to section 12 5 cannot be availed of
In that event in regard to the per sons who syphon off foreign exchange earned out of the transactions in the context of a completed sale or export on sale they cannot be dealt with under section 126 and no sanction to ensure compliance will be available
The Act will be thus rendered toothless to ensure compliance with evasion in the context of a completed sale
There is accord ingly no compulsions of law logic or philosophy to adopt such a view
988F 9BA B R Venkata Subba  Ors
vs The Director of Enforcement Enforcement Directorate New Delhi  Anr ILR Vol
3 Mad  approved