Civil Appeal No 244 of 1976
Appeal by Special Leave from the Judgment and Order dated 9 10 74 of the Kerala High Court in W A No 142 of 1972
M N Phadke section K Mehta K R Nagaraja and P N Puri for the Appellant
G L Sanghi and Girish Chandra for Respondent No 1
D N Misra for Respondent No 2
The Judgment of the Court was delivered by UNTWALIA J
In this appeal by special leave an important question of law falls for our determination
It concerns the interpretation of section 121 of the Foreign Exchange Regulation Act 1947 Central Act 7 of 1947 as it stood amended at the relevant time by Act 40 of 1969
The appellant is a firm one of the partners or proprietors of which is Shri T K Seethy
It is a dealer in Coir Yarn and exports the said commodity to foreign buyers also
On March 24 1971 a shipping bill was filed on behalf of the appellant for the export of 150 bales of Coir Yarn to Trieste a port in Italay
The consignee s name in the shipping bill was shown as Ms Ferolektro Sarajavo Yugoslavia
Indisputably the Central Government had published a notification in 907 the official gazette under section 121 of the Foreign Exchange Regulation Act prohibiting the export of coir yarn from India to certain places specified in the notification including Italy unless certain conditions were fulfilled
The exporter was therefore required to comply with the requirement of the said provision of law and file a declaration in the prescribed form
The relevant prescribed from in the Foreign Exchange Regulation Rules 1952 hereinafter referred to as the Rules framed under section 27 of the Act of 1947 was Form GRI
The Invoice and G R I Form were drawn up by the appellant on rupee terms in accordance with the contract dated 131971 which it claimed to have had with Ms Ferolektro Sarajavo Yugoslavia
The Customs Authority found that the goods were attempted to be exported to Italy while payment according to the form was to be received in rupees
So the appellant was asked to explain the discrepancy in the declaration
A request was made on behalf of the appellant to amend the Invoice and GRI showing payment in Sterling
It was not allowed to do so
On April 20 1971 the premises of the appellant firm and the house of its owner were simultaneously searched and certain documents including some letters exchanged between the appellant and some foreign firms of Italy were seized
It appeared to the Assistant Collector of Customs Customs House Cochin that the goods in question were being bought by Ms Tobia Giacomini Italy while the buyer shown in the shipping document was Ms Ferolektro Sarajavo Yugoslavia
Such a discrepancy in the bill was against the provisions of section 50 of the Customs Act 1962 Central Act 52 of 1962
The Assistant Collector further found that in the declaration furnished by the appellant in accordance with section 121 of the Foreign Exchange Regulation Act the manner of payment for the goods sought to be exported was contrary to Rule 7 of the Rules
The misdeclaration or untrue declaration made by the appellant in the shipping bill and GRI Form was prima facie not true in material particulars and violated section 121 of the Foreign Exchange Regulation Act
In view of the 11th section in the Customs Act the violation attracted the confiscation of the goods under section 113 d and imposition of penalty under section 114 of the said Act
A showcause notice dated May 19 1971 was issued by the Assistant Collector to the appellant
The appellant filed a long reply to the show cause notice
The Additional Collector of Customs by his order dated July 6 1971 held By declaring the buyer s name as FEROELETRO YUGOSLAVIA and the port of discharge and country of final destination as Trieste  and Italy respectively in the shipping bill and the mode of payment as in rupees in the shipping bill as well as in the G R I form the exporters have misdeclared the material particulars regarding the prescribed manner of payment and have thus clearly contavened the provisions of Section 121 of the FERA read with section 11 of the Customs Act
The goods are therefore liable for confiscation under section 113d and 113i of the Customs Act and the exporters are liable for penalty under section 114 of the Customs Act
 908 He accordingly confiscated the goods giving an option to the appellant to redeem them on payment of Rs 5000 in lieu thereof
A penalty of Rs 25000 was imposed under section 114 of the Customs Act
The appellant filed a writ petition in the Kerala High Court to challenge the order of the Additional Collector
It had exercised its option of getting the goods released on payment of Rs 5000 
The fine of Rs 25000 was also paid
A learned single Judge of the High Court took the view that there was no violation of section 121 of the Foreign Exchange Regulation Act and quashed the order of the Additional Collector
The Customs Authority took the matter in appeal before a Bench of the High Court
The Bench has allowed the appeal and up held the order of the Additional Collector
Hence this appeal was filed after obtaining special leave of this Court
Section 23A of the Foreign Exchange Regulation Act provides inter atia that the restrictions imposed by or under sub section 1 of section 12 shall be deemed to have been imposed under section 11 of the Customs Act and all the provisions of that Act shall have the effect accordingly
Section 11 of the Customs Act empowers the Central Government to prohibit either absolutely or subject to such conditions as may be specified in a notification the import or export of goods of any specified description
Section 113 says The following export goods shall be liable to confiscation     d any goods attempted to be exported or brought with in the limits of any customs area for the purpose of being exported contrary to any prohibition imposed by or under this Act or any other law for the time being in force By virtue of Section 23A of the Foreign Exchange Regulation Act the prohibition imposed under section 121 of that Act becomes a prohibition imposed under section 11 of the Customs Act
And if the goods were attempted to be exported contrary to the said prohibition the goods became liable to confiscation under section 113d of the Customs Act
Consequently the person attempting to export the goods also became liable to pay penalty under section 114
There has been no difficulty in correct appreciation of the law so far either by the Customs Authority or the High Court
A good deal of difficulty and confusion however cropped up in the interpretation of section 121 of the Foreign Exchange Regulation Act
Sub section 1 of section 12 as it stood prior to the amendment brought about by Act 40 of 1969 read as follows The Central Government may by notification in the Official Gazette prohibit the taking or sending out by land sea or air hereinafter in this section referred to as export 909 of any goods or class of goods specified in the notification from India directly or indirectly to any place so specified unless a declaration supported by such evidence as may be prescribed or so specified is furnished by the exporter to the prescribed authority that the amount representing the full export value of the goods has been or will within the prescribed period be paid in the prescribed manner In Union of India  Ors
vs Ms Raj Bahadur Shree Ram Durga Prasad P Ltd  Ors1
 Hegde J speaking for himself and Bachawat J gave a narrow interpretation to section 121 as it stood then
Sikri J as he then was in his dissenting judgment said I have to construe an Act which was enacted in the interest of the national economy
A deliberate large scale contravention of its provisions would affect the interests of every man woman and child in the country
Such an Act I apprehend should be construed so as to make it workable it should however receive a fair construction doing no violence to the language employed by the Legislature
It was said that if two constructions are possible the one that is in favour of the subject should be accepted
It is not necessary to pronounce on this proposition for I have come to the conclusion that there is one true construction of section 121
But I should not be taken to be assenting to this proposition in so far as it is applicable to an enactment like the Exchange Act for no subject has a right to sabotage the national economy
 Section 121 was thereafter amended by Act 40 of 1969
It then read as followins The Central Government may by notification in the Official Gazette prohibit the taking or sending out by land sea or air hereinafter in this section referred to as export of all goods or of any goods or class of goods specified in the notification from India directly or indirectly to any place so specified unless the exporter furnishes to the prescribed authority a declaration in the prescribed form supported by such evidence as may be prescribed or so specified and true in all material particulars which among others shall include the amount representing i the full export value of the goods or ii if the full export value of the goods is not ascertainable at the time of export the value which the exporter haveing regard to the prevailing market conditions expects to receive on the sale of the goods in the course of international trade and affirms in the said declaration that the full export value of the goods whether ascertainable at the time of 910 export or not has been or will within the prescribed period be paid in the prescribed manner
 Under the changed law the Exporter was required to furnish a declaration in the prescribed form which must be true in all material particulars including the amount representing the full export value of the goods or the expected export value of the goods
Apart from the furnishing of the declaration containing the true statements in all material particulars the exporter under the amended section 121 of the Foreign Exchange Regulation Act was also required to affirm in the said declaration ie in the document or the paper containing the declaration that the full export value of the goods will within the prescribed period be paid in the prescribed manner
The affirmation under the last part of section 121 is not required to be in any prescribed form
Therefore in the form prescribed for the declaration no form of affirmation has been specified
Broadly speaking section 121 consists of 3 parts 1 issuance of a notification by the Central Government prohibiting the export of certain goods to any place specified in the notification 2 the prohibition is relaxed and export is permitted when the exporter furnishes a declaration and 3 when he affirms in the said declaration that the payment will be in the prescribed manner
Until and unless the exporter affirms that the payment would be in the prescribed manner he cannot be allowed to export the goods
This is for the purpose of conserving and preserving the foreign exchange so that by a subterfuge no person may be able to harm the national economy by exporting the goods without such affirmation
In the instant case on the findings of fact recorded by the Additional Collector which were accepted to be correct by the High Court both by the single Judge and the Division Bench the stress seems to have been laid on the alleged violation of the requirement of giving true material particulars in the declaration
And that enabled Mr M N Phadke to strenously attack the decision of the High Court in appeal
Counsel submitted that whatever the appellant had stated in the declaration was all true and nothing but true
It may well be he submitted that it violated certain provisions of the Customs Act or the Foreign Exchange Regulation Act
But surely the material particulars furnished by the appellant in its declaration not being untrue in any respect there was no infraction of section 121 of the Foreign Exchange Regulation Act
The argument as presented had substance and force but did not merit acceptance on close scrutiny
The declaration of the buyer s name even if wrong in the shipping bill and invoice did not attract the provisions of section 121 of the Foreign Exchange Regulation Act
In the form prescribed under Rule 3 of the Rules GIR being one such form the buyer s name was not to be inserted
It was not given in the declaration furnished by the appellant in that form
But the finding of the Additional Collector is that the destination of the goods was Trieste in Italy andin the declaration furnished in form GIR the appellant had stated that the payment was to be received in India in Indian rupees and this statement was untrue as being against the prescribed manner
911 It is to be noticed that under section 121 as it stood prior to the amendment by Act 40 of 1969 the declaration had to contain a statement that the amount representing the full export value of the goods will be paid in the prescribed manner
But now this is not to be a part of the declaration but has to be separately affirmed although in the declaration itself
The learned single Judge noticed in his judgment that section 121ii will not apply and the obligation of the exporter was a to furnish to the prescribed authority a declaration in the prescribed form supported by such evidence as may be prescribed b which declaration must be true in all material particulars and that among others shall include the amount representing the full export value of the goods  and c he must affirm in the said declaration that the full export value of the goods will within the prescribed period be paid in the prescribed manner Stating that There is no case that there is no affirmation in the declaration the single Judge held that section 121 was not violated
The Division Bench however noted the fact that the declaration furnished by the appellant did not contain an affirmation as required by the last portion of the said sub section
Yet because of the mode of payment mentioned in the declaration being contrary to Rule 7 of the Rules the Division Bench upheld the view of the Additional Collector that the appellant had misdeclared the material particulars and attempted to export the goods in question in contravention of the prohibition contained in section 121 of the Act
 On the facts and in the circumstances of this case we are constrained to hold that even after the statement in column 2 of Form GR I that the country of destination of goods was Italy the statement in column 5 that the payment was to be received in India in Indian Rupees was not untrue
The appellant had managed or manouvered to get the payment through the firm of Yugoslavia in Indian Rupees
The statement therefore was not untrue although it was against the mode prescribed under Rule 7 of the Rules
But here comes in the importance of the affirmation in the declaration
Rule 7 of the Rules says The amount representing the full value of goods exported to the countries specified in the Second Schedule shall be paid through an authorised dealer and unless otherwise authorised by the Reserve Bank shall be paid in the manner specified in the said Schedule In the Second Schedule Italy occurs in Group A Convertible Account Countries
In that case the approved methods of payment are a Currency of any country in this sub group
b Sterling from an External Account  as defined under the U K Exchange Control Regulations
912 c Rupees from the account of a bank in any country in the Convertible Account group
 Yugoslavia in the Second Schedule finds place in Group B Bilateral Account countries where the approved method of payment is Rupees from the account of a bank in the country of import
 In the present case the absence of affirmation had its own signficance
It was difficult almost impossible for the appellant to affirm that the full export value of the goods was to be paid in one of the three modes prescribed in the Second Schedule to the Rules for the export of the goods to Italy
We are therefore of the opinion that although the statement in the declaration that the value of the goods mentioned in column 4 at Rs 6330150 was to be received in India in Indian rupees for the export of goods to Italy was not untrue the affirmation if made would have been either false or contrary to the requirement of the law
If in the affirmation the appellant had stated that for the value of the goods exported to Italy it was to receive the payment in Indian rupees through the Chartered Bank Ltd Cochin as per the declaration then the affirmation would have violated section 121 as it would not have been an affirmation stating that the export value would be paid in the prescribed manner
Absence of affirmation in the declaration furnished by the appellant is tant amount to failure on the part of the appellant to comply with the requirement of the law engrafted in section 121 of the Foreign Exchange Regulation Act
That being so the decision of the Division Bench of the High Court that the appellant had attempted to export goods in violation of the restrictions imposed under section 121 of the Foreign Exchange Regulation Act is fit to be upheld but on a different basis
In cases of economic offences and specially in relation to the law of Foreign Exchange no leniency in the quantum of punishment is warranted
But on the facts and in the circumstances of this case we feel persuaded to reduce the amount of penalty imposed upon the appellant from Rs 25000 to Rs 15000 
The direction as to the payment of Rs 5000 in lieu of confiscation of the goods is upheld
Since the law engrafted in the amended Section 121 of the Foreign Exchange Regulation Act was not very clear either to the Custom Authorities or to the High Court resulting in the recording of the findings against the petitioner on a wrong basis although not affecting the substance of the view that the appellant had violated Section 121 of the Foreign Exchange Regulation Act we have thought it fit to reduce the quantum of penalty by Rs 10000 Before we part with this case we may just mention that now the Foreign Exchange Regulation Act in force is an Act of 1973 Central Act 46 of 1973
Section 181a is almost the same as Section 121 of the Act of 1947
In the result the appeal is dismissed but subject to the modification in the quantum of penalty imposed under Section 114 of the 
In the circumstances we shall make no order as to costs in this Court
VPS Appeal dismissed


Summary:
The appellant is a dealer and exporter in coir yarn
On its behalf a shipp ing bill for export of 150 bales of coir yarn to a port in Italy was filed but the consignee was shown to be a firm of Yugoslavia
The invoice and the form of declaration prescribed under the Foreign Exchange Regulation Act
1947 were drawn up by the appellant on rupee terms in accordance with the contract with the Yugoslav firm
The Collector of Customs after issuing a show cause notice to the appellant and considering the explanation of the appellant held that the appellant had misdeclared the material particulars regarding the prescribed manner of payment and that there was a contravention of section 121 Foreign Exchange Regulation Act read with section 11 Customs Act and ordered the confiscation of the goods under section 113 and imposed a penalty of Rs 25000 under section 114 Customs Act
The High Court upheld the order
Dismissing the appeal to this Court  HELD In the circumstances of the case the quantum of penalty is reduced to Rs 15000 912 F 1 By virtue of section 23A Foreign Exchange Regulation Act the prohibition imposed under section 121 of the Act becomes a prohibition imposed under section 11 Customs Act
Section 11 Customs Act empowers the Central Government to prohibit the export of goods absolutely or conditionally and section 113 Customs Act provides for confiscation of goods exported contrary to any prohibition imposed and the person attempting to export is liable to penalty under section 114
908 D F G 2 Section 121 Foreign Exchange Regulation Act as amended by Act 40 of 1969 consists of 3 parts a Issuance of a notification by the Central Government prohibiting the export of certain goods to any place specified in the notification
b The prohibition is relaxed and export is permitted when the exporter furnishes a declaration in the prescribed form which must be true in all material particulars including the amount representing the full export value of the goods or the expected exported value of the goods
c Apart from furnishing the declaration containing the true statements in all material particulars the exporter is also required to affirm in the said declaration that is in the document or paper containing the declaration that the full export value of the goods will within the prescribed period be paid in the prescribed manner
This affirmation is not required to be in any prescribed form
Until and unless the exporter so affirms he cannot in the interests of conserving the foreign exchange be allowed to export the goods
910 B D 3 In the present case there was no affirmation that the full export value of the goods has been or will within the prescribed period be paid in the prescribed manner and the absence of the affirmation is tantamount to failure on the part of the appellant to comply with the requirements of law engrafted in section 121 Foreign Exchange Regulation Act
912 D a The declaration of the buyer s name as the Yugoslav firm was found to be wrong but that did not attract the provisions of section 121 because in the prescribed form the buyer s name was not to be inserted
910 G H 906 b The High Court was wrong in holding that because the mode of payment mentioned in the declaration is contrary to r 7 of the Foreign Exchange Rules 1952
there was a misdeclaration of material particulars
The appellant has managed to get the payment in Indian rupees through the Yugoslav firm
Therefore even after the statement that the country of destination was Italy the statement that the payment was to be received in India in Indian rupees was not unture although it was contrary to the mode prescribed in r 7
But the absence of the affirmation is significant
911 E G 912 B c Rule 7 provides that the amount representing the full value of the goods exported to the countries specified in the 2nd schedule shall be paid through an authorised dealer and unless authorised by the Reserve Bank shall be paid in the manner specified in the schedule
The approved methods of payment in the case of Italy which is in Group A of the schedule are  i currency of any country in the sub group ii sterling from an External Account  as defined under the UK Exchange Control Regulations and iii Rupees from the accounts of a bank in any country in the Convertible Account group
911 G 912 A d The appellant could not have affirmed that the full export value of the goods would be paid in one of the prescribed modes
If such affirmation was made it would have been false because of the statement in the declaration that the value of the goods was to be received in India in Indian rupees
If in the affirmation the appellant had stated that for the value of the goods exported to Italy it was to receive payment in Indian rupees then the affirmation would have violated section 121 as it would not have been an affirmation stating that the export value would be paid in the prescribed manner
Hence the decision of the High Court that the appellant had attempted to export goods in violation of section 121 is correct though it is upheld on a different basis
912 B E 4 Though it is an economic offence and relates to the law of foreign exchange since the law was not clear either to the Customs authorities or the High Court and has resulted in the recording of finding against the appellant on a wrong basis although not affecting the substance of the view that the appellant violated section 121 the quantum of penalty is reduced912 F G