In the High Court of Judicature at Madras Dated 09.06.2010 Coram The Honourable Mr.Justice R.SUBBIAH Civil Miscellaneous Appeal No.68 of 2000 K.Sadasivam ..Appellant ..vs.. Special Director, Enforcement Directorate, (Foreign Exchange Regulation Act), New Delhi. ..Respondents Civil Miscellaneous Appeal filed under Section 54 of Foreign Exchange Regulation Act 46/93, against the order dated 11.06.1999 made in Appeal No.171/93 passed by the Foreign Exchange Regulation Appellate Board, New Delhi, confirming the order No.SDE(R) IV 7/93 dated 26.02.1993 passed by the Special Director, Enforcement Directorate (Foreign Exchange Regulation Act), New Delhi. For Appellants : Mr.B.Kumar, Senior Counsel for Mr.R.Loganathan For Respondents : Mr.K.Ramaswamy, Senior Special Counsel for Enforcement Directorate JUDGMENT This appeal is filed against the order passed in Appeal No.171 of 1993 dated 11.06.1999 by the Foreign Exchange Regulation Appellate Board, New Delhi, confirming the Order No.SDE(R)/IV/7/93 dated 26.02.1993 passed by the Special Director, Enforcement Directorate (Foreign Exchange Regulation Act), New Delhi. 2. The facts, which are necessary to decide the issue involved in the appeal, are as follows: (a) The appellant was working as Assistant Manager, Grade-I in the State Bank of India. The State Bank of India, Extension Branch at Anna International Airport, is licensed by the Reserve Bank of India to act as authorised dealers and, therefore, they are entitled to purchase and sell foreign currencies and travellers' cheques to the passengers going abroad or coming from abroad at the Air Port Counter. While the appellant was working at the S.B.I.Extension Branch, Anna International Airport, he had a separate cash chest or Coffer and he had separate counter and the ledgers showing the opening balance, the amount dealt with, etc., are all separate for him. On 11.10.1990 at about 4.30 Hours, the Enforcement Directorate, on information, conducted inspection of the State Bank of India, Exchange Bureau, situated at the Arrival Hall of Anna International Airport, Madras, under the provisions of Section 43 of the Foreign Exchange Regulation Act ('FERA Act'). During the inspection, the following unaccounted foreign currencies and travellers' cheques were found in the counter of the appellant. U.S.Dollars 100 Australian Dollars 250 U.S. Dollars in Travellers' Cheques 400 Since the foreign currencies and travellers cheques in the counter of the appellant were found to be in conformity with the transaction dated 10.10.1990, the above said currencies were returned to the officer in the presence of witnesses. Thereafter, in the presence of witnesses, when the appellant's hand bag was searched by the officers of the Enforcement Directorate, the following foreign currencies and Indian currencies were found and recovered. U.S.Dollars 823 } from his Samsonite } hand bag Singapore Dollars 151 } Malaysian Ringgits 49 Indian currency Rs.3,590/-. Since the Indian and foreign currencies did not figure in the official transactions of the bank as per the records made available to the Enforcement Directorate Authorities, the said currencies were seized in the presence of witnesses under a Mahazar. Thereafter, the appellant was taken to the Enforcement Directorate Office and two statements were recorded from him, one on 11.10.1990 and another on 12.10.1990 and was remanded to custody on 12.10.1990. But, subsequently, the said statements were retracted by the appellant in the bail application filed on the date of remand, stating that the said statements were obtained by coercion and ill-treatment by the Enforcement Directorate Officers. (b). The Bank Manager Mr.V.Krishnamoorthy made an inspection on 11.10.1990 and verified the accounts as well as the cash available in the cash chest belonging to the appellant and he prepared a summary of transactions, as per which, there was a shortage of cash to the tune of Rs.17,498/-. The details of the summary of transactions as on 11.10.1990 are extracted hereunder: 1. Receipts (Miscellaneous transactions) Rs. 2,32,813.00 2. Opening balance on that date 1,72,375.15 ----------- Total 4,05,188.15 Less: Amount paid by the appellant for } 400 US Dollars and 250 Australian} Dollars, which the appellant had } purchased during the course } of the day } 20,310.00 ------------ Balance which must be available 3,84,878.15 ------------ Total closing balance as per summary of Transactions 3,84,878.15 Less: Cash available on physical verification 3,67,380.15 ----------- Shortage of cash 17,498.00 ----------- When the State Bank of India sent a letter dated 16.10.1990 to the appellant that there was a shortage of Rs.17,498/-, the appellant sent a reply to the bank that with the amount of Rs.17,498/-, all the bank money had been utilised in the normal course of banking transactions in purchasing foreign currencies from the incoming passengers and that if the foreign currencies seized by the Enforcement Directorate are returned, he can tally the same with the accounts. Accepting his reply, the bank did not take any further steps to recover the amount from the appellant. (c). While the situation stood thus, the authorities of the Enforcement Directorate issued a show cause notice dated 19.09.1991 to the appellant, wherein a reference was made to the statement that was given by the appellant on 11.10.1990 as if the appellant had brought Rs.20,000/- with him to the office with an idea of purchasing foreign currencies from the incoming passengers for selling the same at a higher rate for profit; moreover, since the appellant has not issued any encashment certificate for the purchase of the said seized foreign currencies, the appellant was charged for violation of the provisions of sections 8(1) and 8(2) of FERA Act, 1973. The appellant was also directed to reply to the said show cause notice within 30 days from the date of receipt of the said notice; but the appellant had sent a detailed reply dated 06.11.1991 stating that the said statement recorded by the Enforcement Directorate was not true and voluntary and it was obtained under coercion by illegally keeping him in the office throughout the day i.e.11.10.1990. (d). But the respondent-the Special Director of Enforcement Directorate, by his order dated 26.02.1993 found the appellant guilty of contravention of Sections 8(1) and 8(2) of the FERA Act and imposed a penalty of Rs.2.50 lakhs upon the appellant for violation of Section 8(1) and Rs.one lakh for violation of Section 8(2) of the FERA Act, 1973. Aggrieved over the said order, the appellants had filed an appeal before the Foreign Exchange Regulation Appellate Board, New Delhi. But the appellate authority, by its order dated 11.06.1999, rejected the appeal and confirmed the order of the adjudicating authority; however, reduced the penalty at Rs.50,000/- under section 8(1) and Rs.40,000/- under section 8(2) of the FERA Act. Aggrieved over the same, the present appeal is filed under section 54 of the FERA Act before this Court. 3. Learned Senior Counsel appearing on behalf of the appellant submitted that the main allegation against the appellant is that he was in possession of 823 US Dollars, 151 Singapore Dollars and 49 Malaysian Ringgits to the value of Rs.16,306.35; apart from that, the appellant was in possession of the cash of Indian currencies at Rs.3,590/-; but these Indian and foreign currencies did not figure in the official transaction of the bank as per the entries made available in the Enforcement Directorate; therefore, there is a violation of the provisions of Sections 8(1) and 8(2) of the FERA Act. In this regard, the learned senior counsel invited the attention of this Court to Section 8 of the FERA Act and submitted that section 8 deals with restrictions on dealing in foreign exchange; but the S.B.I.Extension Counter at Anna International Airport, where the appellant was working as Assistant Manager, is licensed by the Reserve Bank of India to act as its authorised dealers. Therefore, as an employee of the said bank, the appellant has the duty to purchase and sell foreign currencies and he has also duly acted only as an authorised dealer. Within the office hours, while he was on duty at the Extension Counter of S.B.I.at International Airport, Chennai, the appellant had purchased foreign currency from the passengers who arrived from abroad with the money belonging to State Bank of India and when the foreign exchange so purchased was in the State Bank of India, Extension counter inside the bank, they were seized by the Enforcement Directorate, whereas section 8(1) prohibits dealing of foreign exchange by a person other than the authorised dealer. When the appellant being the authorised dealer, the question of violating the provisions of Sections 8(1) and 8(2) does not arise in this case. Therefore, the show cause notice issued by the respondent is ex-facie wrong. Further, by inviting the attention of this Court to the summary of the transactions of S.B.I., Extension Counter, International Airport as on 11.10.1990, the learned senior counsel contended that the total value of the foreign currencies with receipts by miscellaneous transactions on that day was Rs.2,32,813/-. The opening balance on that day was Rs.1,72,375.15 and the total was Rs.4,05,188.15. The foreign currencies purchased i.e.400 US dollars and 250 Australian Dollars during the course of the day came to Rs.20,310/-. The balance, after deducting Rs.20,310/- must be Rs.3,84,878.15. But, there was a shortage of Rs.17,498/-. In this regard, the learned senior counsel submitted that the value of foreign currencies said to have been recovered from the personal bag of the appellant was Rs.16,306.35 (823 US Dollars, 151 Singapore Dollars and 49 Malaysian Ringgits). That apart, the appellant was in possession of Rs.3,590/- Indian currencies. To justify the possession of the cash of Rs.3,590/-, the learned senior counsel relied on the statement of account of the appellant's bank account and contended that the appellant has received a sum of Rs.4,500/- on 07.09.1990 as festival advance. He deposited the said festival advance amount in his account on 07.09.1990 and thereafter, he withdrew the sum of Rs.5,000/- for his personal use from the bank on the same day and after spending some money the appellant had Rs.2,390/- in account. Apart from Rs.2,390/-, the appellant was in possession of Rs.1,200/- in cash which is of bank's money. Therefore, if this personal money of Rs.2,390/- and bank's money of Rs.1,200/- are added, the total amount comes to Rs.3,590/- which was in possession of the appellant on the date of 11.10.1990. Therefore, if the total value of foreign currencies recovered from the appellant is added, it will come to Rs.17,506/-, which will square up the shortage of the amount of Rs.17498/-. Therefore, the amount with regard to the purchase and selling of currencies on the date of 11.10.1990 would clearly tally with the accounts. 4. Moreover, no fault could be found as against the appellant for having been in possession of foreign currencies since as the employee of S.B.I. Extension Counter, the authorised dealer, he is duty bound to purchase and sell foreign currencies, particularly in the circumstances when these foreign currencies and the possession of Indian currencies clearly tally with the account. Further, the learned senior counsel submitted that had the versions of the respondent been true that the appellant had brought a sum of Rs.20,000/- personally for the purchase of foreign currencies, there should not have been any shortage of amount. Further, the respondent has not accepted the explanation given by the appellant by referring to the accounts on a reasoning that "for the official conversion of the foreign currencies, it is necessary that the incoming passengers should give the prescribed format duly filled up with their personal details, passport particulars along with the details of currencies to be exchanged; but no such forms were collected by the appellant from them and hence, the explanation given by the appellant with regard to the tallying of the accounts in respect of the foreign currencies and Indian cash recovered from him cannot be accepted". But the learned senior counsel for the appellant submitted that the said reasoning of the respondent is not legally sustainable. The penalty proceedings initiated against the appellant was for not issuing the encashment certificate to the passengers coming from abroad and not maintaining counterfoils with him and on the other hand, the penalty proceedings was initiated against the appellant for contravention of the provisions of Sections 8(1) and 8(2) of the FERA Act as an unauthorised dealer, he dealt with buying of foreign currencies. The learned senior counsel further submitted that had there been a charge in the show cause notice with regard to the non-issuance of the encashment certificates to the passengers coming from abroad, the appellant would have sent a proper reply for the same; but there was no mentioning in the show cause notice with regard to the non-issuance of encashment certificates by the appellants. Further, the learned senior counsel for the appellant submitted that the respondent cannot penalise the appellant for a different allegation than what was alleged in the show cause notice and if the concern of the respondent is with regard to the non- issuance of encashment certificate in respect of the foreign currencies purchased by the appellant, then they should have invoked section 6(4) of the FERA Act. 5. Section 6 deals with Authorised dealers in foreign exchanges. Had there been any violation such as non-issuing of encashment certificate by the authorised dealer, then the respondent ought to have followed section 6 of the FERA Act. Whenever the authorised dealer commits any contravention of licensing conditions or other directions issued under section 73(3), it will amount to only violation of section 6(4), for which penalty could be imposed under section 50. But in the instant case, though the appellant is the authorised dealer, the respondent has invoked section 8 of the FERA Act, which deals about the purchase and dealing with the foreign currencies other than the authorised dealer, saying that since there is no encashment certificate, there is a violation of section 8(4), which reason assigned by the respondent is not legally correct. Further, the learned senior counsel submitted that even assuming for a moment that the non-issuance of the encashment certificate is in violation of licensing conditions or other directions of the Reserve Bank of India, unless those conditions or directions were given by the Reserve Bank of India under section 73(3), the said violations would not fall under any of the provisions of the Act. In support of his contention, the learned senior counsel has relied on the decisions reported in STATE OF MAHARASHTRA ..vs.. NARBHERAM M.PAREKH (1990 (Vol.48) TAXMAN-MAGAZINE 278), VALLIAMMAL ACHI ..vs.. DIRECTOR OF ENFORCEMENT (AIR 1983 MADRAS 92), L.I.C.OF INDIA ..vs.. ESCORTS LTD., (AIR 1986 SC 1370), GAJANAN VISHESHWAR BIRJUR ..vs.. UNKION OF INDIA (1994 (72) E.L.T.788 (S.C.), and COMMISSIONER OF CENTRAL EXCISE, BHUBANESHWAR-I ..vs.. CHAMPDANY INDUSTRIES LTD., ((2009) 9 SCC 466). Under such circumstances, the impugned order passed by the respondent is liable to be set aside. 6. Per contra, the learned Senior Special Counsel appearing for the respondent submitted that though the appellant was the employee of S.B.I.Extension Counter at Anna International Airport, he along with some others indulged in purchasing the foreign exchange for their own benefit, outside the books of account of the bank, thereby he clearly contravened the provisions of sections 8(1) and 8(2) of the FERA Act, 1973. Therefore, the appellant, who was working as Assistant Manager in the S.B.I. Extension Counter, cannot be construed as an authorised dealer. Under such circumstances, no fault could be found in the show cause notice issued by the Enforcement Directorate. Further, by inviting the attention of this Court to the show cause notice dated 19.09.1991, the learned senior counsel vehemently contended that the non-issuance of the encashment certificates by the appellant was clearly mentioned in the said show cause notice. Unless the encashment certificates are there, the explanation given by the appellant with regard to the accounts for tallying the possession of foreign currencies and the Indian cash, which was recovered from his possession, cannot be accepted by the respondent. Thus, the learned senior counsel submitted that there is no merit in the contentions of the appellant and hence the appeal has to be dismissed. 7. Heard the learned senior counsel for the parties and perused the materials available on record. 8. In view of the submission made on either side, the questions that arise for consideration in this appeal are (1) Whether the show cause notice issued under section 8(1) of the FERA Act is ex-facie illegal, when the appellant was empowered to sell and purchase foreign currencies as an authorised dealer? (2) When the show cause notice did not speak about the allegation of conversion of foreign currencies from the incoming passengers without obtaining the prescribed format, whether the penalty can be imposed stating that there is a violation of sections 8(1) and 8(2) of the FERA Act ? (3) Whether the contention of the appellant that even if there is any violation, such as non-issuance of encashment certificates to the incoming passengers, would it attract only 6(4) and not sections 8(1) and 8(2) of the FERA Act ? 9. With regard to the first fold of submission, I find that it is the contention of the appellant that the S.B.I.Extension Counter at Anna International Airport is the authorised dealer, within the meaning of section 6 of the FERA Act. The appellant was working as Assistant Manager in the said bank, the authorised dealer, the appellant is empowered to purchase and sell foreign exchange. Section 8 of the FERA Act deals with the prohibition of a person dealing, selling and purchasing of foreign currencies other than the authorised dealer. Therefore, the contention of the appellant is that when he was an employee under the authorised dealer, the show cause notice issued under the provisions of Sections 8(1) and (2), which are meant for other than the authorised officer, is not legally sustainable. In this regard, I find that the allegation against the appellant is that he had purchased the foreign currencies by using his own money with an intention to sell the same for a higher price. Moreover, as the employee of the authorised dealer, namely, State Bank of India, Extension Counter, Anna International Airport, he is dealing with the foreign currencies. When once he contravenes or violates the provisions of the FERA Act, his action is totally independent in nature and not connected with the activities of the authorised dealer, namely, the State Bank of India. Therefore, in my considered opinion, the notice issued by the respondent under sections 8(1) and 8(2) of the FERA Act as against the appellant cannot be said to be ex-facie illegal. Therefore, in my considered opinion, there is no need for the respondent, by treating the appellant as an authorised agent, to issue notice under different section, namely, 6(4) of the Act. 10. The other submission of the appellant is that in the impugned order, the respondent has observed, "there was a conversion of foreign currency without giving a prescribed format to the passengers coming from abroad and the appellant has not collected encashment certificate". According to the appellant, the said reasoning would amount to punish him under a different section and not under sections 8(1) and 8(2), because those sections deal about the prohibition of selling and purchasing the foreign currencies by the persons other than the authorised officer. If the allegation of the respondent is concerned about the non-procuring of the encashment certificates, then it would amount to violation of the licence conditions. Under such circumstances, the notice ought to have been issued under a different section by mentioning the non-procuring of encashment certificate. It is the further grievance of the appellant that since the show cause notice did not speak about the non-procuring of the encashment certificate, he had lost the chance of submitting his reply with regard to the non-procurement of encashment certificate. In support of his contention, the learned counsel for the appellant relied upon a judgment reported in 1990(Vol.48) TAXMAN MAGAZINE, p.278, wherein it has been held as follows: "The fact that the provisions of section 8 could not be invoked at all by the Government was not disputed. As regards the offence under section 14, it might be that there was some contravention of section 14 on the part of the respondent but on the face of it, his conduct was full of bona fides and sincerity. He withdrew 3,000 pounds from the bank in foreign currency. He spent 2,100 pounds in Europe for his wife's treatment. The remaining 900 pounds were not retained by him. The moment he came here, he declared that amount. Anybody could see that the respondent could as well have deposited back the balance of 900 pounds in the foreign bank and kept prudently mum and there would hardly have been any opportunity for the department to do anything about it. This meant that it was his honesty which was his undoing. Putting premium upon dishonesty were the words that would spring to the lips. The department wanted to penalise the respondent for his honesty. Thus, a person who had been honest right from beginning was being condemned to heavy penalty and that too when not a farthing's loss was caused to the exchequer. If penalty was imperative, a token penalty of Re.1 would answer the imperative. The Board was justified in not remanding the matter back for such formality. The only question, therefore, was whether it would be open for the Adjudicating Officer to convict the respondent straightaway on the basis of contravention of section 14 without giving any effective hearing to the respondent on that point. It was not open for him to do so because if the original notice had related to an offence under section 14, the respondent would have come prepared with different defence. This was a matter of substance, not of form. Failure to bear in mind this aspect had no doubt vitiated the entire proceedings. The Board was, thus, justified in holding that the Adjudicating Officer should not be given a second inning for bringing the respondent to book". 11. Further, the learned senior counsel for the appellant relied on the decision reported in (2009) 9 SCC 466 (cited supra), wherein it has been held as follows: "38. Apart from that, the point on Rule 3 which has been argued by the learned counsel for the Revenue was not part of its case in the show-cause notice. It is well settled that unless the foundation of the case is made out in the show-cause notice, the Revenue cannot in Court argue a case not made out in its show-cause notice. (Commr. of Customs v. Toyo Engg. India Ltd.,(2006) 7 SCC 592). Similar view was expressed by this Court in CCE v. Ballarpur Industries Ltd.9 (2007) 8 SCC 89). In para 27 of the said Report, learned Judges made it clear that if there is no invocation of the Rules concerned in the show-cause notice, it would not be open to the Commissioner to invoke the said Rules. ........... 43. The Revenue also relied on another decision of this Court in Kemrock Industries & Exports Ltd. v. CCE, (2007) 9 SCC 52) for the purpose of essentiality test. As noted above, there is no whisper of the essentiality test in the show-cause notice. As no case of essentiality test has been made out in the show-cause notice, the same cannot be argued for the first time before this Court. As such the judgment in Kemrock on essentiality test is of no avail". The above judgments relied upon the learned senior counsel for the appellant are only in support of his submission that when notice was issued for violation of sections 8(1) and 8(2) which deal with the prohibition of dealing with foreign exchange by a person other than the authorised dealer, the authorities cannot impose punishment on a different reasoning namely, foreign currencies purchased by the appellant were not supported by encashment certificate. That apart, the learned senior counsel for the appellant has also relied upon a judgment reported in AIR 1986 SCC 1370 (cited supra)in support of his contention that if only there is a violation of the direction of the Reserve Bank of India issued under section 73(3) of the FERA Act, 1973, the other violation will not amount