IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CRIMINAL APPLICATION No 1175 of 1998 For Approval and Signature: Hon'ble MR.JUSTICE C.K.BUCH Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? Yes 2. To be referred to the Reporter or not? Yes : 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? No 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? No 5. Whether it is to be circulated to the Civil Judge? : NO No -------------------------------------------------------------- SUNIL ARVINDBHAI KAPADIA Versus UNION OF INDIA -------------------------------------------------------------- Appearance: MR AD SHAH for Petitioner MR BT RAO for Respondents Nos. 1 & 3 MR DN PATEL ADDL PUBLIC PROSECUTOR for Resp. No. 2 -------------------------------------------------------------- CORAM : MR.JUSTICE C.K.BUCH Date of decision: 16/07/1999 CAV JUDGEMENT RULE. Learned Counsel Mr.B.T.Rao waives service of Rule for Respondents Nos.1 & 3 and learned Additional Public Prosecutor Mr.D.N.Patel for Respondent No.2 State. 2. Heard learned Counsel for the parties. At the admission stage learned advocates have agreed to dispose of this matter finally, hence the same is taken up for final hearing. 3 The petitioner is an authorised person of one M/s. Swami Nana Exchange (P) Ltd. having its Registered Office at Nadiad of District Kheda. According to the petitioner, his father has expired. His one uncle Jitubhai Kapadia has also expired. He, his cousin brother (son of Jitubhai Kapadia) and his uncle Chimanbhai Harjivandas Kapadia are residing in a joint family. The joint family is headed by the petitioner's uncle Chimanbhai Harjivandas Kapadia. According to the petitioner, he, Himanshu (son of Chitubhai Kapadia) and daughtger-in-law of his uncle Chimanbhai H. Kapadia, Smt. Alkaben are authorised officers of M/s. Swami Nana Exchange (P) Ltd. Smt.Alkaben wife of Gaurangbhai Chimanbhai Kapadia is the Chairperson of this company. According to the petitioner, the petitioner and his cousin brothers and uncle Chimanbhai Kapadia are residing under a common roof at 10, Uttam Park Society, College Road, Nadiad. 4. The petitioner has filed this petition under Article 226 of the Constitution of India and has prayed for the following main reliefs: (A) That the Hon.'ble Court may be pleased to issue appropriate writ and/or direction to the officer of Enforcement Directorate to return the seized foreign currency as well as Indian currency as mentioned in the seizure reports, immediately on suitable terms and conditions; (B) That the Hon.'ble Court may be pleased to issue appropriate writ and direction for quashing and setting aside the action of seizure of the foreign as well as Indian currencies under different Panchnamas on 14th October 1998 and 15th Octgober 1998." 5. I have gone through the averments of the petition and the say of respondents Nos.1 & 3 in their affidavits, affidavit-in-reply and the second affidavit is filed in response to the rejoinder affidavit. The dispute between the parties pertains to seizure and retention of some documents, namely, foreign as well as Indian currency notes and travellers cheques etc. owned by the petitioner's Company which was the stock-in-trade for the company undisputedly authroised to deal in foreign exchange by the Reserve Bank of India. For the sake of brevity and convenience, it would be proper to refer 'Reserve Bank of India' as "the RBI" and 'foreign exchange' as "FE". The petitioner's Company i.e. M/s. Swami Nana Exchange (P) Ltd., Nadiad is authorised to deal in FE by the RBI under Licence No.24/98 dated 1.8.1998. The petitioner, Himanshu Kapadia, cousin brother of the petitioner and Smt. Alkaben Gaurangbhai Kapadia are authorised officers of M/s. Swami Nana Exchange (P) Ltd. and their company has been authorised by the above licence issued by the RBI vide its power under Section 7 of the Foreign Exchange Regulation Act, 1993 (46 of 1993) (hereinafter referred to as "the FERA"). The company was authorised by the RBI vide the above licence dated 1.7.1998 and the said company was raided by the ATS (Anti Terrorist Squad) on 14.10.1998. The petitioner's company, though was issued licence on 1.7.1998, had received the[[ licence on 14.7.1998 and had commenced its business from 17.7.1998. So it can be said that within the actual completion of the first quarter, the ATS raided the residential house of the petitioner and seized 30,000 US $ from the petitioner's uncle Chimanbhai H. Kapadia, father-in-law of the Chairperson of the company Smt. Alkaben Gaurangbhai Kapadia. Inter-se relation between the directors and Chimanbhai H. Kapadia from whom the amount was seized is not disputed and it is not also disputed, seriously, that all of them are residing under a common roof at the given address. According to the petitioner, the amount seized by the ATS from Chimanbhai H. Kapadia was given to him to keep it in safe custody as the petitioner was to go out of town on 14.10.1998. After perusal of the affidavits filed by respondents Nos. 1 & 3 and the stand taken by the officers of Enforcement Directorate, FERA, Ahmedabad before the learned Metropolitan Magistrate, Ahmedabad, it reveals that, according to the Department, Mr.Sunil Kapadia (the petitioner)) had no right to handover any foreign exchange to any person who is not an authorised dealer in foreign exchange without any previous permission of the RBI. It is also the say that any authorised officer of M/s. Swami Nana Exchange (P) Ltd. including the petitioner has no legal rights to hand over this foreign currency to any person who have no such authority. Therefore, the act of the petitioner in handing over the said currency notes to Chimanbhai H. Kapadia was not authorised and acquisition by Chimanbhai H. Kapadia of the said amount is too an independent act of controversy under Section 8 of the FERA. It is contended that (i) the petitioner had violated the provisions of FERA by handing over 30,000 US $ to his uncle at his residence, at a place other than the official premises of the company and (ii) thus his uncle Chimanbhai H. Kapadia violated the provisions of the FERA by acquiring the same without prior or general permission of the RBI; (iii) the petitioner company was authorised to collect currency notes but not to put these currency notes anywhere else than the company premises unless such permission has been granted by the regulating authority, namely, the RBI. 6. It is averred by the petitioner that there is no charge of breach of any of the provisions of the FERA by Chimanbhai H. Kapadia, so certain set of facts available on records require narration to appreciate the stand taken by the parties. 7. The petitioner 's company having recent origin had no facility of safe custody in its shop where it was carrying on its business. On 14.10.1998, 30,000 US $ were purchased from different persons and for that purpose Rs.24 lacs were withdrawn from bank (Rs.10 lacs + Rs.14 lacs) on 14.10.1998. Insurance companies were not being ready to take risk to insure the foreign currency notes and, therefore, the petitioner and other persons concerned with the company used to keep the foreign and Indian currencies for safe custody at their residence. On 14.10.1998, the day on which he purchased 30,000 US $, the total stock with the company was of 34,085 US $. According to the petitioner, he was to go out and there was nobody except his cousin brother Himanshu Kapadia at the office of the company. He had taken out 30,000 US $ from the stock and the same was handed over to his uncle Chimanbhai H. Kapadia for safe custody with appropriate instructions. When ATS officers visited the residential premises of the petitioner, he was not present personally and the entire foreign currency of 30,000 US $ was seized by ATS officers. They also removed Chimanbhai H. Kapadia and cousin brother Rahul Kapadia. These two persons along with 30,000 US $ were handed over to the Director of Enforcement, FERA Department and the FERA officers released Rahul Kapadia. On 14.10.1998 at about 11.50 p.m. the officers of FERA Department came to the residence of the petitioner and carried out searches upto the next day evening i.e. upto 6.00 p.m. on 15.10.1998. Under panchnama (Annexure-B) the officers of Directorate of Enforcement (FERA), seized certain documents. Office of the petitioner company was also searched by one Enforcement Officer Shri P.S.Thakkar from 8.30 a.m. to 3.45 p.m. on 15.10.1998. There was simultaneous searches at two places when the officers seized Indian Currency of Rs.96,962/- along with certain pages of computer sheets, stock reports etc. This search and seizure was made in presence of Himanshu Kapadia, an authorised officer of the company. A Panchnama was also drawn and the same is available at Annexure-C of the petition. The Chairperson of the company had sent a telegram at 8.30 p.m. on 15.10.1998 expressing her grievance alleging the illegal seizure of foreign currency, Indian currency and travellers cheque etc. and she informed about the authorisation granted by the RBI and clarified that her company has the status of "full-fledged money-changers". Statement of Chimanbhai H. Kapadia was recorded by the Enforcement Directorate officers and thereafter he was produced before the Metropolitan Magistrate, Ahmedabad. The petitioner and the Chairperson of the company both appeared before the Enforcement Director in pursuance of the summons dated 29.10.1998 and thereafter also the petitioner was interrogated time and again upto 6.11.1998. Chimanbhai Kapadia was remanded to judicial custody and was never interrogated by the FERA Department while he was at Central Jail, Sabarmati. 8. The petitioner applied before the learned Metropolitan Magistrate for return of muddamal but the Department of Respondents Nos.1 & 3 resisted the application stating that the application for return of muddamal is not maintainable as the muddamal is never produced before the concerned Magistrate. According to the Department, the muddamal mentioned in the application was seized under Section 37 of the FERA and the Directorate is entitled to keep the seized material in their custody for the purpose of investigation for a period of six months under Section 41 of the FERA. The petitioner has therefore challenged the legality and validity of the action of retention of the seized foreign currency as well as Indian currency mentioned in the seizure report. 9. I am taken through the relevant sections of the FERA, but the arguments of learned Counsel are focused on the provisions of sections 7, 8, 37, 38 and 41 of the FERA. The learned Counsel for the petitioner Shri A.D.Shah also relies on the Memorandum of Instructions given to full-fledged money-changers by RBI, which were good on the day of search and seizure. The memorandum was issued in the month of July 1997 and the xerox copy of the same is tendered before this court. On 9.10.1998, the petitioner company had written a letter to the RBI asking advise for the safe custody of foreign currency. A xerox copy of the letter written by the RBI to the petitioner is also tendered during the course of final hearing wherein the General Manager of RBI has advised the petitioner's company to the effect that "there is no bar from your side for keeping the foreign exchange at your residential premises for security etc. reasons". Though the letter is of 7.1.1999, the same can help this court in deciding the dispute between the parties because the same is written in response to the letter written by the petitioner company earlier on 9.10.1998, much earlier than the date of visit of ATS officers at the residence of the petitioner and seizure of 30,000 US $. This letter also can help in interpreting the practice normally adopted by the RBI, as one of the regulatory authorities in similarly situated cases. Under the FERA, more than one authority is empowered to regulate the foreign exchange including the RBI. No authorised officer of the petitioner company is charged with violation of the FERA by the Enforcement Directorate or any other regulating authority. I would like to refer the relevant part of Section 8 of the FERA referred by the learned Counsel appearing for the parties, it reads as under: "8. Restrictions on dealing in foreign exchange: (1) Except with the previous general or special permission of the Reserve Bank, no person other than an authorised dealer shall in India, and no person resident in India other than an authorised dealer shall outside India purchase or otherwise acquire or borrow from, or sell, or otherwise transfer or lend to or exchange with, any person not being an authorised dealer, any foreign exchange: Provided that nothing in this sub-section shall apply to any purchase or sale of foreign currency effected in India between any person and a money-changer. Explanation: For the purposes of this sub-section, a person, who, deposits foreign exchange with another person or opens an account in foreign exchange with another person, shall be deemed to lend foreign exchange to such other person. (2) xxx xxx xxx (3) xxx xxx xxx (4) xxx xxx xxx (5) xxx xxx xxx " 10. In view of the above relevant provision, both the parties have contended that their say about interpretation of the above provisions of Section 8 (1) of the FERA should be accepted. On perusal of the affidavits filed by the parties, it should be accepted that some factual questions are involved. But on appreciating the pleadings and the say of the parties, it can be inferred that the dispute between the parties is a legal dispute and mainly rests with the interpretation of above Section 8 vis-a-vis to other relevant provisions of Sections 7, 36, 37, 40 & 41 of the FERA. It is not the say of any of the respondents that any disputed question of fact is involved. For the reasons best known to the parties, the first panchnama drawn by the ATS of the State of Gujarat who seized the foreign currency of 30,000 US $ is not produced before this court. It reveals from the report filed by the Enforcement officers in the Court of Additional Chief Metropolitan Magistrate, Ahmedabad (Annexure-F) that the relevant documents were produced by the officers of ATS, Ahmedabad on 14.10.1998 in the office of the Enforcement Directorate (FERA), Ahmedabad. But it is not certain that any detailed panchnama in presence of panchas was drawn at the time of seizure of FE. Statements of Rahul Arvindbhai Kapadia was recorded under Section 40 of the FERA. This Rahul Arvindbhai Kapadia is the younger brother of the present petitioner Sunil Arvindbhai Kapadia. But looking to the language of the report and in view of the positive averments made by the petitioner, it is clear that this Rahul Arvindbhai Kapadia was not arrested under Section 35 (1) of the FERA. According to respondents Nos.1 & 3, the currency of 30,000 US $ was recovered during the search of a person, namely, Chimanbhai H. Kapadia Jayantilal outside the Bungalow No.10 of Uttam Park Society and the action taken by the office of ATS, Ahmedabad was on prior information. This Chimanbhai H. Kapadia is aged about 67 to 68 years and according to the report filed before the Additional Chief Metropolitan Magistrate, Ahmedabad, when the alleged search was carried out by the ATS persons Rahul Arvindbhai Kapadia was accompanying him. The Department is authorised to retain documents, which includes foreign currency notes, during investigation. It is averred that in view of the decision of the Supreme Court in the case of S.P.ARJUN CHETTIAR v. ENFORCEMENT DIRECTOR, the Department has a right to retain custody of documents of currency upto a period of one year as per the contemplation of Section 41 of the FERA. Provisions of Sections 37, 38 and 41 are mainly relied by respondents Nos.1 & 3 and the learned Counsel appearing for respondents Nos.1 & 3 has placed his reliance on the case reported in AIR 1985 SC page 989 PRATAPSINGH v. DIRECTOR OF ENFORCEMENT FOREIGN EXCHANGE. The learned Counsel Mr.B.T.Rao has taken me through the relevant paras of the aforesaid decision of the Supreme Court. Respondents Nos.1 & 3 have tried to impress upon this court that some previous involvement of Chimanbhai H. Kapadia is an important aspect and should be looked into and it also should be considered that certain foreign currencies and documents are recovered from Shri Chimanbhai H. Kapadia and also from the office premises of M/s. Swami Nana Exchange (P) Ltd. along with huge Indian currency, namely, Rs.11 lacs and Rs.96,962/-. The learned Counsel appearing for respondents Nos.1 & 3 has stated about the sensitivity of the issue and pendency of the investigation. According to Mr.Rao, M/s. Swami Nana Exchange (P) Ltd. was not having stock of US $ 30,000 on the day on which the amount was recovered from Chimanbhai H. Kapadia. The names of persons from whom the above currencies was purchased by the present petitioner were given by the present petitioner from the record of the company. The department has revealed that some names are fake names and some of them were dead on the day on which currency was alleged purchased by the present petitioner. In para 12 of the affidavit-in-reply filed by respondents No.1 & 3, it is contended that from the very records of M/s. Swami Nana Exchange (P) Ltd. it has been, prima facie, revealed that the authorised foreign exchange dealer is also committing several irregularities and not complying with the conditions of licence. Mr.Rao has submitted that the foreign exchange cannot be returned back because if at the end of trial the authority comes to the conclusion of confiscation, then the same currency is required to be confiscated and ultimately it will go to the coffer of the Central Government. While appreciating this part of submission, the Court has to consider two main aspects: (1) Scope of confiscation of currency seized; (2) if the currency seized from petitioner is of stock-in-trade and if retained for unreasonable time, whether would it seriously prejudice the other side. Other aspects are also relevant which require to be considered but it is the accepted legal position that investigating agencies are not permitted to retain property or documents merely because there are provisions as to confiscation of such property at the end of inquiry or trial. In the case of the present petitioner, respondents Nos.1 & 3 mainly rely on the provisions of Section 41 and submits that they are legally authorised to retain all the documents including Indian currency as the investigation is still pending. The grievance of respondents Nos.1 & 3 Department is that Shri Chimanbhai H. Kapadia and his associates were earlier implicated in a case for violation of FERA and show cause notices were issued against them. The petitioner is also facing inquiry by the Department as a power of attorney holder of M/s. Swami Nana Exchange (P) Ltd. Respondents Nos.1 & 3 have tried to establish, prima facie, that Chimanbhai @ Jayantibhai Kapadia, who is not an authorised person to deal in foreign exchange, is involved in illegal business of foreign exchange with his associates contrary to the provisions of the FERA, or in the activity of the company or the officers of the company including the petitioner at a place other than the office premises of M/s. Swami Nana Exchange (P) Ltd. is illegal. The licence given to the company, having its office at Bhavsarwad, authorises it to do business in foreign exchange, travellers cheques issued by the overseas organisations only at the aforesaid address upto the limits specified. 11. Section 41 of the FERA says that, any document furnished or seized under Sub-Section (2) of Section 33 or the provisions of Section 34 or Section 36 or Section 37 or under requisition or summons under Section 39 or Section 40, any officer of the Enforcement Department, if has reason to believe that the documents would be evidence of contravention of any of the provisions of the Act or of any Rule framed thereunder, and it would be necessary to retain the documents in his custody, then such officer can retain such documents (including foreign exchange) for a period of not exceeding six months. 12. The learned Counsel appearing for respondents Nos.1 & 3 has tendered the order passed by the Director of Enforcement under Section 41 of the FERA. A copy of this order has been sent to (1) Chimanbhai H.Kapadia (2) M/s. Swami Nana Exchange (P) Ltd., Nadiad and (3) M/s. Jayantilal Harjivandas & Co., Nadiad. Though the petitioner has substantially challenged the seizure and retention of foreign as well as Indian currencies including certain documents, he has not prayed for getting the order passed by respondent No.3 Director of Enforcement by virtue of his power under Section 41 of the FERA, set aside. The case of the petitioner is mainly based on the allegations of illegal and unauthorised seizure of the foreign currencies as well as Indian currencies mentioned in the seizure report produced by the petitioner. Relief (A) prayed by the petitioner says that the petitioner is ready to accept the stock-in-trade seized by the officers on any suitable terms and conditions. 13. The above set of facts and other relevant aspects referred hereinabove indicates that the petitioner as well as the contesting respondents Nos.1 & 3 are consistent in their stand. Consistency in the stand of the petitioner that the foreign currency of 30,000 US $ is purchased as per the guidelines issued by the RBI and in accordance with the provisions of the FERA and the same was handed over to the petitioner's uncle under given circumstances to keep the same in safe custody, is a plus point but it is important to note that the company itself is not the petitioner. I agree that an authorised officer of the company can file petition under Article 226 of the Constitution of India but, non-production of some of the important documents like Panchnama drawn by the ATS officers, balance sheet of the company on 14.10.1998, the date on which the currency was seized, name of the bank/banks from where Rs.24 lacs were withdrawn on that day for purchasing foreign currency, have created a cloud against the alleged transparency of the consistency pleaded by the petitioner. Section 41 of the FERA authorises officers of the Enforcement Department to retain custody of the document seized where the concerned officer has reason to believe that the said documents would be evidence of the contravention of any of the provisions of the FERA or any Rule framed thereunder. Foreign currency note is a document for the purpose of interpretation of Sections 8, 34, 36, 37 and 41 of the FERA. The Explanation to Section 33 of the FERA says that for the purposes of this Section, Section 34 and Sections 36 to 41 "document" includes Indian currency, foreign currency and books of account (emphasis supplied). To appreciate the case of the parties before this Court, a harmonious reading of substantive section and the provisions of presumption and burden under Section 71 and Section 8 (1) is important. Section 8 (1) of the FERA embraces various modes. According to the petitioner, Chimanbhai H. Kapadia - the uncle of the petitioner - had never acquired foreign currency of 30,000 US $. The act of handing over these currency notes to his uncle Chimanbhai H. Kapadia by the petitioner cannot be said to be a transfer by any mode reflected under Section 8 (1) of the FERA. It is vehemently argued that the term "otherwise acquired" should be interpreted in the manner in which it is placed in the section. Mr.A.D.Shah, learned Counsel appearing for the petitioner, has placed his reliance on the decision of the Bombay High Court in the case of STATE OF MAHARASHTRA v. DR. MAHESH P. MEHTA. In that case the Bombay High Court considered acquisition and possession of foreign exchange by interpreting Section 8 (1) of the FERA. In that case, the Bombay High Court has