Case: Director of Enforcement Vs. M.C.T.M. Corporation Private Limited and Others

Section 23(1)(a) of FERA, 1947. The opening phrase of sub-section (2) viz. : "where a person has failed to comply with the requirements of sub-section (1)..." shows that the directions under sub-section (2) may be given only after a person has contravened the provisions of Section 10(1). Thus, sub-section (2) is attracted after the contravention of sub-section (1) is established meaning thereby that contravention of sub-section (1) is a distinct offence, independent of the breach which may be committed subsequently by disobedience of any order or direction issued under sub-section (2) and the violation of the directions issued under sub-section (2) is not necessary to complete the commission of an offence under sub-section (1) of Section 10. 16. Sub-sections (1) and (2) of Section 10 take care of two distinct situations. There is therefore no warrant to hold that the contravention under Section 10(1) is not possible unless there has been violation of the direction issued under Section 10(2). Both sub-sections operate in different spheres and the issuance of directions under sub-section (2) and the breach of those directions is not the sine qua non for establishing the contravention contemplated by sub-section (1) of Section 10 whereas failure to comply with the requirements of sub-section (1) of Section 10 is necessary to enable the Reserve Bank of India to issue specific or general directions under sub-section (2) of Section 10. The obligation to repatriate the foreign exchange, receivable in India, is a statutory obligation and is not dependent upon any specific direction to be issued by the Reserve Bank of India in that behalf under sub-section (2) of Section 10. The object of enactment of clause (2) of Section 10 appears to be that the defaulter, may after having been penalised for contravention of Section 10(1) be still directed to repatriate the foreign exchange, in whole or in part, by the Reserve Bank of India and his failure to comply with those direction by itself would also invite penalty under Section 23(1)(a) of the Act, notwithstanding the imposition of penalty upon him for the breach of Section 10(1)(a) of FERA, 1947. Notwithstanding the imposition of penalty under sub-section (1) of Section 10, the Reserve Bank of India retains the authority to issue directions for repatriation etc. of the foreign exchange held by the defaulter abroad as the power to regulate dealings in foreign exchange do not get extinguished by imposition of some penalty on the defaulter during adjudicatory proceedings. 17. Section 23 of FERA, 1947 prescribes penalties for contravention of the provisions of Section 4, Section 5, Section 9, Section 10, sub-section (2) of Section 12, Section 17, Section 18-A or Section 18-B or of any rule, direction or order made thereunder. On its plain reading, Section 23(1)(a) does not restrict its application to only one of the sub-sections of Section 10. Contraventions envisaged by both the sub-sections of Section 10 attract penalty under Section 23(1)(a), unlike Section 12, of which only sub-section (2) invites the imposition of penalty under Section 23(1)(a). Had the Legislature intended to restrict the applicability of the provisions of Section 23(1)(a) to only one of the two sub-sections of section 10, it would have manifested its intention in the section itself by mentioning the specific sub-section. We are, therefore, of the opinion that contravention of sub-section (1) of Section 10 would invite penalty under Section 23(1)(a) and penalty shall also be leviable for contravention of any of the directions which may be issued by the Reserve Bank of India to such a person under sub-section (2) of Section 10 after his failure to comply with sub-section (1) of Section 10, notwithstanding the imposition of penalty for contravention of Section 10(1)(a) of FERA upon that person. The High Court was in error, if we may say so with respect, to construe that the contravention under sub-section (1) of Section 10 is not complete unless there is also a violation of the directions issued by the Reserve Bank of India under sub-section (2) of Section 10 of FERA, 1947. That interpretation does violence to the language of sub-section (2) of Section 10 and defeats the very object of the Act and renders the statutory obligation to repatriate the foreign exchange receivable in India as non-statutory, dependant upon issuance of specific or general directions by the Reserve Bank of India. Our answer to the second question, formulated in the earlier part of this judgment, therefore is in affirmative and we hold that for establishing contravention of sub-section (1) of Section 10 it is not necessary to establish that the defaulter has disobeyed any directions issued by the Reserve Bank of India under Section 10(2) with regard to the repatriation of the foreign exchange receivable by him in India. The contrary view taken by the High Court is not sustainable. 18. In view of our answer to both the questions above the judgment of the High Court, impugned in this appeal, cannot be sustained and we accordingly set it aside19. So far as the amount of penalty is concerned, the Appellate Board, as already noticed, has modified the amount of penalty as imposed by the Directorate of Enforcement. The learned Additional Solicitor General, Mr Tulsi, submitted that the appellant has no objection to the waiving of the entire amount of penalty insofar as each one of the Directors is concerned, some of whom are reported to have died during the pendency of the proceedings in this Court but that the penalty imposed upon the Company on both the charges does not call for any interference, because of the inordinate delay in repatriation of the foreign exchange, which according to him has not been repatriated even till date as that failure on the part of the Company has deprived this country to use the foreign exchange to subserve the common good, all these years. Learned counsel for the respondents does not controvert that the foreign exchange which was receivable in India from Malaysia has not been repatriated even till date.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. The High Court, while dealing with the first question opined that Section 23 is a "penal provision" and, the proceedings under Section 23(1)(a) arein nature and therefore, unless criminality is established, the penalty provided under Section 23(1)(a) of the Act cannot be imposed on any person. The High Court thus held the existence of "mens rea" as a necessary ingredient for the commission of an offence under Section 10 the Act and in the absence of a finding about the presence of "mens rea" on the part of the offenders, no punishment under Section 23(1)(a) of FERA, 1947 could be imposed. For what follows, we cannotWe are in agreement with the aforesaid view and in our opinion, what applies to "tax delinquency" equally holds good for the blameworthy conduct for contravention of the provisions of FERA, 1947. We, therefore, hold that mens rea (as is understood in criminal law) is not an essential ingredient for holding a delinquent liable to pay penalty under Section 23(1)(a) of FERA, 1947 for contravention of the provisions of Section 10 of FERA, 1947 and that penalty is attracted under Section 23(1)(a) as soon as contravention of the statutory obligation contemplated by Section 10(1)(a) is established. The High Court apparently fell in error in treating the "blameworthy conduct" under the Act as equivalent to the commission of a "criminal offence", overlooking the position that the "blameworthy conduct" in the adjudicatory proceedings is established by proof only of the breach of a civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under Section 23(1)(a) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention. Our answer to the first question formulated by us above is, therefore in theThe scheme of clause (1) of Section 10, in our opinion, unambiguously indicates that any person who has a right to receive foreign exchange or its payment in rupees in India shall not do or refrain from doing anything nor take or refrain from taking any action, which has the effect of either delaying or making the receipt of the whole part of that foreign exchange or its payment in rupees totally cease except, where he is expressly or by some general direction authorised or permitted by the Reserve Bank of India to doanswer to the second question, formulated in the earlier part of this judgment, therefore is in affirmative and we hold that for establishing contravention of(1) of Section 10 it is not necessary to establish that the defaulter has disobeyed any directions issued by the Reserve Bank of India under Section 10(2) with regard to the repatriation of the foreign exchange receivable by him in India. The contrary view taken by the High Court is notIn view of our answer to both the questions above the judgment of the High Court, impugned in this appeal, cannot be sustained and we accordingly set it aside19. So far as the amount of penalty is concerned, the Appellate Board, as already noticed, has modified the amount of penalty as imposed by the Directorate of Enforcement. The learned Additional Solicitor General, Mr Tulsi, submitted that the appellant has no objection to the waiving of the entire amount of penalty insofar as each one of the Directors is concerned, some of whom are reported to have died during the pendency of the proceedings in this Court but that the penalty imposed upon the Company on both the charges does not call for any interference, because of the inordinate delay in repatriation of the foreign exchange, which according to him has not been repatriated even till date as that failure on the part of the Company has deprived this country to use the foreign exchange to subserve the common good, all these years. Learned counsel for the respondents does not controvert that the foreign exchange which was receivable in India from Malaysia has not been repatriated even till date.