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

2. The respondents a private limited company and its Directors were proceeded against departmentally for having contravened the provisions of Section 10(1)(a) of the Foreign Exchange Regulation Act, 1947 (hereinafter referred to as the FERA, 1947). The gravamen of the Departmental case against the respondents was that they had failed to repatriate the foreign exchange lying in Malaysia, which they had a right to receive in India and had thereby failed to take or refrained from taking action which had the effect of not securing the receipt of the foreign exchange in this country. In the, the respondents were alleged to have committed two contraventions of the provisions of FERA, 1947 by the Directorate of Enforcement. The first charge related to their failure to repatriate foreign exchange of Malaysian 62186.42 being the sale proceeds of Nataraja Rubber Estate and Malaysian 1, 25, 000, being the Social Welfare Prize money won by the Company in 1960 while the second charge related to their failure to repatriate Malaysian 3, 56, 222.44 being the profit earned by the Company from the business carried on by the branch of the respondent Company at Kuala Lumpur as per the statement of profit and loss of the Company ending on 31.12.1972. All the amounts admittedly belonged to the Company and had been disclosed by the company in itst as well as in the return of income tax for the relevant years. Admittedly, the respondents had not obtained any special or general permission from the Reserve Bank of India authorising them to hold the aforesaid foreign exchange lying with their branch at Kuala Lumpur in Malaysia without repatriating the same to India. The Special Directorate of Enforcement in the Departmental proceedings, taken against the respondents, by its order dated 19.9.1977 held the respondents responsible for committing both the contraventions mentioned in the article of charges and in respect of the first charge imposed a penalty of Rs. 4, 000/each on its Directors and of Rs. 40, 000/on the respondent company, while in respect of the second charge imposed a penalty of Rs. 20, 000/on each of the Directors and a penalty of Rs. 2, 00, 000/on the respondent company, under Section 23(1)(a) of FERA, 1947. Against the order dated 19.9.1977 the respondents filed five separate appeals before the Appellate Board. The Board took the view that since it was not a case where foreign exchange had been surreptitiously held abroad with any mala fide motive though it was retained in Kuala Lumpur deliberately and intentionally, the contravention of the provisions was of a technical nature and therefore reduced the penalty to Rs. 2, 000/on each of the Directors and to Rs. 20, 000/on the company in respect of the first charge and to Rs. 5, 000/each in the case of the Directors in respect of the second charge, while retaining the penalty on the company. The Board rejected the plea of the company and its Directors that since no time limit had been specified for repatriation of the foreign exchange under Section 10 of the Act, the respondents could not be held guilty of either of the charges and opined that since no period had been specifically prescribed for repatriation of the foreign exchange, it was implied that foreign exchange had to be repatriated within a reasonable time from the date when the right to receive the same accrued and having regard to the long time taken by the Company, it followed that the company had failed to repatriate the foreign exchange within a reasonable period. (Foreign Exchange had not been repatriated even after the expiry of more than 15 years from the date the right to receive it in India accrued). Dissatisfied, the respondents (the Company and its Directors) filed five separate appeals before the High Court at Madras under Section 54 of FERA, 1973. Vide judgment and order dated 9th March, 1988, a Division Bench of the High Court, allowed all the appeals and set aside the penalty as imposed by the Directorate of Enforcement and modified by the Appellate Board. The High Court inter alia held that Section 10(1) of FERA, 1947 is not an independent section and unless some direction given under Section 10(2) by the Reserve Bank of India was contravened, no penalty could be imposed for breach of Section 10(1)(a) under Section 23(1)(a) of FERA, 1947. The High Court also held that a finding regarding existence ofa or criminal intent" for failure to repatriate foreign exchange was necessary before the respondents could be penalised for contravention of the provisions of Section 10(1)(a) of FERA, 1947 and since in the instant case, the existence ofa had not been found by the Directorate or the Appellate Board, the award of punishment by way of levy of penalty under Section 23(1)(a) of FERA, 1947 was not justified. This appeal by special leave has been filed by the Directorate of Enforcement, questioning the correctness of the order of the High Court.

Reasoning:
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) are" in 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, held existence of "mens rea" as a necessary ingredient for the commission of an offence under Section 10 of the Act and in the absence of a finding about the presence of" on the part of the offenders, no punishment under Section 23(1)(a) of FERA, 1947 could be imposed. For what follows, we cannot agree13. We 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 thata (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 the negative14. Coming now to the second question, in the instant case, on facts there is no dispute that for more than 15 years, the foreign exchange owned by the respondents had been lying in Malaysia and respondents had taken no action or steps whatsoever to repatriate that foreign exchange which they had the right to receive in India and had thereby failed to secure the receipt of the foreign exchange in India. Did the respondents thereby contravene the provisions of Section 10(1)(a) of FERA, 1947 or could it be said that unless the respondents had violated a direction given under Section 10(2), the offence under Section 10(1)(a) could not be said to have been committed, attracting the levy of penalty under Section 23(1)(a) of FERA, 1947 ? This precisely is the core of the second question framed by us above15. The Scheme of Clause (1) of Section 10 in our opinion, unambiguously indicates that any person who has a right to receive in 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 or 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 do so. The default is complete on the failure to get the foreign exchange, receivable in India, repatriated, within a reasonable time after the right to receive the same accrues. What is "reasonable time" would depend upon the facts and circumstances of each case and it is neither possible nor desirable to lay down any general formula in that behalf. Where the delay in repatriation is not unreasonable no contravention of Section 10(1)(a) can be said to have been committed. Section 10(1)(a), enacts a contravention punishable under Section 23(1) of FERA, 1947. Section 10(2) enacts a distinct & separate contravention flowing from disobedience of the order or directions issued by the Reserve Bank of India to the person who has already committed a contravention under Section 10(1). It lays down that where a person has failed to comply with the requirement ofn (1) of Section 10 for the repatriation of any foreign exchange or its payment in rupees, the Reserve Bank of India may give to that person such directions as appear to the Reserve Bank of India to be expedient for the purpose of securing the receipt of foreign exchange or payment in rupees, as the case may be and the violation of those directions would attract the penalty under Section 23(1)(a) of FERA, 1947. The opening phrase ofn (2) viz., : "where a person has failed to comply with the requirements ofn (1) ...." shows that the directions undern (2) may be given only after a person has contravened the provisions of Section 10(1). Thus,n (2) is attracted after the contravention ofn (1) is established meaning thereby that contravention ofn (1) is a distinct offence, independent of the breach which may be committed subsequently by disobedience of any order or direction issued undern (2) and the violation of the directions issued undern (2) is not necessary to complete the commission of an offence undern (1) of Section 10.s (1) and (2) of Section 10 thus 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 a violation of the directions issued under Section 10(2). Boths operate in different spheres and the issuance of directions undern (2) and the breach of those directions is not then for establishing the contravention contemplated byn (1) of Section 10 whereas failure to comply with the requirements ofn (1) of Section 10 is necessary to enable the Reserve Bank of India to issue specific or general directions undern (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 undern (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 directions 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 undern (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 adjudicating proceedings16. Section 23 of FERA, 1947 prescribes penalties for contravention of the provisions of Section 4, Section 5, Section 9, Section 10,n (2) of Section 12, Section 17, Section 18A or Section 18B 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 thes of Section 10. Contraventions envisaged by both thes of Section 10 attract penalty under Section 23(1)(a), unlike Section 12, of which onlyn (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 twos of Section 10, it would have manifested its intention in the Section itself by mentioning the specific. We are, therefore, of the opinion that contravention ofn (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 undern (2) of Section 10 after his failure to comply withn (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 undern (1) of Section 10 is not complete unless there is also a violation of the directions issued by the Reserve Bank of India undern (2) of Section 10 of FERA, 1947. That interpretation does violence to the language ofn (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, dependent 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 the affirmative and we hold that for establishing contravention of Section 10(1)(a) 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 sustainable17. 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 aside18. 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 Addl. Solicitor General, Mr. Tulsi, submitted that the appellant has no objection to the waiving of the entire amount of penalty in so far as each one of the Directors is concerned some of whom are reported to have expired in the meanwhile 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 till date. We, therefore in view of the submissions made at the Bar set aside the penalty imposed upon each of the Directors of the company but maintain the penalty imposed upon the company, as modified by the Appellate Board. The appeal succeeds and is allowed in the above terms. In the peculiar circumstances of the case, the parties shall bear their own costsas on February 28, 1979. In the light of the fact that the duty was continued from 1978 to 1986, indeed upto February 28, 1989 and also in view of the principle behind the presumption incorporated in SectionB of the Central Excise Act inserted by the Central Excises and Customs Law [Amendment] Act,h is but a legislative recognition of a widely accepted presumptionwe think it appropriate to direct that the assessees shall not be entitled to refund of any amount collected from them by way of special excise duty on or after March 1, 1978 in respect of goods manufactured prior to the said date. Looked at from the standpoint of avoidance of multiplicity of proceedings and of unending legal quibbling also, it is desirable to give a quietus to this controversy. To avoid any discriminatory consequences, it is further directed that if any amounts are due and are yet to be recovered in respect of such goods on account of special excise duty, the same can be recovered according to law