Case: Union of India Vs. ABN Amro Bank &amp; Others

FACTS:4. M/s Maple Leaf Trading International Pvt. Ltd., the 2nd respondent, was formed with the assistance of M/s J. C. Bhalla and Company, a Chartered Accountant firm having its office at New Delhi, in the following circumstances. One Lambert Kroger, Stefen Mayer and Cliff Roy, all foreign nationals, had met Anil Bhalla of the above mentioned firm and expressed their desire for establishing a company for trading in Maple Leaf Gold Coins in India, which they were doing in Netherlands and Germany. Anil Bhalla was informed that necessary approvals would be obtained through M/s. Abascus Legal Group, New Delhi. Anil Bhalla and Rajesh Sethi, Chartered Accountants of that firm, became subscribers of the newly formed company. Cliff Roy, a foreign national and power of attorney holder of 4th respondentPiccadily informed him that from Abascus, one Vikrant Singh Jafa and Rahul Krishna would be the Directors of the company and ten shares of the company each in the name of Anil Bhalla and in the name of Rajesh Sethi were issued, which were transferred on 19.5.1998 in the name of Vikram Singh Jafa and a sum of Rs.2,000/was received in cash from Cliff Roy. In the above background, the company was incorporated on 5.4.1998 and, on the same date, Cliff Roy, a foreigner, was appointed as the Director of the Company and on 17.4.1998 he became the Managing Director of the company. Anil Bhalla, Rajesh Sethi (Chartered Accountants) and Rahul Krishnan, then, resigned as Directors of the company on 19.5.1998. Jafa resigned as Director on 11.1.1999. Jafa was holding 49% shares of the company and on 16.4.1999 a Share Transfer Agreement was entered into by him with one A.R. Khan and Lambert Kroger, the Managing Director of the company to transfer 9780 shares of the company to A.R. Khan. The Adjudicating Officer says, ultimately, the Indian company came under the control of Cliff Roy, Paul Singh Clare, Lambert Kroger, all foreign nationals. For deciding the various legal issues at this stage, a detailed analysis of the facts are unnecessary and we do not want to burden our judgment with further factual details, which are all part of the record.5. We may, for the purpose of deciding these appeals, start from the stage at which Cliff Roy, a foreign national and power of attorney holder of 4th respondent company, had submitted an application in Form FC (RBI) on 21.5.1998 before the Reserve Bank of India (for short "RBI") for approval of not exceeding 51% foreign investment for Service Sector in Annexure III from the 4th respondent. Permission was sought for, for the foreign collaboration for "Business Management Consultancy for Trading, Marketing and Selling of Goods and Services" with specific reference to NIC Code 893. Details of foreign investment resulting in foreign exchange inflow were also given in para VI of the application. Para VIII (iii) called for the description of products in the case of trading companies primarily engaged in exports, to which the Company replied stating that the same is not applicable. RBI, with reference to that application, allotted Registration No.NDR 1005 vide letter dated 29.6.1998 and vide letter dated 29.6.1998 informed the company that it would advise the foreign collaborator that they would obey the laws of the land and there should be no compromise or excuse for the ignorance of the Indian Legal System.6. The Enforcement Directorate got information that the company had started trading activity in gold coins on 27.5.1998 and signed the first contract for trading in Maple Leaf Gold Coins, which it was noticed, was contrary to the declaration made by the company in its application Form FC (RBI) dated 21.5.1998 under NIC Code 893. RBI also got information from the Economic Offences Wing of the Crime Branch, Delhi that the Company was collecting money from the public on the pretext of distributing Maple Leaf gold coins misleading the public that it had got RBI permission for such an activity. RBI also got information from the Ministry of Industry, Government of India, that the company had also applied for FIPB approval for foreign equity induction beyond 51% claiming that they had been given approval by RBI for equity induction under the Automotive Approval Route for trading in gold coins. In the application dated 24.8.1998 submitted by the Company for FIRB approval, it was specifically stated that the existing activity of the Company was Business Management Consultancy (NIC No. 893)" and, therefore, not indulged in any trading activity.7. RBI vide its letter dated 8.6.1999 informed the Directorate of Enforcement that the company had filed documents with RBI on 21.5.1998 for entering into a foreign collaboration with M/s Piccadily under the general permission, in terms of FERA Notification no.dated 13.1.1998 under NIC Code 893 i.e. Business management, consultancy for trading, marketing and selling of goods and services and not for trading in gold coins. RBI, it was pointed out, issued the registration number FC 98 NDR 1005 dated 29.6.1988 based on that request. It was pointed out that, under the General Permission, when a company gives a declaration in form FC (RBI) stating that it is engaged in an eligible activity and later the company is found doing a different activity, the company is deemed to have violated the provisions of the notification issued under FERA.8. RBI also vide letter dated 8.6.1999 also informed the Government of India, Ministry of Industry stating that it had granted registration number for a foreign collaboration agreement in terms of notification NO. 180 dated 13.1.1998 and that the foreign collaboration covered activities under NIC Code Group 893, published in Annexure III to the Press Note No. 2, 1997 series dated 17.1.1997. RBI pointed out that the claim of the company that it had been given approval by RBI for 51% foreign equity induction under automatic approval route for trading in gold coins, was incorrect.9. The Special Director, Enforcement Directorate, on getting various information of the violation of the provisions of FERA, along with other officers, searched the business premises of the company on 2.7.1999, which resulted in the recovery and seizure of various documents and articles and a panchnama dated 2.7.1999 was prepared. The search at the office premises ofSecurities at National Highway No. 8, Mahipalpur, New Delhi also resulted in the recovery and seizure of articles as per panchnama dated 3.7.1999.10. Lambert Kroger, the third respondent herein, in his statements under Section 40 of FERA dated 2/3.7.1999, 5.7.1999, 6.7.1999, 7.7.1999, 8.7.1999 and 24.8.1999, stated that he is a German National and he came to India on 16.12.1997 to give suggestions to Cliff Roy, the power of attorney holder of 4th respondent, as well as the then Director of Maple, who applied to RBI on 21.5.1998 for approval of 51% foreign financial collaboration under the automatic route. Further, it was also stated that A.R. Khan was in possession of 49% of the shares of the company and the seller of those 49% shares V.S. Jafa had entered into with an understanding with 4th respondent to transfer the share of 49% under the direction of the Swiss company and he had also signed on that agreement. Anil Bhalla also gave statements under Section 40 of FERA on 12.7.1999, 13.7.1999 and 14.7.1999, stating that he had explained the procedure for applying for setting up 100% trading company through FIPB to Cliff Roy and Lambert Kroger and the 2nd respondent company was formed at their instance. He was informed that necessary approvals would be obtained by M/s Abascus Legal Group. Jafa also gave statements on 16.8.1999, 31.8.1999 and 30.9.1999, explaining the circumstances under which he had entered into the Share Transfer Agreement with A.R. Khan and Lambert Kroger as the confirming party. Statement of the Vice President of the erstwhile ABN Amro Bank was also recorded on 18.10.1999. . Bank stated that it is an authorized agency for import of gold and that gold is sold to customers of the Bank as a practice, after necessary documents are obtained and after getting purchase orders from the customers. The Bank places orders on the supplier and the price is fixed on the basis of the invoice sent by the suppliers. Bank has followed the said procedure in respect of the 2nd respondent company as well.11. The Special Director, Directorate of Enforcement, after recording the statements and examining various documents, issued adated 29.12.1999 to the company, Lambert Kroger, Cliff RoyDirectors of the company, 4th respondentPiccadily, Paul AbrahamDirector of the 2nd respondent company, for contravention of Sections 6(4) and (5), 9(1)(e), 47(1), 19(1)(a) and (e), 29(1)(a) and (b), 30(1), 49, 63 and 68 of FERA and to show cause why the amounts blocked in the accounts of noticee no 1 (bank) to the tune of 12.5 Crores approximately, seized 466 drafts, totalling 2.14 crores and seized yellow metal coins appearing to be gold, should not be confiscated in terms of Section 63 of FERA and Cliff Roy and Paul Clare were issued notice to show cause why they should not be directed to bring back the foreign exchange remitted outside India into India in terms of Section 63 of the Act. Following are the brief details of thethe basis of the above investigations, a Show Cause Notice No. Tdated 29.12.99 was issued to:|Maple Leaf Trading International |For failure to comply with the | |(P) Ltd., New |provisions and declarationssaid noticee No. 1, its |subject to which approval under ||directors the said noticee No. |automatic route was granted by the| |2,3 & 6. |RBI and by engaging themselves in || |the trading activities of imported|| |Maple Leaf Gold Coins in || |contravention of the provisions of|| |sec. 19(1)(1) & (d), 29(1)(b) read|| |with sec. 49 & 68(1) & (2) of || |FERA, 1973 and by entering into || |contracts/agreements in violation || |of provisions of section 47(1) of || |FERA, 1973 and by collecting a sum|| |of Rs.25 Crore approx. and placing|| |this amount without any general or|| |special exemption of RBI to the || |credit of persons resident outside|| |India in contravention of section || |9(1)(e) of FERA, 1973 read with || |section 68(1) & (2) of the said || |Act. ||M/s. Picadily Invest AG, Post |By their carrying out the business||FAch 284, 8034, Zurich, |of imported Maple Leaf Gold Coins ||Switzerland, Mr. Cliff Roy, Mr. |in India in name & style of notice||Lambert Kroger & Mr. Paul Singh |No. 1 without any general or ||Clare the said notices No. 4, 3, |special permission of RBI in ||2 & 6. |contravention of the provisions of|| |section 29(1)(a) of FERA, 1973 and|| |by the unlawful trading collected || |a sum of Rs.25 crores || |approximately in the account of || |M/s. Mapl Leaf Trading || |International (P) Ltd. ||Mr.Cliff Roy, Lamber Kroger & Mr.|By opening bank accounts with ||Paul Singh Clare the said notices|repatriation facility without ||No. 2, 3 & 6. |prior permission of RBI and || |engaging in the trading of || |imported Maple leaf gold coins || |without any ground of special || |permission of RBI in contravention|| |of section 30(1) of FERA, 1973. |They were also asked as to why the amounts blocked in the accounts of the Noticee No. 1 to the tune of Rs.12.5 crores approx., seized 466 drafts totalling to Rs.2.14 crores approx. And seized yellow metal coins appearing to be gold should not be confiscated in terms of section 63 of the said Act and Mr. Cliff Roy and Mr.Paul Singh Clare are also required to show cause as to why they should not be directed to bring back foreign exchange remitted outside India into India in terms of section 63 of the said Act.Detailed reply was submitted by all the parties and the Adjudicating Officer passed the final order on 22.2.2000 recording the finding that Lambert Kroger, Cliff Roy and Piccadily had established business activities in India and, therefore, would fall within the ambit of Section 29(1)(a) of FERA, 1973, for which they required a general or special permission from RBI, which they had not obtained and, therefore, liable to penalty under Section 50 of the Act. Further, it was also pointed out that the facts of the case had clearly indicated that, virtually, it is they who had established the company in India and that instead of following the route of Section 29(1)(a), they followed the route of Section 29(1)(b), by incorporating Maples, but indicated that foreign investment would be up to 51% for service sector in Annexure III. The Adjudicating Officer also recorded a finding that the 2nd respondent company had faulted the provisions of Section 29(1)(b) of FERA read with Notification No. 180/98 RB dated 13.1.1988. Findings have also been recorded as against the 1st respondent bank for not ascertaining the genuineness of the 2nd respondent company and as to whether the Company had the requisite permission from RBI for trading in gold and that the Bank has violated the provisions of Sections 6(4) and 6(t) of FERA and is liable to penalty under Section 50 of the Act. After holding so, the Adjudicating Officer passed the followingview of my findings that Noticee No. 1 has contravened the provisions of Section 19(1)(d) and 29(1)(b) read with Section 49(1)(a) and Section 47(1) of FERA, 1973 and Noticee NO. 2, 3 and 4 have contravened the provisions of Section 19(1)(a) of FERA, 1973,In am inclined to confiscate these gold coins seized under Panchnama dated 02.07.99 and 03.07.99 because these were acquired/specifically imported against foreign exchange by Noticee No. 1 for an activity which was contrary to the automatic approval route allowed by RBI under Notification No.dated 13.01.1998 issued under Section 9(1)(d) and Section 29(1)(b) of FERA, 1973, out of funds generated in violation of Section 29(1)(a) of the said Act and gold coins being also liable to confiscation under Section 63 of FERA, 1973. The route adopted by them was to protect themselves from action as is evident from FAX dated 04.02.98 referred on page 66.The SCN also proposed the confiscation of blocked amounts in bank accounts of Noticee No. 1 and fixed deposits maintained with followingABN AMRO BANK : DLF Centre, Sansad Marg, New Delhi.2) HDFC BANK LTD; Greater Kailash, Part II, New Delhi.3) BANK OF AMERICA: Barakhamba Road, New Delhi.The evidence on record reveals that Noticee No. 1 collected amounts from various individuals known as business partners in accordance with the contracts executed with them for purchase of Maple Leaf gold coins in accordance with terms of such contracts. Since the activity under the contracts has been held by me illegitimate under the provisions of Section 29(1)(a) and 29(1)(b) read with Section 49(i)(a) and Section 47(1) of FERA, 1973, so I hold these amounts and fixed deposits liable to confiscation under Section 63 of FERA, 1973 as their collection and usage was for financing activities which were contrary to the said provisions of the FERA, 1973.The SCN also proposes to confiscate 466 bank drafts seized under Panchnama dated 02.07.99. these drafts are given by the said business partners in terms of the said contracts for aforesaid activity which has been held by me in violation of the provisions of Section 29(1)(a) and 29(1)(b) read with Section 47(1) and 49(i)(a) and, therefore, for the same reasons, I hold these drafts also liable to confiscation under the provisions of Section 63 of the said Act.Further, I also hold that all these Noticees, except No. 5, are liable to penalty under Section 50 of the FERA, 1973 for the reasons and observations recorded hereinabove. In view of the aforesaid, I pass order asI order confiscation of 35 gold coins seized from the business premises of Noticee No. 1 under Panchnama dated 02.07.99 and 630 gold coins seized from M/s. Group 4 Securities, Mahipalpur, New Delhi, under Panchanama dated 03.07.99 under Section 63 of FERA, 1973, on the grounds mentioned hereinabove.2. I also order confiscation of amounts blocked in following accounts including the fixed deposits along with the interest accruedof the BanksAccount No. (A)Fixed Deposits (B)Amount (Rs.)A.Bank of America, Barakhamba Road New Delhi.261157(A)317177(A)3,88,089.2278,043.00B.ABN Amro Bank DLF Centre Sansad Marg, New Delhi6362400(A)6362559(A)6414389(A)6372694 (A)312330040115(B)312330045196(B)312330045729(B)31233045778(B)6,19,17,244.8841,89,460.662,44,98,474.0014,73,340.0077,10,103.801,00,00,000.002,65,444.971,00,00,000.00C.HDFC Bank0272000005409(A)10,000,003. I order confiscation of the sale proceeds of the 466 bank drafts/pay orders seized from the business premises of Noticee No. 1 under Panchanama dated 02.07.99 under Section 63 of FERA. However, for 3 drafts/pay orders bearing no. 326191, 326192 and 326193, the order is subject to the outcome of Writ Petition pending before the Honble High Court of Delhi in repaired to these.4. I also order confiscation of following amounts lying in the following accounts of Noticee No. 3 and 6 with ABN Amro Bank, NewACCOUNT NO. AMOUNTS IN RS.Cliff Roy 000006368697 1,99,666.13Pau Singh 000006467689 60,104.32ClareUnder Section 63 of the FERA, 1973 on the grounds referred hereinabove.5. I impose penalty of Rs.15,00,000/(Rs. Fifteen lakhs only) on M/s. Maple Leaf International Pvt. Ltd., Greater Kailash, PartII, New Delhi, under Section 50 of FERA, 1973 for the reasons mentioned hereinabove.6. I also impose penalty of RS.5,00,000 (Rs. Five lakhs only) on M/s. Picadily Invest AG, Switzerland under Section 50 of FERA, 1973 for the reasons mentioned hereinabove.7. I also impose personal penalty on Noticees No. 2, 3 and 6 under Section 50 of FERA, 1973, as per details below:SL.NO. NAME AMOUNT (IN RS.)1. Cliff RoyTen lakh only)2. Lambert Kroger 10,00,000/(Rs. Ten lakh only)3. Paul Singh Clare 5,00,000/(Rs. Five lakh only)I also direct Mr. Cliff Roy and Mr. Paul Singh Clare to bring back to India the foreign exchange indicated below which was remitted from their personal bank accounts with notice No. 7 under Section 63 of the FERA, 1973 as these amounts were earned by them on account of the activities undertaken by them in violation of the abovesaid provisions of FERA,AMOUNT REMITED (IN RS.)Cliff Roy 8,84,449.00 Paul Singh Clare 18,85,000.008. I also impose personal penalty of Rs.1,00,000 (Rs. One Lakh only) on ABN Amro Bank, Sansad Marg, New Delhi under Section 50 of FERA, 1973 on the grounds mentioned hereinabove.9. In view of my observations hereinabove, I drop the charges alleged against Mr. Paul Abraham, Noticee no. 5.The Penalty imposed should be deposited in the office of Deputy Director, Enforcement Directorate, Hqrs. Office, 6th Floor, Lok Nayak Bhawan, Khan Market, New Delhi110 003, in the form of Demand Draft to be drawn in favour of the Pay & Accountants Officer, Department of Revenue, New Delhi, within 45 days of the receipt of order.SEALED SIGNED AT NEW DELHI ON THIS 22ND DAY OF SEPTEMBER TWO THOUSAND."

Reasoning: 59. We are of the view that the company cannot go back from the information already furnished by it in the application, form which are declared as true and correct. Based on that application RBI vide its communication dated 29.6.1998 granted registration No.FC98NDR1005. Registration, in our view, pertains only to NIC code 893. No permission was obtained by the second respondent company from the RBI for 51% foreign equity induction, for trading, by way of export. RBI, on the other hand, granted general permission only for dealing with the activities mentioned in NIC Code 893 and not for any trading activities leading to import or export.60. The High Court, in our view, has committed an error in holding that no questions of law arose for its consideration under Section 54 of FERA and has completely misread and misinterpreted the Industrial Policy, Press Notes and Section 19(1)(a) and (b), Section 29(1)(a) and (b) etc. and issues raised in appeals, which are clearly questions of law which fell within the ambit of Section 56 of FERA and the High Court committed a serious error in rejecting the same holding no questions of law arose for its consideration.ABN Amro Bank NV (Royal Bank of Scotland NV)61. We will now examine whether the above Bank has contravened Section 6(5) of FERA and misused the permission granted to it by RBI for importing gold coins. Proceedings were initiated against the company and others as per directions given by RBI dated 8.6.1999 and it was noticed that the bank had also sold gold coins to the company without being reasonably satisfied about the nature of the business of the company. The adjudicating authority took the view that the Bank as an authorized dealer, should have ascertained whether the company had got necessary permission from the RBI in dealing with the gold coins. The Bank, it is seen, had imported the gold on its own behalf and sold the same to the company and if the Bank was acting as an agent of the company, it would not have sold the gold to the company, but would have charged the commission for acting as an agent. No materials have been placed before us to show that the Bank was acting as an agent of the company. On facts, the Tribunal as well as the High Court took the view that the Bank had not misused the permission granted by the RBI for importing gold coins. We do not find any reason to interfere with those finding of facts.62. In such circumstances, we find no error in the view taken by the Tribunal as well as the High Court that the proceedings initiated against the Bank that it had violated Sections 6(4) and (5) of FERA was illegal. The appeal filed by theso far as the Bank is concerned, stands dismissed.63. We notice trading in gold is not an activity covered under Notification dated 13.01.1998 and 20.01.1998; perhaps for that reason, fourth respondent also took some steps to establish its 100% subsidiary in India and an application to that effect was filed on 24.08.1998 to FIPB by the company but it was not pursued further, but sought to achieve the same as if RBI had granted automatic permission which cannot be sustained in the eye of law.