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

2. The respondents, a private limited company and its Direction 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 thethe 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 $ 62, 186.42 being the sale proceeds of Nataraja Rubber Estate and Malaysian $ 1, 25, 000, being the Special 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 onAll the amounts admittedly belonged to the Company and had been disclosed by the Company in itsas 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 Directorate of Enforcement in the departmental proceedings, taken against the respondents, by its order datedheld the respondents guilty of committing both the contraventions mentioned in the article of charges and in respect of the first charge imposed a penalty of Rs. 4000 each on its Directors and of Rs. 40, 000 on thewhile 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 of theunder Section 23(1)(a) of FERA, 1947. Against the order datedthe 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. 2000 on each of the directors and to Rs. 20, 000 on the company in respect of the first charge and to Rs. 5000 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 nohad 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 dateda Division Bench of the High Court, allowed all the appeals and set aside the penalty is imposed by the Directorate of Enforcement and modified by the Appellate Board. 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 directions 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 2(1)(a) of FERA, 1947. The High Court also held that a finding regarding existence of "mens rea or criminal intent" for failure to repatriate foreign exchange was necessary before the respondent could be penalised for contravention of the provisions of section 10(1)(a) of FERA, 1947 and since in the instant case, the existence of mens rea 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

Court's 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) 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.