Shanti Prasad Jain & ANR Vs.
Director of Enforcement, Foreign Exchange Regulation  INSC 278 (4 October
SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR,
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1964 AIR 1023 1963 SCR Supl. (1)
Foreign Exchange-Acquisition by Central
Government-Offer for sale by owner-If must cover acquisition both before and
after Notification-When must be made-Foreign Exchange Regulation Act, 1947 (7
of 1947), ss. 9,23-Notification dated March 25, 1947.
The first appellant accompanied by his wife,
the second appellant, visited foreign countries on business. He was allowed
foreign exchange amounting to 337 and 1410 U. S. dollars, the visit being
limited to two months. The second appellant 'was not allowed any foreign
exchange and was allowed to go on the representation that a foreign company
will bear all her expenses for the trip. When after three months the appellants
returned to Delhi, the Customs authorities found on the person of the first
appellant travelers cheques of the value of 2590 U.S. dollars. The Director of
Enforcement took the appellant's explanation and on adjudication found that the
appellants had received a sum of 3500 U. S. dollars as gift, were owners of it
and contravened s. 9 of the Foreign Exchange Regulation Act, 1947, read with
Notification dated March 25, 1947, issued 515 there under, for failing the
offer the foreign exchange for sale as required there under within a month of
their becoming owners thereof. He, therefore, forfeited the travellers cheques
to the extent of 1990 U. S. dollars found with them and imposed a penalty of
Rs. 18000 on the first appellant under s. 23 of the Act. The appellants
appealed to the Appellate Board which confirmed the order of the Director.
Held, that s. 9 of the Foreign Regulation Act
applied not merely to foreign exchange owned or held at the date the Act came
into force but also to foreign exchange acquired after that date. The words
"or who may hereafter become the owner of any foreign exchange" in
the Notification, therefore, were not ultra vires the section. It must be held
that those words were implied in the section and the main purpose of the
Notification was to specify what kind of foreign exchange was to be offered for
sale there under.
The Notification was clear that the offer of
sale was to be made within a month of acquisition of ownership of the foreign
exchange and not within a month of arrival in India.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 617 of 1961.
Appeal by special leave from the order dated
October 27, 1960, of the Foreign Exchange Regulation Appellate Board, New Delhi
in Appeal No. 61 of 1960.
Sachin Choudhri, N. Bajoria and B. P.
Maheshwari, for the appellants.
Bishan Narain, F. D. Mahajan and P. D. Menon,
for the respondents.
1962. October 4. The judgment of the Court
was delivered by WANCHOO, J.-This is an appeal from the order of the Foreign
Exchange Regulation Appellate Board and arises in the following circumstances
516 Appellant No.1 went to Europe and the United States of America in
connection with business, and his wife, appellant No. 2, accompanied him. The
first appellant is the Chairman of Sahu Jain Limited. They left India on June
30, 1958 and visited several countries in Europe including West Germany.
Eventually they reached the United States of
America on August 5, 1958. They left the United States on September 22, and
arrived at Delhi on October 1, 1958. The first appellant had been allowed
foreign exchange amounting to POUND 337 (equal to Rs. 4500/-) and 1410 U. S.
Dollars (equal Rs. 6,750/-). Further, Messrs. Sahu Jain Limited had been
informed that the exchange was sanctioned on condition that the visit was
limited to a period of two months. The second appellant was not allowed any
foreign exchange, but her visit was sanctioned on the representation that a
certain company in the United States would bear all the expenses of her trip to
When the appellants returned to Delhi on the
1st of October, the Customs authorities found travellers cheques of the total
value of 2590 U. S. dollars on the person of the first appellant. They were
detained and the travellers cheques were handed over to the Enforcement
Directorate under the orders of a magistrate. Thereafter the appellants were
required to furnish certain information about their trip abroad including
particulars about how they came to be in possession of these cheques. It will
be noticed that the amount of these cheques was more than the total dollar exchange
sanctioned to the first appellant. The explanation given by the appellant was
that travellers cheques worth 1500 U. S dollars were received as gift from
Maschinenbau Schoiz and Company, West
Germany, and travellers cheques worth 1,000 U. S. dollars were received from
Messrs. Chemiobau, Dr. A. Zieren, West Germany, and a sum of 1,000 U.S. dollars
was received from Messrs. Hans Tobeason, 517 Inc., New York. It was further
explained that travellers cheques worth 1990 U. S. dollars, out of the total
amount seized on October 1st, represented the unspent balance from the two
gifts received in West Germany and the remaining travellers cheques worth 600
U. S. dollars formed the unspent balance of the foreign exchange sanctioned
when the appellant had left India. It was also stated that the entire amount of
1,000 U. S. dollars received in New York was spent in the United States. On
receipt of this explanation, the Director of Enforcement issued notices to the
appellants to show cause why adjudication should not be commenced against them
for contravention of the provisions of s. 9 of the Foreign Exchange Regulation
Act, No. VII of 1947, (hereinafter referred to as the Act) read with
Notification dated March 25, 1947, issued thereunder. The notices said that the
appellants had failed to sell the foreign exchange amounting to 3500 U. S.
dollars referred to above acquire,_] by them abroad within one month of their
becoming owners thereof as required by s. 9 of the Act read with the said
notification. The appellants showed cause which was more or less the same as
the explanation they had already given earlier. The Director of Enforcement
then held adjudication proceedings and came to the conclusion that the sum of
3500 U. S. dollars was received by the appellants as gift and they were owners
of it, and as they had not offered to sell this foreign exchange as required by
s. 9 and the notification made there under, they were liable to penalties for
contravening s. 9. The Director ordered the forfeiture of the travellers
cheques to the extent of 1990 U. S. dollars found with the appellants. He also
imposed a penalty of Rs. 18,000/on the first appellant under s. 23 of the Act;
no penalty was imposed on the second appellant.
The appellants then went in appeal to the Appellate
Board, and the contention that was raised there was that they were not the
owners of this foreign 518 exchange which had been given to them merely to
defray their expenses in the United States and that instead of the various
foreign companies spending the money on them directly, they gave the money to
the appellants to be spent by them. It was also urged before the Appellate
Board that the notification was ultra vires s. 9 of the Act, inasmuch as it
dealt not only with the foreign exchange owned or held by per sons at the time
the notification was issued but also foreign exchange which might thereafter
come into the ownership of any person. Certain other contentions were also
raised before the Appellate Board, but these contentions have not been raised
before us in view of the judgment of this Court in Shanti Prasad Jain v. The
Director of Enforcement(1). The two points therefore that arise for
consideration are whether the appellants were owners of this foreign exchange
and whether the notification is ultra vires s.9 of the Act. Both these points
were decided against the appellants by the Appellate Board, which confirmed the
order of the Director of Enforcement. Thereupon the appellants obtained special
leave from this Court and that is how the matter has come up before US.
The question whether the appellants were
owners of this foreign exchange is in our opinion concluded by the concurrent
finding of fact of the Director of Enforcement and the Appellate Board. The
Appellate Board has pointed out that the contention that the appellants were
not the owners of this foreign exchange was ingenious but unacceptable. The
appellants wanted to make out that though they had actually received the money,
they were really spending it on themselves on behalf of the foreign corn-
panies, which gave them the money for their expenses in the United States. The
Appellate Board has rightly pointed out that this foreign exchange given to the
appellants was nothing but a gift received by them and that the appellants
themselves in the (1)  2 S. C. R. 297.
519 beginning had admitted that they had
received these amounts as gift. 'It was only later that the ingenious argument
was put forward on their behalf that though they had received the money, they
were merely agents of the three companies which gave them the money for the
purpose of spending it on themselves. We have no doubt that this is an absurd
explanation and the fact is that the appellants received this foreign exchange
as gift, even though the intention might have been to spend the amount on their
trip in the United States of America. Further, as the Appellate Board has
rightly pointed out, it is obvious that the money was given to the appellants
outright, as otherwise the appellants would not have offered the amount found
on them on October 1, 1958, for sale through the Reserve Bank as they did on
October 25,1958. There can therefore be no doubt that the appellants became
owners of this foreign exchange.
This brings us to the main point that was
urged before us that the notification is beyond the terms of s. 9. Section 9
(omitting the portion not relevant for the purpose of this appeal) is in these
terms:- "9. Acquisition by Central Government of Foreign exchange.-The
Central Government may, by notification in the Official Gazette, order every
person in, or resident in, India--- (a) who owns or holds such foreign exchange
as may be specified in the notification, to offer it, or cause it to be offered
for sale to the Reserve Bank on behalf of the Central Government or to such
person, as the Reserve Bank may authorise for the purpose, at such price as the
Central Government may fix, being a price which is in the opinion of the
Central Government not less than the market rate of the foreign exchange when
it is offered for sale; (b) 520 Provided that the Central Government by the
said notification or another order exempt any persons or class of persons from
the operation of such order.
The notification which was issued on March
25, 1947, is in these terms:- "In exercise of the powers conferred by
section 9 of the Foreign Exchange Regulation Act, 1947 (VII of 1947), the
Central Government is pleased to direct that every person resident in India who
owns or who may hereafter become the owner of any foreign exchange whether held
in India or abroad expressed in the currency of any country or territory
specified in the schedule annexed to this Order, shall before the expiration of
one month from the date of this Order, or in the case of a person hereafter becoming
such owner, within one month of the date of his so becoming, offer such foreign
exchange or cause it to be offered for sale to an authorised dealer being a
person authorised by the Reserve Bank for the purpose, "against payment in
rupees at the rate for the time being authorised by the Reserve Bank in
pursuance of sub-section (2) of section 4 of the said Act for the conversion
into Indian currency of the foreign currency in which such foreign exchange is
"Provided that this order shall not
apply to foreign exchange held by authorised dealers within the scope of their
authority or to persons authorised by the Reserve Bank to hold foreign exchange
for business or other purposes, or to persons not being citizens of India, who
have obtained the permission of the Reserve Bank in behalf 521 Schedule
"United States of America, Philippine Island.".
The contention on behalf of the appellants is
that what s. 9 contemplates is that any person who owns or holds foreign
exchange on the date of the notification has to offer it for sale as provided
therein but it does not contemplate that a person who comes to be owner of
foreign exchange after the date of the notification has also to offer it for
sale. We are of opinion that there is no force in this contention.
The section lays down that every person who
owns or holds such foreign exchange as may be specified in the notification has
to offer it for sale as provided there under. The reason why the section
provides for a notification is that it was left to the discretion of the
Central Government to decide on a consideration of the foreign exchange
situation at a particular time as to which kind of foreign exchange would have
to be offered for sale as directed by s. 9. For example, the notification may
direct that U. S. dollars must be offered for sale but may not direct that,
English pounds should be so offered for sale. The section as it stands is
clearly applicable to foreign exchange owned or held at the date the Act came
into force as well as to foreign exchange. which a person may acquire after the
Act came into force. Learned counsel for the appellants conceded that s. 9 was
not confined only to- foreign exchange held or, owned by persons in.. or
resident in, India on the date the Act came into force but would also apply to
any foreign exchange subsequently owned or' held;
but his contention is that though the section
applies not only to foreign exchange owned or held on the date the Act came
into force but also on any subsequent date so long as the Act continues in
force, the notification could only be issued with reference to foreign exchange
owned or held on the date of the notification. It is therefore contended that
the words "or who may hereafter become the owner of any 522 foreign
exchange" appearing in the notification go beyond the power conferred by
s. 9 of the Act and the notification could only apply to foreign exchange owned
or held up to the date of the notification. We are unable to accept this
construction of s. 9. The Act is a permanent statute and s.
9 clearly provides that every person holding
or owning such foreign exchange as may be specified in the notification
contemplated thereunder has to offer it for sale as provided therein. The words
of the section are not confined only to foreign exchange owned or held by
persons on the date the Act was passed., the apply also to foreign exchange
which may be owned or held by successors even after the Act came into force and
such foreign exchange had to be offered for sale if there is a notification in
that behalf. It is true that words corresponding to "who may hereafter
become the owner of any foreign exchange" do not appear in the section.
But the words of the section in our opinion
are clear and it is implicit in them that they apply not only to those persons
who owned or held foreign exchange on the date the Act came into force but to
those also who own or hold foreign exchange after that date, and the
notification is mainly for the purpose of specifying the kind of foreign
exchange which has to be offered for sale. The notification in the present case
by using the words "or who may here after become the owner of any foreign
exchange" merely makes explicit what was already implicit in the section.
In fact, even if the impugned clause had not been included in the notification,
it would have made no difference to the meaning. Like' the main section, the
remaining part would have covered cases of owning and holding foreign exchange
in the past as well as in the future. The clause has been added only to clarify
the position, and that is all.
Further, if we were to accept the argument
raised on behalf of the appellants we, would reach the startling result that a
notification will have to be issued 523 every day in order that the purpose of
s. 9 which is to control foreign exchange which any person might own or hold on
the date the Act came into force as well as foreign.
exchange which any person might come to owner
hold after the enactment of the Act, might be carried out. An interpretation
which leads to such a, startling result cannot possibly be accepted. Besides,
as we have already said, the words of s. 9 are clear and they apply not only to
foreign exchange owned or held at the date of the Act but to foreign exchange
which might be held or owned at any time thereafter and the notification is
mainly required to indicate the kind of foreign exchange which may have to be
offered for sale under s. 9. We are therefore of opinion that the notification
is completely ultra vires s. 9. If that is so, it is not disputed by the,
appellants that s. 9 read with the notification was contravened in this case in
view of the finding of fact that the foreign exchange to the extent of 3500 U.
S. dollars was gifted to the appellants and was owned by them.
It was also urged on behalf of the appellants
that all that the notification required was that they should offer the foreign
exchange within one month of their return to India and that the appellants
complied with that. This contention has no force for the notification requires
that the offer should be made within one month of a person becoming the owner
of foreign exchange. There is no warrant for reading in the notification that
the offer has to be made within a month of the return of the person to India in
case 'the foreign exchange is acquired while the person is abroad.
The notification clearly requires an offer to
sell within one month of a per-son becoming the owner of the foreign exchange.
It has not been disputed that there was not impediments in the way of the
appellants making such an offer within one month of their acquiring the foreign
exchange. As they undoubtedly failed to do so, they have clearly contravened
the notification read with s. 9 of the Act.
524 Lastly, it is urged that the penalty
imposed in this case is too heavy. This matter has been considered by the
Appellate Board and we see no reason to differ from the Board on this question.
We may only add that the first appellant who is the Chairman of the Sahu Jain
Limited is a person of responsibility and position, and it is not expected that
such a per-son would contravene the provisions of the Act.
The appeal is hereby dismissed with costs.