Ram Rattan Gupta Vs. Director of
Enforcement, Foreign Exchange Regulation  INSC 172 (30 August 1965)
30/08/1965 SUBBARAO, K.
CITATION: 1966 AIR 495 1966 SCR (1) 651
Foreign Exchange Regulation Act (7 of 1947),
s. 4(1) and (3)--Scope of.
The appellant visited Far Eastern countries
during the years 1951 to 1956 after-obtaining from the Government of India the
necessary foreign exchange for the purpose of meeting his expenditure during his
tour. He deposited the unspent part of the foreign exchange in different
branches of the Chartered Bank in those countries. The Director, Enforcement
Directorate, Foreign Exchange Regulation Act, took proceedings under s. 19(2)
of the Act and found him guilty of contravening s. 4(1) and (3). The order was
confirmed on appeal by the Foreign Exchange Regulation Appellate Board.
In the appeal to this Court.
HELD : (i) The appellant could not be held to
have contravened the provisions of s. 4(1). [654 F] To attract s. 4(1), the
appellant should have lent foreign exchange to a person who was not an
authorised dealer. The Bank, no doubt, was not an authorised dealer, but, when
a person deposits free currency in the current account of a bank in order to
draw it whenever necessary for the purpose for which it was given, it is not
possible to hold that he enters into a contract of loan with the bank, within
the meaning of s. 4((1). Ordinarily a deposit of an amount in the current
account of a bank creates -a debt, but it need not necessarily involve a
contract of loan. [653 E; 654 C. D-E] Shanti Prasad Jain v. Director of
Enforcement,  2 S.C.R. 294, followed.
(ii) The tribunals were right in holding that
the appellant had contravened s. 4(3). [655 A] Under this sub-section, the
appellant should have sold the unspent foreign exchange to an authorised dealer
without delay. Since he had kept the amount in the current account of various
branches of the Bank for a number of years, he was guilty of contravening the
provision. [654 H; 655 A]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 890 of 1964.
Appeal by special leave from the order dated
February 19, 1963 of the Foreign Exchange Regulation Appellate Board, New
Delhi, in Appeal No. 52 of 1959.
A. V. Viswanatha Sastri and J. P. Goyal, for
Bishan Narain, R. N. Sachthey and B. R. G. K.
Achar, for the respondents.
652 The Judgment of the Court was delivered
by Subba Rao, J. This appeal by special leave raises the short question whether
the appellant contravened the provisions of subss. (1) and (3) of S. 4 of the
Foreign Exchange Regulation Act, 1947 (VII of 1947), hereinafter called the
During the years 1951 to 1956 the appellant,
Ram Rattan Gupta, visited the Far Eastern countries after obtaining the
necessary foreign exchange from the Government of India.
During that period the appellant opened
current accounts with the Chartered Bank of India, Australia and China, at
Singapur, Hong Kong, Osaka and Tokyo, without the general or the special
permission of the Reserve Bank of India. In the different branches of the said
Bank he deposited the unspent part of the foreign exchange given to him. The
balance of the said deposits made at the various branches of the Bank was pound
40 (sterling). The appellant received payments from those accounts even after
he returned to India. The Director, Enforcement Directorate, Foreign Exchange
Regulation Act, took proceedings against the appellant under S. 19(2) of the
Act and, after making the necessary enquiries, found him guilty of contravening
the provisions of sub-ss. (1) and (3) of s. 4 of the Act and imposed on him a
penalty of Rs. 2,500/- under S. 23 (1) (a) of the Act. On appeal, the Foreign
Exchange Regulation Appellate Board agreed -with the view expressed by the
Director of Enforcement that the appellant contravened the said provisions of
the Act and dismissed the appeal. The appellant has preferred the present
appeal, by special leave, against the judgment of the said Board.
Mr. A. V. Viswanatha Sastri, learned counsel
for the appellant, contended that the total of the amounts kept by the
appellant in the branches of the said Bank was a negligible balance of the free
quota of foreign exchange given to him, that there was no relationship of
creditor and debtor between the appellant and the Bank in regard to the said
amounts, that the free quota of foreign exchange was given to him without any
condition imposed thereon, and that on the said facts there was no scope to
invoke either sub-s. (1) or sub-s. (3) of S. 4 of the Act.
We will read the relevant provisions of the
Act in order to appreciate the said contentions.
Section 4. Restrictions on dealing in foreign
exchange (1) Except with the previous general or special permission of the
Reserve Bank-, no person other than an authorised dealer shall in India and no
653 person resident in India other than an authorised dealer shall outside
India, buy or borrow from, or sell or lend to, or exchange with, any person not
being an authorised dealer, any foreign exchange.
(3) Where any foreign exchange is acquired by
any person other than an authorised dealer for any particular purpose, or where
any person has been permitted conditionally to acquire foreign exchange, the
said person shall not use the foreign exchange so acquired otherwise than for
that purpose or, as the case may be, fail to comply with any condition to which
the permission granted to him is subject, and where any foreign exchange so
acquired cannot be so used or, as the case may be, the conditions cannot be
complied with, the said person shall without delay sell the foreign exchange to
an authorised dealer.
Section 4(1) of the Act was amended in the
year 1964, but we are concerned only with the said sub-section as it stood
before the amendment. To attract s. 4(1), a resident in India other than an
authorised dealer shall have lent to any person, not being an authorised
dealer, any foreign exchange. It is not disputed that the said Bank was not an
"authorised dealer" within the meaning of the said sub- section. If
so, the only question is whether the appellant, in depositing the said amounts
in the current account', of the various branches of the said Bank, lent the
said amounts to the Bank.
What is the meaning of the expression
"lend" ? It means in the ordinary parlance to deliver to another a
thing for use on condition that the thing lent shall be returned with or
without compensation for the use made of it by the person to whom it was lent.
The subject-matter of lending may also be money. Though a loan contracted
creates a debt, there may be a debt created without contracting a loan; in
other words, the concept of debt is more comprehensive than that of loan. It is
settled law 'that tie relationship between a banker and a customer qua moneys
deposited in the bank is that of debtor and creditor. This Court in Shanti
Prasad fain v. Director of Enforcement(1) restated the principle in the
(1)  2 S.C.R. 297, 324.
6 54 .lm15 "Now the law is well settled
that when moneys are deposited in a Bank, the relationship that is constituted
between the banker lad the customer is one of debtor and creditor and not
trustee and beneficiary. The banker is entitled to use the monies without being
called upon to account for such user, his only liability being to return the
amount in accordance with the terms agreed upon between him and the
customer." But this Court qualified that general statement with the remark
that "there might be special arrangement under which a Banker might be
constituted a trustee, but apart from such an arrangement, his position qua
Banker is that of a debtor, and not trustee". It follows that ordinarily a
deposit of an amount in the current account of a bank creates a debt;
but it need not necessarily involve a
contract of loan.
Whether a deposit amounts to a loan depends
upon the terms of the contract where under the deposit is made. In the context
of s. 4(1) of the Act, can it be said that the depositor in the present case
lent money to the Bank ? When a person deposits free currency in the current
account of a bank in order to draw it whenever necessary for the _purpose for
which it was given, it is not possible to hold that he enter% into a contract
of loan with the bank within the meaning of s. 4(1) of the Act. He only
deposits the money for the said purpose. Should we hold that such a transaction
is a loan, many an honest man who deposits foreign exchange in a bank in a
foreign country where he is staying for a short time to draw it for his
requirements will be committing an offence. That could not have been the
intention of the Legislature. If such a deposit is not a loan, it follows that
the appellant cannot be held to have contravened the provisions of s. 4(1) of
The next question is whether the appellant
was guilty of contravening the provisions of sub-s. (3) of s. 4 of the Act.
Under the relevant part of that sub-section, where any foreign exchange was
acquired by a person for any particular purpose and where the foreign exchange
so acquired cannot be used, the said person shall without delay sell the
foreign exchange to an authorised dealer. Admittedly the foreign exchange was
acquired by the appellant for the purpose of meeting his expenditure during his
tour of the Far East countries; but he had not used the entire foreign exchange
for the said purpose. If so, under the express provisions of sub-s. (3) of s. 4
of the Act, he should have without delay sold the same to an authorised dealer.
Instead he kept the 655 said amount in the current account of the various
branches of the Bank for a number of years. The tribunals were, therefore,
right in holding that the appellant had contravened the said provision.
No other point arises for consideration in
As we find the appellant guilty of an offence
only under sub- s. (3) of s. 4 of the Act, we think the ends of justice will be
met if a fine of Rs. 1,000 only is imposed on him. We, therefore, reduce the
fine of Rs. 2,500/- imposed on the appellant to Rs. 1,000/-. In the result, the
order of the Foreign Exchange Regulation Appellate Board is modified
accordingly. The parties will bear their own costs.