1986 (11) TMI 347 - HC - Companies Law

Court rules in favor of aerated drinks manufacturer in Foreign Exchange Regulation Act case

The court ruled in favor of the accused, a manufacturer of aerated drinks, in a prosecution under Section 27 of the Foreign Exchange Regulation Act, 1973. ... Restrictions on persons resident in India associating themselves by participating in concerns outside in India Issues Involved:1. Prosecution under Section 27 of the Foreign Exchange Regulation Act, 1973.2. Interpretation of 'associate with or participate in' under Section 27(1).3. Mens rea in regulatory offences.4. Role of the Reserve Bank of India and Central Government in granting permissions.5. Discharge application under Section 245(2) of the Criminal Procedure Code.Detailed Analysis:1. Prosecution under Section 27 of the Foreign Exchange Regulation Act, 1973:The case involves a manufacturer of aerated drinks being prosecuted under Section 27 of the Foreign Exchange Regulation Act, 1973 ('the Act'). The prosecution argued that the manufacturer, referred to as Parle, associated with foreign bottlers without the previous permission of the Central Government, thereby violating Section 27(1) read with Section 56 of the Act. The accused sought discharge under Section 245(2) of the Criminal Procedure Code, which was initially dismissed by the Additional Chief Metropolitan Magistrate.2. Interpretation of 'associate with or participate in' under Section 27(1):The court examined whether Parle's activities fell within the prohibition of 'associating themselves with or participating in, whether as promoter or otherwise, any concern outside India.' The prosecution contended for a broad interpretation, while the defense argued for a narrow interpretation based on the principle of ejusdem generis, drawing inspiration from the term 'promoter.' The court concluded that a narrow interpretation should be applied, indicating that Parle's activities did not amount to associating or participating in a manner proscribed by Section 27(1).3. Mens rea in regulatory offences:The judgment discussed the concept of mens rea in regulatory offences, distinguishing between offences of absolute liability and those where the accused can exculpate themselves by proving reasonable care or lack of awareness. The court noted that Parle's conduct was transparent and cooperative with the Reserve Bank of India, which scrutinized and approved their requests for foreign exchange. This transparency and lack of financial stake in the foreign bottling plants indicated that Parle did not have the requisite mens rea for the alleged offence.4. Role of the Reserve Bank of India and Central Government in granting permissions:The court highlighted the roles of the Reserve Bank of India and the Central Government in regulating foreign exchange transactions. Parle had sought and received approval from the Reserve Bank for their advertising expenses abroad. The court noted that the Reserve Bank forwarded franchise agreements to the Central Government, and no objections were raised. This coordination, or lack thereof, between the Reserve Bank and the Central Government, was crucial in determining Parle's compliance with the Act.5. Discharge application under Section 245(2) of the Criminal Procedure Code:The court found that the learned Magistrate erred in dismissing the discharge application. Given Parle's transparent dealings and the Reserve Bank's approval, the court ruled that the prosecution under Section 27(1) was not justified. The petition was allowed, and the rule was made absolute, quashing the proceedings in Criminal Case No. 149/CW/1984 and discharging the accused.Conclusion:The court concluded that Parle's actions did not constitute a violation of Section 27(1) of the Foreign Exchange Regulation Act, 1973. The proceedings against Parle and its directors were quashed, and the accused were discharged. The judgment emphasized the need for clear communication and coordination between regulatory authorities and the importance of a narrow interpretation of regulatory statutes to avoid unjust prosecution.