Foreign exchange acquisition requires affirmative proof; mere recovery from a vehicle was insufficient to sustain penalty.

Mere recovery of foreign exchange from a person's vehicle did not by itself prove that he had bought, acquired or otherwise dealt with foreign exchange in breach of the statutory prohibition. The Supreme Court held that acquisition requires affirmative material showing knowing possession or other prohibited dealing, and that no such evidence existed on the facts. The respondent's explanation was not inherently impossible, and section 19J of the Foreign Exchange Regulation Act, 1947 and section 110 of the Indian Evidence Act, 1872 did not shift the burden in the Department's favour. As the ingredients of section 4(1) were not established, penalty under section 23 could not be sustained.

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Issues: Whether recovery of foreign exchange from a car owned by the respondent, without positive material showing knowing acquisition or possession in the statutory sense, constituted a violation of section 4(1) of the Foreign Exchange Regulation Act, 1947 so as to sustain penalty under section 23, and whether section 19J of that Act or section 110 of the Indian Evidence Act, 1872 altered that result.

Analysis: The statutory prohibition under section 4(1) is attracted only where a person buys, acquires, borrows, sells, transfers, lends or exchanges foreign exchange with a person other than an authorised dealer. On the facts, the only possible limb was "otherwise acquired". The recovery of a packet from the respondent's car, by itself, did not establish that he had acquired the foreign exchange, because acquisition connotes something more than mere physical possession. There was no positive material to show that the respondent knew the contents of the packet when it was handed over to him or that he had otherwise obtained the foreign exchange in contravention of the Act. The explanation offered by the respondent was not inherently impossible, and in the absence of affirmative evidence, section 19J of the Act and section 110 of the Indian Evidence Act, 1872 did not assist the Department in proving contravention.

Conclusion: The ingredients of section 4(1) of the Foreign Exchange Regulation Act, 1947 were not proved, and the penalty under section 23 could not be sustained.

Ratio Decidendi: Mere recovery of foreign exchange from a person's vehicle does not, without affirmative evidence of knowing acquisition or other prohibited dealing, establish contravention of the provision regulating acquisition of foreign exchange.

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