Interest on delayed refund upheld, but statutory interest on seized currency notes was denied under foreign exchange law.

Section 42(3) of the Foreign Exchange Regulation Act, 1973 was applied only to proceeds of encashed drafts, cheques, travellers cheques or similar instruments, so it did not cover seized currency notes or the penalty amount; the statutory claim for interest on those sums was rejected. The earlier refund direction had attained finality, but the respondent's three-year withholding of the refunded amount without any stay was held unjustified, since compliance with the refund order was required within a reasonable time. Interest was therefore upheld on the delayed refund amount for the period of non-payment.

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Issues: (i) Whether interest was payable under section 42(3) of the Foreign Exchange Regulation Act, 1973 on currency notes seized and confiscated and on the penalty collected from the petitioner. (ii) Whether the petitioner was entitled to interest for the period during which the refunded amount was withheld after the judgment directing refund.

Issue (i): Whether interest was payable under section 42(3) of the Foreign Exchange Regulation Act, 1973 on currency notes seized and confiscated and on the penalty collected from the petitioner.

Analysis: Section 42 deals with encashment and payment of proceeds of drafts, cheques, travellers cheques and other instruments. The provision, read as a whole, does not extend to currency notes, since currency notes are not instruments capable of encashment in the manner contemplated by section 42. The interest clause in section 42(3) applies only to proceeds realised under section 42(1) and kept under section 42(2). As the seized amount was currency notes and not proceeds of an encashed instrument, the statutory basis for interest was absent. The earlier judgment directing refund also did not award interest, and that aspect had attained finality.

Conclusion: The claim for interest under section 42(3) on the seized currency notes and on the penalty amount was rejected.

Issue (ii): Whether the petitioner was entitled to interest for the period during which the refunded amount was withheld after the judgment directing refund.

Analysis: Once the judgment directing refund became operative, the respondent was bound to comply within a reasonable time. The filing of a special leave petition, without any stay of the refund order, did not justify withholding payment for three years. The petitioner was deprived of the use of the amount during that period, and the withholding was held to be unauthorized. Interest was therefore justified on the amount ordered to be refunded for the period of delay.

Conclusion: The petitioner was entitled to interest at 12% per annum on the refunded sum for the period from 21-12-1984 to 21-12-1987.

Final Conclusion: The writ petition succeeded only to the extent of interest on the delayed refund, while the independent claim for statutory interest on the seized currency and penalty failed.

Ratio Decidendi: Section 42(3) of the Foreign Exchange Regulation Act, 1973 applies only to proceeds of encashed drafts, cheques, travellers cheques or similar instruments, not to seized currency notes; but unexplained withholding of a refund ordered by the Court, without a stay, can justify an award of interest for the period of delay.

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