TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Deposits not loans, fine illegal. Appeal 319 allowed, 320 dismissed.</h1> The court found that the deposits in question were conditional and not loans, thereby not violating section 4(1) of the Act. The imposition of a fine ... What are the terms and conditions on which the deposits in question were made? Whether on those terms and conditions there has been a violation of section 4(1) of the Act by the appellant? Whether the imposition of penalty under section 23(1)(a) of the Act is bad on the ground that the section is in contravention of article 14 and in consequence void? Held that:- We are satisfied that the deposits in account No. 50180 were made by the German firms on the conditions stated by the appellant. We have reached this conclusion on a consideration of the evidence on record, without reference to any abstract doctrine as to burden of proof. But it is only right to observe, that the proceedings under the Act are quasi-criminal in character and it is the duty of the respondent as prosecutor to make out beyond all s reasonable doubt that there has been a violation of the law The right of the appellant to the amounts in deposit is, it is argued, contingent on the happening of these events and that until then there was no debt due to him and section 4(1) had no application. The appellant has only a contingent Tight to the amounts standing in credit in account No. 50180 and that the deposits were made in the bank not in the course of normal banking business but under a special arrangement, it must be held that there was no lending of those amounts by the appellant to the bank within section 4(1) of the Act and the order of the Appellate Board imposing a fine of ₹ 5 lakhs on him under section 23(1)(a) must be held to be illegal and set aside. Issues Involved:1. Terms and conditions of the deposits.2. Violation of section 4(1) of the Foreign Exchange Regulation Act.3. Constitutionality of section 23(1)(a) of the Act in light of Article 14.Analysis:1. Terms and Conditions of the Deposits:The appellant, S.P. Jain, was found with a document at Palam Airport indicating various deposits in Deutsche Bank. The deposits were made by four German firms as compensation for delayed and defective supplies to two Indian companies, Rohtas Industries Ltd. and New Central Jute Mills Ltd. The appellant claimed these deposits were conditional, meant only for purchasing new machinery from the German firms.The evidence included letters from the German firms and Deutsche Bank confirming that the deposits were to be used exclusively for purchasing machinery. The respondents initially questioned the settlements but later admitted their existence, disputing only the conditional nature of the deposits. The court found the deposits were indeed conditional based on detailed correspondence and bank statements.2. Violation of Section 4(1) of the Act:Section 4(1) of the Foreign Exchange Regulation Act prohibits residents of India from engaging in foreign exchange transactions without the Reserve Bank's permission. The Appellate Board held that even conditional deposits constituted loans to the bank, violating section 4(1).The court, however, found that the deposits were not loans. The appellant had no present right to the amounts, which were contingent on obtaining import licenses and placing orders for new machinery. A contingent debt is not a debt in the legal sense, and thus, no loan existed. The court also noted that the deposits were not made in the ordinary course of banking but under a special arrangement, making the bank a stakeholder rather than a debtor.3. Constitutionality of Section 23(1)(a):The appellant argued that section 23(1)(a) of the Act, allowing the Director of Enforcement to impose penalties, violated Article 14 of the Constitution due to procedural differences when cases are transferred to court. The court rejected this argument, stating that the special procedure for foreign exchange breaches is justified and the Director's discretion to transfer cases is not arbitrary. The provision ensures serious offenses receive appropriate penalties and does not violate Article 14.Conclusion:The court concluded that the deposits were conditional and not loans, thus not violating section 4(1) of the Act. The imposition of a fine under section 23(1)(a) was deemed illegal. Appeal No. 319 of 1961 was allowed, and Appeal No. 320 of 1961 was dismissed with costs.
TaxTMI 
TaxTMI 
