Conditional bank deposits held under a special arrangement do not amount to lending foreign exchange under the prohibition.

Section 23(1)(a) of the Foreign Exchange Regulation Act, 1947 was held valid under Article 14 because the transfer power under section 23D was a guided administrative discretion based on the gravity of the case, not an unguided choice to discriminate. The credits in the Deutsche Bank account were found to be conditional deposits held under a special arrangement, not unconditional funds freely withdrawable by the appellant. As no present debt arose before the stipulated contingencies were satisfied, the arrangement did not amount to lending foreign exchange or a contravention of section 4(1). The penalty was therefore set aside.

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Issues: (i) Whether section 23(1)(a) of the Foreign Exchange Regulation Act, 1947 was unconstitutional as offending article 14 because the Director of Enforcement could either adjudicate the matter himself or send it to a court under section 23D; (ii) whether the amounts credited in the Deutsche Bank account were unconditional deposits or were made subject to the conditions stated by the appellant; and (iii) whether, on those terms, the appellant had contravened section 4(1) of the Foreign Exchange Regulation Act, 1947.

Issue (i): Whether section 23(1)(a) of the Foreign Exchange Regulation Act, 1947 was unconstitutional as offending article 14 because the Director of Enforcement could either adjudicate the matter himself or send it to a court under section 23D.

Analysis: Foreign exchange control formed a distinct class and could validly be regulated by a special procedure. Section 23D did not confer an unguided choice to discriminate between similarly situated persons; it enabled the same authority to transfer a case to a court only where the gravity of the matter made a higher punishment appropriate. The provision was treated as a guided administrative power comparable to recognised transfers within graded judicial systems.

Conclusion: The challenge under article 14 failed and section 23(1)(a) was upheld as valid.

Issue (ii): Whether the amounts credited in the Deutsche Bank account were unconditional deposits or were made subject to the conditions stated by the appellant.

Analysis: The correspondence from the German firms, the bank's replies, and the surrounding commercial setting showed that the credits were made under a special arrangement. The amounts were to be held in the appellant's name but were not freely withdrawable; they were to be used only for payment towards future machinery purchases after import licences were obtained. The account entries and the bank's confirmations supported the conditional nature of the credits.

Conclusion: The deposits were conditional and were made on the terms asserted by the appellant.

Issue (iii): Whether, on those terms, the appellant had contravened section 4(1) of the Foreign Exchange Regulation Act, 1947.

Analysis: A contingent debt is not a present debt, and until the stipulated contingencies occurred the appellant had no existing right to the money. The account was not a normal banking deposit creating an ordinary debtor-creditor relationship; the bank held the money under a special arrangement as a stakeholder or bailee pending fulfilment of the conditions. On that footing there was no lending of foreign exchange by the appellant to the bank within section 4(1).

Conclusion: No contravention of section 4(1) was established and the penalty could not stand.

Final Conclusion: The penalty order was set aside, with the appellant succeeding on the substantive foreign exchange issue while the constitutional challenge failed.

Ratio Decidendi: Money placed in a bank under a conditional arrangement, where no present debt arises until stipulated contingencies are fulfilled, does not constitute a loan or lending of foreign exchange within the prohibitory provision.

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