1962 (10) TMI 17 - SC - Companies Law

Supreme Court Upholds Ownership of Foreign Exchange, Penalty for Non-Compliance

Shanti Prasad Jain Versus Director of Enforcement Foreign Exchange Regulation Act

Shanti Prasad Jain Versus Director of Enforcement Foreign Exchange Regulation Act - [1963] 33 COMP. CAS. 255 (SC) Issues Involved:1. Ownership of foreign exchange.2. Validity of the notification under Section 9 of the Foreign Exchange Regulation Act.3. Compliance with the notification requirements.4. Appropriateness of the penalty imposed.Issue-wise Detailed Analysis:1. Ownership of Foreign Exchange:The primary issue was whether the appellants were the owners of the foreign exchange in question. The Director of Enforcement and the Appellate Board both concluded that the appellants were indeed the owners of the foreign exchange. The appellants argued that the foreign exchange was given to them merely to defray their expenses in the United States and not as a gift. However, the Appellate Board found this contention to be 'ingenious but unacceptable.' The Board pointed out that the appellants initially admitted receiving the amounts as gifts and only later argued that they were merely agents of the foreign companies. The Supreme Court concurred with the Appellate Board, stating, 'We have no doubt that this is an absurd explanation and the fact is that the appellants received this foreign exchange as gift.' Therefore, the appellants were deemed the owners of the foreign exchange.2. Validity of the Notification under Section 9:The appellants contended that the notification issued under Section 9 of the Foreign Exchange Regulation Act was ultra vires. They argued that Section 9 only applied to foreign exchange owned or held on the date of the notification and not to foreign exchange acquired thereafter. The Supreme Court rejected this argument, stating, 'The section as it stands is clearly applicable to foreign exchange owned or held at the date the Act came into force as well as to foreign exchange which a person may acquire after the Act came into force.' The Court further explained that the notification's language, including the words 'or who may hereafter become the owner of any foreign exchange,' was merely making explicit what was already implicit in the section. Thus, the notification was deemed intra vires Section 9.3. Compliance with the Notification Requirements:The appellants argued that they complied with the notification by offering the foreign exchange within one month of their return to India. However, the Supreme Court found no merit in this argument. The notification required the offer to be made within one month of becoming the owner of the foreign exchange, not within one month of returning to India. The Court noted, 'There is no warrant for reading in the notification that the offer had to be made within a month of the return of the person to India in case the foreign exchange is acquired while the person is abroad.' Since the appellants failed to offer the foreign exchange within one month of acquiring it, they were found to have contravened the notification read with Section 9 of the Act.4. Appropriateness of the Penalty Imposed:The appellants contended that the penalty imposed was too heavy. The Supreme Court saw no reason to differ from the Appellate Board's decision on this matter. The Court emphasized the responsibility and position of the first appellant, who was the chairman of Sahu Jain Limited, stating, 'It is not expected that such a person would contravene the provisions of the Act.' The appeal was dismissed with costs, upholding the penalty imposed by the Director of Enforcement.