1977 (2) TMI 82 - SC - Companies Law

Interpretation of 'in respect of' under Foreign Exchange Regulation Act broadened by Indian Supreme Court.

The Supreme Court of India interpreted the words 'in respect of' in section 23(1B) of the Foreign Exchange Regulation Act, 1947 broadly, determining that ... Construction of 'in respect of' - scope of section 23(1B) of the Foreign Exchange Regulation Act, 1947 - confiscation of proceeds of prohibited foreign exchange transaction - property 'connected with' a contravention - Explanation to section 23(1B) - deposits as propertyConstruction of 'in respect of' - confiscation of proceeds of prohibited foreign exchange transaction - property 'connected with' a contravention - Explanation to section 23(1B) - deposits as property - Whether Indian currency constituting the sale proceeds of foreign exchange is 'property in respect of which the contravention has taken place' under section 23(1B) of the Foreign Exchange Regulation Act, 1947, and thus liable to confiscation. - HELD THAT: - The Court construed the phrase 'in respect of' in section 23(1B) broadly, adopting the sense of being 'connected with.' Earlier authorities describing the words as wide or 'colourless' were noted and applied. Given that section 4(1) prohibits sale of foreign exchange and the seized Indian currency represented the sale proceeds of such prohibited foreign currency, the proceeds were held to be property connected with the contravention. The legislative intent was reinforced by the Explanation to section 23(1B), which treats property converted into bank deposits as property 'in respect of which' a contravention has taken place; this demonstrates that converted or derivative forms of the forbidden foreign exchange transaction are within the confiscation provision. It was thus unreasonable to exclude sale proceeds in Indian currency from the scope of section 23(1B). The High Court's conclusion that the contravention related only to foreign currency and not to the Indian currency seized was therefore incorrect.The Indian currency constituting the sale proceeds of the prohibited foreign exchange transaction is 'property in respect of which' the contravention took place under section 23(1B), and the confiscation order is lawful.Final Conclusion: Appeal allowed; the order directing confiscation of the Indian currency (sale proceeds of prohibited foreign exchange) under section 23(1B) is upheld and the High Court's quashing of that order is set aside. Issues: Interpretation of the words 'in respect of' in section 23(1B) of the Foreign Exchange Regulation Act, 1947.In this judgment, the Supreme Court of India analyzed the meaning of the words 'in respect of' in section 23(1B) of the Foreign Exchange Regulation Act, 1947. The court referred to sections 4(1), 23(1)(a), and 23(1B) of the Act. Section 4(1) prohibits the sale of foreign exchange without permission, while section 23(1)(a) outlines penalties for contraventions. Section 23(1B) allows for the confiscation of currency or property related to contraventions. The case involved a respondent caught with Indian currency, the sale proceeds of foreign currency. The Director of Enforcement imposed a penalty and ordered the confiscation of the Indian currency. The High Court quashed the confiscation order, stating that the contravention was related to foreign currency, not the Indian currency seized.The main issue was whether the Indian currency seized, being the sale proceeds of foreign exchange, fell within the scope of section 23(1B) as currency 'in respect of' which the contravention occurred. The court interpreted the words 'in respect of' broadly, akin to being 'connected with.' Referring to precedents, the court held that the sale proceeds of foreign currency, prohibited under section 4(1), were indeed covered by section 23(1B). The court emphasized the legislative intent, as evidenced by the Explanation to section 23(1B, which includes property converted into deposits. Therefore, the court concluded that the Indian currency seized was liable for confiscation under section 23(1B, rejecting the High Court's decision to quash the confiscation order.Ultimately, the Supreme Court allowed the appeal, upholding the validity of the confiscation order and ruling in favor of the Director of Enforcement.