AI OCR 
TaxTMI 
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1962 (4) TMI 38
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.... Calcutta. They also do business in the manufacture and sale of chemicals and fertilisers at Varanasi. On June 30, 1958, Shri S. P. Jain left India on a tour to the continent of Europe and on his return to this country he was searched at the Palam Airport on October 1, 1958, and the following document was found in his leather attache case: "Deutsche Bank Aktiengesellschaft. Page 2 to our letter of 25th September, 1958, to Mr. S. P. Jain, Hotel Breidenbacher Hof. Dusseldorf. The DM-account with limited convertibility No. 50180 of Mr. S. P. Jain has been credited in 1958, up to now, with the following amounts from German sources: 20th March, 1958, DM 210.118,66 from M/s. J. M. Voith G.m.b.H. Maschinenfabrik lleidenheim, marked 'DM 210.081,31 less DM. 262,65 banking charges' (the said charge was made by the remitter's bank which is not a branch of ours); 11th July, 1958, DM. 205000 from Messrs. Escher Wyss G.m.b.H. marked 'as per letter of 7th July, 1958,' in translation. 9th August, 1958, DM 201.424,81 from Messrs. J.M. Voith G.m.b.H. Maschinenfabrik Heidenheim marked 'DM. 201.676,59 less banking charges.' 15th August, 1959, DM. 472.886,03 from Messrs. Friedr. Udhe G.m.b.H., ....
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....nditions stated by him. They, however, held that even so the deposits in question would in law be loans by Shri Jain to the bank, and that in consequence, section 4(1) of the Act had been infringed as no permission had been obtained as required by it. In this view they confirmed the order of the director but reduced the fine to Rs. 5 lakhs. Against this order both Shri S.P. Jain and the Union of India have preferred the above appeals with the leave of this court under article 136 of the Constitution. In this judgment Shri S. P. Jain will be referred to as the appellant and the Union of India as the respondents. On the contentions urged before us the questions that arise for our decision in these appeals are: (1)What are the terms and conditions on which the deposits in question were made; (2)whether on those terms and conditions there has been a violation of section 4(1) of the Act by the appellant; and (3)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. It will be convenient to dispose of the last contention first, as it goes to the very root of the jurisdiction....
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....er whether the trial should take place under the one or the other of them, there is clear discrimination, and article 14 is contravened. Therefore, section 23(1)(a) must, it is argued, be struck down as unconstitutional and the imposition of fine on the appellant under that section set aside as illegal. It is not disputed by the appellant that the subject-matter of the legislation, viz., foreign exchange, has features and problems peculiarly its own, and that it forms a class in itself. A law which prescribes a special procedure for investigation of breaches of foreign exchange regulations will therefore be not hit by article 14 as it is based on a classification which has a just and reasonable relation to the object of the legislation. The vires of section 23(1)(a) is accordingly not open to attack on the ground that it is governed by a procedure different from that prescribed by the Code of Criminal Procedure. That indeed is not controverted by the appellant. That being so, does it make any difference in the legal position that section 23D provides for transfer by the Director of Enforcement of cases which he can try, to the court? We have not here, as in State of West Bengal v.....
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....stion which was agitated before the Director of Enforcement and the Appellate Board. That is whether1 the provisions of the Evidence Act are applicable to the proceedings under the Act. Rule 3(5) of the Rules framed under the Act provides that in taking evidence, "the Director shall not be bound to observe the provisions of the Indian Evidence Act, 1872 (1 of 1872). Section 24A of the Act provides that the court shall presume the genuineness and the truth of the contents of certain documents tendered in evidence by the prosecution unless the contrary is proved. The Director of Enforcement held that by reason of the above provisions the Evidence Act had no application to proceedings under the Act. The Appellate Board came to a different conclusion. It held that section 24A had application only to proceedings in court and that Rule 3(5) had not the effect of rendering admissible evidence which. was irrelevant or inadmissible under the Evidence Act. In our opinion this is the correct view to take of the scope of section 24A and rule 3(5) and that was conceded before us by the learned Attorney-General appearing for the respondents. For a satisfactory determination of the question as t....
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....nt of the defective parts, the Rohtas could not wait until a settlement was reached and so purchased the requisite parts from another German firm called O'Dorries and made a demand on M/s. Escher Wyss & Company for compensation. A representative of the firm, Mr. Staudenmaier came over to India some time in 1956 to investigate the matter and after making a local inspection he submitted proposals for remodelling the machines. On June 17, 1957, the Rohtas wrote to the German firm that they were not agreeable to these proposals and requested them "to have the claims settled as put forward by us in our previous letters". Thus the claim under this contract was also pending settlement at the material period. The facts relating to the third and fourth contracts concerned in these disputes are that the New Central Jute Mills Ltd. had decided to install at Varanasi a gas and synthesis ammonia plant for the manufacture of chemicals and fertilisers and placed orders for the machineries and parts with two German firms, M/s. Friedrich Udhe and M/s. Pintsch Bamag, The case of the appellant is that many of the equipments which were supplied by the two firms were not in accordance with the specifi....
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....he Bank. The Indian companies were to obtain import licences from the Government of India and place orders with the respective firms for the supply of new machineries. The amounts in credit in the Deutsche Bank were to be applied pro tanto for the payment of the price of these machines to the respective firms. The appellant was not to operate on this account except for the purpose of making payments to the German firms in the manner aforesaid. It is now necessary to refer to the evidence bearing on the settlements, because, as already stated, while the respondents admit that there were settlements with the German firms and deposits were made pursuant thereto, they do not admit that the deposits were made subject to conditions, as stated by the appellant. It will be remembered that on March 20, 1958, Messrs. Voith & Company had deposited with Deutsche Bank DM. 210.081,31 being the equivalent of GBP17,900 as compensation for delayed shipment, which was the only portion of the claim admitted by them, in full settlement of all the claims of the Rohtas. Now pursuant to the settlement reached with the appellant, they deposited on August r, 1958, a further sum of DM. 201.676,59 in the na....
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....an of Messrs. Rohtas Industries Limited, only for the purpose of making initial payments to us against further purchase of machinery, which payments will be made on final approval of our tender after receipt of the Indian import licence. For order's sake please confirm receipt of these instructions to us". It should be mentioned that under the export regulations in force in Germany no goods manufactured therein could be exported unless 20% price quoted were paid for before the goods left the country. The effect of the arrangement come to between M/s. Voith & Company and the appellant was that the firm would be free to export goods to the Rohtas on payment to it of 20% of the price out of the funds standing to the credit of the appellant in the Deutsche Bank, and it may be gathered that the total amount of compensation had relation to the 20 per cent, of the price of the new machinery to be purchased. The settlement made in respect of the three other contracts was also on the same lines. Messrs. Escher Wyss & Company settled the claim of the Rohtas on July 7, 1958, and wrote to the appellant as follows: "We are pleased that a solution has been arrived in the course of the talks we....
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....ayment aforesaid after your Government grants you licence and DM. transfer guarantee is established as may be acceptable to competent German authorities." On September 21, 1958, there was a settlement of the dispute with Messrs. Pintsch-Bamag under which the latter agreed to pay 600.000 Marks in full satisfaction of the claim on the same terms as in the other contracts. On the same day Messrs. Pintsch Bamag wrote the following letter to the Deutsch Bank. "We hereby notify you that we are placing DM. 600'000 with you in payment of excess price claimed by Mr. S. P. Jain, President of New Central Jute Mills Co. Ltd., we further advise that the amount is to be held by you in the name of Mr. S. P. Jain, but it would not be available to him except for making payment to us against extension machinery to be ordered with us by Sahu Chemicals, Proprietors, New Central Jute Mills Co., on their obtaining licence from their Government and approval of payment conditions." On September 24, 1958, Messrs. Pintsch-Bamag wrote to the appellant that they had deposited the amount settled in the Deutsche Bank and added" we must however point out expressly that but for the assurance of extension order t....
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....ressed to the appellant. Therein it gave particulars of the six items of deposit as contained in the letter dated September 25, 1958. Then there are the following statements which are material: "The deposited amounts are being held by us subject to the conditions given in the enclosed certified copies of the relevant letters from the German parties concerned............As is evident from the stipulations mentioned above, you are not entitled to withdraw the amounts specified or parts thereof, without fulfilling the terms and conditions stipulated in the said letters. The acceptance of these conditions, has, of course, been confirmed to the firms concerned and we are, therefore, bound to observe the conditions vis-a-vis those firms, too, before we possibly could carry out any instructions from your part to dispose of the funds. It need not be emphasized that these conditions applied during all the time the amounts have been maintained in this account where, indeed, they continue to be kept on the same basis." As the letter of the bank did not contain replies to all the questions raised in the letter of August 21, 1959, the Appellate Board directed that it should be asked to send a....
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....oud of suspicion on the truth of the arrangement as set up by the appellant. We are not impressed by this contention. There is no basis in the evidence for the supposition that the account as produced is not the whole of the dealings of the appellant with the bank. The bank has categorically stated that the six items of credit were all the transactions standing in the name of the appellant and there is no reason to discredit it. Nor is there any force in the contention that the annual statement ending 31st December, 1958, had not been produced by the appellant, because the total amount standing to the credit of the appellant on that date as stated in the letter of the bank, is precisely what is shown in the account at page 2. It is, therefore, clear that there were no dealings between the bank and the appellant, other than those we are concerned with. Nor is there any point in the complaint that it is only the second page of the account that has been produced and the first page suppressed. The bank has made it clear that the first page only contains some confidential communications relating to a customer, and that there are no entries relating to the deposits of the appellant in t....
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....to the depositor only after expiration of the term stipulated by the depositor or, with the payee's consent, before expiration of the stipulated term". This is relied on on behalf of the appellant. Another bank, Messrs. Schacht & Company, stated in their opinion that a German bank when handling deposits would follow exclusively the instructions given by the depositor and that when payments have to be made out of the deposits on the fulfilment of certain conditions the bank would "effect the payment only after fulfilment of these conditions given by the depositor" and that conditional deposits would "as a rule be limited in time so that after expiration of this limit amounts which have not been paid out for reasons of non-utilization or non-fulfilment of the conditions will be at the depositor's free disposal." One Mr. J. Bergerroann, a lawyer of Bonn, states in his opinion that "it is common practice to accept deposits under conditions" and. that in case of such deposits the payee " could not enforce payments if the conditions are not fulfilled." There was some argument before us as to who will be entitled to the amounts in deposit in case the conditions agreed to between the pa....
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..... Jain, Chairman, of Messrs. Rohtas Industries Ltd., who will arrive in Germany in the course of the next month. As soon as we have arrived on a final understanding with Mr. S. P. Jain he would be authorised to utilise the above amount for payment only of the purchase of further machinery by Messrs. Rohtas Industries Limited from us. Please be advised that the amount may not be used otherwise by Mr. S. P. Jain or Messrs. Rohtas Industries Limited." Thus the deposit was conditional, and it was to be repaid to the depositors in payment of the price of goods, to be thereafter ordered by, and supplied to the Rohtas. The importance of this lies in this that it is the first of the six credits in account No. 50180, which is now under scrutiny, and it was long prior to the settlement reached between the parties, which was on August 1, 1958. This completely shatters the theory that the statement of the bank might have been "inspired" as suggested for the respondents. The fact would appear to be that when Mr. Zimmermann came over to India in February, 1957, for settling the claim of the Rohtas for compensation, he must have been apprised of the intention of the appellant to expand the indus....
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....n to the next question which is whether on our finding as to the nature of the deposits the appellant has contravened section 4(1) of the Act. The Appellate Board has held that he has, for the reason that under the law the true relationship between a banker and a customer is that of a debtor and creditor and that it makes no difference in that relationship that the deposits were conditional. The respondents maintain that this is the correct view to take of the relationship between the appellant and the Deutsche Bank with reference to account No. 50180 and that he must be held to have lent out the monies deposited in that account to the bank. The contention of the appellant on the other hand is three-fold. Firstly, it is said, that on the terms of the deposits, he has no present right to the amounts standing to his credit in the account, that he would become entitled to them only on the happening of certain contingencies, and that until then there was no debt due to him and that, therefore, there could be no lending in respect of that debt. Secondly, it is contended, that when the German firms transferred the amounts mentioned in account No. 50180 to the Deutsche Bank that was not b....
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....nt of India to import the goods, then place an order with the respective German firms for supply of new machineries and parts and then only draw on the account and that even then it can only be for the payment of the price payable to those firms for the supply of view goods. 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. In our opinion this contention is well-founded. A contingent debt is strictly speaking not a debt at all. In its ordinary as well as its legal sense, a debt is a sum of money payable under an existing obligation. It may be payable forthwith, solvendum in praesenti, then it is a debt "due", or it may be payable at a future date, solvendum in futuro; then it is a debt "accruing". But in either case it is a debt. But a contingent debt has no present existence, because it is payable only when the contingency happens, and ex hypothesi that may or may not| happen. The question whether a contingent debt is a debt as understood in law has often come up for consideration before English courts in connection with garnishee....
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....its made by or on behalf of a customer in the normal course of banking business and that in consequence the principle of law that when a banker receives monies from a customer he becomes his debtor in respect of those moneys has no application. There is considerable force in this argument. It is well known that banks engage, in addition to their normal work as bankers, in several activities, which are not associated with, and do not involve, any elements of banking. In Halsbury's Laws' of England, third edition, volume 2, note{g), it is stated: "Numerous other functions are undertaken at the present day by banks, such as the payment of domiciled bills, custody of valuables, discounting bills, executor and trustee business or acting in relation to stock exchange transactions, and banks have functions under certain financial legislation, e.g., by delegation under the Exchange Control Act, 1947, or as authorised dealers under that Act and subordinate legislation. These functions are not strictly banking business." In Paget's Law of Banking, sixth edition, page 48, it is stated that "superimposed on this general relationship of banker to customer there may be special relationships ari....
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....of the parties thereunder. Under the circumstances the bank has really only custody of the money as if it were a stakeholder, with a liability to hand it over to the persons who would become entitled to it under the arrangement. On these facts it cannot be said that there is a deposit in a commercial sense of the word. It would be more correct to say that the bank holds the money under a special arrangement which constitutes it not a debtor, but a sort of stakeholder. It was also argued on behalf of the appellant that when the Deutsche Bank received the amounts from the German firms on the terms mentioned by them, the relationship that was constituted between it and the appellant was one of trustee and beneficiary and not that of debtor and creditor and that, therefore, section 4(1) was out of the way. We are unable to agree with this contention. Under the terms of the arrangement between the German firms and the appellant the deposits were to stand in the name of the appellant and so they never vested in the bank. It is true that the bank would have the right to use the funds but that is not because they belong to it but because it must be taken to be the understanding of the par....