TaxTMI 
TaxTMI 
2010 (10) TMI 84
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....ions with another Authorised Dealer, can such Authorised Dealer then be held liable for violation of provisions of section 6(4) and (5) of FERA?" Factual Matrix 3. Factual Matrix involved in the Appeals can be stated thus :- The Appellant in Appeal No. 3 of 2008 is a company incorporated under the Companies Act, and was formerly and at the relevant time known as Cox & Kings Travel and Finance Ltd. The said Appellant was at the relevant time, was a duly licensed Full Fledge Money Changer ('FFMC') and/or an Authorised Dealer, who was issued the requisite licence by the Reserve Bank of India ('RBI') to deal in and/or transact foreign exchange. The Appellant in Appeal No. 4/08 was the Executive Director of the Appellant in Appeal No. 3/08, and was in-charge of running affairs of the Appellant in Appeal No. 3/08. The order passed by the Appellate Tribunal For Foreign Exchange ('ATFFE') is in the proceedings initiated against the Appellants for violation of various provisions of Foreign Exchange Regulation Act, 1973 ('FERA'). The proceedings have arisen on account of the show-cause notice which came to be issued to the Appellants for violation of sections 6(4), 6(5), 7 and 8(1) ....
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....w thereof there was violation of para 3 of FLM. The Appellants filed their reply to the said show-cause notice. The said show-cause notice was adjudicated upon by the Respondent herein and by his order dated 28-10-2004 held Appellants guilty of violation of the provisions of sections 6(4), 6(5) and 7 of FERA. However, violation of the provisions of section 8(1) was not proved. The Respondent has imposed penalty of Rs. 50,000 on the Appellant in Appeal No. 3 and Rs. 50,000 on the Appellant in Appeal No. 4/08. 4. The findings of the Respondent as regards violation of provision of FERA can be culled out from the following excerpt of the said order :- "It is alleged in the impugned SCN that the noticees have handed over foreign exchange to the unauthorised persons deputed to them by the said M/s. Hotel Zam Zam without verifying their bona fides. In this regards, it is a matter of record that during the period 29-4-1997 to 5-6-1997 the said M/s. Cox and Kings Travel & Finance Ltd. sold foreign exchange of US $ 1,47,000 and Stg. Pounds 1,000 to M/s. Hotel Zam Zam who is also FFMC holding the relevant RBI licence and that this fact has not been controverted by the noticees. The fore....
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....ium. 5. Aggrieved by the said Order in Original dated 28-10-2004, the Appellants filed Appeals being Appeal No. 1259 of 2004 (filed by Tulip Star Hotels Ltd.) and Appeal No. 1260 of 2004 (filed by Peter A. Kerkar) before the ATFFE, New Delhi. The said Appeals came to be dismissed by the ATFFE by the impugned order dated 2-7-2008 and thereby confirmed the penalty imposed against the Appellants above named for violation of the provi- sions of FERA. As indicated above, it is the said order passed by the ATFFE, which is challenged in the above Appeals. 6. It is required to be noted that the penalty imposed upon some other employees of the Appellant in Appeal No. 3/08 viz., Three Branch Managers, one Marketing Manager and One Accountant has become final as they did not file Appeals challenging the said Order dated 2-7-2008 and, therefore, the question arose, whether the Appeals filed by the Appellants as above are maintainable in the light of the fact that the order had become final as far as those five persons are concerned. The learned counsel for the Appellants Ms.Gadre relied upon the judgment of the Apex Court in support of her submission that though the said five persons had....
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.... the order of acquittal into one of conviction or visit the acquitted person with criminal liability. The findings is relevant only in invoking against the convicted person his constructive criminality." 7. The learned senior counsel for the Respondent Mr. Rana did not seriously dispute the maintainability of the above Appeals, though the other five employees had not filed Appeals challenging the common order dated 2-7-2008. We, therefore, proceeded to hear the parties on the merits of the matter. Rival Submissions 8. Submissions advanced on behalf of the Appellants can be summarised as under :- (i)That sections 6(4), 6(5) and 8(1) of FERA have no application in case of transactions in foreign exchange between authorised dealer/ FFMCs. In the instant case, both the Appellant Tulip Star Hotels Ltd. and the Hotel Zam Zam were the authorised dealers/FFMCs and, therefore, in terms of para 9 of the FLM which postulates free purchase by one money changer from the other money changer and authorized dealer in foreign exchange, there was no requirement to obtain declaration from other FFMC, i.e., Hotel Zam Zam in respect of section 6(4) and 6(5) of FERA; (ii)That the only obl....
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....poses penalty. In support of this submission, the learned counsel for the Appellants relied upon the judgment of Apex Court in the matter of Tolaram Ralumal v. State of Bombay AIR 1954 SC 496. 9. Per contra the following submissions were advanced on behalf of the respondents :- (a)That the findings as regards contravention of the provisions of FERA which have been mentioned in the show-cause notice have been so recorded on the basis of the material on record which includes the statement of the Appellant in Appeal No. 4/08; (b)That though the foreign exchange ultimately reached Hotel Zam Zam, the fact that the said foreign exchange was sold in the black market cannot be lost sight of in considering whether the provisions of FERA have been violated; (c)That though two FFMCs can enter into transactions freely in terms of the FLM, the said transactions are circumscribed by the provisions of FERA including section 6(4) and 6(5); (d)That the Appellants had not made necessary inquiry as postulated in section 6(5) of the FERA as is apparent from the record; (e)That the FLMs are only an aid to effectuate the provisions of FERA and they cannot be construed in a manner so....
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....it to give, and, except with the previous permission of the Reserve Bank, an authorised dealer shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of his authorisation under this section. 6(5) An authorised dealer shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of, any contravention or evasion of the provisions of this Act or of any rule, notification, direction or order made thereunder, and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorised dealer shall refuse to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank. Section 7 Money-changers.-(1) The Reserve Bank may, on an application made to it in this behalf, authorise any person to deal in foreign currency, (2) An authorisation under this....
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....ange with another person or opens an account in foreign exchange with another person, shall be deemed to lend foreign exchange to such other person. (2) Except with the previous general or special permission of the Reserve Bank, no person, whether an authorised dealer or a money-changer or otherwise, shall enter into any transaction which provides for the conversion of Indian currency into foreign currency or foreign currency into Indian currency at rates of exchange other than the rates for the time being authorised by the Reserve Bank." Paragraphs 3 and 9 of the FLM "3. Authorised Officials - All money-changers should arrange to forward lists giving full names and designations of their representatives who are authorised to buy and sell foreign currency notice, coins and travellers cheques on their behalf together with their specimen signatures, at the end of each calender year to the office of Reserve Bank under whose jurisdiction they are functioning. Any changes in the list should also be brought to the notice of Reserve Bank. No person other than the authorised representative should be allowed to transact money-changing business on behalf of the money-changer." "9.....
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....he said transaction. In terms of section 6(5), the authorised dealer i.e., in the instant case the Appellant-Tulip Star Hotels Ltd., should have inquired from the representative of Hotel Zam Zam as regards his credentials which include his registration with the RBI as an authorised representative of the concerned FFMC as that is the requirement of para 3 of the FLM under which para the FFMC has to forward to the RBI the names of the persons whom it desires to appoint as its representatives. From the evidence in the instant case of the Executive Director of the Appellant-Tulip Star Hotels Limited, it is crystal clear that the said exercise was not carried out and a large amount of foreign exchange was handed over to the representative of the said Hotel Zam Zam without checking his credentials in terms of section 6(5) of FERA. That the fact that the foreign exchange ultimately reached the said Hotel Zam Zam, in our view, cannot extricate the Appellants from violation of section 6(5) as ultimately, the said foreign exchange was sold in the black market. 13. The submission of the learned counsel for the Appellants based on para 9 of the FLM, in our view, is misconceived, though p....