TULIP STAR HOTELS LTD. Vs SPECIAL DIRECTOR OF ENFORCEMENT
Bench: SURINDER SINGH NIJJAR,FAKKIR MOHAMED IBRAHIM KALIFULLA
Case number: C.A. No.-000680-000680 / 2014
Diary number: 3393 / 2011
Advocates: E. C. AGRAWALA Vs
B. KRISHNA PRASAD
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Page 9
Page 10
Page 11
Page 12
Page 13
Page 14
Page 15
Page 16
Page 17
Page 18
Page 19
Page 20
Page 21
Page 22
Page 23
Page 1
Reportable
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 680 OF 2014 (@ SLP (C) No.7655 OF 2011)
Tulip Star Hotels Ltd. ….Appellant
VERSUS
Special Director of Enforcement .…Respondent
With
CIVIL APPEAL NO. 681 OF 2014 (@ SLP (C) No.7657 OF 2011)
Peter Kerkar ….Appellant
VERSUS
Special Director of Enforcement .…Respondent
J U D G M E N T
Fakkir Mohamed Ibrahim Kalifulla, J.
1. Leave granted.
2. In these two appeals, the challenge is to a common
judgment of the Division Bench of the High Court of
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 1 of 23
Page 2
Judicature at Bombay in FEMA Appeal Nos.3 & 4 of 2008,
dated 14th October 2010.
3. Brief Facts which led to the culmination of the present
appeals are required to be stated. The Appellant in SLP
No.7655 of 2011 is the company and the Appellant in SLP
No.7657 of 2011 was also proceeded against as the
Executive Director of the company. The Respondent
issued a show cause notice against the Appellants dated
29th April 2002, wherein it was alleged that the Appellant
in SLP No.7655 of 2011 sold foreign currency to the value
of 1,47,000 US$ and 1000 Sterling £ of UK between
29.4.1997 to 5.6.1997 through unauthorized persons
deputed by M/s Hotel Zam Zam in violation of Sections
6(4), 6(5), 7 & 8 of the Foreign Exchange Regulation Act,
1973 (hereinafter called “FERA”) as well as paragraph 3 of
the Memorandum of FLM issued by RBI. The Appellants
were called upon to show-cause why penalty should not
be imposed against them under Section 50 of FERA read
with Section 49 (3) & (4) of Foreign Exchange
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 2 of 23
Page 3
Management Act (hereinafter called “FEMA”).
Subsequently, by order dated 28.10.2004 the Respondent
imposed a penalty of Rs.50,000/- each on both the
Appellants. The Appellants preferred appeals before the
Appellate Tribunal for Foreign Exchange in Appeal
Nos.1259 and 1260 of 2004, which were also dismissed by
order dated 2.7.2008. The above said orders of the
Original Authority, as well as the Appellate Authority, were
the subject matter of challenge before the Division Bench
of the High Court in FEMA Appeal Nos.3 & 4 of 2008. The
Division Bench having confirmed the orders of the lower
authority, as well as the tribunal, the Appellants have
come forward with these appeals.
4. We heard Mr. H.N. Salve, learned Senior Advocate for the
Appellants and Mr. S.K. Bagaria, learned Addl. Solicitor
General for the Respondent. We also perused the written
submissions filed on behalf of the appellant as well as the
respondent. We also perused the order of the Original
Authority, the Tribunal, as well as the Division Bench and
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 3 of 23
Page 4
having heard the counsel for the respective parties we
proceed to decide these appeals.
5. Mr. Salve, learned senior counsel, appearing on behalf of
the Appellants in his submissions mainly contended that
there was no violation at all in the matter of Sale and
Purchase by the Appellant company to M/s Hotel Zam
Zam in relation to the sale of 1,47,000 US$, as well as
1000 Sterling £ of UK in between 29.4.1997 and 5.6.1997,
inasmuch as both the Appellant company, as well as M/s
Hotel Zam Zam are duly licensed Full Fledged Money
Changers, in short FFMC. According to the learned senior
counsel, such transactions as between the licensed FFMCs
are wholly authorized under the provisions of FERA, as
well as the Memorandum of FLM of the Reserve Bank of
India. The learned senior counsel further contended that
in the confiscation proceedings initiated against the
Appellants, as well as M/s Hotel Zam Zam, as per the
order dated 21.8.1998 it was found that no statutory
violation can be attributed to the Appellants and
therefore, the imposition of penalty as against the
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 4 of 23
Page 5
Appellants by the Original Authority and the confirmation
of the same by the Tribunal and the Division Bench are
therefore liable to be set aside.
6. As against the above submissions, Mr. Bagaria, learned
Addl. Solicitor General would contend that by virtue of the
statutory stipulations contained in sub-sections (4) and (5)
of Section 6, Section 7 and 8 of FERA read along with
paragraph 3 of the Memorandum of FLM of the RBI, there
was a clear violation of the statutory provisions committed
by the Appellants, hence the penalty imposed by the
Original Authority as confirmed by the Appellate Authority,
as well as the High Court cannot be faulted. It was also
submitted that the Original Authority, the Appellate
Tribunal and the High Court have reached a concurrent
finding based on documents, materials, as well as
statements on record and the said conclusions are not
perverse and therefore, the same do not call for
interference. Reliance was placed upon the decisions in
Collector of Customs vs. Swastic Woollens Pvt. Ltd.
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 5 of 23
Page 6
- 1988 (Supp) SCC 796, Commissioner of Central
Excise vs. Charminar Non-Wovens Ltd. – (2009) 10
SCC 770 and Ghisalal vs. Dhapubai (dead) by LRs &
Ors. – (2011) 2 SCC 298. It was also contended that
Hotel Zam Zam purchased the foreign exchange from the
appellant at a higher rate than the exchange rate fixed by
the RBI and on this ground as well the proceedings
initiated against the appellant and the imposition of
penalty was justified. To support the said contention,
reliance was placed upon the decision in P.V.
Mohammad Barmay Sons vs. Director of
Enforcement – 1992 (61) ELT 337.
7. When we consider the submissions of the respective
counsel we find Sections 6(4), 6(5), 8(2) of FERA and Para
3 and 9 of the Memorandum of FLM of RBI, are required to
be noted which are as under:
“Section 6 Authorised dealers in foreign exchange:-
6(4) An authorized dealer shall, in all his dealings in foreign exchange and in the exercise and discharge of the powers and of the functions
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 6 of 23
Page 7
delegated to him under Section 74, comply with such general or special directions or instructions as the Reserve Bank may, from time to time, think fit to give, and except with the previous permission of the Reserve Bank, an authorized dealer shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of his authorization under this section.
6(5) An authorized 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 authorized 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 8: Restrictions on dealings in foreign exchange:-
(2) Except with the previous general or special permission of the Reserve Bank, no person, whether an authorized 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
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 7 of 23
Page 8
than the rates for the time being authorized by the Reserve Bank.
Paragraphs 3 and 9 of the FLM
Authorised Officials 3. All money-changers should arrange to forward
lists giving full names and designations of their representatives who are authorized to buy and sell foreign currency notes, coins and travelers cheques on their behalf together with their specimen signatures, at the end of each calendar year to the office of Reserve Bank under whose jurisdiction they are functioning. Any changes in their list should also be brought to the notice of Reserve Bank. No person other than the authorized representative should be allowed to transact money-changing business on behalf of the money-changer
Purchases from other Money-changers and Authorized Dealers:- 9. Money-changers may freely purchase from
other money-changers and authorized dealers in foreign exchange or their exchange bureau, any foreign currency notes and coins tendered by the letter. Rupee equivalent of the amount of foreign currency purchased should, however, be paid by way of a cross cheque drawn on their bank account or if made by way of a bankers’ cheque/pay order/demand draft, it should be accompanied by a certificate from the bank issuing the relative instrument certifying that the funds for the instrument have been received by it by debit to the applicants bank account. In no circumstances should payments in respect of such sale be made in cash.”
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 8 of 23
Page 9
8. Under Section 6(4) it is stipulated that a full fledged
money changer (FFMC) as an authorized dealer in foreign
exchange should strictly comply with the general or
special directions or instructions that may be issued by
the RBI and that except with the previous permission of
the RBI, authorized dealers should not engage in any
transaction involved in any foreign exchange, which is not
in conformity with the terms of his authorization. Under
Section 6(5) it is stipulated that an authorized dealer
should before undertaking any transaction in foreign
exchange should ensure verification on certain aspects in
order to ensure that there is no contravention of the
provisions of FERA and if the FFMC has any reason to
believe that any such contravention or evasion is
contemplated by a person who seeks to indulge in any
transaction in foreign exchange, the FFMC should report
the matter to the RBI.
9. Section 8 of FERA imposes restrictions on dealings in
foreign exchange. The said provision imposes restriction
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 9 of 23
Page 10
to the effect that no person other than the authorized
dealer in India, shall purchase or otherwise acquire or
borrow any foreign exchange. Under sub section 2, it is
stipulated that except with the previous general or special
permission of RBI, an authorized dealer or a money
changer should enter into any transaction providing
conversion of Indian currency into foreign currency or vice
versa, at rates of exchange other than the rates for the
time-being authorized by RBI.
10. De hors the above provisions, the other relevant
provisions are paragraphs 3 & 9 of the Memorandum of
FLM issued by the RBI. A close scrutiny of paragraph 3
disclose that the said paragraph has been issued by the
RBI to state as to who can be called as ‘authorized
officials’ of money changers. The said paragraph also
imposes a restriction to the effect that other than an
authorized representative, nobody else should be allowed
to transact money changing business on behalf of the
money changer.
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 10 of 23
Page 11
11. Paragraph 9 virtually gives a free hand for the money
changers to indulge in purchase of foreign currency etc.,
and the only restriction is that while making such
purchase, the purchase value should be paid only by way
of an instrument and not by way of cash.
12. Keeping the above provisions in mind, when we refer
to the nature of transaction that had taken place as
between the Appellants and M/s Hotel Zam Zam, the
following facts are not
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 11 of 23
Page 12
in controversy:
(a) The Appellants, as well as M/s Hotel Zam Zam, are licensed FFMC.
(b) The Appellants sold foreign exchange of 1,47,000 US $ and 1,000/- sterling £ of UK as between April 1997 to June 1997 to M/s Hotel Zam Zam.
(c) The purchase value of the above foreign currency was at a higher rate than the existing retail rate that prevailed in the market.
(d) The purchase value was paid by M/s Hotel Zam Zam by way of Pay Orders.
(e) Prior to the transaction, at the instance of the Appellants, a Xerox copy of the RBI license of M/s Hotel Zam Zam was produced and based on which the transaction was effected.
(f) The transactions were effected on 29.04.1997, 06.05.1997, 29.05.1997 and 05.06.1997 and the amounts transacted were 7,000 US$, 1000 Sterling £ of UK, 40,000 US$ and 1,00,000 US$ on the respective dates. In all 1,47,000 US$ and 1000 Sterling £ of UK were sold by the Appellants to M/s Hotel Zam Zam.
(g) All the above transactions were made and the foreign currency was handed over to Shri
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 12 of 23
Page 13
Rakesh Mahatre, a representative of M/s Hotel Zam Zam.
13. Based on the above undisputed facts relating to the
transaction as between the Appellants and M/s Hotel Zam
Zam, the Original Authority reached a conclusion that the
Appellants failed to verify the authorization in favour of
the persons concerned to buy/sell foreign exchange on
behalf of the said money changers as contemplated under
the relevant provisions. In other words, it was concluded
that it was incumbent upon the Appellants by virtue of the
terms of instructions contained in paragraph 3 of the
Memorandum of FLM issued by RBI to have verified the
bonafides of the persons deputed to them by M/s Hotel
Zam Zam before handing over the foreign currencies to
such persons. It was, therefore, ultimately concluded that
the said failure on the part of the Appellants resulted in
contravention of the directions contained in paragraph 3
of the Memorandum of FLM read with Section 6(4), 6(5)
and 7 of FERA. Ultimately the Appellants were found guilty
for the said contraventions and the penalty came to be
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 13 of 23
Page 14
imposed. The said order of the Original Authority was
confirmed by the Tribunal, as well as the Division Bench of
the High Court.
14. The above impugned orders disclose that the only
violation or contravention related to the stipulations
contained in paragraph 3 read with Section 6(4) and 6(5)
of FERA. It will be relevant to note that the variation in the
rates of purchase value of the foreign currency was not
the basis for the ultimate conclusion about the
contravention held against the Appellants. Therefore,
keeping aside the said aspect, when we examine the
contravention held proved against the Appellants, we feel
it appropriate to make a reference to paragraph 9 in the
forefront. Under paragraph 9 of the FLM as between the
money changers, a free hand has been given for purchase
and sale of any foreign currency notes etc. in rupee value.
The only restriction imposed therein is that the Indian
rupee value of the foreign currency should not be paid by
way of cash, but should always be paid in the form of an
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 14 of 23
Page 15
instrument such as banker’s cheque/pay-order/demand
draft etc., or by debiting to the purchasers’ bank account.
Therefore, if under paragraph 9 such a free hand has been
given to the money changers, namely, FFMCs in the
matter of purchase of foreign currency etc., by making
payments in the form of negotiable instruments under the
relevant statutes, the question that would arise for
consideration would be whether in a case of this nature
where such a transaction had taken place in between two
licensed FFMCs and the said transaction was carried on by
exchange of foreign currency by way of payment in the
form of pay-orders and that the sale effected by the
Appellants and the purchase made by the other FFMC,
namely, M/s Hotel Zam Zam was not disputed, can it still
be held that there was any violation at all in order to
proceed against the Appellants for imposing a penalty?
When we examine the said issue, we are unable to accede
or countenance the stand of the Respondent that the
foreign currencies to the values mentioned in the earlier
paragraphs were handed over to the representative of M/s
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 15 of 23
Page 16
Hotel Zam Zam by one Mr. Rakesh Mahatre and,
therefore, the whole transaction was in contravention of
Sections 6(4) and 6(5) of FERA and paragraph 3 of FLM.
15. When we examine paragraph 3 of FLM, we find that
the caption of the said paragraph is “Authorized Officials”.
The purport of the said paragraph was to ensure that any
licensed money changers should allow transaction of its
money changing business in its premises only through
such persons who are the listed authorized officials as
certified by the office of the Reserve Bank under whose
jurisdiction such money changers operate their business.
The last part of paragraph 3 makes the position a little
more clear which states that “no person other than the
authorized representative should be allowed to transact
money-changing business on behalf of the money-
changer”. Apparently when a money changer operates its
business from its premises, any transaction by way of sale
or purchase as part of its money changing business should
be carried out only through an authorized representative.
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 16 of 23
Page 17
16. When we extend the application of the said stipulation
to the case of present nature, it can only be said that if
such transaction had taken place as between the
Appellants and the purchaser M/s Hotel Zam Zam, it
should have been carried on only through their respective
authorized representatives. The statement of Mr. Peter
Kerkar, the Appellant in SLP (C) No.7657 of 2011, disclose
that on each occasion the transaction was negotiated by
the Branch Manager of the Appellant with one Ms. Pinky of
M/s Hotel Zam Zam. It is not the case of the Respondent
that neither of these two persons who indulged in the
transaction of money changing business were not the
authorized officials of their respective establishments. If
the said factum relating to the business transactions,
which had taken place as between the Appellants and M/s
Hotel Zam Zam is not in controversy, we fail to see how a
violation of paragraph 3 can be alleged as against the
Appellants.
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 17 of 23
Page 18
17. It is stated that after the transaction as between the
Appellants and M/s Hotel Zam Zam concluded, M/s Hotel
Zam Zam stated to have indulged in some transaction,
which was in violation of the provisions of FERA with which
the Appellants were not in any way concerned. It can also
be safely held that for any violation or contravention of
the provisions of FERA or FEMA at the instance of M/s
Hotel Zam Zam after the money changing transaction as
between the Appellants and the said concern had come to
an end, the Appellants cannot in any way be held
responsible or proceeded against.
18. In our considered opinion that in the peculiar facts of
this case and having regard to the nature of transactions
which had taken place as between the Appellants and M/s
Hotel Zam Zam in the manner in which it has been
narrated in the impugned order of the Original Authority
as noted by the Tribunal, as well as the Division Bench of
the High Court, we are convinced that there was no scope
to allege a violation of paragraph 3 of the FLM or for that
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 18 of 23
Page 19
matter Sections 6(4) and 6(5) of FERA, 1973. Based on the
interpretation of Sections 6(4), 6(5) of FERA, 1973 and
paragraphs 3 & 9 of the FLM, we have held that the
Original Authority, the Appellate Tribunal as well as the
Division Bench of the High Court failed to appreciate the
issue in the proper perspective while holding the appellant
guilty of the violation alleged. Therefore, none of the
judgments relied upon by the respondents for the
proposition that concurrent findings of fact should not be
interfered with does not apply to the facts of this case.
19. Once we steer clear of the above position, we come to
the question of the higher value at which the foreign
currency was alleged to have been sold by the Appellants
to M/s Hotel Zam Zam. As pointed out by us earlier, the
said act was not the basis for the contravention and
imposition of the penalty as against the Appellants. To
rule out any controversy, the conclusion of the Original
Authority as recorded in its order for finding the
Appellants guilty of paragraph 3 of the FLM read with
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 19 of 23
Page 20
Sections 6(4), 6(5) and 7 of FERA, can be usefully
extracted which reads as under:
“…….Thus by not insisting on the authorization from the said Hotel Zam Zam disclosing the names, address and other particulars of the persons deputed by them for purchasing foreign exchange from M/s Cox and Kings Travel & Finance Ltd., the said M/s Cox and Kings Travel & Finance Ltd. has contravened the directions contained in para 3 of the Memorandum FLM R/w SEC. 6(4), 6(5) and 7 of the FERA, 1973. I, therefore hold them guilty for the said contraventions.”
20. This apart, when we refer to the confiscation order
passed by the Commissioner of Customs in its order dated
21.08.1998, it has been specifically stated as under:
“The statements of Mr. Chitrang Mehta, Manager of M/s LKP dated 06/7-08-97 indicated that there is transaction at prices higher than those prevailing market rates. However, it is also a known fact that the rates for the foreign exchange can be fluctuating and there is hardly any transaction effected at the rates which are recorded for that day to be prevailing in the market not only for the
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 20 of 23
Page 21
foreign currency but also for to be other goods e.g. shares in the stock market or the metals and other commodities being traded in the specific markets. It is also to be considered that large transactions were being entered into by them and profit made on the sales of such large transactions would not ipso facto induce me to conclude that the mere fact of sales at higher prices would be a preconcerted knowledge that the dollars sold are to be smuggled out of India. I find that the price at which Ms. Pinky Jaisinghani was purchasing the dollars from other FFMCs were settled between her mentor Shri Suleman Tajuddin Patel and not considerations of any other kind.”
21. Therefore, in the impugned orders of the Original
Authority, as well as the Tribunal and the Division Bench,
the sale effected by the Appellants on a rate higher than
the rate prevailing in the market was not the basis for the
alleged violation of paragraph 3 of the FLM read with
Sections 6(4), 6(5) and 7 of FERA. In the confiscation order
passed by the Customs Authorities, where again the
Appellants were also one of the noticees, no fault was
found as against the Appellants on that ground. In the
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 21 of 23
Page 22
light of our above conclusions, as regards the higher value
at which foreign currency alleged to have been sold by
the appellant to Hotel Zam Zam, the reliance placed upon
the decision in P.V. Mohammad Barmay Sons (supra)
has also no application. The said decision came to be
rendered entirely under different facts which cannot be
applied to the facts of the present case.
22. Having reached the above conclusions, we are
convinced that the impugned orders by which the
Appellants were found guilty of the violation of paragraph
3 of FLM read with Sections 6(4), 6(5) and 7 of FERA and
the consequential imposition of penalty of Rs.50,000/- was
wholly unjustified. The impugned orders are liable to be
set aside and they are accordingly set aside. If the
Appellants have parted with the penalty amount imposed
under the impugned orders, the Respondent is directed to
refund the same to the Appellants along with simple
interest at the rate of 6% per annum, within two months
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 22 of 23
Page 23
from the date of this judgment. The appeals are allowed
with the above directions.
…..……….…………………………...J. [Surinder Singh Nijjar]
……………. ………………………………J.
[Fakkir Mohamed Ibrahim Kalifulla]
New Delhi; January 16, 2014
Civil Appeal No………. of 2014 @ SLP© No. 7655 of 2011 Page 23 of 23