S.S. Kothari Vs. Enforcement Directorate - Court Judgment

1. The following order of the Appellate Tribunal for Foreign Exchange is delivered by Shri O.P. Nahar, Chairperson.

2. These two appeals are filed against adjudication order No. 105/99/AD, dated 23-8-1999 passed by Assistant Director, Enforcement Directorate imposing a penalty of Rs. 10,000 against the appellant company and Rs. 2,000 against another appellant as director of the company for contravention of section 4(1) read with section 23C(1) of FER Act, 1947 when S.S. Kothari was functioning as Director of appellant-company so was incharge and responsible to the company on the reasons that appellants unauthorisedly acquired foreign currency of DM 47,500 which was paid to M/s. A. Knoevenagal West Germany by M/s. Kaiser Engineers International USA on appellants behalf.

3. According to learned counsel, the appellants have made their pre-deposit of their respective penalty and these appeals are required to be heard on merits. We have heard arguments from Ms. Nupur Mukherjee, Advocate on behalf of appellants and Shri A.C. Singh, DLA, on behalf of Enforcement Directorate. Learned counsel Ms. Nupur Mukherjee has also filed written submissions which are taken on record.

4. Arguments are made that material on record does not prove the guilt beyond reasonable doubt as per the judgment in Shanti Prasad Jain v. Director of Enforcement AIR 1962 SC 1764. Also the Adjudicating Officer did not take into consideration while passing the impugned order the reply filed against show-cause notice. The material on record only shows that an import license was granted by Government of India to the appellants on 6-8-1963. Thereafter, RBIs permission for payment of foreign currency against this import was granted on 5-10-1963. When the alleged payment by M/s. Kaiser Engineers International USA was made to M/s. A. Knoevenagal Germany, the appellants never borrowed US Dollar 11,885.75 from M/s. Kaiser Engineers International US who made payment directly to M/s. A. Knoevenagal Germany. This payment between two foreign residents cannot demonstrate wrongful acquisition and transfer of foreign currency in violation of section 4(1) of FER Act, 1947 against the appellants because the appellants never otherwise acquired foreign currency as per the judgment in Central Government v. Abdul Mohammed 1988 (17) ECC 96 (Ker.).

5. Further it is argued that payment by M/s. Kaiser Engineers Interna-tional USA to M/s. A. Knoevenagal Germany cannot amount to a debt against the appellants who have not made any arrangement of thispayment and moreover this payment at best can be a contingent debt as per the judgment in Shanti Prasad Jains case (supra). Lastly it is argued that the alleged payment between to foreign nationals has not caused any outflow of foreign currency. Moreover the appellants are held guilty for contravention of section 5(1)(a) and 5(1)(b) so the same transaction cannot made them guilty for another violation of section 4(1) of FER Act. Here it is clear to this Tribunal that there is no controversy that appellants imported Ingot Scalping Machine whose payment to M/s. A. Knoevenagal Germany, as supplier of goods is made by M/s. Kaiser Engineers Internationals USA. This part payment included 10 per cent advance of DM 47,500. There is no controversy that part payment is made on 11-2-1963, by M/s. Kaiser Engineers International USA to the would be supplier M/s. A. Knoevenagal Germany. It is also admitted position that RBIs permission was granted on 5-10-1963. When we read section 4(1) of FER Act, 1947 it is clear that prior permission of RBI is necessary for acquisition or borrowing or selling or lending or exchanging the foreign currency. On the date of the payment i.e., 11-2-1963 there was no permission available from RBI in favour of the appellants for whose benefit payment made by M/s. Kaiser Engineers International USA to M/s. A. Knoevenagal Germany.

6. Though M/s. Kaiser Engineers International USA is not appointed by appellants using express words as agent but such appointment by express words is not necessary under the provisions of section 185 and section 187 of Indian Contract Act. Under these circumstances, when payment liability is clearly of the appellants herein, an inference of agency from the circumstances is permissible and can appropriately be drawn. In this regard, Honble Supreme Court in Chairman, LIC v. Rajeev Kumar Bhaskar [2005] 6 SCC 188, said that agency can be either express or implied and need not necessarily be established by a written document but can be inferred from the circumstances. It is also observed that use or omission of the word ‘agent, is not conclusive to determine the legal nature of the relationship between the principal and the agent, if circumstances otherwise indicate the existence of the agency, the consent, either express or implied, of any party to creation of agency is immaterial. In the words of the Honble Supreme Court following is stated:—

“27. For creating a contract of agency, in view of section 185 of the Indian Contract Act, even passing of the consideration is not necessary. The consideration, however, so far as the employer are concerned as evidenced by the Scheme, was to project their better image before the employees.

28. It is well settled that the purpose of determining the legal nature of the relationship between the alleged principal and agent, the use of or omission of the word ‘agent is not conclusive. If the employee had reason to believe that his employer was acting on behalf of the Corporation, a contract of agency may be inferred.

29. In DESU v. Basanti Devi [1999] 8 SCC 229 at 240, this Court stated the law, thus :

‘Formation of the contract of insurance is between LIC and the employee of DESU. Scheme has been introduced by LIC purely on business considerations and not for any particular benefit of insurance conferred on the employee working in an organization. Though in the proforma letter written by DESU to LIC, it is mentioned that DESU would be an agent of its employee and not that of LIC but this understanding between the LIC and DESU was not communicated or made known to the employee. As far as the employee is concerned, he is told that premium will be deducted from his salary every month and remitted by DESU to LIC under an agreement between LIC and DESU. For the employees of DESU, therefore, DESU had implied authority as an agent of LIC to collect premium on its behalf and then pay to LIC. There is nothing on the record to show that Bhim Singh was ever made aware of the fact that DESU was not acting as an agent of LIC. Rather in the nature of the Scheme, the employee was made to believe that it is the duty of the employer, though gratuitously case on him by LIC, to collect premium by deducting from the salary of each employee covered under the Scheme every month and to remit the same to LIC by means of one consolidated cheque. Now, it could be said that DESU would not be liable as an agent of its principal, i.e., LIC, and also it was rendering service of collecting the premium and remitting the same to LIC free of any cost to the employee. As to what is the arrangement between LIC and DESU, the employee is not concerned. In these circumstances, DESU cannot perhaps be held liable under the Act.” (p. 197)

7. As per the evidence on record, the payment is required to be made for the contracted goods by the appellants but due to pendency of RBIs permission such payment is made by M/s. Kaiser Engineers International USA. This payment is directly for the benefit of appellants herein. Hence, an agency can be assumed and such payment without permission from RBI amounts to violation of section 4(1) of FER Act, 1947, because it is made on behalf of appellant so has to be treated as payment by the appellants. Thus acquisition and transfer of foreign currency is clearly made out against the appellants.

8. The question of contingent debt is unnecessarily raised here which has no relevance to the factual position of these appeals, hence, the arguments with regard to contingent debt are not required to be addressed to. Moreover prove beyond reasonable doubt is available as per the facts admitted where no controversy is raised. In this situation the judgment in Shanti Prasad Jains case (supra) does not help the appellants and their arguments are required to be rejected. Therefore, these appeals contain no merit and are required to be dismissed. The unauthorized acquisition on behalf of the appellants is clearly made out and judgment of Kerala High Court in Abdul Mohammeds case (supra) cannot benefit the appellants.

9. It is an admitted position that appellants in appeal No. 438/99 is director of the appellant company thereafter nothing more is required to be proved except to say that as a member of the Board of Directors he is in charge and responsible to the company. By way of vicarious liability penalty can be imposed against him under section 23C(1) of FER Act, 1947. The penalty amount in these appeals is not on the higher side. Also it is well-settled that the same transaction can amount to different violations and anybody who has caused the transaction can be punished for different violations. A member of a gang of thieves when also received stolen property can be simultaneously punished for theft as well as for him being receiver of the stolen property.

10. For the reasons stated hereinabove, these appeals are required to be dismissed having no merits. There is no error in the impugned order so is required to be sustained and affirmed. An order dismissing these appeals is hereby passed. The pre-deposit amount can be adjusted towards penalty by Enforcement Directorate.