1. This appeal is against adjudication Order No. DD/MAS/95-101/920 dated 5-3-1992-102 passed by Deputy Director, Enforcement Directorate, Chennai imposing a penalty of Rs. 50,000 (Rupees fifty thousand only) for contravention of section 9(1)(a) of FER Act, 1973 and Rs. 10,000 (Rupees ten thousand only) for contravention of section 9(1)(d) of FER Act, 1973 against the appellant M/s. Bank of Madurai Ltd. for making three payments totalling to Rs. 5 lakhs by way of loan to Shri K. Abdul Majeed of Malaysia, a person resident outside India without permission of RBI and also for making a payment of Rs. 2 lakhs to M/s. T.V.S. Sons, Madurai, a firm in India, by order or on behalf of Shri K. Abdul Majeed, a person resident outside India without permission of RBI. The whole amount of penalty has been deposited by the appellant while this Tribunal vide its order dated 5-3-1992 directed the appellant to pre-deposit 50 per cent of amount of penalty. Presently, the appeal is taken up for final disposal on merits.
2-3. The main allegation against the appellant is that the appellant M/s. Bank of Madurai Ltd., a person resident in India made three payments totalling to Rs. 5 lakhs by way of loan to Shri K. Abdul Majeed, a person resident outside India in contravention of section 9(1)(a) of FER Act and also made a payment of Rs. 2 lakhs to M/s. T.V.S. Sons, Madurai, a firm in India on behalf of Shri K. Abdul Majeed, a person resident outside India in contravention of provisions of section 9(1)(d) of FER Act. Two memorandum were issued against the appellant for the said charges whereby penalty of Rs. 60,000 was imposed by the Adjudicating Officer against the appellant against which this appeal has been preferred.
4. It has been argued by the Learned Counsel of appellant that appellant is a bank company who made payment of three loans to Abdul Majeed after complete examination of accounts and creditworthiness of him who furnished all the relevant documents to prove his residential status. The income-tax assessment orders for the years 1977-78, 1978-79 were furnished by Abdul Majeed to prove his residential status, which were issued by Department of Income-tax of Central Government wherein the status of Abdul Majeed was shown as resident in India. The appellant has relied upon the ruling of Indian Overseas Bank v. Industrial Chain Concern [1990] 1 SCC 484, 30 stating that as a general rule a bank before accepting a customer, must take reasonable care to satisfy himself that the person in question is of good reputation. It has been argued that in the instant case, the Bank got satisfied with the status of the applicant from Income-tax Assessment Orders where Abdul Majeed had paid all the previous loans promptly without any delay and the loan was granted on his good reputation. There was no reason to suspect that Abdul Majeed was not a
resident of India. There has been no violation of any of the provisions of FER Act and respondent has not been able to prove his case beyond reasonable doubt. The appellant has relied on Datar Singh v. State of Punjab [1975] 4 SCC 272 para 3 alleging that on the basis of mere suspicion or suspicious circumstances the appellant cannot be penalized where charges have not been proved beyond reasonable doubt. The applicant was present in India at the time of grant of loan. It is alleged that the appellant has not been provided with sufficient reasons that how he has violated the provisions of FER Act, 1973 and the provisions of natural justice have been violated in this case for which the appellant has relied on ruling of Supreme Court in Khem Chand v. Union of India AIR 1958 SC 300 para 19. It has been requested that the impugned order may be set aside having no force of law.
5-6. As against it, Shri T.K. Gadoo, DLA has vehemently argued against the contentions raised by Learned Counsel of the appellant. It has been argued that Abdul Majeed himself admitted on 3-3-1983 during his statement that he was running a readymade shop and tailor shop in Qualalumpur for last 30 years. He was the partner in firm M/s. Green Motor Parts and a bus company by name M/s. Green Bus Service in India which was being looked by his son-in-law A. Abdul Khader. He did not obtain the permission of RBI to participate in the business of aforesaid two firms. Statement of Chairman of Bank of Madurai Ltd. Shri R.M. Muthiah was also recorded on dated 11-12-1984 where he stated that Abdul Majeed was having his business in Malaysia and was staying there most of the time and he did not know the circumstances in which the General Manager had sanctioned the loan to him. The power of attorney was executed by Abdul Majeed in favour of his son-in-law Abdul Khader on 23-5-1979 where it was clearly mentioned his intention stating that âI have to be more often absent from India and therefore feel it necessary to appoint an agent to do the business. . . .â The impugned order was liable to be confirmed for cogent evidence available on record.
7. I have heard Learned Counsels of both the parties and gone through the records and relevant case law carefully. In his statement dated 3-3-1983 K. Abdul Majeed admitted that his Indian passport was issued by Indian High Commission, Qualalumpur on 22-6-1981 which was valid up to 21-6-1986 and he was mostly staying in Malaysia to look after his business and used to visit India to see his family and children once or twice in a year and used to return to Malaysia after staying in India for a few months.
8. Abdul Khader was also examined by the E.D. Officers on 4-3-1983 who stated that his father-in-law, Abdul Majeed was running a shop of readymade garment in Malaysia and he was looking after the affairs of his bus company in India. The credit entries of firm M/s. Green Bus Service indicated that amounts were received by way of demand drafts from Qualalumpur which were sent by Abdul Majeed from Malaysia and received in India by means of draft from Malaysia which was possible only if Abdul Majeed sent these amounts from abroad. The entries of passport of Abdul Majeed also proved the fact that he spent most of his time in Malaysia during relevant period. Moreover, the Bank of Madurai prepared opinion report about status of Abdul Majeed on 26-6-1981 where it was stated that Abdul Majeed was having business at Malaysia and was staying there most of the time while his son-in-law was looking after his firm in India. On the basis of all abovementioned factors the Adjudicating Officer came to conclusion that at the relevant period Abdul Majeed was a person resident outside India and the transactions in question could be entered with him by the appellant only with the permission of RBI.
9. So far as his Income-tax Assessment Orders are concerned they may be considered only from the point of view of Income-tax Act having no concern and implication so far as provisions of FER Act are concerned. The criteria which is applied to the case of Income-tax Act could not be applied in the cases of FER Act.
10. In the present case the criteria applicable to decide the residential status of the appellant is as laid down in section 2(p) and (2)(q) of relevant FER Act, 1973. The expression âperson resident in India is defined in clause (p) of section 2 of FER Act, 1973, which, insofar as it is relevant for the present discussion, is extracted as under :
â2. Definitions.âIn this Act, unless the context otherwise requires,â
(a) to (o)** ** **
(p) person resident in India meansâ
(i) a citizen of India, who has, at any time after 25th day of March, 1947, been staying in India, but does not include a citizen of India who has gone out of, or stays outside, India, in either caseâ
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;â
Section 2(q) provides that a âperson resident outside Indiaâ means a person who is not resident in India. While under Income-tax Act the criteria for determining the residential status is different. Under the FER Act the intention of the person whose status is being ascertained is the principal factor to decide his residential status in India unlike Income-tax Act where duration of physical stay of the person is the decisive criteria.
11. The appellant-bank relied on the Income-tax returns for deciding residential status of the appellant while for the purposes of the FER Act the residential status was to be determined in the light of the section 2(p) and 2(q) of FER Act, 1973. Despite the report of the bank prepared after conducting an enquiry about residential status of Abdul Mazeed it was confirmed that he was most of the time living outside India and doing business abroad in Malaysia, the bank preferred to give loans to Abdu Mazeed and gave loan to third person on his security. It cannot be said that the fact was not within the knowledge of the bank about the appellant residing abroad for last 30 years conducting his business there, spending most of his time in Malaysia and carrying his business in India only through his relations and thus acquiring non-residential status which was confirmed by the admission of the Abdul Mazeed himself. Thus it became clearly established that at the relevant time Abdul Mazeed was a non-resident and the inference drawn by the appellant-bank about his residential status on the basis of Incom-tax Returns was not in accordance with the provisions of FER Act, 1973.
12. Under Income-tax Act the test for conferring the status of a resident in India on an individual is statutorily laid down period of residence in India and not any circumstances which could indicate the intention of the person to stay outside India for an uncertain period as in FER Act. Here it will be relevant to mention the judgment of the Apex Court in K. Ramullan v. CIT [2000] 8 SCC 246 where Supreme Court observed that the appellant was entitled to the benefit of section 10(4A) of the Income-tax Act deciding the residential status of the appellant as per criterion provided under section 2(p) of FER Act. In this case the appellant was of Indian origin who acquired citizenship of Malaysia, stayed in India for about two years during June 1982 to April 1985 for his medical treatment with his wife and children, residents of India, who claimed exemption of section 10(4A), Income-tax Act on the interest which accrued on his NRE account during the said period alleging himself to be an NRI. Supreme Court allowed him the benefit of this provision making following observations :
âA plain reading of section 2(p)(iii)(c) of the FERA makes it evident that the stay contemplated therein has to be of some permanence and not with the intention of returning abroad in some short, set period. The word âstayingâ in paragraph really means âresiding with the spouseâ. Even the purposes referred to in paras (a), (b) and (d) indicate that the term âstayâ does not denote a short or casual stay; it has to be a stay for taking up employment or carrying on business or a vocation or with the intention of remaining in India for an uncertain period. If para (c) is construed to include a mere casual stay or stay for a short period, it would defeat it the purpose of having non-resident (external) account. Therefore, the appellant cannot be treated as a person resident in India during the relevant period. Consequently, he will be a person outside India within the meaning of section 2(q) of FERA.â
13. In the present case the appellant is staying outside India for last 30 years looking after his business in Malaysia which is indicative of his intention to stay outside India for an uncertain period. This being so, it has rightly been held by the Adjudicating Officer that the appellant-bank has committed a mistake in holding the appellant a resident of India and was consequently guilty for contravening provisions of section 9(1)(a) and 9(1)(d) of the FER Act, 1973. The rulings cited by the appellant do not go to favour him as in the present case the bank has not been able to prove that it has taken reasonable care to decide the status of Abdul Mazeed before granting him loan. However, having regard to the facts, evidence and circumstances of the case in totality and considering the fact that it is not the case against the appellant that there has been any default in payment of loan amount in question, I am of the view that the penalty imposed against the appellant-bank is on the higher side which should be reduced from Rs. 60,000 to Rs. 20,000 in proportion to two charges alleged against the appellant to achieve the ends of justice. Thus the impugned order is liable to be accordingly modified.
14. For the reasons herein mentioned above, the appeal is partly allowed. The amount of penalty is reduced from Rs. 60,000 to Rs. 20,000. The amount of penalty may be appropriated from the amount which has already been pre-deposited by the appellant and the balance amount of Rs. 40,000 may be released by the respondent in favour of the appellant after expiry of period of appeal.