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2001 Supreme(Cal) 227
High Court Of Calcutta
Pratap Kumar Ray
GRINDLAYS BANK P.L.C. - Appellant
Versus
UNION OF INDIA - Respondent
C. R. 13487 (W) Of 1984
Decided On : 04/20/2001
D.MUKHERJI, M.K.Lodha, M.K.MUKHERJI
The interpretation of Section 10 of the FERA, 1947, qua Section 23 (now renumbered as Section 51 of the FERA, 1973), with reference to the factual matrix, would decide the issue.
Headnote:
FOREIGN EXCHANGE REGULATION ACT, 1947 - SECTION 10(1)(A) - DELAY IN REPATRIATION OF FOREIGN EXCHANGE - INTERPRETATION - ADJUDICATION PROCEEDING - INITIATION - LEGALITY - WRIT JURISDICTION.
Fact of the Case:
The writ petitioners, Grindlays Bank and its two officers, challenged a memorandum issued by the Special Director, Enforcement Directorate (Foreign Exchange Regulation Act), Government of India, directing them to show cause as to why adjudication proceedings under Section 23d of the Foreign Exchange Regulation Act, 1947 (FERA, 1947), for violation of Section 10(1)(a) of the FERA 1947, due to delay in repatriating a sum of Rs. 15,02,351, should not be initiated.
Finding of the Court:
1. The delay in repatriating the foreign exchange money, as alleged in the memorandum, was not a violation of Section 10(1)(a) of the FERA, 1947, as the delay was counted from the year 1967 when the assessment by the income-tax authorities under reassessment rule reached its finality, which was an incorrect interpretation of Section 10. 2. The cause of action under Section 10 in pursuance of the direction under Section 10(2) of the RBI started when direction was issued to repatriate the foreign exchange by the RBI by letter dated 28-12-1974, as received by the bank authorities some time before 3-1-1975, and there was no delay to attract the penal consequence under Section 23. 3. The RBI had dealt with the matter under Section 10(2) directing the petitioner to repatriate the money, and the cause of action of violation of such directive would arise upon the cumulative effect of both the sections from the date when such letter was received by the writ petitioner-bank. 4. The petitioners had no fault in the matter of remittance of the head office expenses in terms of the prevalent policy as accepted by the income-tax authorities as well as the RBI, and the repatriation was completed immediately on direction by the RBI.
Issues: 1. Whether the delay in repatriating the foreign exchange money, as alleged in the memorandum, was a violation of Section 10(1)(a) of the FERA, 1947. 2. Whether the interpretation of Section 10, considering the delay from the year 1967 when the assessment by the income-tax authorities under reassessment rule reached its finality, was correct. 3. Whether the cause of action under Section 10 in pursuance of the direction under Section 10(2) of the RBI started from the date when such letter was received by the writ petitioner-bank.
Ratio Decidendi: 1. Section 10 of the FERA, 1947, has two Sub-sections, namely 10(1) and 10(2). Section 10(1)(a) cannot be taken out separately without looking into the provision of Section 10(2) of the Act itself, as the same would result in two situations and/or contingencies as are contrary to each other. 2. The violation of Section 10(1) would be completed when there will be non-compliance with the direction under Section 10(2) of the said Act. Unless and until, the entire process, namely, decision by the RBI under Section 10(2) of the said Act is completed, Section 10(1)(a) independently cannot attract penal consequence under Section 23(1)(a) of the said Act. 3. The proceeding under the FERA before the adjudicating authority is in the nature of quasi-criminal and the criminal jurisprudence is squarely applicable, hence, a strict interpretation of the sections under the FERA is to be made. 4. The interpretation of the provisions of such penal statutes must be made strictly and in the event of two meanings on interpretation of any section, the benefit will go to the accused persons and/or person charged with such violation as the case may be by way of interpretation of the section as favourable to them.
Final Decision: The writ application was allowed. The impugned memorandum dated 11-6-1981 and the impugned order dated 22-6-1984 were set aside and quashed.
( 1 ) IN the instant writ application the writ petitioners, namely, the Grindlays Bank and its two officers have assailed Memorandum No. T-4/1/ SU. 81 (SCN), dated 11-6-1981, issued by the Special Director, Enforcement Directorate (Foreign Exchange Regulation Act), Government of India, whereby the writ petitioners were directed to show cause as to why the adjudication under Section 23d of the Foreign Exchange Regulation Act, 1947 (the FERA, 1947), for violation of Section 10 (1) (a) of the FERA 1947, due to delay to repatriate the sum of Rs. 15,02,351 as determined by the income-tax authorities on reassessment of the earlier assessment as made finally relating to the assessment years 1949-50 to 1959-60 and the decision of holding 'adjudication proceeding' as contemplated under Section 51 of the Foreign Exchange Regulation Act, 1973, (FERA 1973) issued by the competent authority being dissatisfied with the reply of said memorandum.
( 2 ) RULE issued and interim order of injunction in terms of prayer (f) was passed ex parte on 10-8-1984, by A. K. Sengupta, J. till 15-9-1984, upon granting leave to the respondents to apply for variation, vacating the interim order. However, after the expiry of such interim order, by order dated 18-9-1984, A. K. Sengupta, J. allowed the interim order as earlier passed to continue until further orders. In view of such, the entire proceedings has been kept pending. The affidavit-in-opposition, has been filed by the respondent No. 3, the Reserve Bank of India (RBI) but no affidavit-in-opposition has been filed by the respondent Nos. 1 and 2, namely, the Union of India and the Special Director of Enforcement under the Foreign Exchange Regulation Act, Affidavit-in-reply has been filed by the writ petitioners.
( 3 ) THE facts of the writ petition are to this effect. The writ petitioner-bank is running the business of banking all over the world having its head office at London. There are different branches in different countries including the one here in India. On account of head office expenses at London, the decision was reached by the banking authorities to distribute such expenses to the different banks situated all over the world on proportionate basis as per the formula : Territorial management expenses---------------------- x Head office general charges total Global management expenses
( 4 ) THE terms of such formula, were accepted as reasonable by a subsequent decision relating to the assessment year 1969-70 by the income-tax appellate authority as well as by the RBI. The RBI allowed the remittance of proportionate head office expenses allocated to India for each and every accounting year and the petitioner accordingly remitted the same. The concerned notice of adjudication proceeding relates to the accounting years from 1948 to 1964. On the basis of the said formula as accepted, the last remittance was allowed in the accounting year ended 31-12-1964. Such head office expenses allocated to India covering those periods were accordingly charged to the profit and loss account of the Indian business of the writ petitioner-bank and claimed in the income-tax computations as deductible expenses.
( 5 ) THE income-tax authorities did not raise any objection for such remittance. But for the first time, the income-tax authorities wanted a detailed break-up of head office expenses in relation to the accounting year, 1959, corresponding to the assessment year 1960-61. For the first time, the ITO disallowed a sum of Rs. 3,28,366 representing contributions to unrecognised provident fund, pension fund and on contribution to charities and donation relating to the head office expenditure. In appeal, such disallowance was reduced to Rs. 86,728 only. In view of such disallowance resorting to a changed formula from the earlier year as accepted, the assessments for the assessment years 1949-50 and 1959-60 were reopened under Section 148 of the Income-tax Act, 1961 on diverse dates in the year 1
