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Motia Rani Bhatia Vs. the Additional Director of Enforcement and anr. - Court Judgment

LegalCrystal Citation
SubjectFERA;Criminal
CourtDelhi High Court
Decided On
Case NumberCriminal Appeal Nos. 182, 183, 235 and 236 of 1980
Judge
Reported in[1985]58CompCas643(Delhi); 23(1983)DLT74; 1983(4)DRJ271; 1985(6)ECC226
ActsForeign Exchange Regulation Act, 1947 - Sections 24A
AppellantMotia Rani Bhatia
RespondentThe Additional Director of Enforcement and anr.
Advocates: J.S. Arora,; Madan Lokur and; Atul Kumar, Advs
Cases ReferredWebb v. Stenton
Excerpt:
.....a transaction well known to business people which has taken its place in the law as a result of commercial transaction among the merchants. the name is a good one. it is a good thing to have them with such safety valves. they clearly lay down that what is essential to provein a case of borrowing and landing is delivery by one party and receipt by another party of money on agreement, express or implied, to repay money with or without interest. the enforcement authorities have singularly failed to establish the lending or the borrowing. entries in the balance sheet can well be explained on the hypotheses of barter trade. the burden of proof lay on the enforcement, it was for the director of enforcement who took the proceedings against the appellants to establish that there were..........existence of a legal lender-borrower relationship. thereforee it does not apply where a alleges a loan of money to b when in fact the money was paid by a at b's request to third parties and never reached b at all. (re h. p. c. production ltd. (1962) all. r. 37. (20) similarly the term lend' has to be given a natural meaning. it is a contract whereby one delivers money to another who agrees to return equivalent sum. a sum of money is confided to another. it is a debt arising from borrowing money. (21) the appellate board holds that l. d.bhatia and ram lal bhatia were debtors in respect of the two accounts and that they were guilty of borrowing in contravention of the provisions of section 4(1) of the act. they say : 'incurring indebtedness of whatever amount would amount to borrowing'......
Judgment:

Avadh Behari Rohatgi, J.

(1) Those are four appeals from the order of Foreign Exchange Regulation Appellate Board dated 16th May, 1980. This Judgment will govern them all.

(2) These are the facts.On 10-2-1973 the Customs Authorities of Palam Airport seized certain documents from the custody of Shri L. D. Bhatia, appellant in Crl. A. 183/80, who had arrived on a flight from Kabul. These documents were 27 in number. They were forwarded by the customs authorities. to the enforcement directorate on 9-1-1974. Among the seized documeats there was one paper, page 25, which appeared to be a balance sheet of a business concern called Reliable Traders of Kabul. The material entries at page 25 were as follows : 'NAME Of Thb Account Amount In Afghanis Cr. Leelawati 18,50,000.00 Motia Rani 16,00,000.00 Dr. L. D. Bhatia 62,800.00 Ram Lal Bhatia 2,75,510.00'

(3) These four persons are residents of India and carry on business under the name of Bhatia Brothers at Delhi.

(4) Now at the airport Bhatia was questioned. He made no satisfactory answer. The Additional Director of Enforcement held him guilty of contravention of section 4(1) of the Foreign Ex- change Regulation Act, 1947 (the Act). He also held Leelawati, Motia Rani Bhatia, and Ram Lal Bhatia, guilty of the contravention of section 4(1). He imposed the following penalties on them. (1) Apenalty of Rs. 4,000 on Shri L. D. Bhatia., (2) A penalty of Rs. 1 lac on Smt. Motia Rani. (3) A penalty of Rs. l,15,000 on Smt. Leelawati. (4) A penalty of Rs. 18,000 on Shri Ram Ll Bhatia. From the ordear of the Additional Director of Enforcement all the four appellants appealed to the Appellate Board under section 23 Ee of the Act. The Board dismissed their appeals.

(5) The point for decision in these appeals is whether the appellants contravened section 4(1) of the Act. Two questions will arise. Firstly, can page 25 of the balance sheet be tendered in evidence against the appellants Both the Additional Director as well as the Appellate Board held that this page 25 can be used in evidence against all the four appellants. The Additional Director relied on section 72 of the Foreign Exchange Regulation Act, 1973 in raising the presumption that the credits and debits 'shown at page 25 of the seized documents were true entries against the respective names of the four appellants. The Appellate Board did not agree with him. They held that section 72 of the Act of 1973 Was a substantive provision and was not applicable to this case as it was not retrospective. The documents were seized on 10-2-1973. The new Act of 1973 came into operation on 1-1-1974. The Appellate Board held that no presumption under s. 72 of the Act of 1973 could beraised by the adjudicating officer against the appellants as the new Act did not apply. The Board held that section 24Aof the Act of 1947 applies to this case. That Section reads :

'WHEREany document is furnished by any person under sub-section (2) of Section 19, section 19E or section 19F, or has been seized under section 19A of section 19C or section 19D from the custody or control of any person, and such document is tendered by the prosecution in evidence against him, the Court or the officer adjudicating under clause (a) of subjection (1) of section 23 shall, unless the contrary is proved by any such .person, presume (a) the truth of the contents of such documents. (b) that the signature and every other part of such document which purports to be in the handwriting of any particular person or which the Court or the officer adjudicating under clause (a) of sub-section (1) of section 23 may reasonably assume to have been signed by, or to be in the handwriting of, any particular person, is in that person's handwriting, and in the case of a document stamped, executed or attested by the person by whom it purports to have been so executed or attested.'

(6) This section raised a presumption as to the truth of the contents of a document. But before the presumption can be raised against a person it is essential that it must have been seized from the custody or control of that person under section 19A or section 19C or section 19D. Under all these three sections only an officer of enforcement is authorised to seize the documents. If the seizure of the document is under section 19A, or 19C or 19D from the custody and control of a person only then the presumption can be drawn under section 24A. In this case it is clear from the order of the Additional Director dated 30-9-77 that the documents were seized by the customs authorities at Palam. The customs authorities forwarded the documents to the enforcement directorate on 9-1-1974 along with a report. First Bhatia was examined by the customs officer to explain the document. Later on he was again examined by the enforcement directorate on 21-8-74. It cannot, thereforee, be said that the documents were seized by an officer, of enforcement from the person of L. D. Bhatia. thereforee, the presumption under s. 24 (a) will not arise. There is no presumption in this case regarding the truth of the contents of page 25 which contains the entries in question. If this is so, as I hold it to be, the prosecution cannot tender the document, namely, page 25 in evidence against any of the four appellants including L. D. Bhatia.

(7) Counsel for the Union of India referred me to a notification of the Ministry of Finance, Govt. of India dated 4-4-1968 whereby every officer of customs not below the rank of a preventive officer Grade Ii was authorised to exercise all the powers and discharge all the duties of an enforcement officer under the Act. He thereforee contends that seizure was by an officer of the enforcement in this case by reason of the notification. I cannot accept this argument. It had to be proved by the prosecution that the customs officer who seized the docoments from the person of L. D. Bhatia was not below the rank of a preventive officer Grade II. Firstly there is no evidence on the record as to who seized the documents and what was the rank and grade of that officer. Secondly it appears from the order of the additional director that at no stage was this disputed that the seizure was by the customs authorities. The necessary facts have not been pleaded or put in evidence, and the burden of proving them was on the enforcement. These appeals must thereforee be dealt with on the basis that the seizure was by customs officer and not by the enforcement officer. This strikes at the root of the whole question. The entire case fails because there has been no seizure within the contemplation of section 24A.

(8) As a last resort counsel contended that the case should beremanded to find out the grade of the customs officer who actually seized the documents. I cannot agree. The appeals lies to this court on a question of law under section 23 EE. There is no question of remand after nine years. At no stage did the prosecution set up this case that the seizure was by an enforcement officer. In truth there is no case to answer by the accused here. The document on which their liability is sougth to be fastened was not seized by an officer of enforcement and thereforee cannot be tendered in evidence against them. So there is no presumption. There is no proof.

(9) There is another aspect of this case. Section 24(a) raises presumption only against the person from whose custody and control the document has been seized. No presumption is raised against any other person. This is evident from the words, 'and such document is tendered by the presecution in evidence against him, the court or the officer adjudicating under clause (a) of sub-section (1) of section 23 shall, unless the contrary is proved by any such person, presume - '(a) the truth of the contents of such documents;... ''.

(10) This shows that the presumption is raised only against that person from whom it is seized. The Board raised presumption against all the four appellants. They fell into the same error as the additional director.

(11) Under section 72 of the Act of 1973 the scope of the presumption has been greatly widened. The new section has made three important changes. Firstly it refers to seizure under any other law, which would include customs law also. Secondly it makes and unstamped document also admissible. Thirdly the document can bs tendered in evidence against the person from whom it is seized or 'against him and any other person who is proceeded against Jointly with him.' But we are not concerned with section 72 of the Act of 1973. That section does not apply as was rightly held by the Appellate Board. But it is surprising that having held this the Appellate Board raised the presumption against all the four appellants of the truth of the contents of the document and held them guilty on the basis of presumption.

(12) On the first question my conclusions are these : (i) There was no seizure by the enforcement officer under ss.19(a), 19 (c) or 19 (d) of the Act. (ii) Section 24(a) cannot be called in aid to raise the persumption against L. D. Bhatia. (iii) Section 24(a) cannot also be invoked to raise the presumption against the remaining three appellants. A presumption could be raised only against L. D. Bhatia under that section if the seizure had been by an enforcement officer. (iv) If there is no presumption of the truth of the contents of the document page 25 there is no case against the appellants and the prosecution must fail at the very fresh-hold.

(13) I now turn to the second question. This question revolves round the interpretation of section 4. That section in So far as it is material reads :

'4(1)Except with the previous general or special permission of the Reserve Bank, no person other than an authorised dealer shall in India, and no person resident in India other, than an authorised dealer shall outside India, buy or otherwise acquire or borrow from or sell or otherwise transfer or lend to, or exchange with, any person not being an authorised dealer, any foreign exchange.'

The Section enacts prohibitions of borrowing and lending transactions. The legislature has followed the advice of the poet : 'Neither a borrower, nor a lender be : For loan oft loses both itself and friend ;' (Shakespeare : Hamlet 1, iii)

(14) Foreign exchange has features and problems peculiarly its own. This case is a good illustration.

(15) Have the appellants contravened section 4(1) This is the question. In my opinion there is no contravention of section 4(1) and the appellants are not guilty of the offence of which they are charged. The reason is that page 25 is in the nature of a balance sheet. It shows indebtedness of L. D. Bhatia and Ram Lal Bhatia. It shows that Leelawati and Motia Rani are the creditors. The entries are credits and debits. These entries do not prove any borrowing or lending of foreign exchange within the meaning of section 4(1) of the Act. To prove borrowing or lending it is necessary that there must be a contract of loan. A contract or agreement has to be proved. Page 25 does not show. even if the presumption of the truth of its contents is raised, that there was a contract of loan. Indebtedness does not necessarily create a loan. In Ram Ratan Gupta v. Director of Enforcement : 1966CriLJ457 the. Supreme Court held that the concept of debt is more comprehensive than that of loan. All that this balance sheet shows is that Ram Lal Bhatia and L. D. Bhatia are in debt. But it does not show that they have taken any loan of foreign exchnge. As the Supreme Court observes :

'THOUGHa loan contracted creater a debt there may be a debt created without contracting a loan, in other words, the concept of debt is more comprehensive than that of loan.'

(16) It is well known that at the relevant time the Government had allowed what is called barter trade between India and Afganistan. From Afganistan Hing (asafoetida) and dry and fresh fruits of all kind could be imported. Certain specified goods like machinery, confectionary etc. of equal value could be exported from India. The Gazette notification dated 30th June, 1972 in Annexure Ii Schedule A sets out the commodities for export from Afganistan to India. Schedule B(ii) names the commodities for export from India to Afganistan. That there was barter trade between India and Afganistan at the relevant time is an undisputed fact. A barter trade can result in Motia Rani and Leelawati being creditors of the debtors in Afganistan. Similarly L. D. Bhatia arid Ram Lal Bhatia can be debtors of their creditors in Afganistan. But that does not mean that they have taken loans or that there was a transaction of lending and borrowing between Reliable Traders and Bhatia Brothers. The prosecution has to prove the guilt beyond reasonable doubt. As the Supreme Court has observed in Shanti Prasad Jain v. Director of Enforcement : [1963]2SCR297 :

'THEproceedings under the Act or quasicriminal in character and it is the duty of the respondent as prosecutor to make out beyond all reasonable doubt that there has been a violation of the law.'

(17) The term 'foreign exchange' is defined in section 2 (h) It says:

'FOREIGNexchange' means foreign currency and includes (i) all deposits, credits and balances payable in any foreign currency and any drafts, traveller's cheques, Letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency ; (ii) any instrument payable, at the option of the drawee or holder thereof or any other party thereto either in Indian currency or in foreign currency or partly in one and partly in the other;'

(18) It indicates that credits, and balances must be payable in foreign currency, If there was barter trade between India and Afganistan there was no question of credits or balances being payable in Afganis currency either by the Reliable Traders to the appellants or by the appellants to Reliable Traders. It is difficult to hold that an entry in a trial balance in favor of a person or against him means that he has contracted a loan or that there has been a transaction of borrowing or tending between the parties.

(19) 'BORROWING, necessarily implies repayment at some time and under some circumstances' (Re Southern Brazilian Rio Grande Railway (1905) 2 Ch. 78 per Bukeley J. at page 83). In a broad sense the term means a contract for the use of money. The words 'borrow' and 'lend' are not words of narrow legal meaning. They represent a transaction well known to business people which has taken its place in the law as a result of commercial transaction among the merchants. When the Act uses these terms it uses them in the sense in which business people understand them. Supply of goods and services abroad was held not to be a sole and so did not fall within the words 'sell foreign exchange' within the meaning of section 4(1). (see Mercury Travels Ltd. v. Director of Enforcement. 1975 Dlt p. 172. The word 'Borrow' must be given its natural meaning connoting the existence of a legal lender-borrower relationship. thereforee it does not apply where A alleges a loan of money to B when in fact the money was paid by A at B's request to third parties and never reached B at all. (Re H. P. C. Production Ltd. (1962) All. R. 37.

(20) Similarly the term lend' has to be given a natural meaning. It is a contract whereby one delivers money to another who agrees to return equivalent sum. A sum of money is confided to another. It is a debt arising from borrowing money.

(21) The Appellate Board holds that L. D.Bhatia and Ram Lal Bhatia were debtors in respect of the two accounts and that they were guilty of borrowing in contravention of the provisions of section 4(1) of the Act. They say : 'incurring indebtedness of whatever amount would amount to borrowing'. This is a startling proposition. On this they found their decision. I canot assent to this view. It is contrary to law. Not only that it will give them intolerable inquisitorial powers. Indebtedness will become a crime. We usually call these bodies administrative tribunals. The name is a good one. It distinguishes them from the ordinary courts. But the Parliament has made provisions for their determinations to be referred to courts by taking appeals under s. 23EE. This is a saving grace. It is a good thing to have them with such safety valves.

(22) Now the Supreme Court has held in Ram Ratan Gupta that the concept of debt is more comprehensive than that of loan. Likewise the motion of debt is much wider than that of borrowing. Indebtedness is one thing Borrowing is another, though it is a species of the genus debt. This is exemplified by Shanti Prasad Jam and Ram Ratan Gupta (supra).

(23) Shanti Prasad was a case of contingent debt. The court held that contingent debt is not a debt at all. There was no relationship of debtor and creditor between Deutsch Bank and Shanti Prasad. The deposit was held to be a conditional deposit. Relying on the judgment of Lord Lindley in Webb v. Stenton (1883) 11 Q: B. D. 518 the court held that 'a debt is a sum of money which is now payable or will become payable in the future by reason of the present obligation.' That is the nature of a debt or a loan. The court came to the conclusion that Shanti Prasad had only a contingent right to the amounts standing in credit in the account and that the deposits were made in the bank under a special arrangement. The court ruled that there was no lending of those amounts by him to the bank under section 4(1) of the Act and that he was not guilty of the offence.

(24) In Ram Ratan the Supreme Court held that where a person deposits foreign currency in the courrent account of a bank. It cannot be said that he enters into a contract of loan with the bank within the meaning of section 4(1) of the Act. He only deposits the money. A deposits is not a loan. Ram Ratan, it was held, had not contravened under s. 4(1) of the Act. The court said :

'ORDINARILYa depositof an amount in the courrent account of a bank creates a debt, but it need not necessarily involve a contract of loan. Whether a deposit amounts to a loan depends upon the terms of the contract whereunder the deposit is made.'

(25) It is to be regretted that the attention of the Appellate Board was not drawn to these rulings. They clearly lay down that what is essential to provein a case of borrowing and landing is delivery by one party and receipt by another party of money on agreement, express or implied, to repay money with or without interest. There must be an advance of money with an absolute promise to repay. There must be a transactionwherein one party transfers to the other a sum of foreign exchange: Inother words the borrower's promise to repay has to be proved. It is true that identical money is not to be returned where money is borrowed. But money must bereturned in species. It must be payable in foreign exchange. The word 'loan' is the co-relative of 'borrow'. 'Borrow' has been held the (reciprocal action with 'to lend'. thereforee here both in the case of the two women as in the case of the two men the Enforcement had to prove that there was an agreement to repay. This is the gist of the offence. Without proving the terms of the contract whereunder indebtedness had been created it would be idle to say that there is a contract of loan. The enforcement authorities have singularly failed to establish the lending or the borrowing. This is the long and short of the case. A mere entry in a balance-sheet, assuming it to be evidence against all the four accused (though I have held that page 25 is evidence against none) does not-prove that the two women had lent money or that the two men had borrowed money. This is the primary point in this case. This goes to the root of the matter. I have referred to the barter trade to demonstrate the absurdity of the Board's conclusion. It is true that barter was not pleaded in defense. But that the barter trade was allowed between India and Afganistan at the relevant time is a fact of which the court will take judicial notice. In barter there cannot be lending or borrowing in the sense in which these expressions' are used in section 4(1). Barter is a contract by which parties exchange goods cr commodities for other goods. It differs from sale in this : that in the latter transaction goods or property are always exchanged for money. Cowel defines barter as 'exchange of wares for wares.' The former system of barter has virtually ceased to exist. It has been replaced by money economy. In the money economy there can be lending and borrowing. In barter there can be indebtedness, the balance of the trade being favorable to one side or the other. The borrowing of lending of money was unknown. Entries in the balance sheet can well be explained on the hypotheses of barter trade. That this defense was not taken by the accused will not make any difference. The burden of proof lay on the Enforcement, It was for the Director of Enforcement who took the proceedings against the appellants to establish that there were transactions of lending and borrowing between Reliable Traders and Bhatia Brothers and that there was contravention of section 4(1) beyound any shadow of doubt. The hapothese of barter trade is competible with the inocence of the accused. This demonstrates the sweeping nature of the generalisations of the Appellate Board.

(26) For these reasons 1 accept all the four appeals and set aside the orders of the Additional Director of Enforcement dated 20th September, 1977 and the Appellate Board dated 16-5-1980. The parties are left to bear their own costs. At the cenclusion of the hearing on 21-9-82. I announced this order. Now I have given my reasons for doing so.


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