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Mohamed Ayisha Nachiyar Vs. Deputy Director, Enforcement Directorate and ors. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 484 of 1974
Judge
Reported in[1976]46CompCas653(Mad)
ActsForeign Exchange Regulation Act, 1947 - Sections 3, 4, 5, 6 and 20(3); Banking Regulation Act, 1949 - Sections 6, 21 and 35A
AppellantMohamed Ayisha Nachiyar
RespondentDeputy Director, Enforcement Directorate and ors.
Appellant AdvocateM.R.M. Abdul Karim, ;M.M. Abdul Raajack and ;M.M. Farock, Advs.
Respondent AdvocateK. Parasaran, Standing Counsel for ;Central Govt. and ;K. Algiriswami, Junior Standing Counsel for ;Central Govt., for respondent No. 1, ;S. Ramasubramanian, Adv. for ;King and Patridge, for responden
DispositionPetition dismissed
Excerpt:
.....regulation act, 1947 and sections 6, 21 and 35a of banking regulation act, 1949 - freezing of bank account challenged - reserve bank of india entitled to give directions to banks under section 20 (3) for purpose of securing compliance of provisions of act of 1949 - no prior notice mandatory under section 20 (3) - blocked amount admittedly subject matter of proceedings against petitioner under act of 1947 - direction itself proved that respondent satisfied with reasons - held, freezing of petitioners bank account valid. - - 50,000 and odd which was lying in deposit in the petitioner's savings bank account has been fully accounted for with reference to the indian income and that if a notice had been given prior to the said blocking of the petitioner's bank account, she could have..........1947, hereinafter referred to as the exchange regulation act, and some documents including savings bank account and fixed deposit receipts for rs. 50,000 had been seized. the petitioner issued a cheque on the third respondent bank on june 26, 1973, for a sum of rs. 2,000 but the third respondent refused to honour it on the ground that her accounts were blocked under the regulation act by the second respondent on july 6, 1973. in this writ petition the petitioner questions the validity of the said blocking of the petitioner's bank accounts by the first and second respondents on the following grounds :(1) that either of the respondents nos. 1 or 2 had no power under the provisions of the said act to block the bank accounts.(2) section 20(3) of the exchange regulation act under which the.....
Judgment:

Ramanujam, J.

1. The petitioner's premises was searched by the officers of the Enforcement Directorate on June 24, 1973, under Section 19D of the Foreign Exchange Regulation Act, 1947, hereinafter referred to as the Exchange Regulation Act, and some documents including savings bank account and fixed deposit receipts for Rs. 50,000 had been seized. The petitioner issued a cheque on the third respondent bank on June 26, 1973, for a sum of Rs. 2,000 but the third respondent refused to honour it on the ground that her accounts were blocked under the Regulation Act by the second respondent on July 6, 1973. In this writ petition the petitioner questions the validity of the said blocking of the petitioner's bank accounts by the first and second respondents on the following grounds :

(1) That either of the respondents Nos. 1 or 2 had no power under the provisions of the said Act to block the bank accounts.

(2) Section 20(3) of the Exchange Regulation Act under which the second respondent has purported to act does not apply to the facts of this case and that, in any event, the said section does not empower the second respondent to block the accounts of the petitioner who is an independent citizen resident in India.

(3) The second respondent is an authority separate and distinct from the directorate of enforcement and, therefore, it cannot merely block the petitioner's bank account on the instructions of the first respondent without applying its own mind.

(4) Section 20(3) of the Regulation Act violates Articles 14 and 19(1)(f) and (g) of the Constitution of India.

According to the petitioner the sum of Rs. 50,000 and odd which was lying in deposit in the petitioner's savings bank account has been fully accounted for with reference to the Indian income and that if a notice had been given prior to the said blocking of the petitioner's bank account, she could have easily satisfied the second respondent that the amounts deposited with the third respondent bank has nothing to do with the Exchange Regulation Act.

2. The first respondent in his counter has stated that on the basis of reliable information the premises of the petitioner was searched on June 24, 1973, and the search resulted in the seizure of incriminating documents in the form of bank passbook, account book, foreign aerogramme, etc., containing details of money transactions made by the petitioner's husband, Shri Hayum, that on interrogation with reference to the seized documents the petitioner had admitted that her husband used to receive and make payments unauthorisedly as per the instructions of one Ibrahim of Penang, that her husband used to deposit the monies received through illicit channels in the savings bank account No. 812 standing in the joint names of herself and her husband with the third respondent, that the balance left over in the said savings bank account was Rs. 52,072.03 out of which a sum of Rs. 50,000 was withdrawn through cheques on February 16, 1973, and deposite4 as fixed deposit in the names of herself and her brother and that on the basis of the said statement the amount of Rs. 52,082.09 was blocked by the second respondent on the instructions of the first respondent. It is also stated that investigation has been completed and a show-cause notice as to why she should not be proceeded against for the contravention of the provisions of Section 5(1)(c) read with Section 23B of the Exchange Regulation Act has already been issued on June 5, 1974, and that another show-cause notice dated August 12, 1974, under Section 5(1)(aa) has also been issued to the petitioner asking her to show cause as to why the sum of Rs. 50,000 lying in fixed deposit and a sum of Rs. 2,072.09 lying in the joint savings bank account No. 812 should not be confiscated and for her having received payments amounting to Rs. 75,000 by order of a person residing outside India. It is further contended that in view of the pendency of the proceedings for contravention of the provisions of the said Act and for confiscation of the amounts involved, the blocking of the petitioner's bank account has become necessary as a precautionary measure and that such blocking of the bank account is quite legal and valid. As regards the legal contentions raised by the petitioner, the first respondent's stand is that though he has no power to straightaway direct the third respondent to block the petitioner's bank account, the second respondent is empowered to issue suitable directions under Section 20(3) of the Act to the third respondent blocking the bank account, that Section 20(3) does not contemplate a prior notice before the directions are given under that section, that the said section is not unconstitutional as violating Article 14 or Article 19(1)(f) and (g) and that Section 20(3) can also be invoked in respect of Indian citizen resident in India if the circumstances warrant the issue of a direction under that section by the second respondent. It is also stated that if the petitioner is in a position to fully account for the said sum of Rs. 52,072.09, she could as well file representation to the above show-cause notice issued and convince the authority who is adjudicating her case that no violation of the provisions of the Act has taken place. In these circumstances, the first respondent submits that the question of releasing the amount or confiscating the same will arise only at the time of the adjudication of the case and it is too premature on the part of the petitioner to seek for the release of the amount before the proposed adjudication and that if the amount is released pending adjudication proceedings it will result not only in the money being lost but it would also involve cumbersome recovery proceedings if ultimately the petitioner is found to be guilty of the offences under the said Act and the amount is held liable for confiscation.

3. The second respondent has in its counter-affidavit stated that since the amounts covered by the fixed deposit as well as the savings bank account were involved in an offence under the provisions of the said Act, the first respondent made a request to issue directions to the third respondent directing it not to make any payment towards the fixed deposit or towards the savings bank account and that after receipt of that request from the first respondent it felt, after consideration of all the materials placed before it, that it is expedient for the purpose of securing compliance with the provisions of the Regulation Act to advise the third respondent that the balance in the savings bank account is at no time reduced below Rs. 2,072 09 and the fixed deposit account is not reduced below Rs. 50,000 or the account closed or transferred to any other office. The second respondent submits that the directions it had given under Section 20(3) are quite legal and valid, that the power conferred under Section 20(3) is incidental or ancillary to the duty cast on it under the other provisions of the Act, that the direction has been issued to secure compliance with the provisions of the Act, that the petitioner has also admitted that the amounts in the accounts related to the amounts received in India in contravention of the said Act, that it has got the power and duty to see that such amount is not taken away beyond the reach of the first respondent pending adjudication proceedings.

4. The third repondent in its counter-affidavit states that it is in pursuance of the directions issued by the second respondent, it blocked the amounts of the petitioner and that it is bound to carry out the directions of the first respondent which is clearly a statutory one.

5. In the reply affidavit filed by the petitioner she has denied that she had at any time admitted that the amounts in question represent the receipts received through illicit channels contrary to the foreign exchange regulations and has stated that the entire amount in the third respondent bank represented Indian monies made up of sale proceeds and rental income of Indian properties and that, therefore, the second respondent had no jurisdiction to block the amounts without notice or without proper enquiry. It is further stated by the petitioner in the reply affidavit that the first respondent has no right to adjudicate on the bank account in question.

6. The direction given by the second respondent on July 6, 1973, is as follows :

'......Sub: Savings Bank Account No. 812 in the joint names of A.A. Hayuin and Smt. A. Mohd. Aiysha Nachiar.

Whereas the Reserve Bank of India considered it necessary and expedient for the purpose of securing compliance with the provisions of the Foreign Exchange Regulation Act to give the direction hereunder contained.

2. Now, THEREFORE, in exercise of the powers conferred by Sub-section (3) of Section 20 of the said Act, the Reserve Bank of India hereby directs that until and unless you are directed otherwise by the Reserve Bank of India, you shall secure that the balance in the above account is at no time reduced below Rs. 2,072.90 and that the said account is not closed or transferred to any other office.'

From the said extract it is clear that the said direction has been issued under Section 20(3) of the Regulation Act for the purpose of securing compliance with the provisions of the Act. The main contention of the petitioner is that Section 20(3) is invalid as it violates Articles 14 and 19(1) (f) and (g) of the Constitution and that in any event the said section cannot be invoked by the second respondent on the facts and circumstances of this case. The contention that Section 20(3) is constitutionally invalid was not pressed before me in view of the subsistence of the proclamation of emergency and, therefore, the only other contention as to the scope of Section 20(3) remains.

7. Section 20(3) is set out below :

' The Reserve Bank may give directions in regard to the making of payments and the doing of other acts by bankers, authorised dealers, travel agents or stock brokers and other persons who are authorised by the Reserve Bank of India to do anything in pursuance of this Act in the course of their business, as appear to it to be necessary or expedient for the purpose of securing compliance with the provisions of this Act and any rules, orders or directions made thereunder.'

8. According to the learned counsel for the petitioner the Reserve Bank may give directions to the banks, etc., in respect of matters which it has authorised them to do for the purpose of securing compliance with the provisions of the Act and any rules, orders or directions made thereunder and not in respect of other matters. It is said that the third respondent-bank in the course of its performance of duties as a banker is not bound by the directions issued by the second respondent under Section 20(3) that the second respondent cannot interfere in the normal functioning of the banking operations by issuing such directions and that the banking operations are done by the third respondent under the Banking Regulation Act and not under an authority issued by the Reserve Bank in pursuance of the Regulation Act. To appreciate this contention, it is necessary to see through a few provisions of the Banking Regulation Act, 1949, and of the Foreign Exchange Regulation Act.

9. Section 6 of the Banking Regulation Act provides that in addition to the business of banking, a banking company may engage in any one or more of the businesses set out therein. One such additional business is buying and selling of foreign exchange including foreign bank notes. Section 21(1) of that Act empowers the Reserve Bank to determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular. Section 21(2) enables the Reserve Bank to give directions to banking companies either generally or to any particular company in particular in relation to the purposes for which the advances are to be made, the margin to be maintained in respect of secured advances, the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantee given. Section 35A also empowers the Reserve Bank for securing the proper management of any banking company generally.

10. Section 3 of the Banking Regulation Act enables the Reserve Bank to authorise any person to deal in foreign exchange and the person so authorised is an authorised dealer in foreign exchange. Section 4 of the Act imposes certain restrictions on dealings in foreign exchange and it prohibits transactions in foreign exchange except with authorised dealers. This has been done with a view to ensure that control over all foreign exchange dealings may be effectively exercised by the Reserve Bank. Section 5 imposes certain disabilities on persons in making payments to or for the credit of any person resident outside India or receive otherwise than through an authorised dealer any payment by order or on behalf of any person resident outside India. Section 6 deals with blocked accounts and the power of the Reserve Bank to give directions in relation to the operation of those accounts.

11. The learned counsel for the petitioner relies on Section 6 of the Banking Regulation Act and contends that the third respondent bank is authorised to deal in foreign exchange even without the specific authorisation from the Reserve Bank as contemplated by Section 3 of the Regulation Act, and, therefore, the third respondent will not come under the expression ' persons who are authorised by the Reserve Bank to do anything in pursuance of this Act in the course of their business ' used in Section 20(3) and that, therefore, no direction could be issued by the Reserve Bank to the third respondent in relation to the operation of the petitioner's bank account. The learned counsel for the respondents would, however, point out that the expression 'authorised by the Reserve Bank to do anything in pursuance of this Act in the course of their business ' qualifies only travel agents, stock brokers and other persons and not the word ' bankers ' and 'authorised dealers' occurring earlier in the section, and that so far as bankers are concerned Section 20(3) automatically applies. The learned counsel suggests that Section 20(3) should be read distributively as follows :

' The Reserve Bank may give directions in regard to the making of payments and the doing of other acts by bankers as appear to it to be necessary or expedient for the purpose of securing compliance with the provisions of this Act and any rules, orders or directions made thereunder.'

I am inclined to agree with this suggestion that the section is to be read distributively. If read distributively the said provision will clearly enable the Reserve Bank to give such directions as appear to it to be necessary or expedient for the purpose of securing compliance with the provisions of this Act to (1) bankers, (2) authorised dealers, (3) travel agents or stock brokers and other persons who are authorised by the Reserve Bank to do anything in pursuance of this Act in the course of their business. The construction of this provision in any other manner will result in violating the language used in the section. Therefore, the result is even though banking operations include their dealings in foreign exchange carried on by the bankers under the provisions of the Banking Regulation Act, the Reserve Bank is entitled to give directions to them under Section 20(3) for the purpose of securing compliance with the provisions of the later Act.

12. In this case, as already stated, proceedings have been initiated against the petitioner for adjudication for violation of the provisions of the Regulation Act and a notice has been issued to show cause against the confiscation of the goods for the alleged violation of the Foreign Exchange Regulations. Since the amounts involved were the subject-matter of confiscation proceedings before the first respondent, the first respondent had approached the second respondent for securing the amounts till the proceedings for adjudication and confiscation are over. The second respondent has, therefore, with a view to have the money secured till the proceedings before the first respondent are over, issued directions to the third respondent to see that the savings bank deposit as well as the fixed deposit are not reduced below a particular limit. In the circumstances, therefore, the direction issued by the second respondent cannot be said to be outside the ambit of Section 20(3).

13. The contention of the learned counsel for the petitioner that before issuing the direction under that section there should be a notice and an enquiry following it cannot be accepted. For one thing the section does not contemplate the issue of such a prior notice or enquiry. For another, the issue of such a notice and the holding of an enquiry would virtually defeat the object with which the direction has to be issued. In this case, if a notice is issued and an enquiry is conducted by the Reserve Bank before a direction is issued, the amounts in question would have been withdrawn from the bank account making it practically unnecessary for the Reserve Bank to issue any such direction.

14. As regards the contention that the second respondent did not apply its own mind before the impugned direction was issued, it is seen from the impugned order extracted above that the second respondent felt it necessary to issue a direction in the circumstances of this case. The counter-affidavit filed by the second respondent also indicates that the direction has not been issued automatically on the basis of the request made by the first respondent without looking into the materials and without an independent application of its mind. Thus, all the contentions raised by the petitioner fail.

15. The learned counsel for the petitioner raised the following contention for the first time at the time of the arguments. Even according to the first respondent the person who contravened the foreign exchange regulations is the petitioner's husband and not the petitioner and that only when proceedings are initiated against her husband under Section 20(3) the deposits in question could be confiscated on the ground that a contravention of the provisions of the Act has taken place in relation to that amount and that since the petitioner's husband is no more, no proceedings under Section 20(3) could be initiated. It is said that the first respondent cannot impose vicarious liability against the petitioner for the alleged contravention of the foreign exchange regulations committed by the husband of the petitioner. It is true that proceedings under Section 20(3) cannot be initiated against the petitioner's husband as he is no more. But, as already stated, proceedings have been initiated under Section 20(3) against the petitioner and show-cause notice has also been issued to her. Whether the proceedings initiated against the petitioner is valid or not is not a question which this court has been called upon to decide. But so long as proceedings have been initiated against the petitioner and the possibility of the confiscation of the amount in the event of the petitioner being found to have contravened the provisions of the Act is there, the amount in deposit has to be secured till those proceedings are over. It is not, therefore, possible for me at this stage to accept the petitioner's contention that a vicarious liability is thrown on her and that she is going to be vicariously held liable for the foreign exchange violation committed by her husband. All those questions are to be gone into in the adjudication proceedings initiated against the petitioner. This new contention also, therefore, fails. The result is, the writ petition fails and it is, therefore, dismissed. There will, however, be no order as to costs.


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