Case Note & Summary
This matter concerns two appeals filed under the Foreign Exchange Management Act (FEMA) before the High Court of Bombay, challenging an order of the Appellate Tribunal for Foreign Exchange (ATFFE) dated 2 July 2008. The ATFFE had dismissed the appellants' appeals and confirmed penalties imposed by the Special Director of Enforcement under the Foreign Exchange Regulation Act, 1973 (FERA). The first appellant is a company, formerly known as Cox & Kings Travel and Finance Ltd, a licensed Full Fledge Money Changer (FFMC) / authorised dealer, and the second appellant was its Executive Director. The enforcement proceedings arose from a show cause notice dated 29 April 2002 alleging violations of Sections 6(4), 6(5), 7 and 8(1) of FERA and Para 3 of the RBI's Memorandum of Instructions to FLMs. The allegations centred on the company having sold foreign exchange (US$ 147,000 and UK Pounds 1000) to another FFMC, Hotel Zam Zam, without verifying the bonafides or authorisation of the individuals who collected the currency on Hotel Zam Zam's behalf. It was alleged that this facilitated the onward sale of the foreign exchange by Hotel Zam Zam in the black market. Earlier, the Commissioner of Customs had issued a show cause notice but found that the appellant company had no pre-concert knowledge of Hotel Zam Zam's violations, and no further action was taken. The Special Director of Enforcement, however, held the appellants guilty of contravening Sections 6(4), 6(5) and 7 of FERA read with Para 3 of the FLM instructions, and imposed a penalty of Rs.50,000 on each appellant. The ATFFE confirmed this order, leading to the present appeals. The High Court admitted the appeals on 7 January 2009 on the substantial question: whether an authorised dealer who complied with RBI instructions while transacting with another authorised dealer can be held liable under Sections 6(4) and 6(5) of FERA. A preliminary issue of maintainability was raised because five other employees of the company, who were also penalised, had not appealed. Relying on Supreme Court precedents, the appellants argued the appeals were maintainable, and the respondent did not seriously contest this. The court therefore proceeded to hear the parties on merits. The provided excerpt ends during the recording of submissions, without a final judgment.
Headnote
A) Foreign Exchange Regulation - Authorised Dealer - Liability under Sections 6(4), 6(5), 7 of FERA, 1973 - Whether an authorised dealer who complied with RBI's FLM instructions while transacting with another authorised dealer can be held liable for violations - The High Court admitted the appeals on this substantial question of law but the judgment excerpt ends before a decision is rendered (Paras 2, 8). B) Practice and Procedure - Maintainability of Appeal - When co-noticees have not appealed - The appellants argued maintainability despite five employees not appealing, relying on Supreme Court cases Hari Nath v. State of UP, (1998) 1 SCC 14 and Brathi v. State of Punjab, AIR 1991 SC 318; the respondent did not seriously dispute maintainability; the court proceeded to hear merits (Paras 6-7).
Issue of Consideration
Once an Authorised Dealer duly complies with the instructions laid down in the Memorandum of instructions to Full Fledge Money Changer (FLM), issued by Reserve Bank of India (RBI) under Section 73(3) of FERA, while undertaking money changing transactions with another Authorised Dealer, can such Authorised Dealer then be held liable for violation of provisions of Section 6(4) and (5) of FERA?
Law Points
- Liability of authorised dealers under Foreign Exchange Regulation Act
- 1973
- compliance with RBI Memorandum of Instructions to FLM under Section 73(3)
- effect of non-appealing co-noticees on maintainability of appeals
- principles from Hari Nath v. State of UP and Brathi v. State of Punjab regarding interdependent findings and constructive criminality.
