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Judgment
M.N. Chandurkar, C.J.—These five appeals arise out of an order of the Foreign Exchange Regulation Appellate Board, made in five
connected appeals which were also filed by the present appellants but were dismissed by the Appellate Board.
The appellant in C.N.A. No. 636 of 1980 is a Private Limited Company and the appellants in the other four appeals are the directors of the said
company. All the appellants who were initially charged for having contravened the provisions of Section 10(1)(b) of the Foreign Exchange
Regulation Act 1947 (hereinafter referred to as the Act) were later on proceeded against departmentally for- contravention of the provisions of
Section 10(1)(a) of the Act. The contravention committed were described in the charge-sheet as follows-
(i) that the fifth appellant, in contravention of the provisions of Section 10(1)(a) of the F.E.R. Act 1947, failed to take or refrained from taking any
action which had the effect of securing that the receipt by the fifth appellant of the whole or part of the foreign exchange of Malaysian $. 125,000
being the social welfare prize money won by the fifth appellant in the year 1960 and foreign exchange of Malaysian $. 62186-43 receivable by the
fifth appellant on account of sale of Nataraja Rubber Estate in 1959 was delayed;
(ii) that the fifth appellant in contravention of the provisions of Section 10(1)(a) of the F.R.E. Act 1947 failed to take or refrained from taking
action which had the effect of securing that the receipt by the fifth appellant of the foreign exchange of Malaysian $. 3,56,222--34, being the
amount of the fifth appellant''s profit in the business carried on by the Branch of the fifth appellant in Kuala Lumpur as per statement of profit and
loss ending on 31-12-1972 of the said Kuala Lumpur branch and which the fifth appellant had a right to receive was delayed.
The Special Director of Enforcement by order dated 199-1977 held all the appellants guilty of the contraventions mentioned in the charges
referred to above and imposed penalties. On each of the directors, a penalty of Rs. 4,000 was imposed and a penalty of Rs. 40,000 was imposed
on the company in respect of the first charge. In respect of the second charge, each of the directors was required to pay penalty of Rs. 20,000 and
the company was required to pay a penalty of Rs. 2,00,000.
The first charge related to an amount in foreign exchange of Malaysian $. 62186-- 43 and 1,25,000 which admittedly belonged to the company.
The first was sale consideration in respect of a rubber estate received in 1959 and the second amount was special welfare prize money won by the
company in 1960. The second charge related to the profits of the company to the tune of Rs. 3,56,222-34 in the business carried on by the branch
of the company in Kuala Lumpur. These amounts were disclosed by the company in its balance sheet and in the returns of income tax for the
relevant years.
When proceedings u/s 23 of the Act were taken, the case of the appellants was that they were not guilty of any contravention of Section 10(1)
(a) and that the amounts remained to be repatriated as they were retained in Kuala Lumpur on ground of business expediency. Admittedly the
company had not obtained any permission from the Reserve Bank of India, permitting it to hold its funds lying in its branchat Kuala Lumpur.
The appellant Board while dealing with all the appeals took the view that it was not the appellants'' case that the retention of the foreign
exchange was due to any ignorance of law or due to any oversight. Consequently, the Board held that it was a case where the company
deliberately and intentionally retained the foreign exchange in Kuala Lumpur and refrained from taking and did not take any action which had the
effect of securing that the receipt by the company of the foreign exchange in question was delayed. The board, however, negatived any mala fide
motive as is clear from the following observations-
....the fifth appellant might not have been actuated by any mala fide motive in not realising the said foreign exchange,
But at the same time, the Board proceeded to observe that in so far as non-realisation of foreign exchange is concerned, it was an intentional and
deliberate act on the part of the fifth appellant (company). When it was urged before the Board, that as no time was specified for receiving the
foreign exchange from a person resident outside India for the purpose of Section 10(1)(a), the appellants could not be held guilty of either of the
said two charges, the Board took the view that as no period was prescribed, it was to be implied that the foreign exchange had to be realised
within a reasonable time from the date when the right to receive accrued. Having regard to the long period of time between the earning of the
foreign exchange and the taking of the proceedings, the Board took the view that the Company had not repatriated the funds within a reasonable
time. Then dealing with the quantum of penalty, the Board recorded a finding in favour of the appellants that it was therefore not a case where the
foreign exchange was surreptitiously held abroad with a mala fide motive''. It was observed in the order that it was found from the statement of
profit and loss of the Kuala Lumpur branch that Malaysian $. 2,92,000 were set apart as reserve towards payment of income tax. Consequently,
with regard to this amount, the contravention was treated as of a technical nature. In the view which the Board took, it reduced the penalty to Rs.
2,000 each in the case of the directors and to Rs. 20,000 in the case of the Company in respect of the first charge and to Rs. 5,000 each in the
case of the directors and Rs. 55,000 in the case of the company in respect of the second charge.
These appeals are filed against the said order of the Board u/s 54 of the Foreign Exchange Regulation Act 1973. u/s 54 of the 1973-Act, an
appeal lies to the High Court from any decision or order of the Appellate Board only on questions of law.
Before we refer to the contentions of the learned counsel appearing for the appellants, it is necessary to refer to the relevant provisions, namely,
the provisions of Sections 10 and 23. Section 10 as it stood at the material time reads as follows-
....Duty of persons entitled to receive foreign exchange etc.-
(1) No person who has a right to receive any foreign exchange or to receive from a person resident outside India a payment in rupees shall, except
with the general or special permission of the Reserve Bank do or refrain from doing any thing or take or refrain from taking any action which has
the effect of securing--(a) that the receipt by him of the whole or part of that foreign exchange or payment is delayed, or (b) that the foreign
exchange or payment ceases in whole or in part to be receivable by him.
(2) Where a person has failed to comply with the requirements of Sub-section (1) in relation to any foreign exchange or payment in rupees, the
Reserve Bank may give to him such directions as appear to be expedient for the purposes of securing the receipt of the foreign exchange or
payment as the case may be.
In 1964, Section 10 had undergone a change. Originally, there were the words ''any act with intent to secure preceding Clauses (a) and (b) and
after the words ''do or refrain from doing''. The words ''anything or take or refrain from taking any action which have the effect of securing'' were
added in the place of ''any act '' with intent to secure''. The effect of this ; amendment apparently was that the conduct of the person concerned
was made culpable without proof of any intention to contravene the provisions of Section 10. Section 23, in so far as it is material, reads as
follows:--
...Penalty and procedure--(1) If any person contravenes the provisions of Section 4, Section 5, Section 9, Section 10, Sub-section (2) of Section
12, Section 17, Section 18-A or Section 18-B or of any rule, direction, or order made thereunder, he shall--(a) be liable to such penalty not
exceeding three times the value of the foreign exchange in respect of which the contravention has taken place, or five thousand rupees, whichever is
more, as may be adjudged by the Director of Enforcement in the manner hereinafter provided, or (b) upon conviction by a court, be punishable
with imprisonment for a term which may extend to two years, or with fine or with both.
The argument of the learned counsel for the appellants is that when Section 23, which is the penal provision in the Act refers to any person
contravening inter alia Section 10, it must be read only as referring to the contravention of Section 10(1)(b) or Section 10(2). The argument is that
so far as the requirements of Section 10(1)(a) is concerned, it is permissible for the Reserve Bank either to condone the delay in repatriating
foreign exchange on the application of the person concerned or if any general or special permission is granted and that specifies any period during
which the foreign exchange is to be received by the person concerned in India and if the person concerned does not get foreign exchange within
that period, then under Sub-section (2), the Reserve Bank has the power to issue directions as would be expedient for the purpose of securing the
receipt of the foreign exchange on payment as the case may be. It is, therefore, argued that though in a case which is covered by Section 10(1)(b)
which deals with the ceasing of the foreign exchange or payment, in whole or in part, which is receivable by the person concerned, if that event
results from some act or omission on the part of the person concerned, the act or omission would be punishable u/s 23. But in so far as the
conduct of the person, which has resulted, by any act or omission on his part, in delaying a receipt by him of the whole or part of the foreign
exchange is concerned, the penal liability provided u/s 23 will not be attracted unless he is given an opportunity to comply with the order or
directions made u/s 10(2). It is also argued by learned counsel for the appellants that the provision in Section 23 which makes penal the
contravention of the provisions of Section 10 and other provisions specified in that section, necessarily implies that unless mens rea was
established, the penalty cannot be imposed. In the instant case, according to the learned counsel mala fides on the part of the company has been
expressly negatived by the Board itself and therefore mens rea must be held to have been negatived in this case. Out attention has been drawn to
the fact that admittedly the foreign exchange holding of the company has been disclosed in the balance sheet of the company as well as in the
returns for income tax and provision has also been made for the income tax liability taking into account the foreign exchange in question. The
argument is that if the company had any mala fide motive in retaining the foreign exchange abroad, these amounts would not have been disclosed
either in the balance sheet or income tax returns. These circumstances, according to the learned counsel, must negative the criminal intent or mens
rea on the part of the appellants. It was urged by the learned counsel that the observation made by the Board in para 6 (c) of the order that it was
an intentional or a deliberate act on the part of the company not to realise the foreign exchange runs counter to the finding recorded in two places
that the company was not actuated by any mala fide motive. According to the learned counsel, once mala fide motive is negatived, criminal intent
must also be negatived and the appellants could not be held guilty of any breach of Section 10(1)(a) of the Act.
The-learned counsel appearing on behalf of the Director of Enforcement has taken the stand that when Section 23 refers to the contravention
of Section 10, it must be read as referring to the contravention of Section 10(1)(a) and Section 10(1)(b) both as well as the contravention of Sub-
section (2) just as the reference to the other provisions in Section 23 must refer to the contravention of different parts of the various sections. By
way of illustration, it was sought to be pointed out that when reference was made in Section 23 to the contravention of Section 5 which deals with
the restriction in payments, such contravention could be the contravention of the other clauses of Section 5. The further argument of the learned
counsel was that there was a delay of more than 15 years in the repatriation of the . foreign exchange and since the company''s case was that it was
motivated by business considerations to retain the moneys, the ingredients of Section 10(1)(a) must be held to be satisfied. When we drew the
attention of the learned counsel to the contradictory findings in para 6 (c) of the order, the learned counsel wanted to explain them away by stating
that a wrong word must have been used by oversight. In other words, the learned counsel contended that the mere fact of delay was sufficient to
bring home the offence or breach or contravention of the provisions of Section 10(1)(a).
There is no doubt that Section 23 is a penal provision which refers to the contravention of the provisions of Section 4, 5, 9, 10, 12 (2), 17, 18-
A or 18-B or of any rule, direction or older made in any one of those provisions. The contravention is punishable in two ways. Under Clause (a) of
Section 23(1) there can be a penalty in adjudication proceedings by the Director of Enforcement and in Clause (b) thereof, the same conduct or
omission is made punishable by a criminal Court with imprisonment for a term which may extend to two years. It is, therefore, clear that any act or
omission which amounts to a contravention of any of the provisions must be proved strictly before a person is either made liable for the penalty
under Clause (a) or to conviction under Clause (b) of Section 23. In so far as Section 23(1)(a) is concerned, there can be no doubt that the
proceedings before the Director of Enforcement will be quasi criminal in nature, and therefore, unless criminality is established, the penalty
provided by Section 23(1)(a) cannot be fastened on any person. When we go to Section 10, it is undoubtedly true that prior to the amendment by
Act 55of 1964, a specific mention was made with reference to the intention for the purpose of ascertaining the nature and conduct of the person
charged with the breach of Section 10, but, in our view the amendment has not made any difference to ingredients to be satisfied before penalty is
levied in the penalty proceedings before the Director of Enforcement.
So far as the present case is concerned, the charge appears to be that the company had refrained from taking any action in order to have the
foreign exchange received by it in India. It is the contravention of Section 10(1)(a) of the Act that is complained of. The question which falls for
consideration before us is whether merely on account of delay in repatriating foreign exchange is the liability u/s 23 automatically attracted? On
facts, there is no doubt that for almost 15 years, the foreign exchange owned by the company has been lying in Malayasia. It is not the case of the
Director of Enforcement that the company has done anything which has the effect of reducing the foreign exchange holdings. The gravamen of the
charge is that the company had omitted to take steps to have the foreign exchange repatriated in India. When we are dealing with penal statutes,
the minimum requirement of a penal statute would be that the conduct which is made penal must be clearly provided for by the statute with
sufficient certainty, so that the citizen knows what he is required to do or what he is required to refrain from doing and where an element of time is
relevant for doing something is involved there must be a clear provision specifying within what time he is definitely required to do what the statute
requires. If a citizen has the right to do anything at any particular time according to his convenience and he does not do it within the time, which
according to the authorities would be reasonable, it is difficult to see how without prescription of any particular limitation of time within which a
citizen is required to do a particular thing, any failure to do anything earlier can be made penal merely on the ground of non-performance of any
particular thing by the citizen. When we go to the scheme of Section 10, it appears to us that it was not clearly intended even by the Parliament that
even though no specific time was stipulated for the citizen or a person to repatriate his foreign exchange, he would still be liable to penalty u/s 23
subject to the vague consideration as to what would be the culpable delay in a particular case. A particular period of time may be reasonable in
one case and the same period of time may not be reasonable in another according as what the facts disclose and what view the Court takes in each
particular case. A penal liability cannot, therefore, be attracted on any uncertain requirements.
The scheme of Section 10 also, in our view, does not indicate that merely because a person has delayed repatriation of foreign exchange, he
will automatically be liable to penalty u/s 23. Sub-section (2) of Section 10 has, in our view, been enacted with a specific purpose and there is a
marked difference in terminology between Section 10(2) and Section 23. Section 23 refers to contravention of the provisions of Section 10.
Section 10(2) refers to the failure to comply with the requirements of Sub-section (1) of Section 10. There is a specific provision made in Section
10(2) that where a person has failed to comply with the Requirements of Sub-section (1) in relation to any foreign exchange or payment in rupees,
the Reserve Bank may give to him such Directions as appear to be expedient for the purpose of securing the receipt of the foreign Exchange or
payment as the case may be. The use of the word ''may'' is once again significant, which also means that if the Reserve Bank is satisfied that a
direction is not called for in a given case, such a direction may not be given. It appears to us that when Sub-section (2) of Section 10 deals with
failure to comply with the requirements of Sub-section (1), then the question which the Reserve Bank will be called upon to decide in a given case
is whether the failure of the person to repatriate the foreign exchange, having regard to the time which has elapsed, requires the Reserve Bank to
make any direction as contemplated by Section 10(2). Even when such a direction is to be made, it appears to us that it would be permissible for
the person concerned to satisfy the Reserve Bank that he may require his foreign exchange to be retained abroad an therefore no such direction
should be issued or that a direction may be issued permitting the person concernd to repatriate it after a specified period of time. If this is the case
of Sub-section (2) of Section 10, it appears difficult for us to construe Section 10(1)(a), as independently creating a penal liability, especially when
in Section 10(2) itself the consequence of non-compliance with Section 10(1) is specified.
The learned counsel appearing on behalf of the Director of Enforcement has, however, argued that as the Reserve Bank cannot keep a track
of the foreign exchange holdings, Section 10(2) will come into operation only when in the course of any investigation, the investigating agency
comes across such foreign exchange holding which has not been repatriated to India. It is obvious that whether the Reserve Bank has any agency
by which it can keep a track of foreign exchange holding of any person or not will not control the plain construction of Section 10(2). As indicated
above, Section 10(2) provides for the power to be exercised in a given case where the Reserve Bank notices a failure to comply with the
requirements of Sub-section (1). How such failure comes to the notice of the Reserve Bank is immaterial What machinery the Reserve Bank
should take recourse to when ascertaining whether there is non-compliance with the provisions of Section 10(1) is for the Reserve Bank to decide
It, therefore, appears clear to us that so far as Section 23 is concerned, when it refers to the contravention of Section 10, apart from contemplating
the contravention of Section 10(1)(b), it can contemplate only the contravention of Section 10(2). When a person has contravened the provision of
Section 10(2) by not complying with the directions issued u/s 10(2) which directions have to be given only on his failure to comply with Section
10(1), the penal liability u/s 23 will be attracted.
It also appears to us that notwithstanding the clause relating to ''intent'' being deleted, there is nothing in Section 10 or Section 23 which will
exclude the criminal intent being established before the penal provision is attracted.
Section 10(1), as we have already pointed out, refers to a positive act on the part of the person concerned, which will secure the result
contemplated by Section 10(1)(a) it also refers to a person refraining from doing anything which has the effect of delaying the repatriation of foreign
exchange. Doing an act intended to achieve a particular result or refusing to do an act which is necessary to achieve the result contemplated by the
statute in our view must contemplate a deliberate and purposeful conduct on the part of the person concerned. It is, therefore, clear that the,
contravention contemplated by Section 23 is an intentional and deliberate contravention.
It was observed by the House of Lords in Sweet v. Parsley, 1970 AC 132, that mens rea is an essential ingredient of every offence unless
some reason can be found for holding that it is not necessary, and the court ought not to hold that an offence is an absolute offence unless it
appears that that must have been the intention of Parliament. At page 148 of the report, Lord Reid observed as follows while dealing with penalty
statutes-
.....Our first duty is to consider the words of the Act; if they show a clear intention to create an absolute offence that is an end of the matter. But
such cases are very rare. Sometimes the words of the section which create a particular offence make it clear that mens rea required in one form or
other. Such cases are quite frequent. But in a very large number of cases, there is no clear indication either way. In such cases there has for
centuries been a presumption that Parliament did not intend to make criminals of persons who were in any way blameworthy in what they did. That
means that whenever a section is silent as to mens rea there is a presumption that, in order to give effect to the will of Parliament, we must read in
words appropriate to require mens rea.
As pointed out by the Privy Council in Gammon Ltd. v. A. G. of Hongkong, (1985) 1 AC 1, the presumption of law that mens rea is required
before a person can be held guilty of a criminal offence applies to statutory offences, and can be displaced only if this is clearly or by necessary
implication the effect of the statute. It was pointed out in that case, that the only situation in which the presumption can be displaced is where the
statute is concerned with an issue of social concern and public safety is such an issue and even where a statute is concerned with such an issue the
presumption of mens rea stands unless it can also be shown that the cremation of strict liability will be effective to promote the objects of the statute
by encouraging greater vigilance to prevent the commission of the prohibited act
In Hindustan Steel Ltd. Vs. State of Orissa, , the question which fell for consideration before the Supreme Court was whether the conduct of
the company in not getting itself registered as a dealer under the Orissa Sales tax Act would by itself attract penalty. Dealing with the provision
relating to failure to register as dealer, the Supreme Court observed as follows at page 29--
....Under the Act, penalty may be imposed for failure to register as a dealer. Section 9( 1), read with Section 26(1)(a) of the Act, but the liability
to pay penalty does not arise merely upon proof of default in ""registering as a dealer. An order imposing penalty for failure to carry out a statutory
obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately
in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be
imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of
discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is
prescribed the authority competent to impose penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the
provisions of the Act,, or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the
statute.
It was found in that case, that those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and
genuine belief that the company was not a dealer.
We have already taken the view that insofar as Clause (a) of Section 10(1) is concerned, the question of penalty u/s 23 will not arise unless the
direction given under Sub-section (2) therein has been contravened. Even if otherwise, as we have already pointed out there is nothing in the
section which creates an absolute liability, particularly having regard to the vague provision with regard to delay and unless a criminal intent is
established, it cannot be assumed that the moment a person has failed to repatriate foreign exchange for some period of time, there will
automatically be a breach of Section 10(1). Even the appellate Board has found that there was no mala fide motive in the retention of foreign
exchange abroad. The bona fides of the company are, in our view, apparent from the fact that the foreign exchange holding has been disclosed in
the balance sheets as well as in the income tax returns. Under these circumstances, criminal intent to delay the repatriation of foreign exchange on
the part of the appellants must, in our view, be clearly negatived. We are of the considered view that no offence u/s 10(1) as envisaged by Section
23 was made out on the facts of the case.
The result is that all the appeals are allowed. The orders of penalty passed by the Director of Enforcement, as modified by the Appellate
Board are set aside.
The guarantee for the fines which was furnished in pursuance of the interim orders of this court in these appeals shall stand discharged. In the
circumstances, we make no order as to costs.
The learned counsel for the Director of Enforcement makes an oral application for leave to appeal to the Supreme Court. On the facts of the
case and the construction which appears to us to be apparent on Sections 23 and 10, we do not think that this is a case which is a fit one for grant
of certificate of leave to appeal to the Supreme Court. The oral application for leave is rejected.