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Union Of India v. Abdul Mohamed .
Factual and Procedural Background
The Enforcement Directorate initiated penalty proceedings against the respondent under Section 23 of the Foreign Exchange Regulation Act, 1947 (FERA) after Customs officers, on 18 August 1971, intercepted a car owned by the respondent and recovered a packet containing foreign exchange (U.S. dollars and pounds sterling) valued at approximately ₹1,55,000. The respondent explained that an unknown person in Bombay had entrusted the packet to him for delivery to representatives of a pharmaceutical firm in Kasaragod, Kerala.
The Deputy Director of Enforcement rejected this explanation, found a violation of Section 4(1) of FERA, imposed a penalty of ₹50,000, and ordered confiscation of the currency. On appeal, the Foreign Exchange Regulations Appellate Board (Southern Zone, Madras) set aside the penalty, holding that mere recovery of foreign exchange from the respondent’s car did not satisfy the ingredients of Section 4(1), although it upheld confiscation. The Union of India’s further appeal under Section 54 of FERA was dismissed by the Kerala High Court. The Union of India then appealed to the Supreme Court, giving rise to the present decision.
Legal Issues Presented
- Whether mere possession of foreign exchange, without additional evidence, constitutes “otherwise acquiring” foreign exchange so as to violate Section 4(1) of FERA.
- Whether the presumptions under Section 19-J of FERA and Section 110 of the Indian Evidence Act, 1872, aid the Department in establishing the respondent’s culpability.
Arguments of the Parties
Appellant (Union of India)
- The High Court failed to consider the statutory presumptions available under Section 19-J of FERA and Section 110 of the Evidence Act, which shift the burden of proof to the respondent.
- The respondent advanced inconsistent explanations, demonstrating culpability and justifying the original penalty.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court examined the text of Section 4(1) of FERA, noting that liability arises only when a person “buys or otherwise acquires or borrows … or sells or otherwise transfers or lends … any foreign exchange” without the Reserve Bank’s permission. Of these verbs, the only possibly relevant one was “otherwise acquires.” The Court stressed that “acquire” connotes something more than mere possession; it requires proof of a volitional act or knowledge.
No material indicated that the respondent was aware of the packet’s contents at the time of interception, nor that he had bought, borrowed, exchanged, or in any manner “acquired” the foreign exchange. The respondent’s explanation that he was merely transporting the packet for another person could not be dismissed outright.
Even when the presumptions under Section 19-J of FERA were considered, the Department failed to establish the foundational facts necessary to invoke them. Likewise, Section 110 of the Evidence Act (presumption of ownership arising from possession) did not help because possession alone was insufficient to meet the statutory requirement of acquisition under Section 4(1).
Because the Department could not prove the essential ingredient of “acquisition,” the orders of the Appellate Board and the High Court warranted no interference.
Holding and Implications
Appeal Dismissed. The Supreme Court upheld the Board’s and High Court’s decisions setting aside the ₹50,000 penalty and directed that any deposited penalty amount be refunded to the respondent.
Implications: The ruling clarifies that, under FERA, mere possession of foreign exchange does not equate to “acquisition” unless the prosecution demonstrates a conscious transaction or knowledge. The decision reinforces the requirement of proof beyond mere recovery, limiting the scope of statutory presumptions in similar enforcement actions. No new precedent was created beyond affirming this interpretive stance.
Order
1. Union of India is in appeal against the order of the Kerala High Court confirming the decision of the Foreign Exchange Regulations Appellate Board, Southern Zone, Madras (for short “the Board”). In a case arising out of a penalty proceeding under Section 23 of the Foreign Exchange Regulation Act, 1947 (for short “the Act”) for violation of Section 4(1) of the Act. The respondent was the owner of a car and on 18-8-1971, when the said car was intercepted by the Customs Authorities, a packet was found containing foreign exchange both US dollars and pounds sterling amounting to Rs 1,55,000. A show-cause notice was issued and the respondent appears to have given a reply that the packet was handed over to him by some person at Bombay telling that some people from a pharmaceutical firm in Kasaragod in Kerala will take it from him. But, before the said person could arrive, the Customs Authorities had intercepted. The Enforcement Directorate was not satisfied with the said explanation and, in the proceedings, came to the conclusion that the respondent has violated the provisions of Section 4(1) of the Act and, accordingly, he was levied penalty to the tune of Rs 50,000 and the entire amount was confiscated. The respondent then carried the matter in appeal to the Board. The learned Member of the Board came to the conclusion that mere recovery of a packet from the car owned by the respondent would not constitute the ingredients of offence under Section 4(1) of the Act and, accordingly, set aside the order of penalty, though the order directing confiscation of the foreign exchange was affirmed. The matter was then carried in appeal to the High Court under Section 54 of the Act. The High Court by the impugned judgment, affirmed the decision of the Member of the Board and came to hold that, on the facts and circumstances, it is not possible to come to the conclusion that the prosecution has been able to establish the ingredients of Section 4(1) of the Act and as such the respondent cannot be said to have violated the provisions of Section 4(1) of the Act, making him liable for penalty under Section 23.
2. Mr Nambiar, learned Senior Counsel appearing for the Union of India contended that while coming to a conclusion that the ingredients of Section 4(1) of the Act have not been satisfied, the High Court has not taken into consideration the provisions of Section 19-J of the Act as well as Section 110 of the Evidence Act and, therefore, the said conclusion is unsustainable. The learned counsel also further urged that the very fact that the respondent had taken two different pleas would indicate the culpability of the respondent in the matter being in possession of foreign exchange in contravention of the Act and, therefore, the Board as well as the High Court were not justified in interfering with the order of penalty imposed by the original authority.
3. Section 4(1) of the Act reads thus:
“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.”
4. The precondition to attract Section 4(1) would be “buy or otherwise acquiring or borrowing from or sell or otherwise transfer or lend to or exchange with any person not being an authorised dealer, any foreign exchange”. From the fact that some foreign exchange was recovered from the car belonging to the respondent, the only provision which may possibly get attracted is whether the respondent can be said to have “otherwise acquired”, inasmuch as all other expressions in sub-section (1) of Section 4 are totally absent. The expression “acquire” must have a definite connotation and it must indicate something more than mere possession. There is not an iota of material to indicate even that the respondent knew what the packet contained when it was delivered to him or when the packet was recovered from the car being intercepted. He has taken a plea that it was handed over to him at Bombay to be carried to Kasaragod and somebody would come to take it from him at Kasaragod. Such a plea, on the face of it, cannot be rejected ipso facto.
5. In the absence of any positive material to indicate as to how he can be said to have acquired the foreign exchange in question and in view of the aforesaid plea of the respondent, even applying the provisions of Section 19-J of the Act would not help the Department in establishing that in the facts and circumstances of the case, the respondent must be held to have otherwise acquired the foreign exchange in question in violation of the provisions of Section 4(1) of the Act. In the aforesaid premises, we are not inclined to interfere with the impugned orders passed by the Board and affirmed by the High Court. The appeal is, accordingly, dismissed. The amount of penalty, if deposited, may be refunded to the respondent.
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