UNION OF INDIA THROUGH SECRETARY vs. CITI BANK N.A.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL/CRIMINAL APPELLATE JURISDICTION  CIVIL APPEAL NO.9337 OF 2010 UNION OF INDIA & ANR.      …APPELLANT(S)   VERSUS CITI BANK, N.A.           …RESPONDENT(S) WITH CIVIL APPEAL NOS.4228­4261 OF 2011 CRIMINAL APPEAL NOS.169­170 OF 2012 J U D G M E N T    B.R. GAVAI, J.   1. Since the facts and the question of law that arises for consideration in all the appeals are similar, all these appeals are being heard and disposed of by the present Judgment.  Signature Not Verified Digitally signed by DEEPAK SINGH Date: 2022.08.24 13:36:56 IST Reason: 1 2. In Civil Appeal No. 9337 of 2010, the respondent­ Bank was granted license to act as an authorized dealer under the provisions of sub­sections (4) and (5) of Section 6 of the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as “the FERA”).   The respondent­Bank had accepted cash in foreign currency, equivalent to Rs.23,17,630/­ during the period from October   1992   to   January   1993   to   the   credit   of   NRE   (Non­ Resident   External)   Account   of   Umakant   Bhardwaj,   a   Non­ Resident Indian (NRI).  For the said transaction, a show­cause th notice   came   to   be   issued   on   25   February   2002   by   the appellants,   alleging   therein   that   the   respondent­Bank   had contravened the provisions of Sections 8(1), 64(2), 64(4), 64(5) and 73(3) of the FERA.  The said show­cause notice was replied th by   the   respondent­Bank   on   30   October   2002.     It   was  the contention of the respondent­Bank that the restriction to the effect that only an NRI Account Holder shall deposit foreign currency in his NRE account was added only with effect from st 31   July 1995 vide a Circular issued by the Reserve Bank of 2 India   (“RBI”   for   short)   of   the   same   date.     It   was   therefore st  submitted that the said Circular dated 31 July 1995 could not be given effect retrospectively.   th 3. However,   vide   notice   dated   5   January   2005,   the Adjudicating   Officer   held   that   the   adjudication   proceedings should   be   held   against   the   respondent­Bank   and   fixed   the th matter for further proceeding on 25   January 2005.   Being aggrieved by the decision of the Adjudicating Officer to proceed further, the respondent­Bank filed a petition being Writ Petition (Civil) No.1211 of 2005 before the High Court of Delhi.   The rd learned Single Judge of the High Court, vide order dated 23 March 2007, directed the Advocate for the respondent therein (appellant   herein),   i.e.,   the   Enforcement   Directorate   to   take st specific   instructions   as   to   whether   prior   to   31   July   1995, foreign currency deposits could be made by individuals other than  the  NRI Account Holder in the  NRE accounts of  such th NRIs.   On 19   April, 2007, the  Advocate for the  appellants herein (respondents in the High Court) stated, on instructions, 3 st that prior to 31  July 1995, foreign currency deposits could be made by individuals other than the NRI Account Holders in the NRE accounts of such NRIs.  As such, the learned Single Judge th of the High Court, vide order dated 19   April 2007, set aside the show cause notice as  well as the  proceedings pursuant thereto.  The same was sought to be reviewed by way of Review Application No. 213 of 2007 before the High Court of Delhi. However, the learned Single Judge of the High Court dismissed th the said Review Application vide judgment dated 16  January, 2009.   th Being   aggrieved   by   the   judgment   and   order   dated   19 4. April, 2007 passed in Writ Petition (Civil) No.1211 of 2005 and th judgment and order dated 6  January 2009 passed in Review Application No.213 of 2007 of the learned Single Judge of the High Court, the appellants herein filed Letters Patent Appeal No.117   of   2009   before   the   High   Court   of   Delhi.     Vide   the th impugned   judgment   and   order   dated   26   March   2009,   the Division Bench of the High Court dismissed the said Letters 4 Patent Appeal.  Being Aggrieved thereby, Civil Appeal No. 9337 of 2010 has been filed by the appellants herein.   5. In   Civil  Appeal   Nos.   4228­4261   of   2011,   various   show cause   notices   were   issued   by   the   Enforcement   Directorate jointly to the respondent­Standard Chartered Bank and others in April and May 2002 for the transactions that took place in the   year   1992­1993,   alleging   therein   that   the   respondent­ Banks, by accepting foreign currency deposits by individuals other   than   the   NRI   Account   Holders   in   respect   of   the   NRE accounts,   have   committed   violation   of   the   provisions   of   the FERA.  The said show cause notices were challenged by filing Civil Writ Petitions before the High Court of Delhi.  The Division Bench of the High Court of Delhi, vide impugned judgment and th order dated 18  December 2009, relying on the earlier Division th Bench Judgment and order dated 26  March 2009 of the said High Court, allowed the said writ petitions.   Being aggrieved thereby, Civil Appeal Nos. 4228­4261 of 2011 have been filed by the Directorate of Enforcement and others.   5 6. In Criminal Appeal Nos. 169­170 of 2012, the proceedings in pursuance to similar such show cause notices culminated th th into adjudicatory orders dated 28  February 2005 and 4  April, 2006 passed by the Adjudicating Authority, thereby imposing penalty on the respondent­Bank.  The same were challenged by way of Criminal Appeal Nos. 337 and 338 of 2009 before the High Court of Delhi.   The learned Single Judge of the High Court of Delhi vide the impugned judgment and order dated th 15  December 2010 allowed the said appeals and set aside the orders imposing penalty.   Being aggrieved, the Directorate of Enforcement has filed Criminal Appeal Nos. 169­170 of 2012.    7. We have heard Ms. Aishwarya Bhati, learned Additional Solicitor General (“learned ASG” for short) appearing on behalf of   the   appellants,   Mr.   Rajeev   K.   Virmani,   learned   Senior Counsel   and   Dr.   A.M.   Singhvi,   learned   Senior   Counsel appearing on behalf of Citi Bank, Ms. Sonia Mathur, learned Senior Counsel appearing on behalf of the Bank of America and 6 Mr. Sanjay Gupta, learned counsel appearing on behalf of the Standard Chartered Bank.  8. Ms. Aishwarya Bhati, learned ASG appearing on behalf of the appellants would submit that the authorized dealers, who have taken authorization from the RBI under the FERA, are mandatorily required to carry out due diligence and be satisfied that all three pre­conditions, namely, (i) the foreign currency is deposited by the account holder himself; (ii) the account holder is on a temporary visit to India; and (iii) the account holder is still   normally   resident   abroad   are   mandatorily   met   before foreign currency is deposited in the account of a non­resident, st even prior to the Circular dated 31  July 1995.     9. She submits that, under the provisions of sub­section (4) of Section 6 of the FERA, an authorized dealer is required to comply with such general or special directions or instructions as the RBI issues.  She submits that as per the said provision, except with the previous permission of the RBI, an authorized dealer is not permitted to engage in any transaction involving 7 any foreign exchange which is not in conformity with the terms of his authorization.   10. Ms. Aishwarya Bhati submits that under sub­section (5) of Section 6 of the FERA, an authorized dealer, before undertaking any transaction in foreign exchange on behalf of any person, is required to obtain from that person a declaration and various information so as to satisfy himself that the transaction will not involve,   and   is   not   designed   for   the   purpose   of,   any contravention or evasion of the provisions of the FERA or any rule,   notification,   direction   or   order   made   thereunder.     She submits that the said provision also requires that when such person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorized dealer is   required   to   refuse   to   undertake   such   transaction.     It   is submitted that if the authorized dealer has reason to believe that   any   such   contravention   or   evasion   as   aforesaid   is contemplated by the person, the authorized dealer is required to report the matter to the RBI. 8 11. Ms.   Aishwarya   Bhati,   learned   ASG   would   submit   that under sub­section (2) of Section 64 of the FERA, any person who attempts to contravene, or abets any contravention of, any of the provisions of the FERA, or of any rule, direction or order made thereunder, he is deemed to have contravened the said provision, rule, direction or order, as the case may be.     She further submits that under Section 73(3) of the FERA, the RBI is   empowered   to   give   directions   regarding   the   making   of payment and the doing of other acts by bankers, authorized dealers, money­changers, stock brokers, etc. for the purpose of securing compliance with the provisions of the FERA and of any rules, directions or orders made thereunder. 12. Learned ASG further submits that under the Exchange Control   Manual,   1987,   particularly   clause   29   B.8,   the authorized dealer is required to be satisfied that the account holder   is   still   normally   resident   outside   India   and   that   the proceeds of foreign currency/bank notes tendered by account holder were during his temporary visit to India.   9 13. Ms. Aishwarya Bhati, learned ASG, therefore submits that a conjoint reading of the aforesaid provisions of the FERA read with the Exchange Control Manual, 1987 would clearly show that the authorized dealer, before permitting the deposits of foreign   currency,   was   required   to   satisfy   himself   that   the foreign   currency   is   deposited   by   the   NRI   Account   Holder himself;   that   the   account   holder   is   on   a   temporary   visit   to India; and that the account holder is still normally resident st abroad.   She submits that the Circular dated 31   July 1995 only clarifies by abundant caution, what was already inherently and   implicitly   mandated   by   the   FERA   and   the   Exchange Control Manual, 1987.   She submits that the High Court has grossly erred in holding that it was for the first time that the stipulation regarding the deposits of foreign currency by the account holder himself, was expressly provided for by Circular st st dated 31  July 1995 and therefore the Circular dated 31  July 1995   could   not   have   had   a   retrospective   operation.     It   is submitted that the said finding is erroneous.     Learned ASG 10 relies on the judgments of this Court in the cases of  Union of 1 and   India   and   others   vs.   N.R.   Parmar   and   others   S.S. 2 Grewal vs. State of Punjab and others     on the issue of retrospective operation of the clarificatory statute or statutory rules.  Per contra, Mr. Rajeev K. Virmani, learned Senior Counsel 14. appearing on behalf of the respondent­Citi Bank, N.A. submits st that the High Court has rightly held that the Circular dated 31 July   1995,   for   the   first   time,   makes   it   mandatory   that   the deposits should be made in the NRE accounts only by the NRI Account Holder himself and that they cannot be made by any person   other   than   the   NRI   Account   Holder   himself.       It   is submitted that different authorities have dealt with this issue th differently.   He relies on the order dated 10   February 2004 passed   by   Shri   G.S.   Sood,   Assistant   Director,   Enforcement Directorate holding that during the relevant period, i.e., prior to st 31   July 1995, an authorized dealer was not debarred from 1 (2012) 13 SCC 340 2 1993 Supp (3) SCC 234 11 accepting foreign currency from a person other than an account holder.     However,   in   the   present   cases,   the   different Adjudicating Authorities had taken a contradictory stand.   15. Mr. Virmani further submits that in view of sub­section (3) of Section 49 of the Foreign Exchange Management Act, 1999, st which came into effect from 1  June 2000, a sunset period of two years was provided from the date of commencement of the st st said Act, i.e. 1   June 2000, i.e., upto 1   June 2002.   It is, therefore,   submitted   that   the   impugned   show   cause   notices have been issued hurriedly just before the said sunset period st was to expire prior to 1   June 2002. Learned Senior Counsel therefore   submits   that   no   interference   with   the   impugned orders of the High Court is warranted.  16. Dr. A.M. Singhvi, learned Senior Counsel appearing on behalf of the respondent­Citi Bank submits that, assuming that st the Circular dated 31   July 1995 was clarificatory, it cannot have a penal effect.  It is submitted that by a Circular, a penal action cannot be provided and it can be done only by a statute. 12 Dr. Singhvi relies on the judgment of this Court in the case of Virtual Soft Systems Ltd. vs. Commissioner of Income Tax, 3   in   support   of   the   proposition   that   unless   it   is Delhi­I specifically   provided   in   the   statute   that   the   amendment   is declaratory   and   applies   to   all   pending   cases/proceedings,   it cannot be given retrospective operation.  Dr.   Singhvi,   relying   on   the   provisions   of   the   Banking 17. Companies   (Period   of   Preservation   of   Records)   Rules,   1985 (hereinafter referred to as “the said Rules”), submits that Rule 3 of   the   said   Rules   provides   that   every   banking   company   is required   to  preserve  the   records  only   for  eight  years.     It is therefore submitted that the notices issued in the year 2002 for the transactions that took place between 1992 and 1993 were untenable, since they pertained to a period which falls beyond the period of eight years from the date of the transactions.   18. Though we have heard the learned counsels for the parties at length on various issues, we find it unnecessary to go into 3 (2007) 9 SCC 665 13 the said issues raised by the parties, inasmuch as, we are of the view that the show causes notices issued in the year 2002, i.e., after a period of almost one decade from the date of the alleged transactions of 1992­1993, were not tenable in law.   It is a settled proposition of law that when the proceedings 19. are required to be initiated within a particular period provided under the Statute, the same are required to be initiated within the   said   period.     However,   where   no   such   period   has   been provided in the Statute, the authorities are required to initiate the said proceeding within a reasonable period.  No doubt that what would be a reasonable period would depend upon the facts and circumstances of each case.  Reference in this respect could be made to the judgment given by a three­Judge Bench of this   Court   in   the   case   of   The   State   of   Gujarat   vs.   Patil 4 , wherein this Court has held thus: Raghav Natha and others “ 11.  The   question   arises   whether   the Commissioner   can   revise   an   order   made under Section 65 at any time.  It is true that 4 (1969) 2 SCC 187 14 there is no period of limitation prescribed under   Section   211,   but   it   seems   to   us plain that this power must be exercised in reasonable time and the length of the reasonable   time   must   be   determined   by the facts of the case and the nature of the order which is being revised. ”  [emphasis supplied] 20. In the case of  State of Madhya Pradesh vs. Bani Singh 5 and   another ,   this   Court   found   that   the   departmental proceedings   initiated   in   the   year   1987   for   the   alleged irregularities that took place between the years 1975­77 could not be permitted to be continued as it would be unfair and unreasonable.   21. In the case of   Government of India vs. Citedal Fine 6 , validity of Rule 12 of Pharmaceuticals, Madras and others the  Medicinal  and   Toilet  Preparations   (Excise  Duties)  Rules, 1956,   which   did   not   provide   for   a   period   of   limitation   for 5 1990 (Supp) SCC 738 6 (1989) 3 SCC 483 15 initiating   proceedings   for   recovery   of   escaped   duty,   was challenged.  This Court in the said case observed thus: “ 6.  Learned   counsel   appearing   for   the respondents   urged   that   Rule   12   is unreasonable and violative of Article 14 of the Constitution, as it does not provide for any period of limitation for the recovery of duty. He   urged   that   in   the   absence   of   any prescribed period for recovery of the duty as contemplated by Rule 12, the officer may act arbitrarily   in   recovering   the   amount   after lapse   of   long   period   of   time.   We   find   no substance in the submission. While it is true that Rule 12 does not prescribe any period within   which   recovery   of   any   duty   as contemplated by the rule is to be made, but that   by   itself   does   not   render   the   rule unreasonable or violative of Article 14 of the Constitution.  In the absence of any period of   limitation   it   is   settled   that   every authority is to exercise the power within a   reasonable   period.   What   would   be reasonable   period,   would   depend   upon the   facts   of   each   case.   Whenever   a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assesee to contend that it is bad on the ground of delay and it   will   be   for   the   relevant   officer   to consider   the   question   whether   in   the facts   and   circumstances   of   the   case notice of demand for recovery was made 16 within reasonable period . No hard and fast rules can be laid down in this regard as the determination   of   the   question   will   depend upon the facts of each case.” [emphasis supplied] In   the   case   of   22. Mohamad   Kavi   Mohamad   Amin   vs. 7 Fatmabai Ibrahim , suo motu proceedings were initiated in September, 1976 by the Mamlatdar questioning the validity of sale deeds executed in December, 1972.  In the said case, this Court, after noticing the earlier decisions on the issue, observed thus: “ 2.  ……. where   no   time­limit   is prescribed   for   exercise   of   a   power under a statute it does not mean that it can be exercised at any time; such power   has   to   be   exercised   within   a  We are satisfied that in reasonable time. the facts and circumstances of the present case, the suo motu power under Section 84­C of the Act was not exercised by the Mamlatdar within a reasonable time. …” [emphasis supplied] 7 (1997) 6 SCC 71 17 23. Admittedly, in the present cases, the alleged transactions had taken place during the financial years 1992 and 1993. Show cause notices for the said transactions were issued in the year 2002 and that too just before the sunset period of FERA st was to expire, i.e., on 1  June 2002.  We are therefore of the considered view that show cause notices and the proceedings continued thereunder are liable to be set aside on this short ground.  It will also be relevant to refer to the relevant provisions of 24. Rules 2, 3 and 4 of the said Rules, which read thus:

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It can thus clearly be seen that the said Rules require 25. every Banking Company to preserve records stated in Rule 2 for five   years   and   eight   years   for   records   mentioned   in   Rule   3 19 respectively. No doubt that under Rule 4 of the said Rules, the RBI, having regard to the factors specified in sub­section (1) of Section 35­A, by an order in writing, is empowered to direct any banking company to preserve any of the books, accounts or other   documents,   etc.   for   a   period   longer   than   the   period specified under the said Rules. 26. Undisputedly, no such order has been placed on record which   required   the   respondents­Banks   to   preserve   records concerning the transactions in question for a period longer than eight years.   27. It could thus be seen that even under the said Rules, the Banks are required to preserve the record for five years and eight years respectively.   On this ground also, permitting the show cause notices and the proceedings continued thereunder of the transactions which have taken place much prior to eight years would be unfair and unreasonable.  20 28. In   this   view   of   the   matter,   we   find   no   error   in   the impugned judgments of the learned Single Judge as well as the Division Bench of the High Court of Delhi.  The Civil Appeals as also the Criminal Appeals are therefore dismissed.  No order as to costs.  29. Pending application(s), if any, shall stand disposed of.     …….........................J.        [B.R. GAVAI] ………………………….........................J.        [PAMIDIGHANTAM SRI NARASIMHA] NEW DELHI; AUGUST 24, 2022. 21