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

JUDGMENT

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.

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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

notice came to be issued on 25 th 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

by the respondent­Bank on 30th 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

31st July 1995 vide a Circular issued by the Reserve Bank of

2 India (“RBI” for short) of the same date. It was therefore

submitted that the said Circular dated 31st July 1995 could not

be given effect retrospectively.

3. However, vide notice dated 5th January 2005, the

Adjudicating Officer held that the adjudication proceedings

should be held against the respondent­Bank and fixed the

matter for further proceeding on 25th 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

learned Single Judge of the High Court, vide order dated 23 rd

March 2007, directed the Advocate for the respondent therein

(appellant herein), i.e., the Enforcement Directorate to take

specific instructions as to whether prior to 31 st July 1995,

foreign currency deposits could be made by individuals other

than the NRI Account Holder in the NRE accounts of such

NRIs. On 19th April, 2007, the Advocate for the appellants

herein (respondents in the High Court) stated, on instructions,

3 that prior to 31st 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

of the High Court, vide order dated 19 th 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

the said Review Application vide judgment dated 16 th January,

2009.

4. Being aggrieved by the judgment and order dated 19 th

April, 2007 passed in Writ Petition (Civil) No.1211 of 2005 and

judgment and order dated 6th 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

impugned judgment and order dated 26 th 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

order dated 18th December 2009, relying on the earlier Division

Bench Judgment and order dated 26 th 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.

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6. In Criminal Appeal Nos. 169­170 of 2012, the proceedings

in pursuance to similar such show cause notices culminated

into adjudicatory orders dated 28th February 2005 and 4th 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

15th 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,

even prior to the Circular dated 31st 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.

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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.

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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

abroad. She submits that the Circular dated 31 st 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

dated 31st July 1995 and therefore the Circular dated 31 st 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

India and others vs. N.R. Parmar and others1 and S.S.

Grewal vs. State of Punjab and others2 on the issue of

retrospective operation of the clarificatory statute or statutory

rules.

14. Per contra, Mr. Rajeev K. Virmani, learned Senior Counsel

appearing on behalf of the respondent­Citi Bank, N.A. submits

that the High Court has rightly held that the Circular dated 31 st

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

differently. He relies on the order dated 10th February 2004

passed by Shri G.S. Sood, Assistant Director, Enforcement

Directorate holding that during the relevant period, i.e., prior to

31st 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,

which came into effect from 1st June 2000, a sunset period of

two years was provided from the date of commencement of the

said Act, i.e. 1st June 2000, i.e., upto 1 st June 2002. It is,

therefore, submitted that the impugned show cause notices

have been issued hurriedly just before the said sunset period

was to expire prior to 1st 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

the Circular dated 31st 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,

Delhi­I3 in support of the proposition that unless it is

specifically provided in the statute that the amendment is

declaratory and applies to all pending cases/proceedings, it

cannot be given retrospective operation.

17. Dr. Singhvi, relying on the provisions of the Banking

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.

19. It is a settled proposition of law that when the proceedings

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

Raghav Natha and others4, wherein this Court has held thus:

“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

and another5, 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

Pharmaceuticals, Madras and others6, validity of Rule 12 of

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]

22. In the case of Mohamad Kavi Mohamad Amin vs.

Fatmabai Ibrahim7, 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 reasonable time. We are satisfied that in 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

was to expire, i.e., on 1st 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.

24. It will also be relevant to refer to the relevant provisions of

Rules 2, 3 and 4 of the said Rules, which read thus:

2. Every banking company shall preserve, in good order, its books, accounts and other documents mentioned below, relating to a period of not less than five years immediately preceding the current calendar year.

Ledgers and Registers:

(1) Cheque Book Registers xxx xxx xxx xxx xxx xxx (6) Vault Registers.

Records other than Registers:

(1) Telegraphic Transfer Confirmations (2) Telegrams and Telegram Confirmations

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3. Every banking company shall preserve, in good order, its books, accounts and other documents mentioned below, relating to a period of not less than eight years immediately preceding the current calendar year.

Ledgers and registers:

(1) All personal ledgers xxx xxx xxx (24) Clean cash books Records other than registers:

(1) Bank cash scrolls xxx xxx xxx (11) Press­copy books

4. Notwithstanding anything contained in rules 2 and 3, the Reserve Bank may, having regard to the factors specified in sub­section (1) of section 35­A, by an order in writing, direct any banking company to preserve any of the books, accounts or other documents mentioned in these rules, for a period longer than the period specified for their preservation, in the said rules.”

25. It can thus clearly be seen that the said Rules require

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.

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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.

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