1982 (10) TMI 190 - HC - Companies Law

Issues Involved:

1. Whether the appellants contravened section 4(1) of the Foreign Exchange Regulation Act, 1947.
2. Whether page 25 of the balance-sheet can be tendered in evidence against the appellants.
3. Applicability of section 24A of the Foreign Exchange Regulation Act, 1947, and section 72 of the Foreign Exchange Regulation Act, 1973.
4. Interpretation of the terms "borrowing" and "lending" under section 4(1) of the Foreign Exchange Regulation Act, 1947.

Issue-wise Detailed Analysis:

1. Whether the appellants contravened section 4(1) of the Foreign Exchange Regulation Act, 1947:

The primary question was whether the appellants had engaged in borrowing or lending foreign exchange without the permission of the Reserve Bank, as prohibited by section 4(1) of the Act. The court concluded that the entries on page 25 of the balance-sheet did not constitute proof of borrowing or lending. The balance-sheet merely indicated indebtedness, which does not necessarily imply a loan. The court emphasized that "indebtedness does not necessarily create a loan," and a contract of loan must be proved to establish a violation of section 4(1). The prosecution failed to demonstrate a contractual agreement of loan, leading to the conclusion that the appellants had not contravened section 4(1).

2. Whether page 25 of the balance-sheet can be tendered in evidence against the appellants:

The court examined whether the document (page 25) could be used as evidence against the appellants. The Additional Director and the Appellate Board had differing views on this matter. The Appellate Board held that section 72 of the Foreign Exchange Regulation Act, 1973, was not applicable as it was not retrospective. Instead, section 24A of the 1947 Act applied. However, the court found that the documents were seized by customs authorities, not by an enforcement officer as required under section 24A. Therefore, the presumption of the truth of the document's contents could not be raised against the appellants. Consequently, page 25 could not be used as evidence against them.

3. Applicability of section 24A of the Foreign Exchange Regulation Act, 1947, and section 72 of the Foreign Exchange Regulation Act, 1973:

The court analyzed the applicability of section 24A of the 1947 Act, which presumes the truth of the contents of seized documents. For this presumption to apply, the document must be seized by an enforcement officer under sections 19A, 19C, or 19D. In this case, the documents were seized by customs authorities, not by an enforcement officer. The court rejected the argument that the customs officer acted as an enforcement officer under a Ministry of Finance notification, as there was no evidence regarding the rank and grade of the customs officer. Therefore, section 24A could not be invoked. The court also noted that section 72 of the 1973 Act, which broadens the scope of presumption, did not apply retrospectively.

4. Interpretation of the terms "borrowing" and "lending" under section 4(1) of the Foreign Exchange Regulation Act, 1947:

The court delved into the interpretation of "borrowing" and "lending" under section 4(1). It emphasized that these terms imply a contractual agreement to repay money. The court cited Supreme Court rulings that distinguished between debt and loan, noting that indebtedness does not necessarily involve a contract of loan. The court also highlighted that the balance-sheet entries did not prove any borrowing or lending of foreign exchange. The prosecution needed to establish a contractual relationship involving the transfer and repayment of foreign exchange, which it failed to do. The court concluded that the appellants were not guilty of the alleged contravention.

Conclusion:

The court accepted all four appeals, setting aside the orders of the Additional Director of Enforcement and the Appellate Board. It held that there was no evidence of borrowing or lending foreign exchange, and the document (page 25) could not be used as evidence against the appellants due to improper seizure. The parties were left to bear their own costs.

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