1972 (1) TMI 45 - SC - Customs

Whether the appellant is not guilty of any contravention of Section 19 of the Sea Customs Act and cannot be subjected to the penal provisions of the said Act? Because the firm is not a legal entity it cannot be a person within the meaning of Section 8 of the Foreign Exchange Regulation Act or of Section 167(3) (8) and (37) of the Sea Customs Act is equally untenable? Held that - The High Court thought that there is no definition of goods in the General Clauses Act and that contained in the Sale of Goods Act and which excludes money is inapplicable inasmuch as that Act was much later statute than the Sea Customs Act. It is however unnecessary to consider this aspect because even if the currency notes are not goods the restrictions prescribed in Section 8 of the Foreign Exchange Act cannot be nullified by Section 23A thereof which incorporates Section 19 of the Sea Customs Act. The High Court was clearly right in holding that once it is found that there has been a contravention of any of the provisions of the Foreign Exchange Regulation Act read with Sea Customs Act by a firm the partners of it who are in-charge of its business or are responsible for the conduct of the same cannot escape liability unless it is proved by them that the contravention took place without their knowledge or they exercised all due diligence to prevent such contravention. The charges and expenses incurred in connection with the despatch found in the entries in the books of account of the firm were the same as those relating to the offending package which was being despatched to Hongkong. The freight mentioned in the account slip is the exact amount which appears on the consignment note in respect of that offending package. The amount sought to be sent is half a lakh of rupees which can hardly be within the means of the Cashier leading to the inescapable inference that the firm through its partners was concerned in the attempt to transgress the restrictions under Section 8 of the Foreign Exchange Regulation Act and liable to penal action by virtue of Section 23A under the provisions of the Sea Customs Act. On these facts as established and in our view rightly that it was not unreasonable to infer that it was the firm which was interested in sending the currency notes out of India in a clandestine manner.

Summary

Issues Involved:
1. Whether currency notes are considered "goods" under Sections 167(3), (8), and (37) of the Sea Customs Act.
2. Whether a firm is a legal entity and can be considered a "person" under the relevant provisions of law.
3. Whether penalties can be imposed on a firm or its members without evidence of conscious involvement in violating the law.

Detailed Analysis:

1. Currency Notes as "Goods":
The appellant contended that currency notes are not "goods" and thus the provisions of Sections 167(3), (8), and (37) of the Sea Customs Act are not applicable. The Court dismissed this argument, stating that Section 23A of the Foreign Exchange Regulation Act incorporates the restrictions of Section 8 of the Foreign Exchange Regulation Act into Section 19 of the Sea Customs Act. The Court emphasized that legislative practice allows for such incorporation by reference, and the restrictions under Section 8 include currency notes. Therefore, the appellant's contravention of these restrictions makes them liable under the Sea Customs Act.

2. Firm as a Legal Entity:
The appellant argued that a firm is not a legal entity and cannot be considered a "person" under the relevant provisions. The Court rejected this contention, referring to the General Clauses Act where "person" includes any company or association of individuals, whether incorporated or not. The Court also pointed to Section 23C of the Foreign Exchange Regulation Act, which explicitly includes firms within its definition of a company. Consequently, the partners responsible for the firm's business can be held liable for contraventions unless they prove ignorance or due diligence.

3. Evidence of Conscious Involvement:
The appellant argued that penalties cannot be imposed on a firm or its members without evidence of conscious steps to violate the law. The Court referred to previous judgments, including Radha Krishan Bhatia v. Union of India, emphasizing that the burden of proof lies with the Customs authorities to establish guilt. The Court found sufficient evidence, such as the consignment note, account entries, and the cashier's admission, to conclude that the firm and its partners were involved in the attempt to export currency notes illegally. The Court noted that even an attempt to contravene the Act is punishable under Section 23B.

Conclusion:
The Court upheld the penalties imposed on the appellant firm and its partners, concluding that the firm was knowingly involved in the attempt to export Indian currency notes in violation of the Foreign Exchange Regulation Act and the Sea Customs Act. The appeal was dismissed with costs.