2022 (8) TMI 1107 - SC - FEMA

Violation of the provisions of the FERA - proceedings to be initiated within a particular period provided under the Statute - As submitted 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 - whether 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 31st July 1995 could not have had a retrospective operation? - HELD THAT - 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 1992-1993, were not tenable in law. 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. 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. As per provisions of Rules 2, 3 and 4 of the said Rules every Banking Company to preserve records stated in Rule 2 for five years and eight years for records mentioned in Rule 3 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. Undisputedly, no such order has been placed on record which required the respondents-Banks to preserve records concerning the transactions in question for a period longer than eight years.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. 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.

Summary

Issues Involved:
1. Legality of foreign currency deposits in NRE accounts by individuals other than the NRI Account Holder before the Circular dated 31st July 1995.
2. Validity of show cause notices issued almost a decade after the alleged transactions.
3. Requirement for banks to preserve records beyond the statutory period.

Issue-wise Detailed Analysis:

1. Legality of Foreign Currency Deposits in NRE Accounts by Individuals Other than the NRI Account Holder Before the Circular Dated 31st July 1995:

The respondent-Bank accepted foreign currency deposits into an NRE account during 1992-1993, which led to a show-cause notice alleging contravention of the FERA provisions. The respondent-Bank argued that the restriction on deposits by individuals other than the NRI Account Holder was only introduced by the RBI Circular dated 31st July 1995 and could not be applied retrospectively. The High Court agreed, setting aside the show-cause notice and subsequent proceedings, a decision which was upheld on appeal. The court noted that the Circular could not retroactively impose new conditions on past transactions.

2. Validity of Show Cause Notices Issued Almost a Decade After the Alleged Transactions:

The show-cause notices were issued in 2002 for transactions that occurred in 1992-1993. The court emphasized that even in the absence of a statutory limitation period, proceedings must be initiated within a reasonable time. Citing precedents, the court concluded that a delay of nearly a decade was unreasonable and thus invalidated the show-cause notices and related proceedings. The court referenced several judgments, including *The State of Gujarat vs. Patil Raghav Natha* and *State of Madhya Pradesh vs. Bani Singh*, to support the principle that administrative actions must be taken within a reasonable period.

3. Requirement for Banks to Preserve Records Beyond the Statutory Period:

The court examined the Banking Companies (Period of Preservation of Records) Rules, 1985, which mandate banks to preserve records for five to eight years. The court noted that no specific order from the RBI required the banks to preserve records beyond this period. Consequently, the court found that expecting banks to produce records for transactions beyond the statutory preservation period was unreasonable. The court highlighted that the rules only required preservation for a maximum of eight years unless otherwise directed by the RBI, which was not the case here.

Conclusion:

The court dismissed the appeals, affirming the High Court's judgments. It held that the show-cause notices issued nearly a decade after the transactions were untenable and that the banks were not required to preserve records beyond the statutory period. The court emphasized the importance of initiating proceedings within a reasonable time and the necessity for clear statutory mandates for retrospective application of regulatory changes.