1975 (10) TMI 67 - HC - Companies Law

Summary

Issues Involved:
1. Power of respondents to block bank accounts under the Foreign Exchange Regulation Act.
2. Applicability of Section 20(3) of the Foreign Exchange Regulation Act.
3. Independent application of mind by the second respondent.
4. Constitutional validity of Section 20(3) vis-`a-vis Articles 14 and 19(1)(f) and (g) of the Constitution of India.
5. Procedural fairness regarding notice and enquiry before blocking the account.
6. Vicarious liability of the petitioner for her husband's alleged contravention of the Act.

Detailed Analysis:

1. Power of Respondents to Block Bank Accounts
The petitioner contended that neither respondent had the authority under the Foreign Exchange Regulation Act to block her bank accounts. The court examined the powers conferred by Section 20(3) of the Act, which allows the Reserve Bank to issue directions to banks to ensure compliance with the Act. The court concluded that the second respondent (Reserve Bank) was empowered to issue directions to the third respondent (bank) to block the petitioner's account.

2. Applicability of Section 20(3)
The petitioner argued that Section 20(3) did not apply to her case and did not authorize the blocking of her accounts. The court analyzed Section 20(3), which permits the Reserve Bank to give directions to banks and other authorized entities to ensure compliance with the Act. The court found that the section was applicable and that the directions given by the Reserve Bank were within its powers to secure compliance with the Act.

3. Independent Application of Mind by the Second Respondent
The petitioner claimed that the second respondent acted on the instructions of the first respondent without applying its own mind. The court reviewed the counter-affidavit and the direction issued by the second respondent, concluding that the Reserve Bank had independently considered the materials before issuing the direction. Therefore, the contention that the second respondent did not apply its own mind was rejected.

4. Constitutional Validity of Section 20(3)
The petitioner challenged the constitutional validity of Section 20(3) as violating Articles 14 and 19(1)(f) and (g) of the Constitution. However, this contention was not pressed before the court due to the subsistence of the proclamation of emergency. Thus, the court did not address this issue in detail.

5. Procedural Fairness Regarding Notice and Enquiry
The petitioner argued that the blocking of her account without prior notice or enquiry was procedurally unfair. The court noted that Section 20(3) does not require prior notice or enquiry before issuing a direction. The court reasoned that issuing a notice and conducting an enquiry could defeat the purpose of the direction, as the funds could be withdrawn in the meantime. Therefore, the court upheld the validity of the direction without prior notice or enquiry.

6. Vicarious Liability of the Petitioner
The petitioner contended that she could not be held vicariously liable for her husband's alleged contravention of the Act. The court acknowledged that proceedings under Section 20(3) could not be initiated against the petitioner's deceased husband. However, since proceedings had been initiated against the petitioner herself, the court held that the amounts in the bank account needed to be secured until the adjudication proceedings were concluded. The court did not decide on the validity of the proceedings against the petitioner, stating that such matters should be addressed in the adjudication process.

Conclusion
The writ petition was dismissed, with the court affirming the legality and validity of the actions taken by the respondents under Section 20(3) of the Foreign Exchange Regulation Act. The court upheld the blocking of the petitioner's bank accounts as a precautionary measure pending adjudication proceedings.