2019 (10) TMI 174 - AT - FEMA

Canara Bank abetted in the illegal and unauthorized dealing of foreign exchange - penalties against the appellants for the contravention of Sections 6(4), 6(5) r/w Sections 49, 8(1), 9(1)(a) and 9(1)(e) along with Para 10.3 (ii) - HELD THAT - It is stated that from a conjoint reading of the facts and the definitions that there was neither any commission nor any omission on the part of the Appellant. Cheques issued by BFEA on an account maintained with Canara Bank were presented in the normal course of clearing and these cheques were honoured by Canara Bank. Canara Bank did not know at that point of time that the proceeds of those cheques would be remitted abroad after being credited to a convertible rupee account maintained at the ANZ Grindlays Bank. In any event the Canara Bank had nothing whatsoever to do with the crediting of money to the convertible rupee account of GIRO bank maintained at ANZ Grindlays Bank. It is settled law that to constitute abetment it must be established that there was active complicity and intentional aiding. Counsel has referred the reported case of Shri Ram vs. State of U.P. AIR 1975 SC 175 paragraph 6. It is alleged that it is not sufficient that an act on the part of the alleged abettor happens to facilitate the commission of the offence. Therefore no case of abetment is sustainable against the Appellants. The Adjudicating Authority has failed to show that the ingredients of abetment have been fulfilled in order to hold the Appellant guilty of abetment. As further submitted that as far as the Appellant is concerned the money was transferred from an account in India to another account maintained in India. The fact that the said money was later on transferred abroad was not within the knowledge of the Appellants. The same was not a part of the transaction over which the Appellant had any control. It is not the case of the respondents that the Canara Bank had cleared the cheque which was to be credited to a convertible account. It is pointed out that the ANZ Grindlays Bank presented the drafts to the Appellant for payment in normal clearance without being accompanied by the required form A3 and in the circumstances the Appellant had no reason whatsoever to believe or to apprehend that the proceeds of the said draft were to have been remitted outside India or to be credited to the Vostro account of Girobank Plc. by ANZ Grindlays Bank. The finding reached by the Special Director in his order dated 30.11.2007 in Para 30 clearly shows that at the most the only allegation that can stand against the appellants is that of negligence and not of abetment. Negligence can under no stretch of imagination be raised to a case of abetment. As stated on behalf of appellant that in any event since ANZ Grindlays Bank had brought the foreign exchange back to India the offence had, if at all, been mitigated and therefore punishment should have been commensurate with the gravity of economic loss to the country. Since there was no economic loss in the instant case, penalty, if any should have been of a token amount. As advised by the RBI, the Appellant has surrendered to TBI USD 5,196,506 by purchasing from the markets at the value on 29.10.2003 i.e. ₹ 31.37 per USD and have paid ₹ 16,30,14,393/-; whereas the Appellant had received only ₹ 13,09,07,900/-; at the prevailing exchange rate in the Year 1991 and has incurred a loss of ₹ 3,21,06,493/- and hence the appellant has already been penalized. The Adjudicating Authority has without considering the role of the officers of Canara Bank imposed penalty on them. S.A. Laxmi, one of the notices was not even concerned with the Vostro section of Canara Bank and was therefore not a person concerned with the transaction and could therefore not have been punished at all. The abovesaid appeals were heard after the hearing of appeals filed by Standard Chartered Bank and other. Many of the issues in both set of appeals are common. The decision passed would have impact in the present set of appeals. The detailed order has been passed allowing all appeals which may also be read in the present set of appeals. As the main issues are decided in favour of Standard Chartered Bank Ltd. and Ors. including the issue of abetment of any offence does not arise. The appeals are accordingly allowed.

Summary

Issues Involved:
1. Contravention of Sections 6(4), 6(5) read with Sections 49, 8(1), 9(1)(a), and 9(1)(e) of FERA, 1973.
2. Abetment of unauthorized dealing in foreign exchange.
3. Compliance with Exchange Control Manual (ECM) provisions.
4. Responsibility of authorized dealers in foreign exchange transactions.
5. Role of individual officers in the contravention.

Issue-wise Detailed Analysis:

1. Contravention of Sections 6(4), 6(5) read with Sections 49, 8(1), 9(1)(a), and 9(1)(e) of FERA, 1973:
The adjudicating authority confirmed the Show Cause Notices and imposed penalties against Canara Bank and its officers for the contravention of these sections. It was established that Canara Bank cleared four cheques issued by BFEA, totaling ?11 Crores, for crediting the VOSTRO Account of Girobank Plc, which subsequently transmitted the money outside India in foreign currency. This act was deemed a violation of FERA provisions.

2. Abetment of Unauthorized Dealing in Foreign Exchange:
The judgment emphasized that Canara Bank abetted ANZ Grindlays Bank in the illegal and unauthorized dealing of foreign exchange by clearing cheques that facilitated the transfer of funds to a non-resident account without necessary permissions from RBI. The court referenced Section 64(2) of FERA, which deems any attempt or abetment of contravention as a contravention itself. The evidence showed that Canara Bank cleared cheques knowing they were for a non-resident account, thus facilitating the illegal transfer.

3. Compliance with Exchange Control Manual (ECM) Provisions:
The judgment highlighted the non-compliance with ECM provisions, specifically Chapter 10, which mandates that authorized dealers ensure transactions through Vostro accounts conform to Exchange Control Regulations. The RBI had previously notified Canara Bank of violations and instructed the repatriation of the entire amount involved. The adjudicating authority found that Canara Bank failed to adhere to these regulations, leading to the unauthorized transfer of funds.

4. Responsibility of Authorized Dealers in Foreign Exchange Transactions:
The court reiterated the responsibilities of authorized dealers, as outlined in Clause 10.13 of the ECM, which requires both the paying and receiving banks to ensure compliance with Exchange Control Regulations. The judgment noted that Canara Bank, as an authorized dealer, failed in its duty by clearing cheques without the required Form A3, thereby abetting the unauthorized transfer of funds. The judgment cited the Supreme Court's interpretation of abetment, emphasizing active complicity and intentional aiding.

5. Role of Individual Officers in the Contravention:
The judgment detailed the involvement of individual officers, including S.A. Laxmi, M.M. Chungath, and P. Upadhyaya, in the contravention. Statements recorded under Section 40 of FERA revealed their roles in clearing the cheques and their awareness of the transactions. The adjudicating authority found that these officers were responsible for the conduct of business and had contravened FERA provisions. However, the appellants argued that there was no evidence of intentional aiding or active complicity, and the findings were based on negligence rather than abetment.

Conclusion:
The appellate tribunal allowed the appeals, setting aside the impugned order dated 30.11.2007. The tribunal found that the main issues, including the abetment of any offense, did not arise and concluded that the penalties imposed were not justified. The judgment emphasized that negligence alone does not constitute abetment and highlighted the lack of evidence for active complicity or intentional aiding by Canara Bank and its officers. The tribunal also noted that the economic loss had been mitigated as the foreign exchange was brought back to India, and the penalties should be commensurate with the gravity of the economic loss.