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TMI Blog2012 (2) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... o with Ms. Pratibha Borade for the Respondents. ORAL JUDGMENT (Per DR.D.Y.CHANDRACHUD, J.) : 1. This batch of appeals arises from an order dated 30 July 2008 of the Appellate Tribunal for Foreign Exchange in appeal against an order dated 16 August 2002 of the Special Director in the Enforcement Directorate. 2. Two notices to show cause were issued on 25 September 1998 to nine noticees. The Appellants in these proceedings are the company, its managing director and its director who are respectively noticees 1, 2 and 3. The allegation in the first notice to show cause was that during June to November 1995 the company which was a Full Fledged Money Changer (FFMC) authorised by the Reserve Bank released foreign exchange in the names of various persons contrary to the directions issued by the Reserve Bank of India. The foreign exchange was released allegedly without due verification of passports/ air tickets; without the presence of the travellers and without obtaining their signatures on the travellers cheque; without making endorsement on the relevant passports and as a result foreign exchange was released to persons other than the applicants. The allegation was that bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Exchange Control Manual for the sale of foreign exchange under the BTQ scheme. Special Condition (4) required that the sale of foreign exchange should be made only on a personal application and identification of the traveller. Moreover, while issuing travellers cheques, the traveller should invariably be required to sign the cheque in the presence of an authorised official and the purchaser s acknowledgment for receipt should be obtained in a receipt book. The adjudicating officer came to the conclusion that there was a violation of the applicable special conditions by the unauthorized release of foreign exchange. Noticee No.4 was an officer of the FFMC, Mr. S. Mygandan who was in charge of the Bangalore office of the company. The Special Director found on the basis of the evidence that special condition No.4 was meant for the company as an FFMC and appropriate instructions and guidelines should have been issued through the Managing Director and Director to all branches in advance to ensure proper compliance. Since such steps had not been taken and adequate evidence was not brought on the record to establish that due steps were taken, the company as well as its Managing Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellants ought to have made a proper disclosure of the internal management of the company which was not on the record. Consequently, the Tribunal held that the Appellants could not get the benefit of the exception carved out, as a result of their failure to disclose the internal arrangement in regard to the management of the company. Hence, it was held that the proviso to Section 68 could not be availed of. 7. Though several questions of law have been urged in the memo of appeal, counsel appearing on behalf of the Appellants during the course of the hearing has placed reliance only on the finding which was arrived at in the order of the adjudicating officer to the effect that there was no connivance of noticees 2 and 3 (the Managing Director and the Director) with the officer in charge of the Bangalore office and that they had not received any illegal monetary benefits from the alleged transaction. Similarly, in regard to the second notice to show cause reliance was placed on the finding to the effect that there was no evidence to establish that the company and its Managing Director and Director were party to what is described as the dirty game of noticee 4 or that they we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (1) of Section 68. The fact that a violation of the provisions of the FERA 1973 had taken place is not in dispute and is not challenged during the course of the oral submissions. In the case of the first show cause notice, there is a finding of fact by the adjudicating officer that foreign exchange under the BTQ scheme was released in violation of the special conditions imposed by the Reserve Bank of India which require an application and the personal presence of the traveller in order to ensure that exchange is released upon proper verification of identity. In the case of the second show cause notice, the violation arises out of the issuance of foreign exchange to nonexistent and bogus companies, again in violation of the conditions imposed by the Reserve Bank of India to ensure that foreign exchange under the Business Visit Scheme which is availed of is not misused. In respect of both the show cause notices, it has been found that there was a release of foreign exchange in violation of the instructions of the Reserve Bank of India resulting in a violation of the relevant provisions of the FERA 1973 upon which the charge was founded. 10. Now subsection (1) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk while selling foreign exchange to bonafide travellers. In our view, a mere averment that the company had exercised due diligence or that the contravention took place without the knowledge of the company or the officers responsible for the conduct of the business would not be suffice to establish a defence under the proviso to subsection (1) of Section 68. The burden of establishing a defence in terms of the proviso to subsection (1) of Section 68 lies upon the person against whom the contravention is established under the substantive part of the provision. The Tribunal was, in our view, justified in holding that a proper disclosure ought to have been made in regard to the internal arrangements made by the company for the proper conduct of the business in accordance with the guidelines of the Reserve Bank. That has not been explained. Perusing the statements and the reply upon which reliance has been placed on behalf of the Appellants at the hearing, it is evident that apart from a few vague averments, nothing has been established that would have enabled the adjudicating authority to hold that the defence was proved. As a Full Fledged Money Changer, the company is vested with cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect that the Special Director had observed that there was no connivance on the part of the Managing Director would not be material in determining their liability under subsection (1) of Section 68. Under subsection (1) of Section 68 as persons who were in charge of and were responsible to the company for the conduct of its business, both the Appellants are deemed guilty of the contravention and the burden would then lie upon them to establish the defence within the purview of the proviso to subsection (1). In the circumstances, having failed to establish their burden, the absence of connivance cannot come to the aid of the Appellants. The fact that the Appellants are found not to have obtained an unlawful monetary benefit may at the highest be relevant to the quantum of the penalty which we have found in any event not to be disproportionate. The appeal has been argued on the basis that the contravention is of Section 68(1) and that is why the proviso was pressed in aid. 13. In view of the aforesaid position, no substantial question of law would arise in these appeals. The Appeals are accordingly dismissed. There shall be no order as to costs. - - TaxTMI - TMITax - F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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