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TMI Blog2014 (1) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... d by M/s Hotel Zam Zam in violation of Sections 6(4), 6(5), 7 & 8 of the Foreign Exchange Regulation Act, 1973 (hereinafter called "FERA") as well as paragraph 3 of the Memorandum of FLM issued by RBI. The Appellants were called upon to show-cause why penalty should not be imposed against them under Section 50 of FERA read with Section 49 (3) & (4) of Foreign Exchange Management Act (hereinafter called "FEMA"). Subsequently, by order dated 28.10.2004 the Respondent imposed a penalty of Rs.50,000/- each on both the Appellants. The Appellants preferred appeals before the Appellate Tribunal for Foreign Exchange in Appeal Nos.1259 and 1260 of 2004, which were also dismissed by order dated 2.7.2008. The above said orders of the Original Authority, as well as the Appellate Authority, were the subject matter of challenge before the Division Bench of the High Court in FEMA Appeal Nos.3 & 4 of 2008. The Division Bench having confirmed the orders of the lower authority, as well as the tribunal, the Appellants have come forward with these appeals. 4. We heard Mr. H.N. Salve, learned Senior Advocate for the Appellants and Mr. S.K. Bagaria, learned Addl. Solicitor General for the Respondent. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 SCC 770 and Ghisalal vs. Dhapubai (dead) by LRs & Ors. - (2011) 2 SCC 298. It was also contended that Hotel Zam Zam purchased the foreign exchange from the appellant at a higher rate than the exchange rate fixed by the RBI and on this ground as well the proceedings initiated against the appellant and the imposition of penalty was justified. To support the said contention, reliance was placed upon the decision in P.V. Mohammad Barmay Sons vs. Director of Enforcement - 1992 (61) ELT 337. 7. When we consider the submissions of the respective counsel we find Sections 6(4), 6(5), 8(2) of FERA and Para 3 and 9 of the Memorandum of FLM of RBI, are required to be noted which are as under: "Section 6 Authorised dealers in foreign exchange:- 6(4) An authorized dealer shall, in all his dealings in foreign exchange and in the exercise and discharge of the powers and of the functions delegated to him under Section 74, comply with such general or special directions or instructions as the Reserve Bank may, from time to time, think fit to give, and except with the previous permission of the Reserve Bank, an authorized dealer shall not engage in any transaction involving any foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft, it should be accompanied by a certificate from the bank issuing the relative instrument certifying that the funds for the instrument have been received by it by debit to the applicants bank account. In no circumstances should payments in respect of such sale be made in cash." 8. Under Section 6(4) it is stipulated that a full fledged money changer (FFMC) as an authorized dealer in foreign exchange should strictly comply with the general or special directions or instructions that may be issued by the RBI and that except with the previous permission of the RBI, authorized dealers should not engage in any transaction involved in any foreign exchange, which is not in conformity with the terms of his authorization. Under Section 6(5) it is stipulated that an authorized dealer should before undertaking any transaction in foreign exchange should ensure verification on certain aspects in order to ensure that there is no contravention of the provisions of FERA and if the FFMC has any reason to believe that any such contravention or evasion is contemplated by a person who seeks to indulge in any transaction in foreign exchange, the FFMC should report the matter to the RBI. 9. Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling GBP of UK were sold by the Appellants to M/s Hotel Zam Zam. (g) All the above transactions were made and the foreign currency was handed over to Shri Rakesh Mahatre, a representative of M/s Hotel Zam Zam. 13. Based on the above undisputed facts relating to the transaction as between the Appellants and M/s Hotel Zam Zam, the Original Authority reached a conclusion that the Appellants failed to verify the authorization in favour of the persons concerned to buy/sell foreign exchange on behalf of the said money changers as contemplated under the relevant provisions. In other words, it was concluded that it was incumbent upon the Appellants by virtue of the terms of instructions contained in paragraph 3 of the Memorandum of FLM issued by RBI to have verified the bonafides of the persons deputed to them by M/s Hotel Zam Zam before handing over the foreign currencies to such persons. It was, therefore, ultimately concluded that the said failure on the part of the Appellants resulted in contravention of the directions contained in paragraph 3 of the Memorandum of FLM read with Section 6(4), 6(5) and 7 of FERA. Ultimately the Appellants were found guilty for the said contraventions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is "Authorized Officials". The purport of the said paragraph was to ensure that any licensed money changers should allow transaction of its money changing business in its premises only through such persons who are the listed authorized officials as certified by the office of the Reserve Bank under whose jurisdiction such money changers operate their business. The last part of paragraph 3 makes the position a little more clear which states that "no person other than the authorized representative should be allowed to transact money-changing business on behalf of the moneychanger". Apparently when a money changer operates its business from its premises, any transaction by way of sale or purchase as part of its money changing business should be carried out only through an authorized representative. 16. When we extend the application of the said stipulation to the case of present nature, it can only be said that if such transaction had taken place as between the Appellants and the purchaser M/s Hotel Zam Zam, it should have been carried on only through their respective authorized representatives. The statement of Mr. Peter Kerkar, the Appellant in SLP (C) No.7657 of 2011, disclose tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said act was not the basis for the contravention and imposition of the penalty as against the Appellants. To rule out any controversy, the conclusion of the Original Authority as recorded in its order for finding the Appellants guilty of paragraph 3 of the FLM read with Sections 6(4), 6(5) and 7 of FERA, can be usefully extracted which reads as under: ".......Thus by not insisting on the authorization from the said Hotel Zam Zam disclosing the names, address and other particulars of the persons deputed by them for purchasing foreign exchange from M/s Cox and Kings Travel & Finance Ltd., the said M/s Cox and Kings Travel & Finance Ltd. has contravened the directions contained in para 3 of the Memorandum FLM R/w SEC. 6(4), 6(5) and 7 of the FERA, 1973. I, therefore hold them guilty for the said contraventions." 20. This apart, when we refer to the confiscation order passed by the Commissioner of Customs in its order dated 21.08.1998, it has been specifically stated as under: "The statements of Mr. Chitrang Mehta, Manager of M/s LKP dated 06/7-08-97 indicated that there is transaction at prices higher than those prevailing market rates. However, it is also a known fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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