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TMI Blog1979 (10) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said contract, but before exporting the goods to foreign Company, the Mills had a better and lucrative offer for their product from another customer in the European market and therefore, they re-purchased the said commodity covered under the said contract from the said foreign Company and sold the said commodity to the new customer of Czechoslovakia. This was done with the consent and permission of the foreign Company. It was agreed between the parties that instead of the deal, certain amount of compensation shall be paid by the Mills to the foreign Company. Initially, there was certain correspondence which reveals that there was dispute between the parties over the amount of compensation, the manner of payment and the revenue of payment, However, ultimately through the intervention of the Solicitor's firms on behalf of both the parties an arrangement was struck, under which a total amount of Rs. 51,000/- in Indian Currency was agreed to be paid by the Mills to one Shri M.G. Mansukhani an authorised person on behalf of the foreign Company in Bombay, in full and final settlement of the dispute over the transaction between the parties. This proposal of settlement was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said deal and about their depositing the said amount with Shri Mansukhani and it was also revealed that the Mills had entered and shown the said amount in their Ledger. This amount appears to be qualified as being the difference in the price and the prevailing market rates. 4. Armed with this information and the factual data, two, separate show cause notices were issued to the Mills alleging that they have contravened the provisions of section 5(1)(a) and 5(1)(b) of the Foreign Exchange Regulation Act, 1947, in that, the Mills had made a Company directly, or atleast for the credit of the said Foreign Company which falls in the category of 'Hon-resident in India' and further, the Mills had acknowledged a debt so that a person residing outside India, gets a right create in his favour to receive the said amount. The first memorandum for the breach of Rule 5(1)(a) of the Act was issued on 18th May, 1972, while the second memorandum was separately issued on the same date for the breach of section 5(1)(b). Both these notice are on record and form part of this proceeding. The Mills, in response to these Notices, submitted details of the matter and contended that it was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Additional Director of Enforcement who had rejected the Mill's contentions. Shri Kachare submitted that a plain reading of the two provisions contained in Clause (a) and (b) of Sub-section (1) of section 5, would admit of no inference in favour of the Mills. He-has further submitted that the very fact that the amount has been paid to Shri Mansukhani, indicates that it was accepted by Shri Mansukhani on behalf of the foreign Company and, therefore, it would amount either to payment to the foreign Company or atleast payment to the credit of the said foreign Company, as in evidenced by the entry in the accounts Company, in contravention of section 5(1)(a). His further lap of argument is that there is a clear acknowledgment of debt on the part of the Mills, as a result of which, a right was correspondingly created in favour of the foreign Company to receive the said amount and consequently, this would be a breach of the provisions contained in section 5(1)(b) of the Act. Shri Andhyarujina, the learned Counsel for the respondent Mills has reiterated the same points which has been canvassed before the Appellate Board. He has submitted that in the first instance, the amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence may be made to a few other facts which are very relevant. It appears from the record and which is not controverted in this proceeding by either side that finally the Mills agreed to pay Rs. 51,000/- though the foreign Company was insisting on the payment of larger amount and that too, Poundsterling, and the further insistence was that the amount should be paid direct to the foreign Company itself. Now, the most significant feature is that the Mills were mindful and cautious enough not to accept this proposal and they came out with a clear defence at this stage itself that in no event, they will agree to that proposal and insisted that the payment would be made only in Indian currency, to a person residing in India, by way of deposit, and that too, to the tune of Rs. 51,000/- only. They also insisted that inspite of this ,the amount should not be transferred to the foreign Company unless and until, there is a formal and valid permission accorded by the Reserve Bank. This conduct on the part of the Mills is highly eloquent not only in establishing their bona fides but also, in properly interpreting the clause in the agreement of 28th November, 1967. It appears from the record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usted to the foreign Company for doing the needful thereafter. It is made clear there in that the Mills moved in the matter with the Reserve Bank for securing permission in that behalf. This has been replied to by the foreign Company through their Solicitors-Messrs Mulla Mulla C.B. C on 28th November, 1967 itself, which is Exh. 'B'. in which they stated as--- '' We are instructed by our clients to confirm that what is stated in your letter, which we hereby do.'' They, no doubt, made a grievance therein that they had not received the file containing correspondence that ensued between the Mills and the Reserve Bank of India. There is no such grievances thereafter and it appears to be a common ground that ultimately, they received the entire document and correspondence. At is apparent from the record, it has been done on 29th November. It is thus clear that all clauses, conditions and stipulations in the Mills letter have been accepted in toto by the foreign Company, and as such, these two letters from basis of an agreement and it has been referred to as an agreement throughout. 10. It thus follows that several stipulations which emerge out of this agreement ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;' It is thus clear from the earlier discussion and the record that it cannot be said that the Mills had made payment to the foreign Company itself, or made any payment for the credit of the foreign Company, or for any person who is resident outside India. It is manifestly clear that this was not a payment as such, but, it was a deposit to be held in abeyance till certain time particular formality was complied with a gone through. Looked from that angle, the agreement or settlement may, in a sense, be contingent of may remain ineffective, in that, the execution cannot be held to be matured, unless and until, the permission from the Reserve Bank would be obtained. Section 5(1)(b) reads as :--- ''5. (1) Save as may be provided in and in accordance with any general or special exemption from the provisions of this sub-section which may be granted conditionally or unconditionally by the Reserve Bank, no person in or resident in India shall--- (b) draw, issue or negotiable any bill of exchange or promissory note or acknowledge any debt, so that, a right (whether actual or contingent), to receive a payment is created or transferred in favour of any person resident outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the observations which confirm the opinion in the ultimate paragraph, wherein it has been observed that--- ''Assuming that the meaning of the letter was that the writer promised to pay the amount which might be found due by the arbitrator on taking the accounts of the partnership, we are clearly of opinion that this was not a promise to pay a debt; within the meaning of section 25 of the Indian Contract Act.'' Further observations made in the said judgment, are in the following words--- ''We thing the word 'debt', used in this context, must be taken to have been used in its ordinary meaning if a sum payable in respect of a money demand recoverable by action''. It is here, with reference to section 25 of the Indian Contracts Act that we get some assurance to the view propagated by the learned Counsel, as to what should be termed as a 'debt'. I may also, with advantage, refer to the ration in Whittaker v. Kerahaw, reported in 1890 ( XLV) LR C D 302 , wherein, it has been mentioned while repelling the argument, that there was no notice of any debt as such but it was only a notice of liability.' Reference to section 16 of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to another contingency and it mentions that neither the provisions of this Act nor the terms in the contract that anything for which permission is required shall not be done without that permission, shall prevent legal proceedings being brought......, and the various sub-clause thereafter further stipulate certain exemptions, such as, the said provisions shall apply to sums required to be paid by any judgment or order of any Court. It is not necessary to go into the details of this sub-clause, as the only relevant sub-clause, is sub-clause No. (2). It is thus clear from the said sub-clause (2) which is reproduced more or less in details, that whenever a payment is dependent on the permission from the Reserve Bank and when it is provided in the Act itself that the same cannot be done without such a permission then, it is contemplated that it will not be allowed to be done unless such a permission is granted and the implied condition of the said agreement shall be presumed that the said payment shall not be made unless there is a permission from the Reserve Bank. This, therefore, again furnishes a clear answer to the charge leveled by the State. That the provision of section 21 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accorded. In that sense, it could be seen that there was no unconditional or unfettered acknowledgment of any amount. It is also clear that it was purely by way of deposit made to a person resident in India, and no right could be said to have been created in favour of the foreign Company until the permission was granted. The learned Counsel, therefore, submitted that the conduct of the respondent was in keeping with the best traditional commercial morality in the international market and they were very much conscious of their rights and liabilities and did not want to flout the provisions contained in the Act. This is obviously depicted in the endeavours made by two Solicitor's Firms, which must be said to be laudable and to the credit of the said firms. 12. The Appellate Board has, therefore, rightly held that the provisions contained in section 5(1)(a) and 5(1)(b) are not attracted nor, is there any contravention as such. The bona fides on the part of the respondent Mills are fairly established and borne out on record. Their insistence on not to deal with the amount in any manner till requisite permission was granted, is eloquent. The entire episode has sprang out of an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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