Partly allowed

FPA-FE-79/MUM/2009 of M/s. Bank of Foreign Economics Affairs v. The Special Director Directorate of Enforcement, Mumbai

ATFP7 May 2024FPA-FE-79/MUM/2009

Case brief

AI extract

What is this about?

Appeal filed by M/s. Bank of Foreign Economics Affairs against penalty imposed for contravention of FEMA acts. Tribunal found that while the bank failed its duty under agreements regarding non-convertible rupees, the original penalty was excessive. Court held abetment charge established but substituted penalty.

What did the court decide?

Appeal partly allowed. Adjudication order modified; penalty reduced from Rs. 7,67,45,000 to Rs. 75,00,000.

FPA-FE-79/MUM/2009 of M/s. Bank of Foreign Economics Affairs… — Banking and Recovery | ATFP (2024)

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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MP-FE-166/MUM/2021(Stay) MP-FE-553/MUM/2019(Misc) FPA-FE-79/MUM/2009

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M/s. Bank of Foreign Economics Affairs … Appellant Versus The Special Director Directorate of Enforcement, Mumbai … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellants : Mr. Anish Mr. Ms. Mr. Ms.	Sinha, Ankit Khushu, Bhavna Chandar, Pratyush Khanna, Ishita Pandey, Advocates
For the Respondent : Dr. Ms. Ms.	Shoumendu Mukherji, Akansha Gupta, Megha Gupta, Advocates
CORAM
JUSTICE MUNISHWAR NATH BHANDARI SHRI BALESH KUMAR	: CHAIRMAN : MEMBER

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FINAL ORDER 07.05.2024

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This Order disposes of the Appeal No. FPA-FE-79/MUM/2009 filed by the Appellant against the Order No. ADJ/32-53/B/SDE/KNR/2009/FERA dated 31.03.2009 passed by theSpecial Director, Enforcement Directorate, Mumbai. In the Impugned Order, penalty of Rs. 7,67,45,000/- was imposed on the Appellant for the contravention of Section 64 (2) of The Foreign Exchange Regulation Act, 1973 (FERA 1973). It is read with Section 6 (4), Section 6 (5) and Section 49 (i) (a) of FERA 1973. The Impugned Order has disposed of 22 Show Cause Notices (SCN) which were issued in 1993 and 1994.While the adjudicating proceedings were in progress few other noticees filed writ petitions in Bombay High Court, which granted stay in the matter. On petitions by the Enforcement Directorate and other noticees, the Hon’ble Supreme Court stayed further proceedings of adjudications and prosecutions. The Hon’ble Supreme Court finally allowed the Directorate to

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proceedwith the adjudication proceedings vide its Order dated 24.02.2006 in Civil Appeal No. 1748 of 1998. This Tribunal directed the Appellant on 01.07.2009 to furnish unconditional bank guarantee of total penalty amount in the favor of Enforcement Directorate to meet the statutory requirement under Section 52 (2) of FERA 1973of waiver of the pre-deposit of the penalty amount. The Appellant furnished the said bank guarantee and renewed itfrom time to time of which the last one was done on 04.03.2024 with expiry date of 26.08.2025.

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2.Briefly the facts of the case relate to transactions as listed in the Impugned Order wherein M/s. Bank of Foreign Economics Affairs (Appellant herein) were charged in the 22 SCNs for abetting the banks in India, the Authorised Dealers (AD),in the contravention of Sections 6 (4) and 6 (5) read with Section 49 (i) (a) of FERA 1973. In eleven transactions theBank of Foreign Economics Affairs (BFEA) which was also earlier known as Bank of Foreign Trade issued specific directions through TT (Telex Transfers) for each transaction to the ANZ Grindlays Bank to credit a sum of Indian Rupees to non-resident convertible rupee account in the name of Girobank Plc, London. In four transactions ANZ Grindlays Bank, Connaught Place, New Delhi drew on cheques issued by BFEA on its account in Canara Bank, Bombay to credit the non-resident convertible rupee account standing in the name of Girobank Plc, London. In two instances ANZ Grindlays Bank credited non-resident convertible rupee account in the name of Girobank Plc, London on the basis of cheques issued by the Canara Bank, Bombay on Telex Order of BFEA. In two cases BFEA issued cheques in the name of M/s Eastern Suburbs Ltd. which were presented by the payee at Standard Chartered Bank (SCB) Manchester UK which in turn sent these it to SCB Mumbaifor collection. SCB Mumbai encashedthese it through local collectionfrom ANZ Grindlays Bank New Delhi but credited the amounts to the convertible account of SCB London. In another instance Indian Overseas Bank, Madras credited four cheques issued by BFEA on Canara Bank Bombay to non-resident convertible rupee account in the name of Bank of Ireland. On the basis of TT issued by BFEA, a sum of amount was credited to NRE account of an individual resident in Dubai by ANZ Grindlays Bank New Delhi out of the

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funds with them of the BFEA. In yet three other instances State Bank of India Mumbai credited non-resident convertible rupee account in the name of North Western National Bank of Minneapol, Minnesota USA out of the funds of BFEA and under the instructions of BFEA. In all these cases BFEA had issued instructions which resulted in making payments to persons resident outside India out of the Accounts maintained by BFEA in certainbanks in India. In no instance the Authorised Dealers (ADs) i.e., the banks in India had general or special permission from the Reserve Bank of India (RBI) for indulging in such transfers of funds and making such payments. On reference from RBI, investigations into these transactions were taken up by the Respondent, Enforcement Directorate,

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Ld. Counsel for the Appellant initially pleaded that this Tribunal (Single Bench)vide its common order dated 20.09.2019 disposed of 18 Appeals bearing Nos. FPA-FE-91-97,105-110,112-114 & 121-122/MUM/2007. These Appeals were filed by ANZ Grindlays Bank and its employees. The ANZ Grindlays Bank was subsequently taken over by the Standard Chartered Bank. The Adjudication Orders dated 29.05.2007, 04.06.2007, 15.06.2007 & 04.07.2007 passed by the Special Director of Mumbai, against which the said appeals had been filed, were set aside. Moreover this Tribunal (Single Bench)disposed vide another order dated 20.09.2019,12 Appeals bearing Nos. FPA-FE-10-13&50-57/MUM/2008 filed by Canara Bank and its employees by setting aside the Adjudication Order dated 30.11.2007. The argument ran that for the very same transactions for which the ANZ Grindlays Bank Ltd. and its employees were penalized in the Adjudication proceedings were the transactions for which the BFEA was charged for abetment under the provisions of FERA 1973. Even the Appeals filed by the Canara Bank and its employees were against the imposition of penalty for their abetment in those very transactions. Therefore, in view of the two orders dated 20.09.2019 of this Tribunal, the Impugned Order cannot stand against the Appellant.

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Ld. Counsel for the Appellant further argued that a Banking Agreement was entered into between BFEA, USSR and RBI, Bombay on 18.08.1981 for the

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implementation of the Trade Agreement signed between the Government of the Republic of India and the Government of the Union of Soviet Socialist Republic on 20.12.1980.Article 1 of the Inter-Banking Agreement specified that all payments of commercial and non-commercial nature between India and the USSR will be effectedin non-convertible Indian Rupees. Article 2 provided that the BFEA will continue to maintain a Central Account in non-convertible rupees with the RBI. It further provided that the BFEA will maintain one or several accounts in nonconvertible Indian Rupees with one or more commercial banks in India who were authorized to deal in foreign exchange. The Appellant entered into Agency Arrangement with AD banks. Therefore, in view of such conditionalitiesit was amply clear that the Appellant, which had entered into various agency agreements with Authorized Dealer banksappointed by the RBI to open, maintain and effect transactions from the Vostro Accounts of the Appellant were to be in accordance with the terms of the Agreement and not under the provisions of FERA.

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Ld. Counsel for the Appellant also submitted that as per Article 5 of the Agreement between BFEA and RBI for the payment made from USSR to India, the law applicable was of USSR. This was clear from Article 5, which is reproduced below for ease of reference:

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Article 5:

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a) The payments permitted in accordance with the India Exchange Control Laws, Regulations and Rules will be effected to the physical and juridical persons residing in the U.S.S.R. by the physical and juridical persons residing in India by crediting the amounts of such payments to the account(s) of the Vneshtorgbank (BFEA) with the commercial bank(s) in India.

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b) Like-wise, payments permitted under the U.S.S.R. Foreign Exchange Control Laws Regulations and Rules will be effected by the physical and juridical persons residing in India by debiting the amount of such payments to the account(s) of the Vneshtorgbank (BFEA) with the commercial bank(s) in India.

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He contended that the provisions of Section 6 (4) and (5) of FERA 1973 read with the relevant provisions of the Exchange Control Manual were applicable and limited to the Authorized Dealer (AD)banks in India. Therefore, even if it is taken that the Indianbanks received payment instructions which were contrary

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to the provisions of FERA 1973 it was the duty of the Indian banks to refuse toundertake such transactions. The diligence required under the Exchange Control Manual, to use A1 and A2 forms so as to validly authorize transfer of Rupees to non-resident convertible rupee account was the responsibility of the AD Banks. Thus, no such liability could be fastened upon BFEA which is a Foreign Central Bank.

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Ld. Counsel for the Appellant stated that the Agency Agreements with the AD Banks were in unequivocal terms, the transaction between BFEA and the concerned Indian bank had to be in non-convertible rupees. The Agreement did not cast any duty on the Appellant to verify the instructions as conveyed by their Russian Client or to enquire about the Indian Client to whom the payment was to be made or to verify as to which type of account was being credited by the Indian bank.

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Ld. Counsel for the Appellant argued that since abetment is not defined under FERA 1973, the General Clauses Act 1977 was being relied upon to state that abet has the same meaning as given under Section 107 of the Indian Penal Code. He contended that the Ld. Adjudicating Authority had at best regarded the liability of BFEA as failure of due diligence and not of criminal nature. In any case he had failed to specify under which provision of law or rules had the alleged failure of due diligence occurred. The Ld. Adjudicating Authority had also failed to identify what constituted the mens rea in the charge of abetment against the Appellant. It further failed to identify how the meeting of mind had happened so as to show that the Appellant had conspired and instigated the Indian banks. He argued that the charge of abetment cannot hold in view of the other Adjudication Orders having been set aside by this Tribunal on 20.09.2019 in the Appeals relating to the cases against the ANZ Grindlays Banks and the Canara Bank. Since, the Indian banks have been exonerated there is no basis of any case against the Appellant.

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Ld. Counsel for the Respondent on the other side argued that the Orders dated 20.09.2019 in the Appeals No. FPA-FE-91-97,105-110,112-114 & 121-122/MUM/2007 and the Appeals Nos. FPA-FE-10-13 & 5057/MUM/2008cannot be relied upon the present appeal. He stated that the aforementioned orders of the Tribunal are pending consideration before the Hon’ble Bombay High Court and hence the same have not attained finality. He cited the following concludingparagraphs of the order dated 20.09.2019 issued in the Appeals filed by ANZ Grindlays Bank and its employees by this Tribunal:

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„301. There is no disputes that contravention in the above said case have happened. From the entire gamut of the case, no material is found to establish that the banks and its official are involved in any conspiracy directly or indirectly, intentionally or deliberately for the said lapse. No doubt it is serious matter and it should not have happened. It did happen 1991 when communication and technology was not so equipped. Even staff or banks officials may not be experts at that point of time. From the conduct of the bank and pleading of all the appellants, it appears that they are feeling their mistakes‟.

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„303. It is matter of fact that entire penalty amount has been deposited by the Bank. It appears that after realizing lapse on their part, in order to show their bona-fide, the statement was made during hearings of appeals that without prejudice, the said penalty amount shall not be pressed by the appellants for refund. The same may be deposited with the Prime Minister Relief Fund, if so advised by the respondent‟.

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He argued that even the cited orders of the Tribunal accepted that serious contraventions happened and therefore did not press for refund of the amount of penalty already deposited, closure was brought to the case.

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Ld. Counsel for the Respondent argued that the abetment occurred because of certain obvious omissions on the part of the Appellant. They failed toverify the correctness of the instructions of their clients in USSR as to why payments were to be made from the Vostro Account to the accounts of those who were not located either in India or in Russia, when in fact the goods (the medical equipments) had been supplied from India. Ld. Counsel pointed out that no contract of the transactions in question was produced by the Appellant even when asked by the Ld. Adjudicating

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Authority.The facts and circumstances of the case herein speak for themselves as to the intention on the part of the Appellant. The Appellant issued instructions to the Indian Banks for crediting accounts which were of non-residents.

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Ld. Counsel for the Respondent referred to certain instances from the records as to bring out the contraventions by the Appellant. The Agency Agreement between the Appellant and Standard Chartered Bank Bombay at paragraph 4b required execution by Authorized Branches of BFEA in accordance with instructions contained therein. Letter dated 24.04.1970 of BFEA to Canara Bank contained detailed instructions for the operation of their account in Canara Bank and reply dated 12.05.1970 of Canara Bank shows their undertaking to carry out the instructions of the Appellant. Article 3 of the Agency Arrangements between the Appellant and the ANZ Grindlays Bank provided for opening by mail or cable, letter of credit in favour of beneficiaries in India by BFEA. BFEA letter to Chairman of Operative Management of the Activities of BFEA had acknowledged that RBI hadapproached the Appellant for settling the issue relating to payments madeunder contracts of certain Russian organisationswhich were concluded through intermediary firms for purchasesshown to be in India of goods delivered actually from third countries. However, in the said letter the Appellant held the Indian bank responsible for contraventions. Ld. Counsel for the Respondent highlighted the summary of the meeting held between the officers of the Appellant Bank with those from ANZ Grindlays Bank on 16.03.1993. The officers of the ANZ Grindlays Bank opined that the payments made contradicted both Foreign Exchange Regulation of India and the Russian Indian Trade and Payments Agreement. Funds in non-convertible Indian Rupees were transferred to the Account in convertible Indian rupees of an English bank viz. Giro Bank Plc maintainedwith ANZ Grindlays Bank, Bombay.Further shipping documents were missing. The goods were transported from a third country and the

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exporter himself was not an Indian firm. In the meeting, the officer of the BFEA maintained that it acted in strict conformity with the instructions of clients and cannot bear responsibility for the correctness of account numbers indicated therein. Ld. Counsel for the Respondent further pointed out RBI letter dated 31.05.1993 whereby RBI conveyed to the Appellant that for a number of payments in favour of foreign entities such as M/s Eastern Suburbs Ltd. instructions were issued by the Appellant to credit the convertible rupee account of the Girobank London maintained with ANZ Grindlays Bank Bombay. Since, the foreign entities had no operation in India, the possibility of export from India was ruled out. The Appellant was urged to undertake investigations.

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Ld. Counsel for the Respondent drew attention to paragraph 40 of the Impugned Order wherein one Kuldeep Singh Sood stated that a Russian company conveyed to Eastern Suburbs Ltd. UK to obtain payment for supplies made from UK from ANZ Grindlays Bank Bombay. It appears that Shri Sood was in consultancy service business and represented Eastern Suburbs Ltd. UK in whose convertible rupee accounts many of the transfers happened from the non-convertible rupee accounts of the Appellant. The relevant portion of the paragraph is reproduced below:

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“that the three drafts mentioned in his letters dated 31/8/91 and 29/8/91 were sent to them by some Russian company with the instructions that these funds are payable to Eastern Suburbs Ltd. for buying some materials from UK; that they were told that these are legal Russian business and the three cheques are meant for the credit of Eastern Suburbs Ltd; that the same should be deposited with ANZ Grindlays Bank, Bombay with whom their bankers Girobank London is holding an account; that he do not remember the full particulars of the Russian Company who sent the three drafts; but the drafts were sent from Russia by a Russian company; that the cheques were received by post from Moscow; that he has not kept any record of the same”.

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He also pointed out that the Grindlays Bank sent various telex to the Appellant to clarify on the name of the beneficiary.

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Again Ld. Counsel for the Respondent stated that in paragraph 78 of the Impugned Order, the Advocate for the Appellant failed to file any

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document as to show that the Appellant took any steps that the goods exported from India were in fact received in Russia. Moreover paragraph 82 of the Impugned Order brings out that the contract agreement for which the said remittances wereeffectedwerenot filed before the Ld. Adjudicating Authority. Ld. Counsel for the Respondent stated that the Ld. Adjudicating Authority in paragraphs 90, 91 and 92 has pointed out that there were instances wherein on the cheques issued by the Appellant the payee was mentioned as Grindlays Banksub A/c Girobank. The Ld. Adjudicating Authority did not accept thecontention made by the Advocate of the Appellant that it was not the responsibility of BFEA but that of their clients in Russia.

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Ld. Counsel for the Appellant rejected the contentions of the Respondent made in the preceding paragraph as either not being applicable to the case on hand or being contrary to the legal provisions.

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We have carefully considered the rival submissions and the documents which are on record. We have perused the two orders dated 20.09.2019 of this Tribunal with respect to Appeals Nos. FPA-FE-91-97,105-110,112-114 & 121-122/MUM/2007filed by ANZ Grindlays Bank and its employees and Appeals Nos. FPA-FE-10-13 & 50-57/MUM/2008 filed by Canara Bank and its employees. We are unable to persuade ourselves to hold that the two orders have binding impact on the present Appeal before us. The orders of the Tribunal do not propound ratio of binding nature. The orders otherwise suffer from contradictions. The order records contraventions of the provisions and takenitto be serious but thereafter recorded finding in favour of the appellant therein. The next para refers to realization of mistake of lapse by the Appellant and therefore no claim for recovery of the amount already deposited. It would be when lapse is admitted. Thetwo orders are under challenge before the Hon’ble Bombay High Court and thus

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have not attained finality. We are therefore inclined to dispose of the present Appeal in terms of its own merit.

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It is not disputed that the transactions as listed in the Impugned Orderfor which 22 SCNs were issued entailed credit of sums of money in the non-resident convertiblerupee account by debiting the nonconvertibleIndian Rupees Accounts held by the Appellant. These transfers to non-resident convertible rupee accountsenabled paymentsto be made in Foreign Exchange to a person resident outside India. The debiting and the crediting were done by thosebanks in India in which the Appellant Bank held its accounts. It is also not disputed that such transfers and payments were made on the instructions of the Appellant Bank. These instructions were conveyed either through telex or through cheques drawn by the Appellant bank in favour of non-resident persons holding convertible rupee accounts.

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The defense of the Appellant has been that they were carrying out the instructions of their clients in Russia and had no duty either under the Agreement between BFEA and RBI or under the Agency Arrangement signed with the Indian banks, which maintained their non-convertible rupee account. It is an admitted fact that the special arrangement to effect the payment of commercial and non-commercial nature was to made innon-convertible Indian rupees. Obviously, this bilateral arrangement was between India and Russiaonly,arising out of their Trade Agreement. There was no scope for any settlement of payment beyond the jurisdiction of these two countries. However, the facts of the case reveal that payments were made in countries other than the two covered by this bilateral agreement. Such payments, if madein Indian rupees could not have been acceptable to the recipients who were residents outside India. Hence, to overcome non-acceptability of such payments, these were made in convertible currency (and not Indian Rupees). It therefore follows that the

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instances of the payments listed in the Impugned Order did not fall within the ambit of the Trade Agreement between the Governments of the two nations and the ensuing Inter-BankingAgreement between BFEA and RBI, as well as within the scope of the Agency Agreement which the BFEA entered into with the respective Indian Banks. After having entered into these Agreements, the Appellant had the onus to ensure that all payments of commercial (and non-commercial) natureoccurred in non-convertible Indian rupees and that too only between India and USSR. Since, transactions have occurred in contravention of the terms of Agreements to which BFEA was a party and which were carried out under its instructions,it cannot at ex-post stage wash its hands off from its responsibilities arising from the Agreements.

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Since, admittedly the impugned transactions were of commercial nature as payments for the export of medical equipments from India, there had to be an underlying contract between the parties. The Ld. Adjudicating Authority in paragraph 82 of the Impugned Order has made following observations in this regard:

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“Though the purpose of the remittance is stated to be against contract, no such contract appears to have been filed or perused before actually passing the credits. The mention of the existence of some contract was only a cover up to make it appear that the remittance was towards goods while no such contract existed in reality. The Officers of the Bank who sent the TT from Connaught Place and the Officer who subsequently credited the non-resident rupee account of GirobankPlc./ Standard Chartered Bank/ Bank of Ireland, London or Norwest Bank, USA did not verify the nature of the remittance, though they were required to verify these documents before effecting such payments”.

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It therefore appears that the Appellant failed to produce a copy of the contract underlying the payments made in convertible Indian rupees to the accounts abroad (neither in India nor in Russia)which could have clarified its position that it was merely carrying out the instructions of the clients. While they may not have had responsibility as to verify the type of account which was being credited they cannot escape their duty/obligation to

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ensure adherence to the terms of the Agreements which they had entered into.

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A copy of summary of the meeting filed by the Appellant as Annexure to the affidavit dated 22.06.2000 reveals that the meeting was held between the officials of the Appellant and those of ANZ Grindlays Banks on 16.03.1993. In this regard following is being reproduced from the summary of the meeting:

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“Such payments, in the opinion of representative of ANZ Grindlays Bank, contradict both foreign exchange regulations of India and the RussianIndian Trade and Payments Agreement since funds in non-convertible Indian Rupees were transferred to the account of an English bank Giro Bank PLC with ANZ Grindlays Bank, Bombay maintained in convertible Indian Rupees. Shipping documents were missing, goods were transported from a third country and the exporter himself is not an Indian firm. In this connection representatives of ANZ Grindlays Bank claimed that Vnesheconombankshould reimburse them the amount (about USD 60 mln) in a freely convertible currency with simultaneous refund of fundsin Indian Rupees to the account of Vnesheconobank”.

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The Appellant even then attributed the violation to the Indian banks. It can also be seen from the summary of the meeting that the Appellant stated that it acted in strict conformity with the instructions of clients and cannot bear responsibility for the correctness of account numbers indicated there.

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In this regard, certain paragraphs from letter dated 31.05.1993 of RBI addressed to BFEA are reproduced:

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“Please refer to the correspondence resting with your telex message ID 162632 dated 17^th March 1993 on the above subject. In this connection, we have to advise that we are still awaiting your detailed reply to our letter O.C.No. ECD. 978/136 (19)- (LO)- 91/92 dated 28^th March 1992 addressed to Mr. Y.V. Ponomares, Chairman of the Supervising Committee of your bank. Although, vide your interim reply dated 17^th April 1992 you had advised us that you were investigating the matter and were enquiring with your concerned customers at whose requests you had authorized payments/ issued cheques details of which were furnished by us alongwith our letter dated 20^th March, 1992 and that on receipt of full information/details from your customers you will revert to us in the matter, we have not been informed about the details inspite of reminders vide our letter dated 8^th June, 1992 and telex message dated 4^th September, 1992.

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2. In your telex message of 17^th March, 1993, which was sent after the meeting of Mr. G.P. Pande, General Manager of the ANZ Grindlays Bank, Bombay had with your representatives at Moscow on 16^th March, 1993, you had mentioned that remittances favouring M/s Eastern Suburbs Ltd. were effected by you in accordance with payment instructions of your principals, viz. M/s Sojuzzdravexport, in accordance with the terms of the contracts singed by M/s Eastern Suburbs Ltd. and M/s Sojuzzoravexport. You had further mentioned in your telex that payments were in Indian rupees and in favourof beneficiaries in India and hence there were no contradictions on your part since the transactions were executed by you in conformity with the Indo-Soviet Trade Agreement.

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3. In this connection, we may mention that our investigations have indicated that your bank had authorised a number of payments in favour of foreign entitiessuch as M/s Eastern Suburbs Ltd. (subsequently renamed as M/s Indo International Corporation Ltd.) of UK, M/s Impulse Trading Inc. of USA and Mr. Augustin Gomez de Segura, as detailed in Annexure I. In some of these cases, your cheques/payment instructions clearly instructed concerned Indian banks to credit the Vostro account of the Giro Bank, London maintained with ANZGrindlays Bank, Bombay. Although the instruments were drawn in Indian rupees and were payable in India, they were drawn in favour of foreign entities which had no operations in India and hence possibility of executing any export contracts from India by them for the Russian parties (importers) was ruled out….. You will agree that no payments were permitted under Indo-USSR Trade Agreement even in Indian rupees for exports to USSR from any country other than India or to any nonresident Indians except those living in USSR and having income/ earnings in USSR itself.

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4. We have also come across a number of large payments mostly in round figures authorized by you from your accounts with banks in India to certain parties without indicating the purpose. Besides, in some case, large payments were authorized in favourof certain parties as advance payments for exports/ purchases from India and it is not known whether subsequently your Russian clients imported goods from India at all. As you are aware, the payments from your Vostro accounts were permitted under the Trade Agreement only for India-based trade and hence authorizing payments without indicating the purpose was in contravention of the Trade Agreement. A few example of these transactions are given in Annexure II. Transactions given in the Annexure are only illustrative and there are numerous other transactions of such types.”

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It is therefore clear from the letter that the payments made under the instructions of the Appellant from Vostro Accounts to non-resident accounts were not permissible under the bilateral Indo-USSR Trade Agreement and under the ensuing Inter-Bank Agreement and Agency Agreements.

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While the transfer/payments from non-convertible Indian rupee account to non-resident convertible rupee account was not permissible under the Trade Agreement, the Appellant has raised the query that it was not chargeable under the provisions of FERA 1973. Since, the Appellant is a Foreign Central Bank, the provisions of the domestic law of India viz. FERA 1973 could not be made applicable to it. In this regard, Ld. Counsel for the Appellant cited Article 5 of the Inter-Bank Agreement which are reproduced below:

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“ Article 5:

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a) The payments permitted in accordance with the Indian Exchange Control Laws, Regulations and Rules will be effected to the physical and juridical persons residing in the U.S.S.R. by the physical and juridical persons residing in India by crediting the amounts of such payments to the account(s) of the Vneshtorgbank with the commercial bank(s) in India.

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b) Like-wise, payments, permitted under the U.S.S.R. Foreign Exchange Control Laws, Regulations and Rules will be effected by the physical and juridical persons residing in the U.S.S.R. to the physical and juridical persons residing in India by debiting the amount of such payments to the account(s) of the Vneshtorgbank with the commercial bank(s) in India.”

¶84

Even if it is accepted,that the Impugned transactions were to be covered by clause b of Article 5, bare reading of the clause clearly shows that the payments even permitted under the USSR Foreign Exchange Control Laws were to the physical and juridical persons residing in India. It is matter of record that the impugned transactions resulted in payments to persons who were not residents in India. The Ld. Adjudicating Authority in paragraph 85 of the Impugned Order has held thatany transaction which takes place in India irrespective of whether it is indulged-in by a citizen of India or a foreign citizen the same is covered under Section 1 of FERA 1973 whereby the Act extends to whole of India. He has further observed that since BFEA opened accounts with the banks in India and was operating such accountsit was covered under the provisions of the Act of 1973.It is observed that the operations within the framework of FERAto give effect to the terms of the Agreements cannot give scope to escape responsibilityfor the contraventionsof the said framework. In fact, the Article 5 of the Inter-

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Bank Agreement explicitly shows that the mechanisms created to facilitate trade by providing a mode of payment could not have been without a reference and compliance to the provisions of the Exchange Control Laws of the two countries. Even if clause 5a is taken it is clear that the Indian Exchange Control Laws, Regulations and Rules could not have meant that it applied only to one end of the monetary transaction i.e. the Indian payee leaving out the other end including the intervening accounts in India of the Appellant from the framework of Exchange Control Law. It cannot therefore be said that the provisions of FERA 1973 were not applicable to the Appellant.

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The Appellant has been charged for contravention of Section 64 (2) read with Section 6 (4), Section 6 (5) and Section 49 (i) (a)of FERA 1973. Section 6 (4) and 6 (5) and 49 (i) (a) of the Act of 1973 requirethat the banks which are ADs shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of its authorization as AD and to obtain necessary declarations in this regardfrom the person on whose behalf it undertakes such transactionsas well as shall comply with the conditions of such permission.Section 64 (2) of the Act of 1973 reads as follows:

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(2) Whoever attempts to contravene, or abets any contravention of any of the provisions of this Act [other than section 13, clause (a) of sub-section (1) of [section 18, section 18-A], clause (a) of sub-section (1) of section 19, sub-section (2) of section 44 and sections 57 and 58] or of any rule, direction or order made thereunder, shall, for the purposes of this Act, be deemed to have contravened that provision, rule, direction or order, as the case may be.

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The Appellant has pleaded that the charge of abetment is to be understood in terms of Section 107 of the Indian Panel Code (IPC). Since, Section 107 IPC requires mens rea and meeting of mind between the Appellant and the ADs for which there is no evidence the charge cannot hold good against the Appellant. For ease of reference Section 107 IPC is reproduced below:

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“107. Abetment of a thing.- A person abets the doing of a thing, who-

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First,- Instigates any person to do that thing; or

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Secondly,- Engages with one or more other person or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing; or

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Thirdly,- Intentionally aids, by any act or illegal omission, the doing of that thing.

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Explanation 1.- A person who, by wilful misrepresentation, or by wilful concealment of a material fact which he is bound to disclose, voluntarily causes or procures, or attempts to cause or procure, a thing to be done, is said to instigate the doing of that thing.

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Illustration

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A, a public officer, is authorized by a warrant from a Court of Justice to apprehend Z. B, knowing that fact and also that C is not Z, wilfully represents to A that C is Z, and thereby intentionally causes A to apprehend C. Here B abets by instigation the apprehension of C.

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Explanation 2.- Whoever, either prior to or at the time of the commission of an act, does anything in order to facilitate the commission of that act, and thereby facilitate the commission thereof, is said to a id the doing of that act.

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Ld. Adjudicating Authority recorded finding that the Appellant did not disclose that the Eastern Suburbs Limited is an entity located in UK. Further, four cheques which are listed in paragraph 91 of the Impugned Order, were issued by the Appellant bearing name of GirobankPlc,.In two cheques issued by the Canara Bank under the instructions of the Appellant only Grindlays Bank was named as a beneficiary which should not have happened if the payments were against imports made by its clients in Russia. To take the defense that it was not a duty of the Appellant to verify as to which accounts were to be creditedeven though the terms of the Agreement required to ensure that payments are effectedin non-convertible Indian rupees, does not cut much ice. For all the transactions for which the Appellant has been charged under 22 SCNs,the payments have been effected under its instructions by crediting the convertible rupee accounts of non-residents. While the payments have been effected by the ADs it cannot be denied that they did it under the instructions of the Appellant who was signatory to the Inter-Bank Agreement with RBI and to the Agency Arrangements with the ADs. The ADs carried out such instructions of a

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client who enjoyed the status of Central Bank and was committed to effect transactions in accordance with the Agreements and Arrangements.

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Certain extracts of relevant paragraphs of the judgement dated 03.06.2020 of the Supreme Court of India in Criminal Appeal No. 403 of 2010 in the case of Somasundaram @ Somu Versus The State Represented By The Deputy Commissioner of Police

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[MANU/SC/0467/2020: (2020) 7 SCC 722] are reproduced below:

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“ 49. Explanation (2) to Section 107 declares that whoever, either prior to or at the time of the commission of the act, does anything in order to facilitate the commission of that act and thereby facilitate its commission, is said to aid the doing of that act. Thus, anything done which facilitates the commission of the criminal act and promotes the commission of the act, would bring the person within the scope of abetment.

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52. In Arjun Singh v. State of Himachal Pradesh (AIR 2009 SC 1568), this Court held as follows:

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“11. … Law does not require instigation to be in a particular form or that it should only be inwords. The instigation may be by conduct. Whether there was instigation or not is a question to be decided on the facts of each case. It is not necessary in law for the prosecution to prove that the actual operative cause in the mind of the person abetting was instigation and nothing else, so long as there was instigation and the offence has been committed or the offence would have been committed if the person committing the act had the same knowledge and intention as the abettor. The instigation must be with reference to the thing that was done and not to the thing that was likely to have been done by the person who is instigated. It is only if this condition is fulfilled that a person can be guilty of abetment by instigation.”

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54. The law does not permit the abettor to escape punishment for abetment even if the actual player who commits the offence is not criminally liable for the actual act which results in the commission of an offence (See in this regard, the situation contemplated in illustrations in Explanation III of Section 108 of the IPC). Equally, there need not be meeting of minds between all the persons involved in a conspiracy and it is sufficient if a person is engaged in the conspiracy following which the offence is committed (Explanation V to Section 108 of the IPC). This means that it is not even necessary that the persons who are engaged in the conspiracy, to even know the identity, leave alone physically meet the other players. There can be any number of persons depending on their guilty mind and acts or omissions which may render them liable.”

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The Appellant repeatedly instructed the ADs to transfer the funds from

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its non-convertible Indian rupees accounts to convertible rupees account in

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spite of being signatory to the Agreement and Arrangements for effecting payments only in non-convertible Indian rupees and that too between the traders of India and Russia. It is also evident that such convertible rupee accounts were of persons non-resident in India. The Appellant cannot get away by an explanation that it was not its business or responsibility to do verification of any kind for such transactions because it was the instructions of the Appellant which initiated the transactions which were prohibited under the Agreement and Arrangements. Even when the matter was taken up with the Appellant by Grindlays Bank and RBI, there is nothing on record to show that any enquiry was taken up by the Appellant. Its response was to deny its responsibility. Such conduct on the part of the Appellantnot only reveals instigation but that too intentionally so as to engage with the ADs to indulge in transactions which were prohibited under the Agreement and Arrangements, resulting in contraventions of the provisions of FERA 1973. It is from the facts and circumstances of a case that the intention, instigation and engagement are to be ascertained. The facts of the present case speak for themselves whereby the obligations arising from the Agreement and Arrangements were completely ignored by the Appellant. FERA 1973 provided for a regulatory mechanism for certain payments, dealings in foreign exchange and security, transactions indirectly affecting foreign exchange and the import and export of currency for the conservation of the foreign exchange resources of the country and the proper utilization thereof in the interest of the economic development of the country. Section 59 of FERA1973 provided for presumption of culpable mental state in any prosecution for any offence under the Act which requires a culpable mental state on the part of the accused, unless the accused proved the fact that he had no such mental state with respect to the charge against a particular offence. Sub-Section 3of that Section makes such presumption applicable to proceeding before an Adjudicating Officer. The circumstances and the evidence in the present case reverse the burden on to the Appellant which it has failed to discharge. Therefore, the

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charge of the abetment against the Appellant stands established as it contravened Section 64 (2) read with Section 6 (4), Section 6 (5) and Section 49 (i) (a) of FERA, 1973.

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Now, we would consider the argument on the quantum of penalty imposed on the Appellant. It is submitted that the amount of penalty of Rs. 7,67,45,000/- is disproportionately higher for the charge of abetment alleged against the Appellant. The Appellant has even argued against the allegation of abetment which however has not been accepted by the Tribunal. Ld. Counsel for the Appellant has prayed for making amount of penalty commensurate to the charge of contravention and abetment therein. The prayer has been opposed by the Ld. Counsel for the Respondent.In the facts and the circumstances of the case we do find that that amount of penalty is disproportionate to the allegation made against the Appellant. We accordingly substitute the penalty of Rs. 7,67,45,000/with that of Rs. 75,00,000/- which would meet the ends of justice.

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The Impugned Order is accordingly modified by reducing the penalty amount on the Appellant to Rs. 75,00,000/-. The Appeal is partly allowed and along with applications accordingly, disposed of.

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(Justice Munishwar Nath Bhandari) Chairman

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(Balesh Kumar) Member

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New Delhi, 7^th May, 2024

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‘ASH’

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