G.N. Srinivasan, Member (J)
1. This is an appeal filed by the appellants against the decision of the Commissioner of Customs (Preventive), Mumbai made in Order No. CCP/SSS/ADJN/27/98 dated 23.6.98 where under he had confiscated assorted foreign currency including Traveller's Cheques (TCs) amounting to Rs. 1,43,57,730.15 which was seized or 27.5.1997 under Section 113(d) and (f) of the Customs Act. He ordered confiscation of country craft "Ya-Hajipir" having registration No. MNV-1048/Mandvi seized or 29-5-1997 under provisions of Section 115 of the Customs Act. Since the country craft was released provisionally under bond and was available for confiscation he ordered appropriation of Rs. 5 lakhs in lieu of fine for confiscation. He also ordered inter alia confiscation of an amount of Rs. 58,02,000 seized on 2.6.1997 lying in the pay order account of M/s. Times Travels & Cargo (M/s. TTC for short) in the Union Bank of India, Versova Branch and the amount of Rs. 10,01,010 seized on 2.6.1997 lying in the pay order account of M/s. TTC in Syndicate Bank, Jogeshwari Branch plus bank charges of Rs. 3010 paid by TTC under the provisions of Section 121 of the Customs Act. Out of this amount, pursuant to the order of the Honble Supreme Court of India, in Special Leave to appeal (Civil) No. 793/98 and amount of Rs. 68,00,000 was put in Fixed Deposit vide FD No. 5520758 dated 20.5.1998 with Union Bank of India, Hill Road Branch, Bandra West in the joint names of Assistant Director of DRI Mumbai and M/s Wall Street Finance Ltd. were ordered to be confiscated to the Govt. of India account forthwith. He also ordered further that only an amount of Rs. 23 lakhs out of total amount of Rs. 54,75,750 could be identifiable with the proceeds of smuggled TCs and therefore, he ordered confiscation of Rs. 23 lakhs under the provisions of Section 121 of the Customs Act, 1962 and ordered Wall Street Finance Ltd., the appellant to pay the said amount forthwith. He also ordered confiscation of Rs. 9.5 lakhs and Rs. 1,25,259.68 lying on the fixed deposit account of M/s TTC with Union Bank of India Versova Branch and Current Account with the same branch of UBI under the provisions of Section 121 of the Act. He also imposed penalties on various other persons as mentioned in paragraph 6 of the Order in the portion relating to the order with which we are not concerned except the portion of order imposing the penalty of Rs. 20 lakhs on the appellant, viz. M/s Wall Street Finance Ltd.
2. The facts of the case in dispute have before us are as follows:
3. The appellants, M/s Wall Street Finance Ltd. (M/s WSFL for short) are dealers in foreign currency, holding licence No. MUMBAI. FM. 0779A91 issued by the Reserve Bank of India in 1991-92 in terms of Section 7 of the Foreign Exchange Regulation Act, 1973. Under this licence they were authorised to purchase and sell foreign currency notes/coins as also foreign currency travellers cheques issued by the overseas organisations. Certain conditions were imposed by the Reserve Bank of India when granting the licence. This licence was renewed from time to time. A similar licence to deal in foreign currency was also granted to M/s Time Travels & Cargo (M/s TTC) in 1996. In terms of these regularisation both dealers qualified for Full Fledged Money Changers (FFMC). M/s WSFL entered into an agreement on 26 December, 1996 with M/s Arab Financial Services Co., Behrain (AFS for short). In terms of this agreement M/s AFS was to provide M/s WSFL, AFS Visa Travellers Cheques for sale to eligible passengers in India against Indian Rupees. The sale proceeds were to be remitted to M/s AFS at weekly intervals. M/s WSFL was to get a commission of 0.2%. Thereafter M/s WSFL commenced the sale of such Travellers Cheques (TCs) to other licenced Full Fledged Money Changers FFMCs. On June 12, 1997, M/s WSFL, informed the R.B.I, of the situation and claimed that if the other FFMCs misuse the facility, they would not be responsible for such misuse. It was told that the RBI was the only authority to monitor such misuse. The RBI gave a noncommittal reply on 5.7.1997 saying that they expected the FFMCs to follow the terms and conditions of the licence granted to them. On 21.3.1997, M/s WSFL signed an agreement with M/s TTC for sale of the foreign exchange TCs of M/s AFS. M/s TTC were to sell such TCs to genuine passengers against Purchase Agreement Forms (PAF). In the said contracts there was a clause about money laundering. The following were the cautions given to M/s TTC:
6.1 It is an offence to assist anyone whom you know, or suspect to be laundering money from any criminal sources. Assistance could involve providing traveller's cheques to conceal the true ownership of the proceeds of a crime. As the sub-agent of the bank you are required to be aware of this threat.
6.2 Time Travel & Cargo is required to exercise "Know your customer" (KYC) and exercise the normal Due Diligence on all customers and branches whom Time Travels & Cargo proposes to stock with travellers cheques. It will be the sole responsibility of Time Travels & Cargo and their branches to sell the Visa Travellers cheques strictly in compliance of FERA and certain exchange control regulations in India at all times. The Wall Street Banking Corporation Ltd. is no way accepts responsible for any violation of exchange control regulation committed by Time Travels & Cargo or any of their branches.
6.3 Time Travels & Cargo is required to furnish on a weekly basis daily settlement advises along with purchase agreements to Wall Street Finance Ltd. and such information may at any point of time be subject to local international Law Enforcement review. Wall Street Finance Ltd. understands from its Due Diligence that Time Travels & Cargo (with permission from the Reserve Bank of India) will promote sales in India through its Branches who are licensed by the Central Bank to conduct such sales of Visa Travellers Cheques. Wall Street Finance Ltd. further understands that Time Travels & Cargo will sell Visa Travellers Cheques only to bona fide travellers at their counters and are required to perform the necessary Due Diligence for such counter-sales throughout India at all sales locations. Time Travels & Cargo unconditionally guarantees that sales of Traveller Cheques will be made to bona fide customers and in their premises as per RBI regulations.
Thereafter M/s TTC commenced sales in terms of this agreement.
4(a). On the basis of prior specific intelligence, on 25.5.1997, the Directorate of Revenue Intelligence and the Coast Guard in a joint operation intercepted a country craft titled 'Ya Hajipir'. The rummaging of the craft resulted in recovery of foreign currency including 140 travellers cheques, each of the denomination of US$ 500. The Indian value of the currency so seized was Rs. 1,43,57,730.15. The Captain of the vessel, one Suleman Ismail, deposed that his brother Haroon Ismail in his statement claimed that one Azeem had given him the bag containing the foreign exchange and TCs. Shri Azeem was to come to Dubai to take delivery of the foreign exchange. Examination of the travellers cheques showed that they were sold by M/s TTC in terms of the arrangements detailed earlier in this order. The office premises of M/s WSFL as well as M/s TTC were searched. One of the premises of M/s TTC contained 877 Indian Passports which were seized. All the passports were current.
4(b). M/s TTC was a partnership firm with two partners viz. Riyaz Retiwala and Savio Fernandes. In his various statements, Riyaz Retiwala stated that he had securities and fixed deposits totally amounting to Rs. 55.5 lakhs with M/s WSFL for getting the ASF TCs for sale. These deposits were in his personal name and not in the firm's name. In the case of default of payment, M/s WSFL were to appropriate the securities. In settlement of accounts he would give blank cheques to M/s WSFL who would fill in the amounts calculated on the dollar exchange rate on the value for the TCs sold. M/s WSFL on request would delay the deposit of the cheques. In certain cases the cheques bounced. In this situation, he would replace the cheques with demand drafts. He would sell the TCs against cash only because he could take cash up to Rs. 50,000 only to each passenger) sale of US$ 1200 was being shown. He deposed inter alia that these TCs were not sold to genuine foreign bound passengers but that the same were made in the name of the persons whose passports were in their possession. All the other documents were forged by him and his employees including the signatures of the passengers. The PAF would not contain the date so that the date of the cheques could be masked. These cheques could be sold in the black market (hawala market). Foreign exchange was also similarly sold. The PAF would repeatedly use for authenticating such bogus sales. The cash generated was put in the bank accounts and sent to M/s WSFL as sale proceeds. The rate at which he would sell the travellers cheques was higher than the authorised bank rates. Such fraudulent sales were made to two persons viz. Iqbal Kapadia and Salim. In this manner currency was shown to have been sold validly to 2426 passengers. Iqbal Kapadia was subsequently located and his statement was recorded. He confirmed the statements of Riyaz Retiwala. He deposed that he was making the exchange of TCs available for being smuggled abroad. His bulk buyer was one Zahoor. Zahoor used to give hint the cash, which cash he would pay on to Riyaz Retiwala and obtain in exchange initially the foreign exchange and later the TCs. The daily transaction was for about Rs. 10 lakhs. The carriers were Babu, Shakeel and Munna. He deposed that on three days i.e. 23rd, 24th and 26th May, 1997, he purchased TCs valued at US $ 3,70,000 from Riyaz Retiwala. The admissions by Riyaz Retiwala were corroborated by his staff viz. Dhanani and Shaikh as well as Gavit. Rais Retiwala's younger brother Rais Retiwala was also aware of these clandestine operations.
5. M/s TTC had made payment of Rs. 68 lakhs to M/s WSFL by way of two pay orders drawn on two banks viz. Union Bank of India and Syndicate Bank. These had been deposited by M/s WSFL in their account for encashment. These two pay orders were later surrendered by M/s WSFL and overseas to the DRI. DRI issued seizure memo both dated 29.5.1997 which were served upon the two Banks to the effect that these two pay orders instrument which have been put by M/s WSFL into clearing through their bank viz. Vijaya Bank, Hill Road Branch, could not be taken charge of. Accordingly vide letter dated 17.7.1997, WSFL was requested to surrender the said two pay orders instruments, covered under seizure Memo dated 29.5.1997 with which WSFL surrendered the pay instrument. In original cover of their letter dated 1.4.1997 (these amounts represent the value representing the cheques given by TTC to WSFL which were bounced and we need not dwell which in this aspect viz. what happened about the financial relationship between TTC and WSFL). In the SCN appellants were charged for violation of Sections 121,113(d) and 114 of the Customs Act. It is relevant to mention that the notice was given to several persons including the appellants. A reply to the SCN was filed by the appellants through its Advocates, dated 24.4.1998. In an elaborate report, the Advocate for the appellants stated that the appellants were not liable for any of the violations with which they were charged for. On the basis of the materials before him and after hearing the Ld. Counsel on behalf of M/s WSFL dealt with the various issues and inflicted the penalties as mentioned in the said order. Hence this appeal.
6. Shri V.S. Nankani, Advocate appeared for the appellant and Shri A.K. Chatterjee, SDR appeared for the department.
7. Shri Nankani argued with his marked ability that the respondent in law could not have confiscated Rs. 68 lakhs and Rs. 23 lakhs in terms of provisions of Section 121 of the Customs Act. He further argued that the order imposing penalty of Rs. 20 lakhs on the appellants for violation of Section 114(1) of the Customs Act is wrong in law. He stated specifically that as far as violation of Section 121 of the Act is concerned, (i) that a person must sell the smuggled goods; (ii) the persons selling the smuggled goods must have a knowledge or reason to believe that the goods were smuggled goods; (iii) the sale proceeds of such smuggled goods must be available for confiscation. He stated that all the 3 ingredients are absent in this case. (He relies on the words "in the hands of the smuggler or his accomplices" contained in the section are important asserts Shri Nankani.) He also relied the statement of objects and reasons while enacting Section 121 of the said Act, which reads as under:
Clause 121 is a new provision to the effect that where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods, the sale proceeds thereof shall also be liable to confiscation. The intention is that when a raid is made and it is found that the smuggled goods have already been sold, the sale proceeds in the hands of smuggler or his accomplices may be seized and confiscated.
He further elaborated stating that cash in Indian currency i.e. Rupees received by Retiwala was deposited in the bank Account of M/s TTC. It is a matter of record that the two Pay Orders are issued by the concerned banks, and the Pay Orders were already deposited by the appellant WSFL in their bank Account. He stated that once such deposit has been made by any customer in its bank Account it ceases to be customer's money and in this case it ceased to be the money belonging to the representative account holder viz. TTC. Mr. Nankani argued that the relationship between the banker and the customer cannot be treated as a trustee and beneficiary nor as a principal and agent but as a creditor and depositor. Whenever an account holder deposits money in the bank, it becomes the property of the bank i.e. it merges with coffers of the bank and it is at the absolute disposal of the bank which receives the money. The only action which the Account holder has, is the right of receipt of money which he has deposited. In other words, the Account holder has only an actionable claim against the bank. In normal practice it is an understanding between the banker and the customer that whenever a customer issues a cheque for the amount deposited the bank will honour that cheque. He placed reliance on the observation of the author Shri S.N. Gupta which quotes from "Paget on Banking, titled the Bankers Law in Theory and Practice, H.P. Sheldons Book in Law of Banking Halsburys Laws of England, American Jurisprudence and Corpus Juris Secondum. He also quoted reference from Modern Banking Law by Ellinger Chapter 6. In S.N. Gupta's book it reads as under:
It has now been well settled that the first and foremost relationship between the customer and the bank is the relationship of a creditor and debtor". For this point of view, reference can be made to a number of cases decided by the courts in India as well as the courts in England. It would be interesting to refer to the views of Sir John Paget who states that the relationship of banker and customer is primarily that of debtor and creditor, the respective positions being determined by the existing state of the account. Instead of the money being set apart in a safe room, it is replaced by a debt due from the banker. The money deposited with him becomes his property and is absolutely at his disposal, and, save as regards the following of trust funds into his hands, the receipt of money by a banker from or on account of his customer constitutes him merely the debtor of the customer with the 'superadded' obligation to honour his customer's cheques drawn upon his balance, in so far as the same is sufficient and available.To the same effect, see Dharmdas v. Gangadevi ILR 39 Bom. 88, Ishur v. Jiban ILR 16 Cal. 25, Official Assignee, Madras v. Smith ILR 32 Mad. 68, London Joint Stock Bank v. Macmillan (1918) AC 777.
H.P. Sheldon in his Practice and Law of Banking sets out this relationship as follows:
The banker when he receives money from a customer does not hold the money in a fiduciary capacity. To say that money is 'deposited' with a banker is likely to cause misapprehension. What really happens is that the money is not deposited with, but lent to the banker, and all that the banker engages to do is to discharge the debt by paying over an equal amount when called upon. The true relationship between the two parties was admirably described by Lord Cottenham in (1848) 2 HLC 28(D). 'Money' said his Lordship, 'when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.
The money paid into the banker's is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker's money; he is known to deal with it as his own; he makes what profits he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places.... That being established to be the relative situation of banker and customer, the banker is not an agent or factor, but he is debtor.
Halsbury's Laws of England (Simonds Edn.) Vol. 2, p.166 states that the receipt of money by a banker from or on account of his customer constitutes him the debtor of the customer.
American Jurisprudence discussing the relation between bank and general depositor has the following to say:
Section 444. "It is a fundamental rule of banking law that in the case of a general deposit of money in a bank, the moment the money is deposited it becomes the property of a bank, and the bank and the depositor assume the legal relation of debtor and creditor. The legal effect of the transaction is that of a loan to the bank upon the promise and obligation, usually implied by law, to pay or repay the amount deposited usually upon demand; there is nothing of a trust or fiduciary nature of a bailment in the transaction or relationship, or in the nature of any right to specific money deposited...."Dakin v. Bayley (1933) 290 US 143, Blaky v. Brinson, United States v. Butterworth (1925) 267 US 387, Engel v. Milky (1911) 219 US 128, Burton v. United States (1905) 96 US 283; Leather Manufacturers National Bank v. Merchants National Bank (1988) 128 US 26, Fiancene v. Brawn (1888) 124 US 385, Allen v. Saint Louis (1887) 120 US 20, Leather Manufacturers National Bank v. Morgan (1886) 111 US 96, Pheoni Bank v. Risley (1884) 111 US (sic), Central National Bank v. Connectional (1881) 104 US 54, Seammon v. Kimball (1876) 92 US 362.
Corpus Juris gives the following information:
Section 326: " The contract between a bank and a depositor is not materially different from any other contract by which one person becomes bound to take charge of and repay another's funds, and there is no trust relation between a bank and a general depositor. The relation between a bank and a depositor may be dual in character, the bank being the depositor's debtor with respect to one thing and his agent with respect to another, or his debtor at one time and his agent at another; and while the relation between the bank and a depositor in respect to a general deposit is generally regarded as that of a debtor and creditor, yet in another sense the depositor is the owner of the deposit, in that he can demand repayment at any time. It is competent for a bank of deposit to enter into a collateral agreement with the depositor with reference to the disposition of the proceeds of deposits....
Bhashyam and Adiga's Negotiable Instruments Act, which is classical book on the subject (published by Law Weekly) states:
The relationship of a banker and customer is that of a creditor and debtor with the superadded obligation of honouring customer's orders on the funds in his hands.
Sunderly Davis, "Law and Practice of Banking " has the following to say of a debtor and creditor.
The money deposited with banker is not given to say: The relation between a banker and customer are usually that of to him on trust, but the same is lent to him.
He invited our attention to the judgment of the Halsbury' Laws of England in Folly v. Hill 1848(2) HLC 28 quoted in the said book at page 76 as under:
Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into the banker's is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker's money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places. The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases: he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it, or deal with it, as the property of his principal, but he is of course answerable for the amount, because he was contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that into his hands.
It has been the subject of discussion in various cases that being established to be the relative situations of banker and customer, the banker is not an agent, or factor but he is a debtor.
And Lord Brougham said:
This trade of a banker is to receive money, and use it as if it were his own, he becoming debtor to the person who has lent or deposited with him the money to use as his own.
Mr. Nankani in developing the point further also argued that it is not as if only the authors of the Banking Law have written in this way, but even there are Indian cases on the subject. He invited our attention to the judgment of the Bombay High Court in (1) Hanuman Bank Ltd. v. K.P.T. Nadar and Ors. (1956) 26 Com. Cas. 81; (2) Velji Lakhamsey & Co. v. Dr. Banaji (1955) 25 Comp. Cas. 395; (3) Textile Traders Syndicate Ltd. v. State of U.P. ; and (4) Kishore Shankar
Signapurkar v. State of Maharashtra and Ors. (1997) IV LJ 793 (Bom). It is argued by Mr. Nankani therefore, that, once the amount received by Retiwala which was deposited in his bank account then the same was ceased to be the sale proceeds of smuggled goods. What WSFL received was the money received within the banks own end i.e. bank's money and therefore, such an amount does not have taint of Section 121 of the Customs Act. It is emphasised by Mr. Nankani because in view of the fact bank had already issued the pay orders in the name of the appellants. When such action is taken the bank immediately debit the amount of the-customer at whose instance the pay order is issued. The money would have continued to lie in the pay orders account of the bank which is notionally in nature and part of the general funds of the bank. He specifically relies on the observation of the Division Bench of the Bombay High Court in Velji Lakhamsey & Co. v. Dr. Banaji (1955) 25 Comp. Cas. 395 at page 403. He therefore, states that the provisions of Section 121 cannot be applicable for confiscation of Rs. 68 lakhs. He further stated that Section 121 of the Act could be applicable only in the hands of the person, who sold this smuggled goods, with the knowledge or reason to believe that the goods were smuggled in nature. When such is not the allegation in the present case, therefore, all the ingredients of Section 121 being alleged considered charge under Section 121, violation of Section 121 cannot be made. It is to be proved as a matter of fact, in each and every case, mens rea which is enshrined in Section 121 has to be proved. He took us into the further aspects of the case viz., even if everything is assumed to be true what emerged from the statement of Riyaz Retiwala and Mohammed Hussain Kapadia was that Retiwala sold the Travellers Cheques to Mohd. Hussain Kapadia in India for the consideration paid and received in Indian Rupees. What is the mistake any party has committed? Has it been smuggled out? Are they smuggled goods at that point of time? The transactions have been happened in terms of the licence given by the Reserve Bank of India to appellant as well as TTC. What transaction took place between Retiwala and Iqbal Kapadia is not matter for consideration and it does not affect the lawful transaction between M/s WSFL and TTC. In any event the transaction between TTC and Kapadia is not a smuggled goods does not have the taint of a smuggled one. Because it is an admitted fact that the smuggling was not taken place at that point of time. He further emphasised that the provisions of Section 121 should be viewed in a very strict way.
8. As regards the confiscation of Rs. 23 lakhs, he adopts the same argument as is mentioned for Rs. 68 lakhs. As far as the levy of penalty is concerned he would argue that the respondent has imposed that after having put on notice by DRI that the TCs were not sold to the bona fide purchasers of TTC, appellants went ahead with the same vide letter dated 10.6.1997 and 20.6.1008 (sic) [20.6.1997] addressed to Bank of Madurai (Page 56 and 57 of Paper Book) to remit the amount to Arab Financial Services. He states and argues that all these actions have been taken in accordance with law and in accordance with, according to him, the instructions of Arab Financial Services. The action on the part of the appellants writing a letter to Bank of Madura for payment of US $ 2,95,250 cannot be termed as aiding and abetting. Because act of aiding and abetting must be freezing the principle of main offence. Here after the completion of the principle of main offence viz. May 1997 the remittance had taker place admittedly June 1997 so the question of appellants involved in the direct smuggling of Travellers cheque could not arise at all. TTC is an independent entity Appellants have no control over the activities of TTC and if at all any one to be blamed it is the action of TTC which is wrong. He also made reference to Clause 6.2 of the agreement with TTC which provides that it shall be the sole responsibility of TTC the said travelling cheque on compliance in the provisions of Exchange Control Regulations. He also quoted that the appellants had informed the RBI and RBI had clarified that FFMCs are expected to follow the terms and conditions of the licence issued by RBI. The statements of Retiwala and Kapadia do not indicate directly of indirectly in any manner the appellants, (sic) Further the statements of executives and officers are totally exculpatory. Therefore, appellants should not be charged with the offences.
9. As against this Shri Chatterjee, Ld. DR equally with a marked ability countered the arguments of Shri Nankani. Ld. DR stated that the appellant has advanced arguments in respect of 3 items viz. confiscation of amount of Rs. 68 lakhs, (page 36 of the Order-in-Original) and confiscation of Rs. 23 lakhs (page 37of the Order-in-Original) and imposition of penalty of Rs. 20 lakh on M/s Wall Street Finance Ltd. under Section 117 of the Customs Act (page 38 of the impugned order). Shri Chatterjee emphasised that the appellants have no locus standi to agitate this appeal. There is no whisper in respect of the confiscation of amount Rs. 23 lakhs either with the portion dealing with the grounds of appeal. In para 6 of the appeal, Shri Chatterjee argues, the appellant mentions about the seizure of Rs. 68,03,010. In paragraph 8 of the appeal the appellant mentioned about the Show Cause Notice as to why the said amount of Rs. 68 lakhs should not be confiscated. He states that before the Commissioner, the appellant made submissions in respect of the proposal to confiscate the amount of Rs. 54 lakhs lying in their hands under Section 121 of the Act and the Commissioner has dealt with the same in paragraph 10 (internal 27 of the Order). Even the submissions made before the Commissioner were not taken up in the appeal memorandum. Shri Chatterjee further invites our attention to the terms of paragraph 8 of the CEGAT Procedure and Rules to state that every Memorandum of Appeal shall set forth concisely and under distinct heads, the grounds of appeal and such grounds shall be numbered consecutively and shall be typed in double space of the paper and every Memorandum of appeal should be signed and verified by the principal officer duly authorised to sign Memorandum of appeal and arguments but the counsel in this respect as general prayer made in the appeal could not and will not substitute the appeal would normally opposite the sense of the term in terms of provisions of CEGAT Procedural Rules. Shri Chatterjee relies on two decisions of Tribunal viz. Premier Brass & Metal Works P. Ltd. v. CC , paragraph 5 which reads as under:
5. We have heard both the sides and have gone through the facts and circumstances of the case. We have also perused the statement of facts, grounds of appeal and the relief claimed in the appeal. The appellant has not challenged valuation aspect at all anywhere. Shri Lakshmikumaran, the Ld. Advocate had argued on the valuation aspect and Shri Durghayya, the Ld. JDR had opposed the argument of the Ld. Advocate on the ground that it was not open to the appellant to argue on this point as this issue was not raised in the grounds of appeal and it was raised for the first time in the arguments before the Tribunal. The applicant has not filed any application seeking permission of the Tribunal of amending its grounds of appeal. Apparently, it is a fresh ground which has been taken before the Tribunal. The powers of the Tribunal that expressed in widest possible term are restricted to the subject matter of the appeal by virtue of the word "thereon" used in the provisions. This view was expressed by the Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. v. Commissioner of Income Tax . Hon'ble Gujarat High Court in the case of Commissioner of Income-tax, Gujarat, v. Orient Prospecting Co. , had also observed that if the new
grounds seeks to a large scope of the appeal it cannot be terminated. There is no ground of appeal before us. Only an oral submission by Shri. V. Lakshmikumaran, the Ld. Advocate on the valuation aspect. Now coming to the merits of the case we would like to observe that in the Bill of Entry the appellants had given the descriptions Brass Ash/Dross and in the invoice also the description was given Brass Ash/Dross with minimum metallic content of 85% as per our sales contract No. 182/11/84 dated 3rd November, 1984. We have also gone through the BTN Section V. heading 26.03 of BTN Page 188 of EN/AS20, May 1975. Shri Lakshmikumaran, the learned Advocate had placed heavy reliance on the same. We have to resort to BTN as a guide we have to strictly go to the tariff. There is no definition. Shri Lakshmikumaran's argument that waste is derived from the mechanical working metal of scrap which consists of iron out of broken out metal which excluded the second examination of the goods was done on the request of the appellant vide appellant's letter dated 19/22-7-1985 had requested for the examination. Para 2 from the said letter is reproduced below:
The test report has been already received showing all the properties of Brass Dross and in amplification to the description, Dy. Chief Chemist says that this is Scrap/Waste; since we are not satisfied as the goods having the properties of Brass Dross (with Copper percentage 56.6%) and having different description other than mentioned in the documents. Under the circumstances, we request you to please send our Goods to Chief Chemist, New Delhi, for re-test and to prove the fact that they are Brass Dross.
He also placed reliance in the case of Commercial Clearing Agencies P. Ltd. v. CC Calcutta . Shri Chatterjee relies on the
fact that if a particular ground not specifically taken in the memorandum of grounds duly verified and signed by the authorised persons in terms of provisions of CEGAT Procedural Rules, however much the counsel relies in respect of that particular ground was argued, the Tribunal cannot adjudicate on that point because it has not been stated in the grounds of appeal. As far as confiscation of Rs. 68 lakhs, the said amount, it is argued by Shri Chatterjee, has been confiscated in the hands of banks lying in the A/c of M/s TTC and before the same been credited in the appellants' account. Therefore, it is argued that M/s WSFL does not have locus standi to maintain an appeal on the question of confiscation on this short point alone. It is emphatically argued by him if at all any person who could be aggrieved against this impugned order it could only be the bank in whose hands the amount has been confiscated c TTC from whose A/c the money has come out Customs department instead of being the finance company viz. WSFL. He emphasises the fact that the amount in question never reached the A/c of M/s WSFL in Vijaya Bank. They were intercepted before could reach the property of WSFL. He tries to distinguish the judgment in Bomba High Court in Lloys Bank Ltd. 1933 (36) BLR 88 case. He also stated that it will b incorrect to mean that Wall Street Finance Ltd as the owner of the money even before the receipt of the Vijaya Bank, the banker of Wall Street. In this connection, it is argued by Shri Chatterjee against the seizure, a Writ Petition was filed in the High Court and the matter was also taken to Supreme Court. High Court refused to interfer saying, let the adjudication authority adjudicate the grievance. Supreme Court did not interfere with the High Court's Order. He emphasised the fact that the matter adjudication having been taken place by the competent authority on the basis of the observations of various authorities cited by the appellant it is the bank's money Therefore, bank is the only person who could have any grievance. He, therefore argues that at the threshold the present appellants cannot agitate this appeal respect of the two amounts. Without prejudice to the above, it is argued by Shri Chatterjee that Sections 121 and 120 were first time introduced under the provision of 1962 Act. There was no comparable provisions in the set off existing Customs Act 1978. The Tribunal should understand, he argues, the circumstances under which this provision viz. Section 121 has been enshrined. The object of Customs Act is to prevent smuggling by facilitating detention and confiscation of goods smuggled in the country. He states that the entire case is to be viewed especially Section 121 has to interpreted in the light of the legal conondrum viz. the Rule laid down in Heydon'. case in 1584. It is to be noted in this case, he argued that the Customs Act of 1878 was the law before Customs Act of 1962 was enacted. 1868 Act did not provide for confiscation of sale proceeds of smuggled goods. The Parliament as a remedy enacted Sections 120 and 121 of the Customs Act. The true reason of the Act was to reach sale proceeds of smuggling thereby it prevents not only the smuggling and even if it take: place it confiscates the tainted property. It is, therefore, submitted before the Tribuna that this is one of the fittest of fit cases where the Tribunal should invoke mischie; Rule in order to render justice. He cited some decisions of the English Court and also the judgment of the Supreme Court in the case of State of West Bengal v. Subodh Gopa Bose . In the said case he argues the
court had adopted object and reasons of the Act for the purpose of ascertaining the condition prevailing before the Act was passed and which actuated the sponsor of the Bill to introduce the same and the extent and urgency of evil which it sought to remedy. As far as Rs. 68 lakhs is concerned, he relies on the statement of Riyas Retiwala, recorded on 24.9.1997, wherein he had admitted that on 26.5.1997 he obtained blank stock of TCs worth US $ 1,90,000 and he sold this to Shri Iqbal Kapadia and collected cash which were deposited in the bank. Thereafter he obtained the two pay orders in question totally Rs. 68 lakhs in favour of M/s WSFL and handed over it to them. Iqbal Kapadia stated that (page 30 of the Department's paper book) that he was purchasing the traveller's cheque and he corroborates Riyaz Retiwala's statement. He further invited our attention to the provisions of Foreign Exchange Regulation Act to say that currency includes TCs as well. In this case TCs have been sought to be smuggled out. Therefore, in terms of Section 2(22) of the Customs Act goods includes currency and negotiable instruments, the provisions of Section 121 is applicable. He also invited our attention to pages 6 & 7 of the Department Paper Book which would show that w.e. f. 21.3.1997 i.e. yhe date on which Wall Street entered into an agreement for supply of TCs to TTC up to 27.5.1997 works out to US $ 38,12,100 i.e. approx. Rs. 15 crores and investigation in this connection revealed that all these TCs have been issued to bogus passengers against bogus air ticket and none of them have ever travelled. Investigation further revealed, he states that all the TCs have been encashed by 4 identifiable persons/groups/syndicates. Some of the photo copies of these TCs encashed have also been in pages 42 to 51. As far as Rs. 23 lakhs is concerned, this is out of the security deposits of Rs. 54,75,750 which was furnished and which have been forfeited by M/s Wall Street. Coming to the confiscation of Rs. 23 lakhs, Shri Chatterjee argues that whatever money which Wall Street had in its hand, arising out of agreement with TTC, and after that agreement, the adjudicating authority had confiscated the same. Any money which Wall Street would have received from Retiwala prior to the agreement date, he did not confiscate because there is no correlation in the documents, identifiable in the sale proceeds. Shri Chatterjee explained this by saying that when Retiwala had transaction with Wall Street, the appellant, he (Retiwala) gave certain amount by way of fixed deposits and certain cheques which were post-dated cheque. As and when T.T. C. had transaction of selling of TCs from and out of sale of such TCs and moneys received from Kapadia, he way paying the Wall Street finance. He argues that Wall Street by letter dated 13.8.1997, informed the DRI that the fixed deposit amounting to Rs. 54,74,000 has been adjusted, it would clearly show that the same had happened subsequent to the agreement between Wall Street and TTC i.e. subsequent to 25.6.1997 and before 13.8.1997. This should show that letter would have been written and this could have been antedated by WSFL. In any event, the payment towards the settlement of US $ 1,90,000 for TCs handed over on 25.6.1997 stood adjusted from security deposits lying with Wall Street subsequent to 25.6.1997 and before 13.8.1997. And after adjustment Wall Street have charged TTC that TTC is liable to pay Rs. 68 lakhs which remained unpaid. Therefore on this count also Wall Street cannot maintain their appeal on Rs. 68 lakhs. As far as penalty is concerned, the statement of Mr. Nair, Executive Director have clearly admitted the violations committed by M/s TTC. He also invited our attention to various provisions of Show Cause Notice to buttress the argument that the appellants are guilty of violations of various provisions of the Customs Act. On the whole he states that the actions of the Wall Street and TTC show that there has been violation. He emphasised the fact that appellant cannot maintain this appeal. If at all anybody who is aggrieved against this order, it could not be the appellant.
10. In reply the Ld. Counsel invited our attention to grounds B, D, E, F, M of the Grounds of Appeal and he invited specifically our attention to the prayer in the appeal which states that the impugned order passed by the respondent be set aside which includes the Order-in-Original in entirety and return of Rs. 68,3010 (sic) [Rs. 68,03,010]. He distinguished the case of Premier Brass & Metal Works P. Ltd. (supra) cited by Shri Chatterjee, SDR. The facts are not similar to those case because in that case, it is a case of valuation and while the appeal was filed only with respect to classification. Here the case of confiscation and the interpretation of Section 121 and both have been argued at length in terms of the grounds taken. As far as the seizure instrument have taken place in the hands of Wall Street Finance Ltd. Inasmuch as the amount representing the pay orders, the appellants were the beneficiary under that instrument but for the stop payment instructions by DRI. He also invited our attention to the High Court's Order dated 19.12.1997 where the Court said, it is open for the petitioner to raise objection and if such a plea is taken the same shall be decided. The mischief rule argued by DR will not be applicable to the facts of the case because that Rule cannot be applicable where there is ambiguity. When the provisions of Section 121 are in existence the ingredients of Section 121 have not been proved in the facts of the case reliance of mischief Rule is misplaced.
11. We have considered the rival submissions. At the outset it is felt that it is better that we deal with the preliminary objections raised by Shri Chatterjee, Ld. DR.
12. It is the argument of Mr. Nankani that once the money has been deposited in the bank such money belongs to the bank not the customer. He relies on the views of several authors like H.P. Sheldons Book on law of Banking, Halsbury's Modern Banking Law, S.N. Gupta's Banking Law in theory and practice. The judgment of the Supreme Court in S.P. Jain v. Director of Enforcement where the court held as
Now, the law is well settled that when moneys are deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not that of trustee and beneficiary. The banker is entitled to use the money without being called upon to account for such user, his only liability being to return the amount in accordance with the terms agreed between him and the customer. There might be special arrangement under which a banker might be constituted a trustee, but apart from such an arrangement, his position qua banker is that of a debtor, and not trustee. The law was settled in those terms in the old and well-known decision of the House of Lords is Foley v. Hill and that has never been questioned.
When we look into the Supreme Court judgment, it completely agrees with the argument of Shri Nankani that the relationship between the customer and banker is one of a debtor and creditor and not the trustee and the banker is entitled to use the money as his own. When such is the case, what could be the locus standi of M/s Wall Street Finance Ltd.?
13. In this connection, it is worthwhile to see the veracity of the argument raised by both sides. The amount has been seized in the hands of the bank. That means, the bank is the owner according to various case laws cited by the Ld. counsel Shri Nankani referred to in the argument portion culminating with the judgment of supreme Court in S.P. Jain's case (supra). When the Banker is the owner of the money who can use the money deposited with it in the way it pleases? How could Wall Street Finance Ltd. challenge the confiscation? Section 129A of the Customs Act provides as follows:
(i) Any person aggrieved by any of the following orders may appeal to the Appellate Tribunal against such orders:
When the law of the land is that the moneys deposited in the bank becomes its money, how could Wall Street Finance Ltd. felt aggrieved against the impugned order? The SCN dated 4.11.1997 does not refer to the bank as one of the notices. This is evident from page 75 of the SCN which indicates parties to whom notice was sent and bank is not one of its party. However, if one were to see the impugned order passed by the Commissioner of Customs (Preventive) it indicates that the same has been sent to Union Bank of India, Hill Road Branch, Union Bank of India, Versova Branch and Syndicate Bank Jogeshwari (W) Branch. What prevented these banks from challenging it? It is not pleaded before us that M/s Wall Street Finance is acting as an agent of the Banks. Of course it is nobody's case that Wall Street Finance was acting as agent. Moreover, as has been rightly pointed out by Ld. DR that there is no plea in the grounds of appeal against Rs. 68 lakhs.
14. No doubt there has been grounds taken regarding confiscation in Grounds 'B' to 'R'.
15. From the SCN it is clear that the departmental officials intercepted the country craft "Ya-Hajipir" on 25.5.1997 and rummaging continued till 27.5.1997, foreign currency notes from 5 packets which included 140 instruments of Travellers Cheques in the denomination of US $ 500. The total amount of foreign currency including of TCs recovered from the 5 packets amounted to Rs. 1,43,57,730.15. The same were seized and thereafter by adjudication confiscated by the adjudicating authority.
16. There was no argument regarding legality of the confiscation of the said travellers cheque, which were being smuggled out because travellers' cheques are goods within the meaning of Section 2(22) which provides for goods including currency and negotiable instruments and any other kind of movable property. Travellers cheques being any other kind of movable property it is included in the term of Section 2(22). The confiscation has been ordered for violation of Section 113(d) and (f) of the Customs Act, 1962. No order of redemption has given as no body came forward to claim the same.
17. The argument of Shri Nankani that Section 121 is not applicable consists of following: (i) that a person must sell the smuggled goods; (ii) the persons selling the smuggled goods were smuggled goods; (iii) the sale proceeds of such smuggled goods must be available for confiscation. The money which has been confiscated in the hands of the banks represents the value of the TCs sold by TTC through Retiwala and the same have been paid through the bankers pay order to the appellants. And it was lying in the bank for clearance. Therefore it is the bank's money as has been held above. In that view of the matter it is unnecessary for us to consider the aspects of the application of Section 121 to the facts of this case. Once we have held that locus standi of the appellants is negative then other arguments are not capable of being considered by the tribunal. The other arguments would be of only academic interests, in our view.
18. The interesting aspect of argument of Shri Chatterjee regarding the mischief rule and the application of the decisions of the Tribunal in Premier Brass and Metal Works 1990 (48) ELT 98 and Commercial Clearing Agencies P. Ltd. are of academic nature and not taken up for consideration at all. As far as confiscation of Rs. 23 lakhs is concerned it has been rightly contended by the Ld. DR that there no whisper of the same in the grounds of appeal. In para 6 of the appeal the appellant talks about seizure of Rs. 68,03,010 and in paragraph 8 it states that they were called upon as to why the said amount cannot be confiscated. It has been rightly pointed out by the Commissioner in page 27 of the impugned order, in paragraph (o) as to why the confiscation of Rs. 23 lakhs has been made under Section 121 of the Customs Act. In view of the fact that there is no specific prayer made in that regard and in view of the fact that judgments cited above applies to the facts of the case as far as Rs. 23 lakhs is concerned. The judgment cited above will be applicable to the facts of this case as far as this amount is concerned. We are, therefore, of the view that the arguments of the appellants fail as they have got no locus standi also on Rs. 23 lakhs as no specific prayer has been made.
19. The impugned order also imposes the penalty of Rs. 20 lakhs on the appellant. I have held that as far as the return of the money is concerned, it is in the form of bank drafts deposited in the Bank. We have, therefore, held that the appellant Wall Street Finance Ltd. does not have any locus standi to go against that portion of the order levying penalty on the Wall Street Finance Ltd. It has been definitely got right of filing an appeal before us in respect of imposing penalty of Rs. 20 lakhs on it as the imposition of penalty affects the appellants prejudlciously.
20. As far as this point is concerned, we have to say that in the entire course of argument the appellants did not vehemently argue against this, navely (sic) levy of penalty of Rs. 20 lakhs on it. The agreement with TTC was entered sometime in the latter portion of March, 1997. Right from that time onwards upto May 1997 they had entered into transactions with TTC to the tune of US $ 38,12,100 approximately valuing Rs. 15 crores. It is contended by the department that the investigation revealed that TTC had violated the agreement between the appellant Wall Street Finance Ltd. and TTC, in that they have not parted with the travellers cheque in a proper way applying with the provisions of Foreign Exchange Regulation Act. Tine thrust of the arguments of the department was that what is reflected in paragraphs 11 and 12 of the FLM has not been complied with at all. This was brought to the notice of the appellant by the DRI by its letter dated 2nd & 3rd June, 1997 pages 37 & 40 of the paper book. Apart from that the department raises the point that Nair's statement reflected in para 27.3 of the SCN i.e. internal pages 30 to 33, clearly indicates the numerous irregularities committed by TTC and an accommodation given to Riyaz Retiwala and through his endeavour the smuggled TCs through Iqbal Kapadia and Zahur to Dubai clearly show the acting connivance and participation of the appellants. The argument of the department could not be seriously challenged by Shri Nankani in his argument. In fact he only states that what all relied on by the department was only favouring the appellants and he could not explain as to how it favoured them.
20. We have considered the submissions. It has to be pointed out that TTC is only an agent and when they sell the travellers cheque they have to follow what is contained in Clause (11) of the Memorandum of Instructions of FFMC. The following conditions have been set out in page 7:
(ii) While selling exchange m terms of paragraph (i), full Hedged money changers should adhere to the following conditions.
1. In case where sale of foreign exchange is equivalent to Rs. 50,000 or more, the rupee payment should not be accepted in cash but should invariably be received in the form of a crossed cheque drawn on the applicant's bank account or on the bank account of the firm/company sponsoring the business visit of the applicant. Payment in the form of Banker's Cheque/Pay Order/ Demand Draft may also be accepted provided the Banker's Cheque/Pay Order/Demand Draft is accompanied by a certificate from the bank issuing the instrument certifying that the funds for the instrument have been received by debit to the customer's bank account. The relative certificate should be kept on the records for inspection by Reserve Bank. In no circumstances should payments equivalent of Rs. 50,000 or more be accepted in cash.
2. The sale of foreign exchange should be made on application and after identification of the traveller.
3. It should be ensured that the traveller is in possession of a valid passport authorising travel to the countries proposed to be visited as well as ticket for travel to the country/ies for which exchange has been applied for. The sale of foreign exchange should be made not earlier than sixty days from the date of departure recorded on the confirmed journey ticket.
4. Exchange sold should be endorsed on the traveller's passport under the stamp and signature of the authorised official of the money-changer.
5. While issuing travellers cheques, the traveller should invariably be required to sign the cheques in the presence of an authorised official of the full-fledged money changer and the purchaser's acknowledgment for receipt of travellers cheques should be duly obtained in the receipt book of such cheques or purchase slips, as the case may be.
6. Sale of foreign currency notes and coins should be restricted up to US $ 500 or its equivalent only, per person within the traveller's overall foreign exchange entitlement. However, foreign currency notes/coins may be sold to travellers upto their full foreign exchange entitlement for visits to Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States and not merely for visit to these countries for transit purpose.
21. In spite of the above views given by the DRI the appellants in their letter dated 10th & 20th June, 1997gave clearance to Bank of Madura for remittance of US $ 2,29,000 and US $ 63,850 to Arab Financial Services, Bahrain. This remittance has arisen on account of TCs sold by TTC for which stop payment instructions have been issued by the DRI as early as 2nd & 3rd June. This would show the active connivance of Wall Street Finance Ltd.
22. We have considered this aspect. In all the transactions of this nature it will be difficult to find a mathematical position in collecting the evidence and collating the facts of the participation of the collaborators as was observed by the Supreme Court in D. Bhoormull's case referred to by the adjudicating authority in the order. We have to see the attended circumstances as well. We are not dealing here as a court of competent jurisdiction dealing with a crime but we are a quasi-judicial authority dealing with the aspects of violations under Customs Act which requires us to come to a conclusion on the basis of preponderance of probabilities. What are they? In spite of the fact that the Nair's statement referred to in show cause notice clearly shows that even in foreign exchange matter the appellants have shown a peculiar attitude towards the money changes. The explanation given by the appellants towards the numerous irregularities committed by TTC, namely financial accommodation given to Riyaz Retiwala would clearly show that the appellants have participated in the entire course of funds. Further act of giving clearance to Bank of Madura and remitting huge sums to Arab Financial Services subsequent to caution given by the DRI would clearly show that a reasonable man would not have been done but for his connivance in the violations and but for such a violation foreign currency could not have been attempted to export improperly. We are of the view that the penalty levied on the appellants is clearly correct in law in the facts and circumstances of the case.
23. As the appeal involves dealing in foreign exchange we are ordering the registry to send a copy of the order to the Exchange Control Department of the Reserve Bank of India for taking necessary action as it may deem fit.
J.H. Joglekar, Member (T)
24. I have perused the order proposed by my learned brother. I must disagree with some of his findings. I am therefore recording a separate order.
25. It has been held by the learned Member (J) in paragraph 17 above that the appellants M/s. WSFL had no locus standi to file the appeal inasmuch as the goods confiscated by the Customs in terms of Section 121 of the Act were owned by the banks and not by WSFL. This belief requires to be examined.
26. Section 129A(1) of the Act reads as under: -
Any person aggrieved by any of the following orders may appeal to the Appellate Tribunal against such Order (a) a decision or order passed by the Collector of Customs as an adjudicating authority;.
27. The qualifications of a 'person aggrieved' were brought out in the judgment of the Supreme Court in the case of Northern Plastics Ltd. v. Hindustan Photo Films Mfg. Co. Ltd. . The question
here was whether in a dispute between the appellants and the Customs, M/s. Hindustan Photo Films Mfg. Co. Ltd. and the Government of India could file appeals on the ground that they were "persons aggrieved". In deliberating on the locus standi, the judgment in the case of Adi Phewzshah Gandhi v. H.M. Seervai was quoted by the Supreme Court. The relevant portion of the quotation reads:
Generally speaking, a person can be said to be aggrieved by an order which is to his detriment, pecuniary or otherwise or causes him some prejudice in some form or other.
28. The Supreme Court noted that according to Halsbury's Laws of England the expression was nowhere defined and must be constructed by reference to the context of the enactment in which it appeared and all the circumstances. The Supreme Court cited from the judgment in the case of Sidebotham In re Sidebotham 14 Ch D 458 at 465 as under: -
A person aggrieved must be a person who has suffered a legal grievance a man against whom a decision has been pronounced which has wrongfully deprived him of something, or wrongfully refused him something, o wrongfully affected his title to something.
29. In view of these pronouncements it has to be decided whether WSFL we(sic) the aggrieved persons in this case or not.
30. The notice required WSFL, the present appellants, to show cause as to wh(sic) the amount of Rs. 68,03,010 lying in the pay order account of TTC should not b(sic) confiscated. The show cause notice also alleges that they were liable to penalt specifically for the offences relating to smuggling for foreign currency and traveller cheques. The Commissioner ordered confiscation of Rs. 23 lakhs which was (sic) possession of WSFL as security amount as also the amounts which were in trans from TTC to them via banking channels. The amounts are claimed by WSFL as the legitimate dues from TTC. Even if it is argued that the monies deposited by them (sic) the bank were not owned by them but that they belonged to the bank, it has to (sic) accepted that they had an actionable claim. The order impugned before us (sic) already resulted in deprivation of the monies deposited by M/s. WSFL in the bad and also the monies in transit to them from the bank. The impugned order also can a liability on them to pay the sum of Rs. 20 lakhs as penalty. If their right to file appeal is refused and at the same time the liability cast upon them to pay the penal is not removed, then there is no doubt in my mind that a tremendous prejudi would be caused to M/s. WSFL.
31. In the light of the analysis of the phrase made in the cited order of the Supreme Court, I am unable to agree with my learned brother on this count. I have that the appellant had locus standi to file the appeal and proceed to deal with the appeal on merits.
32. The facts of the case have been extensively narrated by my learned brot(sic) and are therefore not repeated. The submissions of the counsel and the department representative have also been faithfully recorded. They are therefore not belive reiterated.
33. I have considered carefully the submissions made by both the sides, seen the concerned documents and also the relevant provisions of the Customs 1962. The confiscation of the currency has been made under Section 121 of the Custo. Act, 1962 which reads as follows:
Where any smuggled goods are sold by a person having knowledge reason to believe that the goods are smuggled goods, the sale proce(sic) thereof shall be liable to confiscation.
34. The note on clauses explaining the reason for adding the Section in Customs Act read as follows:
Because of large scale smuggling of silver out of the country and of var consumer articles into the country, it has become necessary to additional provisions in the Customs Act, 1962 so that smuggled goods and attempts of smuggling can be effectively and expeditiously dealt with The attachment of provisions of the bill is to facilitate confiscation of the goods smuggled into the country and goods sought to be smuggled out of the country.
35. This enactment also introduced Section 120. Sections 120 and 121 are additional provisions. Earlier to these provisions, law in the form of Sections 111 and 113 provided for confiscation of goods imported and attempted to be exported in contravention of provisions specified and referred to in those sections. These two provisions effectively dealt with smuggling and smugglers only where the Customs ;re able to lay their hands on the goods smuggled into the country and also goods empted to be exported out of the country. Where the goods were not available for (sic)fiscation, the Customs were helpless and the smugglers were free to use the aceeds of sales of such smuggled goods. In some cases, the goods were available, they were found to have undergone a physical change. Thus gold biscuits were inverted into primary gold or ladies. In that case, the goods were transformed into different goods and ceased to be those goods which were smuggled. This information prevented Customs from confiscating the gold. These two problems re sought to be overcome by enacting Sections 120 and 121 to enable confiscation the smuggled goods in spite of any change in their physical characters and also sling Customs to confiscate the sale proceeds of smuggled goods.
36. Similar back up legislation was inducted earlier also in the form of reduction of Ch. IVA and IVB whereby goods prone to smuggling inwards and towards were identified and restrictions were imposed on dealing with such goods, set of documents was prescribed for dealers. This was designed to prevent sorption of goods smuggled inward as also making it difficult to make available goods for smuggling outwards.
37. The Section 121 has a built-in provision to safeguard the persons who sold train goods which were smuggled in nature but where the person was not aware(sic) what he was selling were smuggled goods. The section requires for the fact to be ablished that the person had the knowledge or reason to believe that the goods (sic) by him were smuggled goods.
38. With this analysis and backgrounds, I shall now proceed to determine the ability to confiscation of the sale proceeds of TCs at various stages.
39. M/s. TTC were a partnership firm consisting of Shri R. Retiwala and Shri do Fernandes. From the statement of Shri Retiwala, it appears that Shri Fernandes not participate in the working of M/s. TTC. The proceeding show that Shri Savio nandes was not traceable throughout the proceedings. Shri Retiwala in his (sic)ement made a clear admission that the TCs sold by M/s. TTC were not to genuine sign bound passengers, but the sale was to bogus passengers. But the TCs were de in the name of genuine passengers. It was admitted that five employees of (sic). TTC were preparing bogus BTQ forms based on photocopies of passports in (sic) possessions where imaginary and fictitious ticket number were put. Even features of passengers were put by himself and his employees. He made clear (sic)ssion that these TCs were sold in the Hawala market through Iqbal Mohd. Hussain Kapadia and Salim Bail. He confessed that he had the knowledge that these two persons were smuggling foreign exchange out of the country for encashment outside. He confessed to the recovery of passports which were secured by him from different persons and that the holders of passports had never gone abroad subsequent to his securing the passports. He admitted that from mid-April, 96, such bogus sales were conducted by him. He deposed that the sale proceeds were deposited in the bank and were later paid to M/s. WSFL. Shri M.I.H. Kapadia corroborated the statement of Shri Riyaz Retiwala to the extent that he was collecting bogus TCs from Shri Riyaz and giving them to Zahoor for smuggling abroad. Both Shri Riyaz and Kapadia admitted to having sold TCs at prices higher than that calculated at the official prevailing rates for the foreign exchange. Shri Riyaz and Shri Kapadia had identified each other as the persons they had dealt with. These statements were subsequently retracted by these two persons. However, the SCN lists statements of the employees of M/s. TTC. Shri Mohd. Farooq A.R. Kahani who was one of the employees deposed that he and other employees were putting signatures of the persons whose passports were being used in the BTQ forms and on the TCs. He further deposed that he used to take TCs to Iqbal and collect sums of Rs. 50 lakhs and Rs. 25 lakhs as sale proceeds thereof. He admitted that the PAFs prepared by them were results of fraudulent sales of TCs. Similar admissions were made by Mr. Sameer Younous Shaikh and Shri Sanjay Bansilal Gavit, other employees of M/s. TTC. The SCN does not indicate that these statements were retracted. These statements corroborate the initial admission made by Shri R. Retiwala and Iqbal Kapadia and establish the admissibility of evidence contained in the statements later retracted. Shri Raiz Retiwala, brother of Riyaz Retiwala had also in his statement made clear admission that Riyaz was selling to Iqbal Kapadia TCs in a fraudulent manner.
40. The analysis above clearly indicate that Shri Riyaz Retiwala was converting blank TCs into encashable TCs which were negotiable instruments with the clear knowledge that these same were being created in the name of bogus passengers on forged signatures on the basis of the passports which were taken away from their owners. Thus, the TCs were, at their very birth goods "attempted to be exported" in contravention of provisions imposed under the relevant Acts and as such were liable to confiscation under provisions of Section 113(d) of the Customs Act, 1962. Therefore, the money realised by sale of these TCs was liable to confiscation in the hands of M/s. TTC.
41. At this stage it is necessary to revert to the applicability of the case law cited by Shri Nankani as regards the inaccessibility of the funds in the hands of the bank for seizure under the Customs Act. The history as very ably traced by my learned brother commences from a decision by an English Court and narrates how the ratio thereof has been applied by the Courts in India. It appears that none of the cases relate to Taxation Laws. The case law clearly relates to criminals law where the powers of the police to attach the properties unlawfully obtained have come under scrutiny. In the absence of the complete narration of the law which was involved in the proceedings, it would be hazardous to apply the ratio of these judgments directly to offences against the revenue.
42. It is not that judgments relating to other acts are not cited before original or appellate authorities appointed under the Customs Act, 1962 or the Central Excise Act ,1944, but there the Courts and the Tribunals would rely upon those judgments which deal with comparable Acts. Thus judgments given under the Sales Tax Legislation would have substantial applicability whereas the judgment given under a Land Revenue Enactment would apply only insofar as it relates to issues of jurisprudence. The judgments under the Criminal Laws are often cited in arguments relating to admissibility or otherwise of statement, but there also the Courts have made a distinction as regards the degree of evidence required to establish an offence under the Taxation Laws.
43. Therefore when the citations are made of judgments which deal with enactments entirely dissimilar to those dealing with Taxation Laws extreme caution is required to be exercised.
44. The Supreme Court in their judgment in the case of Mumbai Kamgar Sabha v. Abdullabhai 1976(3) SC 832 has shown a cautionary flag to adjudicators and appellate authorities hastening to adopt the ratios of the judgments cited before them.
45. During the arguments both sides referred to the mischief rule. The judgment of the Supreme Court in the case of Bengal Immunity Co. v. State of Bihar AIR 1995 SC 661 was cited. The relevant extract of the judgments reads as follows:
It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heyden's case was decided that for the sure and true interpretation of all Statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered:
1st--What was the common law before the making of the Act,
2nd--What was the mischief and defect for which the common law did not provide,
3rd--What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth, and
4th--The true reason of the remedy;
and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy according to the true intent of the makers of the Act, pro bono publico.
46. As I have brought out above, before the introduction of Sections 120 and 121 the mischief and defect was that once the smuggled goods had changed their form or once the smuggled goods were sold for consideration, no remedy was available to the officers to bring the smugglers to justice. This defect and mischief was specifically remedied by introduction of these two sections. Keeping in mind the directions of the Barons of the Exchequer in Heyden's case reproduced in the cited judgment of the Supreme Court, the function of the Court is to make such construction as shall suppress the mischief and advance the remedy. The application of the case law as was cited would defeat the very purpose of this enactment.
47. Expressed in another manner, these provisions incorporated enabling seizure of the sale proceeds to be made, would be and remain applicable in spite of the law of banking to the effect that the money deposited by the depositors become the property of the bank. In this manner where any sales proceeds have become liable to seizure, it is incumbent upon the banks to surrender that much specie as it liable and but that was deposited by the wrong doer.
48. Therefore, there is no bar to the seizure being made of the sale proceeds of smuggled goods even in the hands of banks.
49. The next question is whether this money in the hands of M/s. WSFL continued to be liable to seizure in terms of Section 121 of the Act. I have earlier considered the provisions of Sections 120. The liability of confiscation of smuggled goods continues unabated even if their form undergoes a change. This provision indicates the minds of the framers of the Act and that is to ensure that the smuggled goods do not escape the just punishment merely on account of a change in their form. The Supreme Court in the case of Collector of Customs v. V.D. Bhurmal held that the penalty of confiscation was a penalty
in REM which was enforceable against the goods. It is therefore not necessary for the Customs to prove that the particular person was concerned with their importation and exportation. It is enough if the department furnished prima facie proof of the goods being smuggled in nature. The judgment establishes that the liability of smuggled goods would continue irrespective of the ownership, as long as it is established that they were smuggled. The proceedings under Section 121 are also in REM and therefore the ratio of the cited judgment would apply fully. In other words, it is not necessary that the person from whom sale proceeds are recovered, must himself to be the person who has sold the smuggled goods with conscious knowledge but that the liability would continue even if the sale proceeds are received in good faith during the course of ordinary business. I shall later revert to the culpability of M/s. WSFL in dealing with the imposition of penalty upon them.
50. The amount of Rs. 68,03,010 being the sale proceeds of goods attempted to be smuggled by M/s. TTC to M/s. WSFL was therefore correctly held liable to confiscation under Section 121 of the Act.
51.The next question for consideration is whether amount of Rs. 23,00,000 appropriated by M/s. WSFL out of the deposits and securities kept by M/s. TTC are so liable under Section 121 or not.
52. The origin of these funds was disclosed by Riaz Retiwala in his statement. M/s. TTC were authorised money changers w.e.f. June 1996. Prior to the dealing in TCs, M/s. TTC were dealing in foreign currency acquired from M/s. WSFL and from other FFMCs. He deposed what he was selling foreign currency notes to Salim and Iqbal at the rate higher than the selling rate in the market. He further deposed that the funds deposited by him in his own name with M/s. WSFL in pursuance of the contract between M/s. WSFL and M/s. TTC were generated out of the sales of such foreign exchange and TCs sold at the higher rate to fictitious passengers. This statement is corroborated by Kapadia. It was Kapadia, who was buying foreign currency from Retiwala and he was the person who persuaded Retiwala to resort to sales of TCs in the same manner.
53. The two statements and the supporting statements of other staff indicates the source of the amount deposited as deposits by Retiwala as sale proceeds of smuggled goods. On this ground, the Commissioner's order of confiscation of Rs. 23,00,000 sustains.
54. Once it is held that the liability to confiscation of sale proceeds of smuggled goods continues in the hands of holder in due course also, the mere facts that it is in the custody of the bank is not a bar to the orders of confiscation thereof. This situation would continue to prevail even if it is to be accepted that, as has been held by the learned brother, the money does not belong to M/s. TTC and M/s. WSFL but that it belongs to bank.
55. I now come to the aspect of penalty.
56. Learned brother (J) in his order has sustained the orders of penalty while holding that M/s. WSFL did not have the locus standi to file the appeal on the ground that they had not vehemently contested the imposition. I find that in the grounds of appeal in paragraph 2(BB) this ground has been agitated. A stay application was filed to seek dispensing with pre-deposit of penalty and which had advanced arguments bringing out the lack of culpability on part of the appellants. These arguments are now dealt with.
57. In terms of Section 114 of the Act, it has to be shown that the person so charged had committed acts of omission or commission rendering certain goods liable to confiscation. In dealing with the liability to confiscation of the Indian currency, I have observed that the TCs sold by M/s. TTC had become smuggled goods. Section 114 provides for penalty to be imposed for rendering goods liable to confiscation under Section 113 but does not speak of penalty for rendering sales proceeds of smuggled goods so liable. There is no other provision. Even the residuary Section 117 does not cover this situation. It would appear that the aspect of penalty was lost sight of when Sections 120 and 121 were introduced.
58. In this case, the modus operandi was the same in the sale by M/s. TTC of the TCs seized on board the vessel 'Ya Hajipir' as well as TCs sold earlier, the proceeds of which were confiscated. The provisions of Section 114 would, therefore, still be attracted on M/s. WSFL if they had committed certain acts of omission or commission in relation to the smuggling of TCs.
59. Both M/s. WSFL and M/s. TTC were FFMCs. The conditions prescribed by the Reserve Bank of India were the same for both.
60. M/s WSFL entered into an agreement on 26th December, 1996 with M/s. Arab Financial Services Company, Bahrain (hereinafter called as M/s. AFS). In terms of this agreement M/s. AFS was to provide to M/s. WSFL, AFS Visa Travellers Cheques for sale to eligible passengers in India against Indian rupees. The sale proceeds were to be remitted to M/s. AFS at weekly intervals. M/s. WSFL was to get a commission of 0.2%. Thereafter M/s. WSFL commenced the sale of such Travellers cheques (TCs) to other licensed FFMCs. On June 12, 1997, M/s. WSFL informed the R.B.I, of the situation and claimed that if the other FFMCs misuse the facility, they would not be responsible for such misuse. It was claimed that the R.B.I. was the only authority to monitor such misuse. The R.B.I. gave a non-committal reply on 5.7.1997 saying that they expected the FFMC to follow the terms and conditions of the licence granted to them. On 21.3.1997, M/s. WSFL signed an agreement with M/s. TTC for sale of the foreign exchange TCs of M/s. AFS. M/s. TTC were to sell such TCs to genuine passengers against Purchase Agreement Forms (PAF). In the contract there was a clause about money laundering. The following were the cautions given to M/s. TTC:
6. MONEY LAUNDERING:
6.1 It is an offence to assist anyone whom you know, or suspect to be laundering money from any criminal sources. Assistance could involve providing traveller's cheques to conceal the true ownership of the proceeds of a crime. As the sub-agent of the bank you are required to be aware of this threat.
6.2 Time Travels & Cargo is required to exercise "know your customer" (KYC) and exercise the normal Due Diligence on all customers and branches whom Time Travels & Cargo proposes to stock with travellers cheques. It will be the sole responsibility of Time Travels & Cargo and their branches to sell the Visa Travellers Cheques strictly in compliance of FERA and certain exchange control regulations in India at all time. The Wall Street Banking Corporation Ltd, is no way accepts responsible for any violation of exchange control regulation committed by Time Travels & Cargo or any of their branches.
6.3 Time Travels & Cargo is required to furnish on a weekly basis daily settlement advises along with purchase agreements to Wall Street Finance Ltd. and such information may at any point of time be subject to local international Law Enforcement review. Wall Street Finance Ltd. understands from its Due Diligence that Time Travels & Cargo (with permission from the Reserve Bank of India will promote sales in India throughout its Branches who are licensed by the Central Bank to conduct such sales of Visa Travellers Cheques. Wall Street Finance Ltd. further understands that Time Travels & Cargo will sell Visa Travellers Cheques only to bona fide travellers at their counters and are required to perform the necessary Due Diligence for such counter sales throughout India at all sales locations. Time Travellers Cheques will be made to bona fide customers and in their premises as per RBI regulations.
61. Thereafter M/s. TTC commenced sales in terms of this agreement.
62. It would appear that M/s. WSFL were apprehensive of a possible fraud likely to be committed by M/s. TTC right since the time they entered into an agreement with M/s. TTC. In the light of the specific caution given about money laundering, it would be interesting to see as to what precautions were taken by M/s. WSFL to ensure that M/s. TTC would keep their side of the bargain. The agreement between M/s. WSFL and M/s. TTC prescribed elaborate documentation to be done by M/s. TTC. The Purchase Agreement Forms were very important documents. The Agreements were tied up with daily settlement advises and remittance of specific amounts relatable to the sales of TCs made by M/s. TTC. It would be interesting to see how M/s. WSFL overlooked the performance of this agreement.
63. Shri Riyaz Retiwala narrated the manner in which the money was generated to settle with M/s. WSFL. M/s. (sic) [Shri Riyaz Retiwala] was giving blank cheques to M/s. WSFL. M/s. WSFL were obliging Shri Riyaz Retiwala by not depositing the cheques for the requested durations. Even when M/s. TTC cheques had bounced M/s. WSFL turned a blind eye. As per the statement of Shri Nair although the agreement was for supply of TCs to the limit of US $ 1,00,000, the ceiling was raised to US $ 2,00,000 without any amendment on the direction of the Chairman of M/s. WSFL. His statement brings out the several occasions on which blank cheques were given by M/s. TTC and how when certain cheques bounced, the limits of issuing blank cheques were merely extended. All these details were highlighted in the show cause notice vide paragraph 52(m). The accommodation was to such an extent that M/s. AFS in Bahrain were honouring the TCs even before receiving the remittance from India.
64. The behaviour of the appellant M/s. WSFL narrated above clearly points out several error of omission committed by them.
65. On the point of commission, it has come out in the proceedings that when the investigations were well under way, the Customs had requested M/s. WSFL to stop payment and remittances to M/s. AFS. Two letters dated 2.6.1997 and 3.6.1997 were written by DRI. Even then, on 10.6.1997 and 20.6.1997 in total disregard of this direction M/s. WSFL remitted US $ 2,97,850. Although the learned Counsel gave a number of explanations for this behaviour, this clearly brings out the act of commission on part of the appellant.
66. Given the amounts involved, I find that the penalty of Rs. 20 lakhs on the present appellant is quite lenient. In the absence of any appeal from the Customs on the paucity of penalty, I shall merely uphold the orders of penalty.
67. I, thus uphold the orders of confiscation of the Indian currency as well as the imposition of penalty on the appellant. Learned brother (Judicial) had upheld the orders of penalty in paragraph 22 of his order. Hence, there is unity in the two orders on the aspect of penalty. The learned brother (Judicial) has not passed any orders on the order of confiscation of the Indian currency on observing that M/s. WSFL had no locus standi to agitate the issue. On my finding, therefore, there is no difference of opinion between the two Members of this Bench. Therefore, there is no need to refer the appeal to a third member.
68. On these findings, I dismiss the appeal filed by the appellant in its entirety.