# 2 S.C.R. SUPREME pc>URT REPORTS SHANTI PRASAD JAIN v. THE DIRECTOR OF ENFORCEMENT

- **Citation:** [1963] 2 S.C.R. 297
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2-s-c-r-supreme-pc-urt-reports-shanti-prasad-jain-v-the-director-of-enforcement-2692
- **Pages:** 36

## Headnote

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2 S.C.R.
SUPREME pc>URT REPORTS
SHANTI PRASAD JAIN
v.
THE DIRECTOR OF ENFORCEMENT
297
(B. P. SINHA, c. J., P. B. GAJENDRAGADKAR, K. N.
WANOHoO, N. RAJAGOPALA
AYYANGAR and
T. L VENKATARAMA AIYAR, JJ.)
Foreign Eichangn-Foreige firm depositing
money in
account of India in foreign bank.-Money to be used only for
purchases from for~ign firm-I.f contravenes prohibition to I.end
jQreign
exchange-Relationship·
bet-<1een
Bank
and
India-Whether of debtor ani creditor-Contingent debt-Power
to adjudge contravention given to Director of EnforcementDirector empoivered to send case to Court if penalty imposeable
by him not atiequate-If discriminatory-Foreign Exchange
Regulation Act, 1947 ( 7 of 1947), as. 4( 1), 23, 23D-Oonstitution
of India, Art. 14.
The appellant had claims, for compensation against
certain German firms in respect of machineries supplied by
them to the appellant's concerns. The appellant went to
Germany and arrived at settlements v1dth the- firms, under
which the firms deposited certain sums of money with the
Deutsche.Bank in the account of the appellant with the stipulation that the money was only to be used by the appellant
for purchases of new machineries from the same firm~ after
obtaining import licenses from the Government of India. The
appellant had not obtainca permission, general or special, of
the Reserve Bank for opening this account. Section 411) of
the Foreign Exchange Regulation Act, 1947, prohibits a
'person resident in Indi~.', inter alia, from lending to any
person outside India foreign exchange withf)ut the perrnission
of the Reserve Bank. Section 23 lays down the penalties for
contravention of s. 4(1) on adjudication by the Director of
Enfo,.cement and on conviction by a Court. Section 230
confers upon the Director the power to adjudicate whether
any person has contravened<. 4 (1) and empowers him, if he
is of the opinion that the penalty which he is empJwered by
impose would not be adequate in the circumstances of any
particular case, to make a complaint in writing to the Caurt.
The Djrector inquired into the appellant's Deutsche Bank
account, held that the appellant had contravened s, 4( 1) and
imposed a p·enalty of Rs. 55 lakhs. On appeal the Foreign
Exchange Appellate Trib1.1nal held that the deposits amounted
1951
1962
..
Tiu Dirtrtor ()f
z,.f.rumtnl
298
SUPREME OOURT REPORTS [1963]
in law to Joans by the appelJant to the Bank and consequently
s. 4(1) was contravened but it reduced the penalty to Rs. 5
lakhs. The appellant contended (i) thats. 23(1) of the Act
offended Art. 14 of the Constitution as two parallel procedures
were provided for the same offence and it was left to the discretion of the executive to choose which wa. to be applied in a
particular case, and (ii) that there was no loan by the appellant to the Bank and therefore there was no contravention of
•. 4( l).
Held, that the power conferred upon the Director ur.der
s. 23D to transfer cases to a court is not unguided or arbitrary
and, docs not offend Art. 14 and s. 23( 1) cannot be assailed as unconstitutional. .A serious offence should not go without being adequately punished; and in such case.< the accused
should have the benefit of trial by a Superior Court. Under
s. 230 the transfer is to a Court and that only when the
Director considers that a more severe punishment than what
he is authorised to impose should be awarded.
Held, further, that the appellant had not lent money to
the IJcutschc Uank and had not contravened the provisio11s of
'· 4( l) of the Act. Though normally when moneys arc depo3ited in a Bank, the relationship that is constituted between the
Banker and the custon1cr is one of debtor and creditor, there
may he special arrangement under which the relationship may
be diff<rent. The right of the appellant to the amounts in
deposit was contingent on the happening of certain events
some of which were beyond his control and until then there
,,•as no debt due to him. A contingent debt is no debt until
the contingency

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_Characters 0–39,880 of 69,526. This is a partial read: ask again with offset=39880 for what follows._

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2 S.C.R.
SUPREME pc>URT REPORTS
SHANTI PRASAD JAIN
v.
THE DIRECTOR OF ENFORCEMENT
297
(B. P. SINHA, c. J., P. B. GAJENDRAGADKAR, K. N.
WANOHoO, N. RAJAGOPALA
AYYANGAR and
T. L VENKATARAMA AIYAR, JJ.)
Foreign Eichangn-Foreige firm depositing
money in
account of India in foreign bank.-Money to be used only for
purchases from for~ign firm-I.f contravenes prohibition to I.end
jQreign
exchange-Relationship·
bet-<1een
Bank
and
India-Whether of debtor ani creditor-Contingent debt-Power
to adjudge contravention given to Director of EnforcementDirector empoivered to send case to Court if penalty imposeable
by him not atiequate-If discriminatory-Foreign Exchange
Regulation Act, 1947 ( 7 of 1947), as. 4( 1), 23, 23D-Oonstitution
of India, Art. 14.
The appellant had claims, for compensation against
certain German firms in respect of machineries supplied by
them to the appellant's concerns. The appellant went to
Germany and arrived at settlements v1dth the- firms, under
which the firms deposited certain sums of money with the
Deutsche.Bank in the account of the appellant with the stipulation that the money was only to be used by the appellant
for purchases of new machineries from the same firm~ after
obtaining import licenses from the Government of India. The
appellant had not obtainca permission, general or special, of
the Reserve Bank for opening this account. Section 411) of
the Foreign Exchange Regulation Act, 1947, prohibits a
'person resident in Indi~.', inter alia, from lending to any
person outside India foreign exchange withf)ut the perrnission
of the Reserve Bank. Section 23 lays down the penalties for
contravention of s. 4(1) on adjudication by the Director of
Enfo,.cement and on conviction by a Court. Section 230
confers upon the Director the power to adjudicate whether
any person has contravened<. 4 (1) and empowers him, if he
is of the opinion that the penalty which he is empJwered by
impose would not be adequate in the circumstances of any
particular case, to make a complaint in writing to the Caurt.
The Djrector inquired into the appellant's Deutsche Bank
account, held that the appellant had contravened s, 4( 1) and
imposed a p·enalty of Rs. 55 lakhs. On appeal the Foreign
Exchange Appellate Trib1.1nal held that the deposits amounted
1951
1962
..
Tiu Dirtrtor ()f
z,.f.rumtnl
298
SUPREME OOURT REPORTS [1963]
in law to Joans by the appelJant to the Bank and consequently
s. 4(1) was contravened but it reduced the penalty to Rs. 5
lakhs. The appellant contended (i) thats. 23(1) of the Act
offended Art. 14 of the Constitution as two parallel procedures
were provided for the same offence and it was left to the discretion of the executive to choose which wa. to be applied in a
particular case, and (ii) that there was no loan by the appellant to the Bank and therefore there was no contravention of
•. 4( l).
Held, that the power conferred upon the Director ur.der
s. 23D to transfer cases to a court is not unguided or arbitrary
and, docs not offend Art. 14 and s. 23( 1) cannot be assailed as unconstitutional. .A serious offence should not go without being adequately punished; and in such case.< the accused
should have the benefit of trial by a Superior Court. Under
s. 230 the transfer is to a Court and that only when the
Director considers that a more severe punishment than what
he is authorised to impose should be awarded.
Held, further, that the appellant had not lent money to
the IJcutschc Uank and had not contravened the provisio11s of
'· 4( l) of the Act. Though normally when moneys arc depo3ited in a Bank, the relationship that is constituted between the
Banker and the custon1cr is one of debtor and creditor, there
may he special arrangement under which the relationship may
be diff<rent. The right of the appellant to the amounts in
deposit was contingent on the happening of certain events
some of which were beyond his control and until then there
,,•as no debt due to him. A contingent debt is no debt until
the contingency happens, and as the right of the appellant lo
the amount!ii in deposit in his name in the Deutsche Bank
arises only on the happening of the contingencies, i.e. granting
of the import licenses by the Government of India, there
was no debt due to him in prP..senti and there was Ill') loan
the:cof within s. 4( 1) of the Act. The fact that money has been
put in a Bank does not necessarily import that it is a deposit
in the ordinary course of banking. The purpose of the depo·
sits and the conditions attached to it indicated that the
Deutsche Bank held the money under a special arrangemt:nt
\vhich constituted it not a debtor, but a sort of a stakeholder.
~rhe words "a person rcsirlent in lnclia
0 in s_ 4(1) hao; been
used in the sense of "resident of India", and it was not necessary that at the time of the contraventioa of s. 4( 1) shou)d be
actually in India.
Foley v. Hill, (1848) I I H. L. C. 28, Webb v. Stenlon,
(1883) 11 Q. B. D. 518 and Tapp v . . /onu, (1875) L. R. JO
Q. B. 591, rcferrr.d to
2 S.C.R.
SUPREME OOUR.T REPORTS
299
Civu. APPELLATE JuRISDIOTION: Civil Appeals
Nos. 319 and 320 of 1961.
Appeals by special leave from the order dat"ed
October 23, 1959 of the Foreign Exchange Appellate
Board, New Delhi, in Appeal No. 51 of 1959.
A. v: Viswanatha Sa.~tri, K. L. Misra, Advocate
General for the State of Uttar Pradesh, B. P. Khaitan,
S. K. Kapur and .B. P. Maheshwari, for the appellant
(in C. A. No. 319 of 1961) and the respondent
(In C. A. No. 320 of 1961).
M. O. Setalvad, Attorney General of India, 0. N.
Joshi and P. D. Menon, for the respondent8 (In C. A.
No. 319 of 61) and the appellant (in C. A. No. 320
of 1961).
1962. April 19. The Judgment of the Court
was delivered by
VENKATARAMA AIYAR, J.-The appellant in
Civil Appeal No. 319 of 1961, Shri S. P. Jain in the
Chairman of the Board of Directors of a Company
called Sahu Jain Ltd., which holds the managing
agency of two companies, the' Rohtas Industries
Ltd. or more 11hortly the Rohtas, and the New
Central Jute Mills Ltd. The Rohtas carry on
business in the manufacture and sale of paper, and
own a paper Mill at Dalmianagar in the State of
Bihar. Shri J'ain is the Chairman of the Board of
Directors of that Company also. The New Centre
Jute Mills Ltd. carry on business in the manufac·
ture and sale of Jute, and own Mill at Calcutta.
They also do business in the manufacture and sale
of chemicals and fertilisers at Varanasi. On June
30, 1958, bhri S. P. Jain left India on a tour to the
continent of Europe and on his return ·to this
country he was searched at the Palam Airport on
October 1, 1958, and the following document was
found in hi!! leather attaohe case :-
"Deutsche Bank Aktiengese.llschaft.
Shanti Prasad J•i·n
v.
Thi Dir1etor of
Enforcement
Ai~u J.
196Z
Slr.a1i ~ruul Jain
...
TA1 lliuct#f' •f
E•fn-ctmntl
300
SUPREl\IB COURT REPORTS (1963)
Page 2 to our letter of 25th Sept., 1958 to
JHr. S. P. Jain, Hotel Briedenbacher .Hof. Dusseldorf .
The "DM-accoilnt ~ith limited. convertibility
No. 50180 .of l\Ir. S. P. Jain has.been credited in
1958, upto now, with the following amounts from
German sources ;
20th l\Iarch 195&.Dl\I · 210,ll8,65 from l\I/s.
J. M: Voith G. m: b. H. Maschinenfabrik, Heidenheim marked "Dl\I 210.081,31
less Dl\I. 262,65
banking charges" (the said charge was made by the
remitter's bank which is not a branch of ours);
. .
.
.
11th July 1958 DM, 205.000 from Messrs.
Escher Wyss G. m. b. H. ma.rked "as per letter of.
7th July 1958" in translation.
.
.
· ·
.
9th August 1958 DM 201.424,81 from Messrs.
J.M. Voith G. m. b. H. Maschinenfabrik, Heiden-·
heim marked . "DM. 201.676,59 less banking charges."
15th August 1959 DM 472.886,03 from Messrs •
. Friedr. Udhe G. in. b. H. Dertmund, ma.rked-in
· . translation-"derived expenses DM. 465.633,63
interest payment Dl\I. 7 .2.52,40."
24th Septe~ber 1958 · DM, 350.ooo; · from
Messrs. Pintsch-Bamag A.G., Butzbach marked-in
translation ••payment of excess price." · ·
25th September 1953 Dl\I. 250.000 .from
Messrs .. Pintech-Bamag A.C., Butsbech marked-in
translation "in respect of excess price."
·
Now s. 4(1) of the Foreign
Exchange
Regulations Act (VII of 1947)
· herienafter
referred to as 'the Act' provides that "Except
with the previous general or special
permission
of . the
Reserve
Bank;
no
person resident .
in· India other than an authorised dealer shall .
1-. I
...
,
I
1
'
,
h .
.,
''
'
2s.C.R.
SUPREME OOURT REPORTS
301
outside India buy or borrow from, or sell or lend
to, or exchange with, any person not being an
authorised dealer, any foreign exchange."
The
expression 'foreign exchange' as defined in s.Z(d)
means «foreign currency and includes all deposits,
credits and balances payable in any foreign currency and any drafts, travellers' cheques, letters of
credit and bille of exchange expressed or drawn in
Indian currency but payable in any foreign currency."
As Shri Jain had admittedly not obtained
the permission genera.I or specie.I of the Reserve
Bank, for opening the
account aforesaid, the
Director of Jl]nforcement started
proceedings
age.inst him under s.4(1) of the Act. The explanation of Shri Jain was that the amounts in question
had been deposited into the Bank by four German
firms in settlement of claims which two Indian
Companies the Rohta.s and the New Centre.I Jute
Mills Ltd. had against them for delayed and defective supplies of machinery and equipment under pre-.
vious contracts, that the deposits in question had
been ma.de subject to the condition that they should
be utilised only for making initial payments towards
price of new machineries to be purchased from the
German firms and that in consequence there was
no loan by the appellant within s.4 ( l) of the Act.
The Director rejected this explanation and held
that s.4(1) had been contravened and imposed a.
fine of Rs. 55 la.khs on.Shri Jain under s. 23(i)(a.)
of the Act. · Age.inst this order there was an appeal
to the Foreign l!lxoha.nge Appellate .Board who,
examining the question in the light of fresh materials which were ma.de available to them accepted
t1' ~ version of Shri Jain, and held that the deposits
had been made by the German firms under the
circumstanoes and on the condition stated by him.
They however held that even so the deposits in
question would in law be loans by Shri Jain to the
1101
Shanti Prasad Jain
v.
Tht. Dir1ttor tf
En,for-•I
Ai,..rJ.
JIM>
S/renli Prosrd .Jain
'
rltt Dirtcto, of
Enfnumcit
AVor J.
302
SUPREME OOURT REPORTS (1963)
Bank, and that in conl!'.lquence, ·a.4(1) of the Act
had been infringed, as no permission had been
obtained a~ required by it. In this view they con·
firmtid the order of the Director but reduced the
fine to Re. 5 lakhs.
Against this order both Shri
S. P. Jain and the Union of India. have preferred
the above appeals with the leave of this Court
under Art. 136 of the Constitution. In this judgment Shri S. P. Jain will be referred to as the
appellant and the Union of India. a.a respondents.
On the contentions urged before us the
questions that a.rise for our
decision in these
appeals a.re :
( l) What a.re the terms and conditions
on which the deposits in question were made;
(2)whether on those terms and conditions
.there has been a violation of s.4( l) of the Act
by the appellant ; and
(3) whether the imposition of penalty
under s. 23 (i )(a) of the Act is bad on the
grouncl that the section is in contravention of
Art. 14 and in oonsequenoe void.
It will be convenient to disposti of the last
contention first, a.a it goes to the very root of the
jurisdiction of the Director of Enforcement to proceed under the impugned section. Section 23 ( l)
of the Act is as follows :
"23(1)
If any person
contravenees the
provisions of section 4, section 5, section 9 or
sub-section (2) of section 12 or of any rule,
direction or order made thereunder, he shall-
( a)
be liable to such penalty not
exceeding three times the value
of the
foreign exchange in respect of which the
contravention has taken plaoe, or five
thousand rupees, whichever is more, u
I
...
,_
I
2 S. 0. R.
SUPREME OOURT REPORTS
· 303
(b)
may be adjudged by the Director of
Enforcement in the- manner hereinafter
provided, or
upon conviction by a Court, be punishable with imprisoLment for a term which
may extend to two years, or with fine,
or with both."
Then there is s. 2J-D which, omitting what is not
material, runs as follows : -
"23·D(l) For the purpose of adjudging under
clause (a) of sub-section (i) of section
23
whether any person has committed a contravention, the Director of Enforcement shall
hold ah inquiry in the prescribed manner
after giving th&t person a reasonable opportunity of being heard and if, on such inquiry,
he is satisfied that the person has committed
the contravention, he may impose such penalty· as he thinks fit in accordance with the
provisions of the said section 23 :
'
Provided that if, at any stage of the
inquiry, the Director of Enforcement is of
opinion that having regard to the circumstances of the case, the penalty which he is
empowered to impose would not be adequate,
he shall, instead of imposing any penalty
himself, make a complaint in writing to the
Court."
It will be seen that when there is a contravention of s.4( 1), action with respect to it is to be
taken in the first instance by the
Director of
Enforcement.
He may either adjudge the matter
himself in accordance with s. 23( 1)( a), or he may
send it on to a Court if he considers that a more
servere penalty than he can impose is called for.
Now the contention of the appellant is that when
the case is transferred to a Court, it will be tried in
1962
Shonli Prasad J aili
••
Tll• Dirtelor of
Enfort:l11flfll
A;,., J.
J96J
Shanti Pr01ad J,n,,
••
TN Dir"tOT of
EnjMurMnl
Ai,ar J.
a04
SUPREME COURT REPORTS [1963]
accordance with the procedure presorihed by the
Criminnl Procedure .Code, but that wh<'n the Director him~P]f trit•s it, he will follow the procedure
prescribed ther<'for under the Rules framed under
the Act, and that whPn the law provides for the
same offence being tried under two procedures, which
a: e mhstautially different, and it is left to the dis
cretion of an executive officer whether the trial
should lake place nnder the one or the other of
them, there is clear discrimination, and Art. 14 is
contravened.
Therefore s. '.!3 (l) (a) must, it is
argued, bo struck down as uncmnstituti0nal and the
imposition of fine
on the appellant under that
section sot aside as illegal.
It is not disputed by the appellant that the
subject-matter of the
l~gislation,
viz.,
Foreign
Exchange, has features and problems peculiarly its
own, and that it forms a class in itself.
A law
which prescribes a speoial prooedure for investigation of br!~aches of forei1m exchange regulation will
therefore be not hit by Art. 14 as it is based on a
classification which has a just and reasonable relation to the object of the legislation. The vii-es of
s. 23 (l) (a} is accordingly not open \.o attack on
the ground that it is governed by :. procedure
different from that prescribed by the Code of Crimi·
nal Procedure. That indeed is not oontrovertcd
by the appellant. That being so, does it make any
difference in the legal position that s. 23-D provides
~:
for transfer by the Director of Enforce1Dent of
...
cases which ho can try, to tho Court ? We have
not here, as in St,ate of W ei;t Bengal v. Anwar Ali(')
a law. which confers on an officer an ·absolute
discretion to send a case for trial eithor to a Court
or to a l\Ia.gistrate, empo:wered to try oaB{'S under
a spcoial procedure. 8eotion 23-D oonfers authority
on the very officer who has power to try and dispose of a caso to sond it on for trial to a Court, and
that too only when he consider that a more severe
{I) (1952) s. c. R. :ist.
1
2 S.C.R.
SUPREME (,'OURT REPORTS
305
punishment than what he is authorised to impose,
should be awarded. In a Judicial system, in which
there is a hierarchy of Courts or Tribunals, presided
over by magistrates or officers belonging to different
classes, and there is a devolution of powers among
them graded according to their class, 11 provision
such as s. 23-B is necessary for proper administration of justice.
While on the one hand a serious
offence should not go without being adequately
punished by reason of cognizance thereof having
been taken by an inferior authority, the accused
should on the other hand have in such cases the
benefit of a trial by a superior court. That is the
principle underlying s. 34,9 of t.he Criminal Procedure Code, under which magistrates of the second
and third class, are empowered to send the ca8es
for trial to the District Magistrate or Sub-Divisional
Magistrate, when they consider that a more severe
punishment than they can inflict is called for.
In
our view the power conferred on the Director of
Enforcement under s. 23-D to transfer cases to a
Court is not unguided or arbitrary, and does not
offend Art. 14 ands. 23 (I) (a) cannot be assailed
as unconstitutional.
(I) Passing on to the question as to the terms
on which the deposits standing to the credit of the
appellant in the Deutsche Bank were made, though
before the Director, and the Appellate Board, the
truth of the settlements between the German firms,
and the appellant was itself questioned by the
respondents, before us it is not disputed that there
were such settlements or that the deposits were
made pursuant thereto. The whole of the controversy before us is limited to the question whether
the deposits were unconditional and absolute or
whether they were made subject to the condition,
that the appellant could operate on them only for
payment of the price of new machineries to be
puroha.ood from those German firms.
. '
'
1962
Shanti Pr1Jt11I J •in
••
T lie Dir1&lfW r1
.Enforcl1l't1nl
-
AIJ•r J.
1982
SI.anti Pro1od 'ain
v.
The Director of
Enf<ncemmi
Ai1ar J,
:106
SUPREME COURT REPORTS fl963J
Before entering on a discussion of the materials be1~ring on this point, we may deal shortly with
a question which was agitated before the Director
of Enforcement and the Appellate Board. That is
wht>ther tho provisions of the Evidenoo Act arc
applicable to the proceedings under the Act.
Rule
3 (5) of the Rules framed under the Act provides
that in taking evidence, "the Director shall not be
bound to observA the provisions of the Indian
Evidence Act, 1872 (I of 187; )",
Section 24-A of
the Act provides that the court shall presume the
genuineness and the truth of the contents of certain
documents tendered in evidence by the prosecution
un !Pss tho contrary is proved. The Director of
Enforcement held that by reason of the above
provisions the Evidence Act had n.:> application to
procPedings under the Act.
The Appellate Board
came to & different conclusion. It held that s. 24-A
had application only to proceeding in Court and
that Rules 3 (5) had uot tile effect of rendering
arlmis~ible evidence which was
irrelevant or inadmissible under tho Evidence Act.
In our opinion
thiR is the correct viow to take of tho scope of
a. 24- ~ and Rule 3 (5) and that wa~ conceded before us by the learned Attorney Gcnei al appearing
for thP respondents.
For a. satisfactory determination of the question as to the terms on which the deposits in
account No. 50180 were made, it is necessary to
narrate briefly the history and nature of the disputes, which
form
the subject-matter of tho
settl<ments.
They havo their origin in four
contracts entered into with four German firms, two
of them by the Hohtas and tho ot.her two by the
New Central .Jute Mills Ltd. Taking the first of
them, some time prior to 1953 the
l~ohtas had
placed an order with a German firm called Messrs.
Voith & Company for the supply of three paper
Machines. The shipment of these machines was
•
....
'
•
2 S.C.R.
SUPREME COURT REPORTS
307
dela.yed beyond the time stipulated and moreover
when they were supplied their produrytion was found
to be far below what had been guaranteed under
the agreement. The Rohtas claimed compensation
from M/s. voith & Cumpany on both these accounts
and after some correspondence between them a
representative of the German firm Mr. Zimmer·
mann came over to India to make an enquiry on
the spot, and as a result of the discussion which he
had with the Rohtas he recommended on February
21, 1957 that a sum of£ 17,900/- might be paid by
the German firm as compensation for delay in shipment. He however declined to · admit the claim
made by the Rohtas on account of the deficiency
in the output of the machines. In accordance with
this recommendation Messrs. Voith & Co. remitted
on March 15, 1958, German Marks equivalent to
the sum of£ 17,900/· to the Deutsche Bank to be
credited in the name of the appellant and it was so
credited on Mawh 20, l\158. The appellant was in
due course informed of the deposit, hut on May 14,
1958, he wrote to M/s. Voith & Co. that he was not
prepared to accept the amount in full satisfaction
as no compensation was paid for deficiency in out·
put. Thus the dispute was still unsettled, when
the appellant left for Germany.
Coming next to the second contract, some
time in 1951 the R.ohtas had purchased from M/s.
Escher Wyss another firm in West Germany a
Yankee Paper-making Machine. As soon as it was
installed it was discovered that some of its parts
were defective and that its output was also below
what was guaranteed. On December 17, 1953, the
appellant brought these defects to the notice of the
German firm and asked them to substitute good and
suitable parts in the place of the unusable old ones.
On this a protracted correspondence followed btit
as the machines could not be worked without
replacement of the defective parts, the Rohtas coulq
198B
Sh'Onli Prasad Jai!J
v.
T be Director of
.En/orctment
AiyarJ.
Sh.nli p,.,ld Jain
••
Th. Dir1ttar oJ
En.fare""'"'
Aiyor J.
308
SUPREME COURT REPORTS (1963]
not wait until a settl!'mcnt was reached and so
purchased the requisite parts from another German
firm called O'Dorril'S and made a demand on M/s .
Esoher Wy&s
&
Company
for
compensation.
A representative of the firm !\Ir. Staudenmaier
came over to India some time in
1956
to
investigate the matter and
after making a
local
inspection ho submitted proposals
for
remodelling the machineR.
On June Ii, l9;ii, tho
Rohtas wrote to tho Gorman firm that they were
not ·agreoable tu these proposals and requested
them "tu have the claims settll'd as put forward
by us in our previous lett.ers".
Thus the claim
under this cont.met was also prrnling settlement
at tho material period.
The facts relating to the third an<l fourth
contracts concerned in t.hese disputes are that the
Xew Central Jute i\Iills Ltd. ha<l decided to instal at Varanasi a Gall and Synthesid Ammonia
Plant for the manufacture
of ChcmicnlR and
Fertilisers and placf'd orders for t.Lc machineries
and partH with two German firms M/s. Frierlrich
U<lhe and Yl/s. Piuts('h Bamag. Tho ca.de of the
appellant i~ that many of the eqi!ipm1:nts which
were supplied by tho two firms were not in accordance with th" specifications, that the pipe lines
were not properly fabricated and were untailored
a.nd that there wa1 also Bhortag" in t.hc Buppliea
made by M/s. Pint.~ch Bamag. The New Central Jute
Mills Co. claimed compensation for the defective
supplies as aforesaid from the German firms, and
negotiations for
settlement of these claims were
also pending at the relevant dates.
Another fa<'tor forminl! the backgronnd for
the settlements
must
now be mi>ntioncd.
At
about. this time the appellant had come to a di>ci·
sion to instal a nP,w Paper Pinnt at Dnlmianngnr
and a new Ammonium Chloride Plant at Varanasi.
•
...
l..
I
2 S.C.R.
SUPREME COURT REPORTS
309
To carry out those projects it was necessary to
secure the requisite foreign exchange and for that
the permission of the Government of India had
to be obtained. Accordingly the appellant wrote on
May 26, 1958, to the Ministry of C'Jmmerce &
Industries and again on June 5, 1958, to the Ministers for Industries and for Finance settling out
his proposals
for expensations and desiring to
know the amounts of . foreign
exchange which
could be made available for these projects. In
his reply to the appellant dated June 9, 1958,
the Minister for Industries stated: "As you know
under the present acute foreign <'xchange P°''i·
tion, no earlier paym•Jnts bofore production are
permitted . . ..
Also export earnings
from the
products of a particular plant lay only be allo.wod
to be used for payments for that very plant and
nor for the payment of Import and other capital
goods and equipment".
Thus the position when the appellant left
for the Continent was that he had outstanding
claims against four German firms and negotiations
for their settlement were pending, and that he
had on hand schemes for expansion of industries
at Dalmianagar and Varanasi which could be put
through only if the requisite machinery could be
imported ·but that the Government of India would
not permit imports which involved payments of
price at the time of delivery of goods.
The appellant left India for Europe on
June 30, 1958. In the following months he contacted the respresentative of the four German
firms mentioned above and all . the disputes were
settled. Acoording to the appellant, the terms of the
settlement which were same in all the four contracts
were as follows: The amount payable to the Indian
Companies as compensation was fixed. It was to be
deposited by the Geruia.n firms to the credit of the
1962
Shanti Prasad Jain
••
The Director of
Enforce_menl
~iyar J.
1951
Shanti Prua4 J.tn
v.
7-'ie cn,.acwr of
EriforCttMIJt
A;_,. J •
31<>
SUPREME OOURT REPORTS (1963]
appellant in the Deutiiche Bank. The Indian Com·
panies were to obtain import licences from the
Government of India and place orders with the
respective firms for the supply of new ma.chi·
neries.
The amounts in uredit in the Deutsche
Bank were to be supplied pro tanto for the p11.yment of the price of these machines to the respective firms. The appellant was not to operate on
this account except for the purpose of making
payments to the German in tho manner aforesaid.
It is now noceBBary to refer to tho evidence
bearing on
the settlements, because, as already
stated, while tho respondents admit that there were
settlements with the German firms and deposits
were ma.de pursuant thereto, they do not admit
that the deposits were
ma.de subject to conditions, as stated by the appellant. It will be
remembered that on March 20, 1958, M/s. Voith &
Company had deposited with Deutsche
Bank
DM. 210.081,31
Marke
being the equivalent of
£ 17,900/- as compensation for delayed shipment,
which was the only portion of the claim admitted
by them, in full settlement of a.II the claims of the
Rohtae: :\ow pursuant to the settlement reached
with the appellant, they deposited on August I,
1958, a further sum of DM. 201,67,659 Marks in
the name of the appellant in the Deutsche Bank.
The terms of the settlement appear in two letters
written by M/e. Voith & Company on August I,
1958, one to the Rohta.s and the other to the
Deutiiche Bank. In the letter addressed to the
Rohtas M/s. Voith and Company say "Mr. Jain
informed us of your plans for tb.e future such as the
establishment of a new complete pulp and paper
making unit in ABSam, and in particular, of your
immediate desire to increase the proiuction of your
Board Machine P.M. I in Dalmia.nagar. For this
re-construction project we have already submitted
i.n offer ....•. Regarding the remodelling of your
•
~I
2 s.c.tt.
SUPREME OOtrRT Rll:POJ1.'.l'S
311
P.M .. I., we understand that you have already
obtained an industrial Iioence and that you expect
to get an import licence for the equipment offered
by us. An advance payment of 20% of the. exworks price is, however, for this comparatively
small brder a pre-condition for 'Our credit insurance.
In view of Mr. Jain's assurance that we ·will enjoy
preference for the supply of our machinery ill the
event that an import licence for the. new paper
mill will eventually be obtained, and fu order to
make the early placing of your order for the
reconstruction of P;M. I possible, we have finally
agreed to meet your claims for the paper machines
alrea!iy supplied to the extent of a total sum of
DM. 412,058 including the amount already placed
with the Deutsche Bank, Dusseldorf, in March,
representing 20% of the price quoted in our
offer of January 15th, 1958. We are, therefore,
remitting the balance ·to the Deutsche Bank as per
letters addressed to them translation of which we
attach hereto.· This settlement ofyotrt claims .is
considered on the, definite undersfanding that the
total amount can only be utilised by you to make
to us tpe initial payinent of 20"/c only and when
the iln.port licence for the tec:onstruction of p.M.I.
is received. The Bank is, therefore, instructed to
hold both remittances mt~e by . us ii.t yo~fr <;liap&slil
for thi~ purpose only." On 'the same dayM/s. Voith
& Company ,advised the Deutsche· 'Bank. t~at they
had r!lmitted a further siJm of DM. · 2frl,676.59
to it in addition to the previous remittance of
DM. 210,381.31 and then go on to.say "the two
amounts are paid in final set~lement of the claims
of 114.essrs. Rohtas lndustries Limited against us
in connection with the supply llf 3 paper maClh_ines.
We rl'IJ,6at that the said a.mounts may be.utilitled
by Mr. S. P .. Jain, Chairman of Messrs: Rohtas
~nq~tries Limited, only 'for the pur;POS\) o, ~kmg
mlt1a1,pay,nients to us 11igamst further. tJtJri:ililJ.Se <if
1901
Shanti l'lasad Jam
v.
T!te Di;~dor of
Enfoimnint
[,
I
,
1962 .
S.i~;,.li Prasad Jain
.
' v .. , · ..
T /t4 DirtCt•1' •f
EnfM&etTUn'
312
StrPREME COURT REPOR.TS (1963]
machinery, ·which payments ·will be made on final·
· approval of our tender after receipt of the Indian
.import licence. For other's sake please confirm
receipt of these instructions to us."
It sh~uld be mentio~ed that under the Export
Regulations in force in Germany no goods manufactured therein could be exported unless 20% price
-quoted were paid for before the goods left the
country .. The effect ·of the 'arrangement come to
between M/s Voith & Company and the appellant
was that the firm would be· free to export goods to
the Rohtas on payment. to it of 20% of the price
out of t~e funds standing to the credit of the
appellant in the Deutsche Bank,.· and· it may be
· gathered that the total amount of compensation
had relation to the 20 per . cent of the price of the ·
new machinery to be purchased.-
, .
The settlement made in respect of the three
'.lther contracts was also on the same lines. M/s.
Escher Wyss & Company settled tb.e claim of the
. Rohtas on July 7, 1958, and wrote to the appellant
as follows: "We are pleased that a rnlution has
been ·arrived in the' course of the talks we had 'with ·
you to settle your long outstanding claim. We have
declared to pay the agreed amount of DM. 205.000,
as finally settled immediately for your satisfactfon
1
to Deutsche Bank to be held by them for your
utilising in purchase of machinery by Messrs. Rohtas
Imlustries Ltd., Dalmianagar from us after you
have finally decided on the several plans discussed.
here and obtained import licences from your
Gove~nment. We have pointed out to you that ·;
·we .. attach great· value to entertaining• good and
friendly relations and to do further business with
you .. We shall thank 'you also to Jet us have a
confirmation that all claims against· our firm in
connection with our delivery of Yankee Paper
. ~iachine are now definitely settled." On the same ·-
~
4
2 S.C.R.
SUPREME OOURT REPORTs
313
day M/s. Escher Wyss & Company transferred a sum
of DM. 205.000 to the Deutsche Bank icommunica.
ting to them a copy of the letter addressed to the
appellant containing the terms of the deposit with
them. The amount was duly credited to the
account of the appellant on July II, 1958.
On August 11, 1958, a settlement was reached
between the appellant and M/s. Friedrich Udhe &
Company, who, then addressed the following letters
to the Deutsche Bank : "We are releasing a sum
of
DM. 472,866,03 as derived expenses
DM.
465.633,63 and interests payment DN. 7.252.40
to meet claims of Mr. S. P. Jain, President, New
Central Jute Mills, Calcutta. We request you to hold
·this amount in the name of Mr. S. P. Jain but it
shall not be payable to him and is to be· utilised
only for payment to us against. purchase of expan·
sion machinery by Sahu Chemicals-Proprietor New
Central Jute Mills-· ·after they secure licence and DM
transfer guarantee from their Government." The
amount was actually credited in the Deutsche Bank
int-he mune of the appellant on August 15, 1958.
Confirming this. arrangement M/s. Friedrich Udhe
wrote to the appellant on August 18, 1958, as
follows : "As a v:ery special case, to promote our
pleasant business relations, we have, only in view
of your assurance for expansion order, released a
sum of DM. 4 72,886,03 calculated as aforesaid,
against our engineering fees and exP,enses on your
existing supply, which must be utillsed, however,
only towards your meeting payments to us against
order and shipments which are essential for our
credit insurance. .We have made over this amount
to Deutsche Bank A. C. · with instructions to hold
t-he
same for payment aforesaid after your
Government grants you licence and DM transfer
guarantee is established as may be acceptable to
competent German authorities.''
Jiff
Skr.nti ·l'r~oi Jan
...
7 "4 Direel1r ./
E•for'ltnml
4.fJtfJ,
1931
SIKMli Pr.sod Jr.in
••
The Diudor oj
Bllf-.n<
A~ro· .}.
314
SUPREl\IE COURT REPORTS [1963)
On September 21, 1958, there waa a settlement
of the dispute with M/s. Pintsoh-Ba.mag under which
the latter a.~reed to pay 600.000 Marks in full
S•ltisfaction of the ola.im on the same terms as in
tho other contracts. On tho same day M/s Pintsch
Bama.g wrote tlie following letter to the Deutsche
Rank.
"We hereby notify you t.hat we are placing
DM. 600.000 with you in payment of excess price
claimed by Mr. S. P. Jain, President of New Central
Jute Mills Co. Ltd., we further advise that the amount
is to be held by yon in the name nf Mr. S. P. Jain,
but it would not be ava.ila.ble to him except for
ma.king payment to us against extension machinery
to be ordered with us by Sahu Chemicals Proprie·
tors New Central Jute Mil!R Co., outheir obtaining
licence from their Government and approval of
payment conditions." ·on September 24, · 11158,
M/s. Pintsoh Bamag wrote to the appellant that
they had deposited the a.mount settled in the
Deutsche Bank and added ''we must however point
out expreBSly that but for the assurance of exten·
sion order to us, it would not have been poBBiblo
for us to meet your claims. This amount will be
available therefore only for making payment to us
against extension machinery and the bank has been
spccifica.lly advised to bold the same for you only
in accordance therewith."
The evidence aboTe referred to olearly establio1ics tb~t the deposits in account No .. 50180, were
made subject to the conditions stated by the appellf•nt, and there is intrinsio evidence in the entries themselves in this aooount wbioh supi-ort this
oontentiou. Thus the entry relating to tb.i receipt
of deposit from Messrs. Friedrich Udbe ·speaks of
"derived expenses" and "interest' '; and those rela.·
ting to the receipt from MeBBrs. Pintsch Ba.mag read
as "payment of exce88 prioe and ''in respect of
exce88 price"
These entries .have reference to the
nature of the claiii:ie OE account of which the deposit are made, and would be wh.olly out of place in
2 S.C.R;
SUPREME COURT REPORTS
315
~ the case of ordinary deposits. On the other ha.nd,
they would b·e quite explicable if m11ode under spe·
cial directions from the depositors.
But the matter does not rest there. While
the appeal was pending before the Appellate Board
both ''the parties agreed that further information
should be elicited from the Bank as to several matters concerning the deposits, and on . August 21,
1959, a questionnaire agreed to by counsel on either
~ sides was sent by the appellant to the Bank
for its reply. Therein the Bank was 11,sked to fur·
nish particulars regarding the heading of account No;
50180· the certified copy of the relevant entries
therein, the certified copy pf page-I of the letter
dated September 25, 1958 from the Bank to Mr.
Jain, and ·the communications which passed between· the Bank and Mr. Jain in respect of the· six
items of deposit appearing in the account. Among
the questions sent to the Bank were the follow-
._,
ing :- .
(a} Please state whether the amounts referred 'to were deposited witu you.and were
held by you on the conditions mentioned
in the letters, copies whereof are enclosed
herewith.
(b) What is meant by the expression "DM"
account with limited convertibility'' ?
~
What does it signify in relation to the
deposits taken by you under the conditi·
ons mentioned in those letters ? Was the
acceptance of these conditional credits
by the Bal:\k confirmed to the persons who
, deposited thest> amounts ?
To this the Bank sent a reply dated September I,
~ 1959; to ·the Chairman, of the Board, but addressed
to the- appellant.. Therein it give particulars of
the siX items of deposiias_contained·m the-letter
1962
Sh••l.i Pnffoa "-a i $
••
Tlw Ditulor 1•f
Enfor011Mnl
AVorJ.
s~-; ,,, •• ,Join
v.
Tl&t Barector of
Ewfnctt'Md
A~rJ.
316
SUPREME COURT REPORTS [l963J
dated September 25, 1958. Then there are the
following statement which are material ;
"The deposited amounts are being held by
UR s11bject to the conditions given in the
enclosed certified copie.s of the rel1iva.nt
letters from the German parties concerned ...... As is evident from the stipulations mentioned above, you are not entitled to withdraw the amounts specified
or parta thereof, without fulfilling the
terms and conditions stipulated in the
said letters.
The acceptance of these
conditions, has, of course, been confirmed
to the firms concerned and we a.re, therefore, bound to observe the conditions
vis-a· vis those firmB, t-00, before we poseibly could carry out any instructions
from your part to dispose of the funds.
It need not be empha.~ized that these conditions applied during all the time the
amounts have been maintained in this
account where, indeed, they continue to
be kept on the same bBSis."
As the letter of the Bank did not contain replies
to a.II the questions raised int-he letter of August 21,
1959, the Appellate Boa.rd directed that it should
be asked to sand a further reply with respP.ct to all
the questions. On September 17, 1959 the appellant a.ccordingl,v wrote another letter to the Bank
asking for a reply specifically to all the questions,
to which the Bank again replied on September 23,
1959.
Tht'rein they stated that the heading
of the arcount was "Mr. Shanti· Prasad Jain, Aocount No. 50180'' that the account consisted in its
entirety of six items of credit totalling DM. l.689.
429,50 and that there were no further credits or
debits in the account.
The reply then proceeds on
tp eta tr ; '
0'fl1e. restrictions prnailing agaiμJl~ thll
..
;:....,_
•
' ._,
\
2 S.C.R.
SUPREME COURT REPORTS
317
disposal.of the amounts as imposed upon us by the
firms who deposited the money are-as is customary
in such oases-not expressed or referred to in the
heading of the account. Such restrictions are marked to the account ooqcerned by means of internal
instructions. That is what has been done in this
case too. We give below the exact copy of page
1 of our letter dated 25th September, 1958 except
for the. portion wherein we communicated to you
some particulars of a strictly confidential nature
concerning the affairs of a third party, some client
of ours. This information we cannot disclose
to any other party, as you evidently went us
to do...... we, however, state that this omitted
part page-I does not in any way relate either
to the account of the six items of deposit or to
you".