# UNION OF INDIA v. ABN ·AMRO BANK AND OTHERS

- **Citation:** [2013] 13 S.C.R. 820
- **Court:** Supreme Court of India
- **Decided:** 2013-07-12
- **Case number:** Criminal Appeal No. 975 of 2007
- **Bench:** K.S. Radhakrishnan, Dipak Misra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-abn-amro-bank-and-others-28990
- **Pages:** 53

## Headnote

Foreign Exchange Regulation Act, 1973:
·~ +
c
ss.19(1)(a), and (d), 29(1)(b), 47(1) and 49(1)(a) rlw. s.68
- Contravention of - Prosecution for - Alleging the company
and its foreign share-holder (holding 51% shares of the
Company) for carrying out business/trading activities of
imported gold coins, in contravention of above provisions -
D Accused found guilty for contravention of the provisions by
_.i,
Adjudicating Authority - Appellate Tribunal set aside the
order of Adjudicating Authority - High Court upheld the order
of appellate authority refusing to interfere with it on the ground
that no questions of law arose for its consideration -
On
E appeal, held: The trading activity of the company was without
due approval under 19(1)(a) and (d) and 29(1)(b) -
The
company was not covered under the Notification relaxing the
provisions of ss. 19 and 29(1)(b).
~
F
Doctrine -
Doctrine of 'Lifting of corporate veil' -
Applicability of, in cases of violation of provisions of Foreign
Exchange Regulation Act.
-
Interpretation of Statutes - 'Heading' of a provision - As
G an aid to interpretation of the provision - Held: Heading of a
'1--~
section can be regarded as a key to the interpretation of the
operative portion of the section - If the language in the
Section is plain, clear and unambiguous, the heading
strengthens that meaning.
H
820
•
UNION OF INDIA v. ABN AMRO BANK
821
The respondent Nos. 2 to 4 were charged for carrying · A
out business/trading activities of 'imported Maple Leaf
Gold Coins' in contravention of ss. 19(1 )(a) and (d),
29(1 )(b), 47(1 ), 49(1 )(a) r/w. s.68 of Foreign Exchange
Regulation Act, 1973. Proceedings were also initiated
against respondent No.1-Bank for violation of s.6 (4) and
B
"(5) of the Act alleging that the Bank sold gold coins to the
company without being reasonably satisfied about the
nature of the business of the Company and without
ascertaining whether the Company had got necessary
permission from RBI in dealing with gold coins, and thus c
the Bank misused the permission granted to it by RBI for
importing gold coins. The Adjudicating authority found
the respondents guilty of the offences they were charged
with. The appeals against the order of adjudicating
authority was allowed by Appellate Tribunal for Foreign
0
Exchange. High Court dismissed the appeal filed u/s. 54
of the Act, on the ground that neither any question of law
nor any legal infirmity was found in the order passed by
the Tribunal.
In appeal to this Court, the respondents 2 to 4
E
. contended that respondent-Company was an Indian
Company under Indian Companies Act, 1956 consisting
of Indian shareholders as well as Directors, and such
Company having foreign shareholdings did not need
permission from RBI to carry on business or to establish
F
a place of business in India; that the respondent-Swiss
Company cannot be said to have violated s. 29(1 )(a) and
indirectly tried to establish a place of business in India
merely because the Swiss Company held 51% shares of
the Company and initiated its incorporation; that by virtue
G
of Foreign Exchange Regulation Amendment Act 29 of
1993, an Indian company in which non-resident interest
is more than 40% can carry on business in India without
any permission from RBI, that the company fell squarely
within the category of "newly setup trading company
H
822
SUPREME COURT REPORTS
[2013] 13 S.C.R.
I ,.
A primarily engaged in export" which fell within the purview
y.
'
'
of the general permission granted by RBI under the
~
automatic approval route and hence there was no
contravention u/ss. 19(a) and (d), 29(1 )(b) or 49(1 )(a) of the
Act, and that while interpreting a statute, courts would lift
B the corporate veil more restrictively and FERA was not
expected to lift the veil under Section 29(1 )(a) after the
amendment Act of 1993.
The appellant contended that section 29(1 )(a) puts an
~ ..
c injunction on the foreign companies and foreign
nationals from establishing or carrying on any business
~
in In

## Text

_Characters 0–39,759 of 100,285. This is a partial read: ask again with offset=39759 for what follows._

[2013] 13 S.C.R. 820
A
UNION OF INDIA
v.
ABN ·AMRO BANK AND OTHERS
(Criminal Appeal No. 975 of 2007)
B
JULY 12, 2013
[K.S. RADHAKRISHNAN AND DIPAK MISRA, JJ.)
Foreign Exchange Regulation Act, 1973:
·~ +
c
ss.19(1)(a), and (d), 29(1)(b), 47(1) and 49(1)(a) rlw. s.68
- Contravention of - Prosecution for - Alleging the company
and its foreign share-holder (holding 51% shares of the
Company) for carrying out business/trading activities of
imported gold coins, in contravention of above provisions -
D Accused found guilty for contravention of the provisions by
_.i,
Adjudicating Authority - Appellate Tribunal set aside the
order of Adjudicating Authority - High Court upheld the order
of appellate authority refusing to interfere with it on the ground
that no questions of law arose for its consideration -
On
E appeal, held: The trading activity of the company was without
due approval under 19(1)(a) and (d) and 29(1)(b) -
The
company was not covered under the Notification relaxing the
provisions of ss. 19 and 29(1)(b).
~
F
Doctrine -
Doctrine of 'Lifting of corporate veil' -
Applicability of, in cases of violation of provisions of Foreign
Exchange Regulation Act.
-
Interpretation of Statutes - 'Heading' of a provision - As
G an aid to interpretation of the provision - Held: Heading of a
'1--~
section can be regarded as a key to the interpretation of the
operative portion of the section - If the language in the
Section is plain, clear and unambiguous, the heading
strengthens that meaning.
H
820
•
UNION OF INDIA v. ABN AMRO BANK
821
The respondent Nos. 2 to 4 were charged for carrying · A
out business/trading activities of 'imported Maple Leaf
Gold Coins' in contravention of ss. 19(1 )(a) and (d),
29(1 )(b), 47(1 ), 49(1 )(a) r/w. s.68 of Foreign Exchange
Regulation Act, 1973. Proceedings were also initiated
against respondent No.1-Bank for violation of s.6 (4) and
B
"(5) of the Act alleging that the Bank sold gold coins to the
company without being reasonably satisfied about the
nature of the business of the Company and without
ascertaining whether the Company had got necessary
permission from RBI in dealing with gold coins, and thus c
the Bank misused the permission granted to it by RBI for
importing gold coins. The Adjudicating authority found
the respondents guilty of the offences they were charged
with. The appeals against the order of adjudicating
authority was allowed by Appellate Tribunal for Foreign
0
Exchange. High Court dismissed the appeal filed u/s. 54
of the Act, on the ground that neither any question of law
nor any legal infirmity was found in the order passed by
the Tribunal.
In appeal to this Court, the respondents 2 to 4
E
. contended that respondent-Company was an Indian
Company under Indian Companies Act, 1956 consisting
of Indian shareholders as well as Directors, and such
Company having foreign shareholdings did not need
permission from RBI to carry on business or to establish
F
a place of business in India; that the respondent-Swiss
Company cannot be said to have violated s. 29(1 )(a) and
indirectly tried to establish a place of business in India
merely because the Swiss Company held 51% shares of
the Company and initiated its incorporation; that by virtue
G
of Foreign Exchange Regulation Amendment Act 29 of
1993, an Indian company in which non-resident interest
is more than 40% can carry on business in India without
any permission from RBI, that the company fell squarely
within the category of "newly setup trading company
H
822
SUPREME COURT REPORTS
[2013] 13 S.C.R.
I ,.
A primarily engaged in export" which fell within the purview
y.
'
'
of the general permission granted by RBI under the
~
automatic approval route and hence there was no
contravention u/ss. 19(a) and (d), 29(1 )(b) or 49(1 )(a) of the
Act, and that while interpreting a statute, courts would lift
B the corporate veil more restrictively and FERA was not
expected to lift the veil under Section 29(1 )(a) after the
amendment Act of 1993.
The appellant contended that section 29(1 )(a) puts an
~ ..
c injunction on the foreign companies and foreign
nationals from establishing or carrying on any business
~
in India or opening any branch in India without obtaining
the permission of the RBI; that the Company was a
foreign Company set up by foreign nationals in violation
D
of s. 29(1 )(a); that the Adjudicating Authority rightly lifted
the corporate veil and examined as to who were all in fact
,-4,
controlling the Company; that in view of Para 39(B) of
Industrial Policy, 1991 dealing with Foreign Investment,
and Press Notes dated 20.8.1991, 13.12.1991 and
31.12.1999, there is no concept of automatic approval for
E the companies erigaged primarily in trading and such
companies fulfilling certain conditions have to apply to
RBI for permission; and that the benefit of automatic
approval route allowed by RBI under Notification No.180/
'.lo(
98-RB dated 13.1.1998 is given to the Companies
F primarily "engaged in exports" and the companies who
claim the benefit under the Notification are required to
submit a declaration in Form FC (RBI), while the activities
of the company are the activities indicated in NIC Code
893.
-y-'-
G
Allowing the appeal, the Court
HELD: 1.1. Section 19(1 )(a) was intended to regulate
~
export and transfer of securities. Section 19 states that
no person shall except with the general or special
H permission of the Reserve Bank take or send any security
_.,
UNION OF INDIA v. ABN AMRO BANK
823
to any place outside India or to issue whether in India or
A
elsewhere any "security which is registered or to be
registered in India to a person resident outside India.
Section 19 while intending to regulate export and transfer
· of securities, Section 29 placed restrictions on
establishment of place of business in India. It is in
B
pursuance of clause (a) and clause (d) of sub-section (1)
of Section 19 read with clause (b) of sub-section (1) of
Section 29 of FERA, Notification No. 180/98 dated
13.01.1998 was issued by the RBI. [Para 48] [865-D-F]
1.2. The language used in Section 29(1 )(a) of Foreign
C
Exchange Regulation Act, 1973 (FERA) is unambiguous
and plain and calls for no interpretation or explanation.
Section 29(1 )(a) puts a specific bar on the foreign
companies and foreign nationals mentioned in Section
29(1) from establishing or carrying on any business in
D
India or opening any branch in India without obtaining
permission of the Reserve Bank of India (RBI). Heading
of Section can be regarded as a key to the interpretation
of the operative portion of the Section and if there is no
ambiguity in the language or if it is plain and clear, then
E
the heading used in the section strengthens that meaning.
Heading of Section 29 indicates restrictions and the
expression "shall not" "except with" general or special
permission of the Reserve Bank make the requirements
mandatory and the negative words used by the
F
legislature shows its intention that if any act is done in
breach thereof, will be illegal. Reading the Press Note and
the Cabinet Note for the amendment under Section 29,
apart from the fact that the language used in Section
29(1)(a) is unambiguous clearly indicates that restrictions
G
have only been liberalized, instead of 40% of the limit, it
was increased to 51% and 74% subject to fulfilment of.
certain conditions as set out in the industrial policy and
the various Press Notes. [Para 37] [859-G-H; 860-A-Dl·
H
824
SUPREME COURT REPORTS
[2013) 13 S.C.R.
A
1.3. Restrictions imposed under Section 29(1 )(a) is
not applicable to an Indian company to establish a place
of business in India but, on the other hand, restriction has
been statutorily fixed in respect of foreign company
which wants to establish a place of business in India.
B Section 29(1 )(a) deals with following categories of foreign
entities: (i) A person resident outside India; whether a
citizen of India or not, (ii) A person who is not a citizen
of India but is a resident of India or (iii) A company, (other
than a banking company) which is not incorporated
c under any law enforced in India or (iv) Any branch of such
company. (Para 37] (860-D-G]
1.4. The Automatic Permission Route was found
open by the Notifications dated 13.1.1998 and 20.1.1998
and those notifications have laid down certain conditions
D and parameters for automatic approval which were to be
complied with by the issuer company along with the filling
of declaration in Form FC(RBI). The Notification had
given relaxation to the provisions of Section 19 and
Section 29(1 )(b) to invest not exceeding 51 % to two
E categories namely all industries mentioned in Annexure
Ill to the Statement of Industrial Policy 1991 or to a trading
company primarily engaged in export and is registered
as an Export/Trading/Star Trading House with the Ministry
of Commerce, Government of India. To claim the benefit
F of the above-mentioned Notifications, it was essential
that a true declaration in Form FC(RBI) was required to
be filed and benefit of the general permission through
automatic route could be obtained only for the activity
specified in Form FC(RBI) and there was no·automatic
G approval for any activity not specified in the abovementioned form. [Para 55] (868-C-F]
1.5. Reading of Section 19(1 )(a), (d) and 29(1 )(b) with
the Notifications and the Press Notes, show that the
intention of the Legislature was to permit company
H
·-
•.
-
UNION OF INDIA v. ABN AMRO BANK
825
incorporated in India which is engaged or proposing to
A
engage in an activity specified in Annexure Ill or an Indian
Company which is a trading company, primarily engaged
in export and is registered as an export/trading/star
trading house with the Ministry of Commerce,
Government of India to issue equity shares, subject to the
B
conditions mentioned in paragraph 3 of the Notification
dated 13.1.1998. The first proviso to Notification states
that a company existing on the date of the Notification,
which was not engaged in Annexure Ill activity would be
eligible to issue shares if it had embarked upon c
expansion programme, predominantly in Annexure Ill
activities, subject to the condition that foreign equity
raised by issue of equity shares to the foreign investors
was utilized for such expansion. The first proviso goes
along with clause (a) of the Notification. The second
0
proviso states that in the case of a newly set-up "trading
company", primarily engaged in export, issue of shares
shall be subject to the conditions that registration as an
export/trading/star trading house was obtained before the
dividend is declared to the foreign investors. These
provisos go along with clause (b) of the Notification. The
E
Notification was intended to give relaxation to the
provisions of Section 19(1)(a), (b) and 29(b) of the Act to
the investments not exceeding 51% of the aforesaid two
categories, namely, (1) Industries in Annexure Ill to the
statement of Industrial Policy, 1991 or (2) a trading
company primarily engaged in export and was registered
as an export/trading/star trading house with the Ministry
F
of Commerce, Government of India. Companies which do
not fulfill the conditions of the Notification dated
13.01.1998 and 20.01.1998 and all other companies which
G
do not fulfill the conditions mentioned in those
Notifications are required to obtain prior permission from
FIBP for foreign equity investment. [Para 55] [860-F-H;
869-A-E]
H
826
SUPREME COURT REPORTS
[2013] 13 S.C.R.
A
1.6. The Notifications dated 13.01.1998 and 20.01.1998
cannot be read in isolation, but have to be read along with
Section 19(1)(a),(d), Section 29(1)(b), the Industrial Policy
of July 1991 especially parlii 39B(iv), Press Notes dated
2.0.08.1991, 13.12.1991, 31.12.1991 with specific reference
B to the trading companies primarily engaged in export
activities whether new or existing. Para 39B(iv) of the
Policy read with paras 5 and 6 of the Press Note dated
31.12.1991 indicate that a newly setup trading company
primarily engaged in the export will have to file
c application in prescribed form for approval of foreign
equity upto 51% equity. [Para 56) [869-F-H; 870-A]
1.7. Newly set-up trading company primarily engaged
in export has therefore also to satisfy the conditions laid
down in clause (b) of paragraph 1 of the Notification dated
D 13.01.1998 and the plea that a trading company is
primarily engaged in export be determined only when it
remits dividend, cannot be accepted. The expression
"further" used in the second proviso makes it more
explicit. "Further" as means "additional" meaning
E thereby a newly set up trading company is not a third
category as such but it goes along with second category
i.e. "a trading company primarily engaged in export". To
get the benefit of the general permission in the automatic
route a trading company should be primarily engaged in
F export, even if it is a newly set up company. A newly set
up company also could demonstrate the same by
specifying the same in Form FC(RBI) that it is a trading
company, whether new or old, and is at least intended to
be engaged primarily in export. [Para 57) [870-8-0]
G
H
1.8. FC(RBI) form specifically directs the applicants
to "carefully tick" the "appropriate" box. In the box
dealing with the application for approval for foreign
investment not to exceed 51 % for "service sector in
Annexure Ill", the company has put a tick mark which
..
UNION OF INDIA v. ABN AMRO BANK
827
would indicate that it sought to avail of the automatic
A
route for service sector only as indicated in Annexure Ill.
Noticeably in the present case, no tick mark was put in
the next box referring to "not exceeding 51 % of the
trading companies engaged in exports. Para VII deals
with the "existing activities" which the 2"d respondent
B
indicated as "not applicable" and no supplementary
sheet was also attached explaining as to whether it was
a newly set up trading company proposing to engage in
export activities. Para VIII referring to Item Code ITC (HS)
the company has indicated "893", which as per the Code c
deals with "Business and Management Consultancy
Activities". The company stated in the application as
"Business Management Consultancy for Trading,
Marketing and Selling of Goods and Services". Even
there, there is no indication whatsoever that the company
0
was set up for trading, but only indicated "consultancy
for trading". Further Para IX (iii) called for the description
of the products for export trading wherein the company
has stated as "not applicable". Resultantly, it is clear that
the purpose for which the company had sought for
foreign collaboration was not for trading in gold coins
E
either for export or domestic purpose, but for the
activities mentioned in the NIC Code 893. [Para 58] (870E-H; 871-A-B]
1.9. The company cannot go back from the
F
information already furnished by it in the application form
which are declared as 'true and correct'. Based on that
application RBI vide its communication dated 29.6.1998
granted registration No.FC98NDR1005. Registration,
pertains only to NIC code '893'. No permission was
G
obtained by the second respondent company from the
RBI for 51% foreign equity induction, for trading, by way
of export. RBI, on the other hand, granted general
permission only for dealing with the activities mentioned
in NIC Code 893 and not for any trading activities leading
H
828
SUPREME COURT REPORTS
(2013) 13 S.C.R.
A to import or export. [Para 59) [871-C-E]
1.10. In a given situation if the authorities functioning
under FERA find that there are attempts to over-reach the
provision of Section 29(1)(a), the authority can always lift
8
the veil and examine whether the parties have entered
into any fraudulent, sham, circuitous or a devise so as
10 overcome statutory provisions like Section 29(1 )(a). It
is trite law that any approval/permission obtained by nondisclosure of all necessary information or making a false
representation tantamount to approval/permission
C obtained by practicing fraud and hence a nullity. [Para
42) [862-G-H; 863-A]
New Horizons Limited and Anr. vs. Union of India (UOI)
and Ors. 1995(1) SCC 478: 1994 (5) Suppl. SCR 310; Delhi
D Development Authority vs. Skiper Construction Company (P)
Ltd. and Anr. 1996(4) SCC 622: 1996 (2) Suppl. SCR 295;
Vodafone International Holdings 8. V. vs . Union of India (UOI)
and Anr . . 2012 (6) SCC 613: 2012 (1) SCR 573; Life
Insurance Corporation of India vs. Escorts Ltd. And Ors.
E (1986) 1 SCC 264: 1985 (3) Suppl. SCR 909; Union of India
vs. Azadi Bachao Ando/an (2004) 10 SCC 1: 2003 (4) Suppl.
SCR 222; Union of India and Ors. vs. Ramesh Gandhi (2012)
1 SCC 476: 2011 (16) SCR 126 - relied on.
F
Re. H. PC. Produce Ltd. (1962) 1 All ER 37 - referred
to.
1.11. Trading in gold is not an activity covered under
Notification dated 13.01.1998 and 20.01.1998; perhaps for
that reason, fourth respondent also took some steps to
G establish its 100% subsidiary in India and an application
to that effect was filed on 24.08.1998 to FIPB by the
company but it was not pursued further, but sought to
achieve the same as if RBI had granted automatic
permission which cannot be sustained in the eye of law.
H [Para 63) [872-F]
..... _ ..
~-
+
UNION OF INDIA v. ABN AMRO BANK
829
-----,r
1.12. The High Court has committed an error in
A
...
holding that no questions of law arose for its
consideration under Section 54 of FERA and has
completely misread and misinterpreted the Industrial
Policy, Press Notes and Section 19(1)(a) and (b), Section
29(1 )(a) and (b) etc. and issues raised in appeals, which
B
are clearly questions of law which fell within the ambit of
Section 56 of FERA and the High Court committed a
serious error in rejecting the same holding no questions
of law arose for its consideration. [Para 60] [871-E-F]
Hindustan Lever Employees Union vs. Hindustan Lever c
Ltd. 1995 Suppl (1) sec 499: 1994 (4) Suppl. SCR 723 -
distinguished.
Ghatge and Patil Concerns' Employees' Union vs.
- tGhatge and Patil (Transports) Private Ltd. And Anr. AIR 1968
D
SC 503: 1968 SCR 300; Landon and Country Commercial
Investment Properties Ltd. vs. Attorney-General 1953 1 AER
436 - referred to.
2. The Bank had imported the gold on its own behalf
E
and sold the same to the company and if the Bank was
acting as an agent of the company, it would not have
)-
sold the gold to the company, but would have charged
the commission for acting as an agent. No materials have
been placed to show that the Bank was acting as an
F
agent of the company. On facts, the Tribunal as well as
the High Court took the view that the Bank had not
misused the permission granted by the RBI for importing
gold coins. There is no reason to interfere with those
.. '1"
finding of facts. There is no error in the view taken by the
G
Tribunal as well as the High Court that the proceedings
initiated against the Bank that it had violated Sections
6(4) and (5) of FERA was illegal. The appeal filed by the
Union of India, so far as the Bank is concerned, stands ·
dismissed. [Para 61 and 62] [872-B-E]
H
830
'
SUPREME COURT REPORTS
[2013] 13 S.C.R.
!
A
Case Law Reference:
-r--..
1994 (4) Suppl. SCR 723
distinguished Para 16
1968 SCR 300
referred to
Para 16
1953 1 AER 436
referred to
Para 16
B
1994 (5) Suppl. SCR 310
relied on
Para 40
1996 (2) Suppl. SCR 295
relied on
Para 40
2012 (1) SCR 573
relied on
Para 40
_..,.
••
c
1985 (3) Suppl. SCR 909
relied on
Para 41
2003 (4) Suppl. SCR 222
relied on
Para 41
(1962) 1 All ER 37
referred to
Para 41
2011 (16) SCR 126
relied on
Para 41
D
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
-+ ..
No. 975 of 2007.
From the Judgment & Order dated 21.09.2005 of the High
Court of Delhi at New Delhi in Crl. Appeal No. 380 of 2003.
E
WITH
Cr!.A.No. 976 of 2007.
P.P. Malhotra, AAG, Ashok Panda, V. Giri, Jaideep
.....
F
Gupta, Asha G. Nair, Abhishek Kumar Pandey, Lingaraj
Sarangi (for B. Krishna Prasad), Subramonium Prasad, Koshy
-
John, Manav Vohra, Amit Sibal, Jafar Alam (for Lawyer's Knit
& Co.), Kuldeep S. Parihar, H.S. Parihar for the appearing
parties.
G
The Judgment of the Court was delivered by
-.r---
K.S. RADHAKRISHNAN, J. 1. Crl. M.P. No.11274 of
2013 is allowed.
2. The Special Director of Enforcement, Enforcement
H Directorate, Government of India, New Delhi, exercising powers
UNION OF INDIA v. ABN AMRO BANK
831
[K.S. RADHAKRISHNAN, J.]
~<---(
under Section 51 of the Foreign Exchange Regulation Act, 1973
A
(for short "FERA"), later repealed, initiated proceedings vide
order dated 22.9.2000 against M/s Maple Leaf Trading
International Pvt. Ltd. (for short 'the Company') for violation of
the provisions of Section 19(1)(a) and (d), 29(1)(b), 47(1) and
49(i)(a) read with Section 68 of FERA. Proceedings were also
B
initiated against the other respondents, including 1 •1
respondent, ABN AMRO Bank NV (now called "Royal Bank of
Scotland NV") and 41h respondent - Mis Piccadily Invest AG,
Zurich, Switzerland (for short "Piccadily"). Respondents,
aggrieved by the above mentioned order, preferred four c
appeals before the Appellate Tribunal for Foreign Exchange,
New Delhi and the Tribunal allowed those appeals vide its order
dated 10.3.2003 and set aside the order of confiscation and
the penalty imposed.
t
3. Union of India, aggrieved by the said order, preferred
D
Criminal Appeal No. 380 of 2003 before the Delhi High Court
under Section 54 of FERA read with Section 35 of the Foreign
Exchange Management Act, 1999 which was, however,
dismissed, stating that neither any question of law nor any legal
infirmity had been found in the impugned order passed by the
E
Tribunal. Aggrieved by the same, Criminal Appeal No. 975 of
2007 has been filed by the Union of India, which is treated as
).-
the main appeal and being heard along with Criminal Appeal
No. 976 of 2007, which was also filed by the Union of India and
'
another against the order of the High Court dated 12.9.2003
F
setting aside the order confiscating the drafts deposited by few
investors in the 2nd company.
FACTS:
~
~
4. M/s Maple Leaf Trading International Pvt. Ltd., the 2nd
respondent, was formed with the assistance of M/s J.C. Bhalla
G
and Company, a Chartered Accountant firm having its office at
New Delhi, in the following circumstances. One Lambert
Kroger, Stefen Mayer and Cliff Roy, all foreign nationals, had
met Anil Bhalla of the above mentioned firm and expressed their
desire for establishing a company for trading in Maple Leaf
H
832
SUPREME COURT REPORTS
[2013] 13 S.C.R.
A Gold Coins in India, which they were doing in Netherlands and
Germany. Anil Bhalla was informed that necessary approvals
would be obtained through M/s. Abascus Legal Group, New
Delhi. Anil Bhalla and Rajesh Sethi, Chartered Accountants of
that firm, became subscribers of the newly formed company.
B Cliff Roy, a foreign national and power of attorney holder of 4th
respondent - Piccadily informed him that from Abascus, one
Vikrant Singh Jafa and Rahul Krishna would be the Directors
of the company and ten shares of th1:: company each in the
name of Anil Bhalla and in the name of Rajesh Sethi were
c issued, which were transferred on 19.5.1998 in the name of
Vikram Singh Jafa and a sum of Rs.2,000/- was received in
cash from Cliff Roy. In the above background, the company was
incorporated on 5.4.1998 and, on the same date, Cliff Roy, a
foreigner, was appointed as the Director of the Company and
D on 17.4.1998 he became the Managing Director of the
company. Anil Bhalla, Rajesh Sethi (Chartered Accountants)
and Rahul Krishnan, then, resigned as Directors of the
company on 19.5.1998. Jafa resigned as Director on
11.1.1999. Jafa was holding 49% shares of the company and
on 16.4.1999 a Share Transfer Agreement was entered into by
E him with one A.R. Khan and Lambert Kroger, the Managing
Director of the company to transfer 9780 shares of the company
to A.R. Khan. The Adjudicating Officer says, ultimately, the
Indian company came under the control of Cliff Roy, Paul Singh
Clare, Lambert Kroger, all foreign nationals. For deciding the
F various legal issues at this stage, a detailed analysis of the facts
are unnecessary and we do not want to burden our judgment
with further factual details, which are all part of the record.
5. We may, for the purpose of deciding these appeals, start
G from the stage at which Cliff Roy, a foreign national and power
of attorney holder of 4th respondent company, had submitted
an application in Form FC (RBI) on 21.5.1998 before the
Reserve Bank of India (for short "RBI") for approval of not
exceeding 51 % foreign investment for Service Sector in
Annexure Ill from the 4th respondent. Permission was sought for,
H for the foreign collaboration for "Business Management
-
UNION OF' INDIA v. ABN AMRO BANK
833
[K.S. RADHAKRISHNAN, J.]
.--r
Consultancy for Trading, Marketing and Selling of Goods and
A
Services" with specific reference to NIC Code 893. Details of
foreign investment resulting in foreign exchange inflow were also
given in para VI of the application. Para VIII (iii) called for the
description of products in the case of trading companies
primarily engaged in exports, to which the Company replied
8
stating that the same is not applicable. RBI, with reference to
that application, allotted Registration No. FC-98 NOR 1005 vide
---,..-
letter dated 29.6.1998 and vide letter dated 29.6.1998 informed
the company that it would advise the foreign collaborator that
they would obey the laws of the land and there should be no c
compromise or excuse for the ignorance of the Indian Legal
System.
6. The Enforcement Directorate got information that the
company had started trading activity in gold coins on 27 .5.1998
}-
and signed the first contract for trading in Maple Leaf Gold
D
Coins, which it was noticed, was contrary to the declaration
made by the company in its application Form FC (RBI) dated
21.5.1998 under NIC Code 893. RBI also got information from
the Economic Offences Wing of the Crime Branch, Delhi that
the Company was collecting money from the public on the
E
pretext of distributing Maple Leaf gold coins misleading the
public that it had got RBI permission for such an activity. RBI
}-
also got information from the Ministry of Industry, Government
of India, that the company had also applied for FIPB approval
for foreign equity induction beyond 51 % claiming that they had
F
been given approval by RBI for equity induction under the
Automotive Approval Route for trading in gold coins. In the
application dated 24.8.1998 submitted by the Company for
FIRB approval, it was specifically stated that the existing activity
.~
.,...
of the Company was Business Management Consultancy (NIC
G
No. 893)" and, therefore, not indulged in any trading activity.
7. RBI vide its letter dated 8.6.1999 informed the
Directorate of Enforcement that the company had filed
documents with RBI on 21.5.1998 for entering into a foreign
collaboration with Mis Piccadily under the general permission,
H
834
SUPREME COURT REPORT.S.
(2013] 13 S.C.R.
A in terms of FERA Notification no. 180/98-RB dated 13. 1.1998
under NIC Code 893 i.e. Business management, consultancy
for trading, marketing and selling of goods and services and
not for trading in gold coins. RBI, it was pointed out, issued the
registration number FC 98 NOR 1005 dated 29.6.1988 based
B on that request. It was pointed out that, under the General
Permission, when a company gives a declaration in form FC
(RBI) stating that it is engaged in an eligible activity and later
the company is found doing a different activity, the company is
deemed to have violated the provisions of the notification issued
c under FERA.
8. RBI also vide letter dated 8.6.1999 also informed the
Government of India, Ministry of Industry stating that it had
granted registration number for a foreign collaboration
agreement in terms of notification NO. 180 dated 13.1.1998
D and that the foreign collaboratipn covered activities under NIC
Code Group 893, published in Annexure Ill to the Press Note
No. 2, 1997 series dated 17.1.1997. RBI pointed out that the
claim of the company that it had been given approval by RBI
for 51% foreign equity induction under automatic approval route
E for trading in gold coins, was incorrect.
9. The Special Director, Enforcement Directorate, on
getting various information of the violation of the provisions of
FERA, along with other officers, searched the business
premises of the company on 2.7.1999, which resulted in the
F recovery and seizure of various documents and articles and a
panchnama dated 2.7.1999 was prepared. The search at the
office premises of Group-A Securities at National Highway No.
8, Mahipalpur, New Delhi also resulted in the recovery and
seizure of articles as per panchnama dated 3. 7 .1999.
G
10. Lambert Kroger, the third respondent herein, in his
statements under Section 40 of FERA dated 2/3. 7 .1999,
5.7.1999, 6.7.1999, 7.7.1999, 8.7.1999 and 24.8.1999, stated
· that he is a German National and he came to India on
16.12.1997 to give suggestions to Cliff Roy, the power of
H attorney holder of 4th respondent, as well as the then Director
UNION OF INDIA v. ABN AMRO BANK
835
[K.S. RADHAKRISHNAN, J.]
·'----f
of Maple, who applied to RBI on 21.5.1998 for approval of 51%
A
foreign financial collaboration under the automatic route.
Further, it was also stated that A.R. Khan was in possession
of 49% of the shares of the company and the seller of those
49% shares V.S. Jafa had entered into with an understanding
...:
with 4th respondent to transfer the share of 49% under the
B
direction of the Swiss company and he had also signed on that
agreement. Anil Bhalla also gave statements under Section 40
-;--.
of FERA on 12.7.1999, 13.7.1999 ahd 14.7.1999, stating that
he had explained the procedure for applying for setting up
100% trading company through FIPB to Cliff Roy and Lambert c
-{
Kroger and the 2nd respondent company was formed at their
instance. He was informed that necessary approvals would be
obtained by Mis Abascus Legal Group. Jafa also gave
statements on 16.8.1999, 31.8.1999 and 30.9.1999, explaining
the circumstances under which he had entered into the Share
D
J·
Transfer Agreement with A.R. Khan and Lambert Kroger as the
confirming party. Statement of the Vice President of the
erstwhile ABN Amro Bank was also recorded on 18.10.1999 .
. Bank stated that it is an authorized agency for import of gold
and that gold is sold to customers of the Bank as a practice,
E
after necessary documents are obtained and after getting
purchase orders from the customers. The Bank places orders
on the supplier and the price is fixed on the basis of the invoice
>-
sent by the suppliers. Bank has followed the said procedure in
respect of the 2nd respondent company as well.
F
11. The Special Director, Directorate of Enforcement, after
recording the statements and examining various documents,
issued a show-cause-notice dated 29.12.1999 to the company,
Lambert Kroger, Cliff Roy - Directors of the company, 4th
'
respondent - Piccadily, Paul Abraham - Director of the 2nd
.. ·r
G
respondent company, for contravention of Sections 6(4) and (5),
...
9(1)(e), 47(1), 19("i)(a) and (e), 29(1)(a) and (b), 30(1), 49, 63
-<,
and 68 of FERA and to show cause why the amounts blocked
_,
in the accounts of noticee no 1 (bank) to the tune of 12.5 Crores
approximately, seized 466 drafts, totalling 2.14 crores and
H
836
SUPREME COURT REPORTS
[2013] 13 S.C.R.
A seized yellow metal coins appearing to be gold, should not be
confiscated in terms of Section 63 of FERA and Cliff Roy and
Paul Clare were issued notice to show cause why they should
not be directed to bring back the foreign exchange remitted
outside· India into India in terms of Section 63 of the Act.
B Following are the brief details of the show-cause-notice:
"CHARGE
y;
·-·
'
On the basis of the above investigations, a Show Cause
-1"
Notice No. T-$/9-D/99 dated 29.12.99 was issued to:
c
1. Maple Leaf Trading
For failure to comply with the
International (P) Ltd. Sprovisions and declarations
485, GK-II, New Delhisubject to which approval
42 -said noticee No. 1,
under automatic route was
"0
its directors the said
granted by the RBI and by
noticee No. 2,3 & 6.
engaging themselves in the
trading activities of imported
t
Maple Leaf Gold Coins in
contravention
of
the
provisions of sec. 19(1)(1) &
(d), 29(1}(b) read with sec. 49
E
& 68(1) & (2) of FERA, 1973
and by entering into contracts/
agreements in violation of
provisions of section 47(1) of
FERA, 1973 and by collecting
F
a sum of Rs.25 Crore approx.
and placing this amount
without any general or special
exemption of RBI to the .credit
of persons resident outside
G
--r-- '""
India in contravention of
section 9(1 )(e) of FERA,
1973 read with section 68(1)
& (2) of the said Act.
.
H
•
,,
" '
• •
UNION OF INDIA v. ABN AMRO BANK
837
[K.S. RADHAKRISHNAN, J.]
2. Mis. Picadily Invest AG,
By their carrying ouf· the
A
Post FAch 284, 8034,
business of imported Maple
Zurich, Switzerland, Mr.
Leaf Gold Coins in India in
Cliff Roy, Mr. Lambert
name & style of notice No. 1
Kroger & Mr. Paul
without any general or special
Singh Clare the said
permission
of
RBI
in
B
notices No. 4, 3, 2 & 6.
contravention
of
the
3. Mr.Cliff Roy, Lamber
Kroger & Mr. Paul
Singh Clare the said
notices No. 2, 3 & 6.
provisions of section 29(1 )(a)
of FERA, 1973 and by the
unlawful trading collected a
sum
of
Rs.25
crores c
approximately in the account
of M/s. Mapl Leaf Trading
International (P) Ltd.
By opening bank accounts
with repatriation facility
without prior permission of
RBI and engaging in the
trading of imported Maple
leaf gold coins without any
ground of special permission
of RBI in contravention of
section 30(1) of FERA, 1973.
D
E
They were also asked as to why the amounts blocked in
the accounts of the Noticee No. 1 to the tune of Rs.12.5
F
crores approx., seized 466 drafts totalling to Rs.2.14
crores approx. And seized yellow metal coins appearing
to be gold should not be confiscated in terms of section
63 of the said Act and Mr. Cliff Roy and Mr.Paul Singh
Clare are also required to show cause as to why they
G
should not be directed to bring back foreign exchange
remitted outside India into India in terms of section 63 of
the said Act."
12. Detailed reply was submitted by all the partie,s and the
H
838
SUPREME COURT REPORTS
(2013] 13 S.C.R.
f -
A Adjudicating Officer passed the final order on 22.2.2000
,..
recording the finding that Lambert Kroger, Cliff Roy and
Piccadily had established business activities in India and,
therefore, would fall within the ambit of Section 29(1 )(a) of
FERA, 1973, for which they required a general or special
B permission from RBI, which they had not obtained and,
therefore, liable to penalty under Section 50 of the Act. Further,
it was also pointed out that the facts of the case had clearly
indicated that, virtually, it is they who had established the
--1company in India and that instead of following the route of
c Section 29(1 )(a), they followed the route of Section 29(1 )(b),
by incorporating Maples, but indicated that foreign investment
would be up to 51% for service sector in Annexure Ill. The
Adjudicating Officer also recorded a· finding that the 2nd
respondent company had faulted the provisions of Section
' •
D 29(1)(b) of FERA read with Notification No. 180/98 RB dated
-+
13.1.1988. Findings have also been recorded as against the
1 •1 respondent bank for not ascertaining the genuineness of the
2nd respondent compahy and as to whether the Company had
the requisite permission from RBI for trading in gold and that
E the Bank has violated the provisions of Sections 6(4) and 6(t)
of FERA and is liable to penalty under Section 50 of the Act.
After holding so, the Adjudicating Officer passed the following
order:
~
"In view of my findings that Noticee No. 1 has contravened
F
the provisions of Section 19(1 )(d) and 29(1 )(b) read with
l"
Section 49(1)(a) and Section 47(1) of FERA, 1973 and
Noticee NO. 2, 3 and 4 have contravened the provisions
of Section 19(1)(a) of FERA, 1973,ln am inclined to
confiscate these gold coins seized under Panchnama
~--.,....
G
dated 02.07.99 and 03.07.99 because these were
acquired/specifically imported against foreign exchange by
,,__
Noticee No. 1 for an activity which was contrary to the
automatic approval route allowed by RBI under Notification
,.
No. 180/98-RB dated 13.01.1998 issued under Section 9(
.
H
1)(d) and Section 29(1)(b) of FERA, 1973, out of funds
\
'
UNION OF INDIA v. ABN AMRO BANK
839
[K.S. RADHAKRISHNAN, J.]
·--·
generated in violation of Section 29(1)(a) of the said Ad. A
and gold coins being also liable to confiscation under
Section 63 of FERA, 1973. The route adopted by them
was to protect themselves from action as is evident from
,
FAX dated 04.02.98 referred on page 66.
The SCN also proposed the confiscation. of blocked
B
amounts in bank accounts of Noticee No. 1 and fixed
deposits maintained with following banks:-
(1)
ABN AMRO BANK : DLF Centre, Sansad Marg,
New Delhi.
c
--
(2)
HDFC BANK LTD; Greater Kailash, Part 11,.New
Delhi.
(3)
BANK OF AMERICA: Barakhamba Road, New . D
1Delhi.
The evidence on record reveals that Noticee No. 1
collected amounts from various individuals known as
business partners in accordance with the contracts
executed with them for purchase of Maple Leaf gold coins
E
in accordance with terms of such contracts. Since the
activity under the contracts has been held by me
illegitimate under the provisions of Section 29(1 )(a) and
29(1)(b) read with Section 49(i)(a) and Section 47(1) of
FERA, 1973, so I hold these amounts and fixed deposits
F
liable to confiscation under Section 63 of FERA, 1973 as
their collection and usage was for financin.g activities which
were contrary to the said provisions of the FERA, 1973.
""·r
The SCN also proposes to confiscate 466 bank drafts
G
seized under Panchnama dated 02.07.99. these drafts are
given by the said business partners in terms of the said
contracts for aforesaid activity which has been held by me
in violation of the provisions of Section 29(1 )(a) and
29(1)(b) read with Section 47(1) and 49(i)(a) and·
therefore, for the same reasons, I hold these drafts also
H
I
840
SUPREME COURT REPORTS
[2013] 13 S.C.R.
liable to confiscation under the provisions of Section 63
------
A
of the said Act.
--..
Further, I also hold that all these Noticees, except No. 5,
are liable to penalty under Section 50 of the FERA, 1973
B
for the reasons and observations recorded hereinabove.
In view of the aforesaid, I pass order as under:-
"O R D E R
1.
I order confiscation of 35 gold coins seized from the
c
business premises of Noticee No. 1 under
Panchnama dated 02.07.99 and 630 gold coins
--
seized from M/s. Group 4 Securities, Mahipalpur,
New Delhi, under Panchanama dated 03.07.99
under Section 63 of FERA, 1973, on the grounds
mentioned hereinabove.
D
~-
2.
I also order confiscation of amounts blocked in
following accounts including the fixed deposits
along with the interest accrued thereon:-
SI.
Name of the Ba.nks Account No. (A)
Amount (Rs.)
E
No.
Fixed Deposits (B)
----------------------------------------------------------------~---------------
A.
Bank of America,
261157(A)
3,88,089.22
Barakhamba Road 317177(A)
78,043.00
F
New Delhi.
B.
ABN Amro Bank
6362400(A)
6,19,17,244.88
DLF Centre
6362559(A)
41,89,460.66
Sansad Marg,
6414389(A)
,44,98,474.00
G
New Delhi
6372694 (A)
14, 73,340.00
~""""~ -
f
312330040115(B) 77,10,103.80
312330045196(B) 1,00,00,000.00
312330045729(B) 2,65,444.97
31233045778(B)
1,00,00,000.00
H
C.
HDFC Bank
0272000005409(A)
10,000.00
[
· UNION OF INDIA v. ABN AMRO BANK
841
~
[K.S. RADHAKRISHNAN, J.]
3.
I order confiscation of the sale proceeds of the 466
A
bank drafts/pay orders seized from the business
premises of Noticee No.