SHANTI PRASAD JAIN versus THE DIRECTOR OF ENFORCEMENT

Citation: [1963] 2 S.C.R. 297 · Decided: 19-04-1962 · Supreme Court of India · Bench: T.L. VENKATARAMA AIYYAR · Disposal: Case Partly allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

..... 
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 Enforcement-
Director 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 stipu-
lation 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 discre-
tion of the executive to choose which wa. to be applied in a 
particular case, and (ii) that there was no loan by the appel-
lant 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 assai-
led as unconstitutional. .A serious offence should not go with-
out 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 depo3i-
ted 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

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