SHANTI PRASAD JAIN versus THE DIRECTOR OF ENFORCEMENT

2 S.C.R. SUPREME pc>URT REPORTS

SHANTI PRASAD JAIN

THE DIRECTOR OF ENFORCEMENT

(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 '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 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 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 p·enalty of Rs. 55 lakhs. On appeal the Foreign Exchange Appellate Trib1.1nal held that the deposits amounted

1962 ..

Tiu Dirtrtor ()f z,.f.rumtnl

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 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 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 Superior Court. Under s. 230 the transfer is to Court and that only when the Director considers that 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 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. 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 Bank does not necessarily import that it is 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 special arrangemt:nt \vhich constituted it not debtor, but sort of stakeholder. ~rhe words "a person rcsirlent in lnclia0 in s_ 4(1) hao; been used in the sense of "resident of India", and it was not neces-sary 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

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 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 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 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

Thi Dir1etor of Enforcement

Ai~u J.

Slr.a1i ~ruul Jain ...

... TA1 lliuct#f' •f E•fn-ctmntl

Page 2 to our letter of 25th Sept., 1958 to JHr. S. P. Jain, Hotel Briedenbacher .Hof. Dus-seldorf .

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, Heiden-heim 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 . 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 char-ges."

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 .

2s.C.R.

SUPREME OOURT REPORTS

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 cur-rency and any drafts, travellers' cheques, letters of credit and bille of exchange expressed or drawn in Indian currency but payable in any foreign cur-rency."

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 explana-tion 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 defect-ive 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 mater-ials 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

Shanti Prasad Jain

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 judg-ment 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 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 pro-ceed under the impugned section. Section 23 ( l) of the Act is as follows :

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 ex-ceeding 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

2 S. 0. R. SUPREME OOURT REPORTS

may be adjudged by the Director of Enforcement in the- manner hereinafter provided, or

(b) upon conviction by Court, be punish-able with imprisoLment for 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 con-travention, the Director of Enforcement shall hold ah inquiry in the prescribed manner after giving th&t person reasonable opport-unity of being heard and if, on such inquiry, he is satisfied that the person has committed the contravention, he may impose such pen-alty· 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 circum-stances of the case, the penalty which he is empowered to impose would not be adequate, he shall, instead of imposing any penalty himself, make complaint in writing to the Court."

It will be seen that when there is contra-

vention 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 Court if he considers that more servere penalty than he can impose is called for. Now the contention of the appellant is that when the case is transferred to Court, it will be tried in

Shonli Prasad J aili •• Tll• Dirtelor of Enfort:l11flfll A;,., J.

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 Direc-tor 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: 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 class in itself. law which prescribes speoial prooedure for investiga-tion of br!~aches of forei1m exchange regulation will therefore be not hit by Art. 14 as it is based on classification which has just and reasonable rela-tion 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(') law. which confers on an officer an ·absolute discretion to send case for trial eithor to Court or to l\Ia.gistrate, empo:wered to try oaB{'S under spcoial procedure. 8eotion 23-D oonfers authority on the very officer who has power to try and dis-pose of caso to sond it on for trial to Court, and that too only when he consider that more severe {I) (1952) s. c. R. :ist.

punishment than what he is authorised to impose, should be awarded. In Judicial system, in which there is hierarchy of Courts or Tribunals, presided over by magistrates or officers belonging to different classes, and there is devolution of powers among them graded according to their class, 11 provision such as s. 23-B is necessary for proper administra-tion of justice. While on the one hand 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 trial by superior court. That is the principle underlying s. 34,9 of t.he Criminal Proce-dure 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 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 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 contro-versy 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 discussion of the materi-als be1~ring on this point, we may deal shortly with 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 in-admissible 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 be-fore us by the learned Attorney Gcnei al appearing for thP respondents.

For a. satisfactory determination of the ques-tion 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 dis-putes, 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 German firm called Messrs. Voith & Company for the supply of three paper Machines. The shipment of these machines was

2 S.C.R.

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 representative of the German firm Mr. Zimmer· mann came over to India to make an enquiry on the spot, and as result of the discussion which he had with the Rohtas he recommended on February 21, 1957 that sum of£ 17,900/- might be paid by the German firm as compensation for delay in ship-ment. 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 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 protracted correspondence followed btit as the machines could not be worked without replacement of the defective parts, the Rohtas coulq

Sh'Onli Prasad Jai!J

T be Director of .En/orctment

AiyarJ.

Sh.nli p,.,ld Jain •• Th. Dir1ttar oJ En.fare""'"' Aiyor J.

not wait until settl!'mcnt was reached and so purchased the requisite parts from another German firm called O'Dorril'S and made demand on M/s . Esoher Wy&s & Company for compensation. representative of the firm !\Ir. Staudenmaier came over to India some time in 1956 to investigate the matter and after making 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 in-stal at Varanasi 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 accor-dance 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 di>ci· sion to instal nP,w Paper Pinnt at Dnlmianngnr and new Ammonium Chloride Plant at Varanasi.

I 2 S.C.R.

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 Minis-ters 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 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 con-tacted 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

Shanti Prasad Jain •• The Director of Enforce_menl ~iyar J.

Shanti Prua4 J.tn v. 7-'ie cn,.acwr of EriforCttMIJt A;_,. J •

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.y-ment of the price of these machines to the respec-tive 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 condi-tions, 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, 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 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

2 s.c.tt.

SUPREME OOtrRT Rll:POJ1.'.l'S

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. ex-works price is, however, for this comparatively small brder 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 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 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

Shanti l'lasad Jam v. T!te Di;~dor of Enfoimnint

312 StrPREME COURT REPOR.TS (1963]

machinery, ·which payments ·will be made on final·

S.i~;,.li Prasad Jain · approval of our tender after receipt of the Indian . ' v .. , · .. .import licence. For other's sake please confirm T /t4 EnfM&etTUn' DirtCt•1' •f receipt of these instructions to us."

It sh~uld be mentio~ed that under the Export Regulations in force in Germany no goods manu-factured 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 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 confirmation that all claims against· our firm in connection with our delivery of Yankee Paper . ~iachine are now definitely settled." On the same ·-

2 S.C.R.

day M/s. Escher Wyss & Company transferred sum of DM. 205.000 to the Deutsche Bank icommunica. ting to them 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, 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 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 v:ery special case, to promote our pleasant business relations, we have, only in view of your assurance for expansion order, released 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· .}.

SUPREl\IE COURT REPORTS [1963)

On September 21, 1958, there waa 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 estab-

lio1ics tb~t the deposits in account No .. 50180, were made subject to the conditions stated by the app-ellf•nt, and there is intrinsio evidence in the ent-ries 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 depo-sit are made, and would be wh.olly out of place in

2 S.C.R; SUPREME COURT REPORTS

~ 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 mat-ters concerning the deposits, and on . August 21, 1959, 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 bet-ween· 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 refer-red '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 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

Sh••l.i Pnffoa "-a i $ •• Tlw Ditulor 1•f Enfor011Mnl AVorJ.

s~-; ,,, •• ,Join v. Tl&t Barector of Ewfnctt'Md A~rJ.

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 concer-ned ...... As is evident from the stipul-ations mentioned above, you are not en-titled 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, there-fore, bound to observe the conditions vis-a· vis those firmB, t-00, before we pos-eibly could carry out any instructions from your part to dispose of the funds. It need not be empha.~ized that these con-ditions 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 further reply with respP.ct to all the questions. On September 17, 1959 the appel-lant a.ccordingl,v wrote another letter to the Bank asking for 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, Aoco-unt 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 0tp eta tr ; ''fl1e. restrictions prnailing agaiµJl~ thll

2 S.C.R. SUPREME COURT REPORTS

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 mar-ked 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 strictly confidential nature concerning the affairs of 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". The copies of the communications addressed by the German firms to the Bank were enclosed.

It is not disputed for the respondents that if t.he statements containf'd in the replies given by the Bank are to be accepted at their face value then the case of t]:ie appellant must be held to be established beyond all reasonable doubt; But they contend that there .are circumstances which give rise to suspicion that the above statements might have been •inspired' by the appellant. They argue that the letter of the Bank dated September 25, 1958, shows that what we have on record is only the second page of the account of the appel-lant in the Bank and that s)lo w s that this is only continuation of previou account which· has not been produced. It is also pointed out that in the letter which the Bank sent to the Appellate Board on September 23, 1959, it was stated that the annual statement of the account ending December 31, 1958, had been sent to the appellant but that again has not been produced. All this, it is said, throws · cloud , of !!USpioion on the truth of the ~rran~e~eµ~ ~ set up b, tJi11 &J>Jlellani,

Shanti ProimJ Jain •• Tn1 Direct..- ef Hinfore1111MI A(Ja1 J.

1961 Sh 111 ti PrasOll J oiis •• Thi Dit,tclcr of Enfatc1fft#tl r

We are not impressed by this contention. There is no basis the evidence for the supposi-tion that the account as produc<Jd is not the whole of tho dealing of the appellant with the Bank. The Ba.nk has ca.tegorica.lly stated that the six items of credit wore a.II tho tra.nsaotions standing in tho na.mo of the appellant and' there is no reason to discredit it. Nor is there any force in the contention that the annual state-ment endllig December 31, 1958, had not been pro-dueed by the appellant, because the total amount standing to tho oredit of tho appellant on that date as stated in thE} letter of tho Bank, is precisely what is shown in the a.ccour.t. a.t page·2. It is, therefore, clear that there . W!'re no d!'alings betwt·en the Bank and the appellant, other than those we are concerned with. Nor is there any [.O '· ; ' the oomplaint that it is only the second pa.go of tho account tha.t ha.s been produced and the first pago suppressed. The Bank has made it clear th'l.t tho first page only contains some con-fidential communica.tionR relating to a. customer, a.nd that there a.re no entries rolati:ig to tho deposits of the a.ppella.nt in that page.

It is argued for the respondents tha.t it is

unusual for Bank to. take deposits on the terms stated by the appellant, and that furnish9s cogent re:i.son for rejecting the settlements pleaded by him e.s an afterthought. It should be mentioned tha.t while the matter wa.s pending before the Appellate Boa.rd, the respondents obtained the opinions of German Banks a.nd German Lawyer as to whether deposit.II on the terms mentioned by the appell •nt wero usual and what the incidence of suoh depos-its we.s. Among tho opinions received was one from Sal Oppa.nheim Kocin in whioh it is stated "A German ba.n king pra.ctic!! in export trade with India·-a.s described in your a.hove· lotter-ls not jµlown to WI·" This is strongly relied on for tlle

2 S.C.R. SUPREME COURT REPORTS

i respondents, but then it is further stated in that opinion : . "We think it possible however, that in individual oases, agreements of this kind could be arranged between .the two contracting partners ...... If the contracting parties reach such an agreement, and if the. customer instructs liis bankers aooeird-ingly, the bankers, will, as matter of usual busi-ness oonduot inform the tliird pa..rty beneficiary accordingly of the instructions md all relevant. modalities which they have received ......... If it ha~ been· ·ascertained th-it the Indian beneficiary ha.s ncit fulfilled or cannot fulfil the stipulations agreed upon, he forfeits hia claims to conditional payment a.nd. the bank can then, on principle, re-fund the customer of the secured amount. As in the aforementioned case, proceedings here depend on the terms stipulated in individual oases, between the customer and his bankers."

.. We have then the opinion of the Dresdner Bank on the_ practice of the German Banks. There-in after ·observing that they would as matter of principle a.void handling transactions of the sort referred to lest they should get involved in dispute )letween the depositor a.nd the payee, the Bank proceeds on to state that "we will handle such business only if the depositor a.nd the payee a.re known to us aB well reputed businessmen'' and that-when Blocked Aooount is opened a.t the deposit-or's request in the . name of the payee, the responsibility of the Bank with refernnce to the amount "vis-a-vis the depositor tn release the deposited money to the payee is only upon receipt of special authorization to this effect f'rom the da.positor" a.nd that "on the other hand Bank, ma.y. refund this a.mount to the depositor only after expiration of ·the term stipulated by the depositor or, with the payee's cons!'nt, before expiration of the stipulated .term.'' · This is relied on beha.ir of the · a.pJ>6ll&nt.

Sh1nli Pro1ad. JaJr •• T/uD;,.gton Enforumeii• .Aiyar.J.

Jllfl 8/rall ,.,.,,d J1/n •• n. Dil-'« of &f-•I Ai,., J.

320 SUPREME OOURT REPORTS (1963]

Another Bank, Messrs. Schacht & Company stated in their opinion that Germ&n Bank when handling deposits would follow exclusively the instructions given by the deposjtor &nd that when payments have to be made out of the deposits on thti fulfilment of certain conditions the Bank would "effect the payment only after fulfilment of these conditions given by the depositor" and that con-ditional deposits would "as rule be limited in time so that after expiration of this limit amounts which have not been p&id out for reasons of non-utilization or non-fulfilment of the conditions will be at the depositor's free disposal."

One Mr. J. Bergermann lawyer of Bonn

states in his opinion that "it is common practice to accept deposits under conditions" and that in oaee of such deposits the payee "could not enforce pay-ment!\, if the conditions are not fulfilled."

There was some argument before us ae to who

will be entitled to the amounts in deposit in case the conditions agreed to between the parties a.re not fulfilled. One view is that the amounts would then revert back to the depositors. The German lawyer could not say on this question more than this that "if the conditions are not fulfilled the legal situation is doubtfull." The correct position possibly is that if the conditions become impossible of performance, the contract becomes void on the ground of frustration, and the parties are thrown back on their rights prior to the settlement. It is however unnecP11eary to enter into a. discussion of this question, as all that we now concerned with is to see whether deposits of the kind set up by the appellant are so unusual, as to cast suspicion on their truth. The evidence on record shows that such deposits are well known, though not very common in German banking practice, and there afil therefore DO sufilcient @,JC•UDO~ for diEnt ditir,F tho

statements of the Bank, as to the terms on which the deposits were made.

But the respondents argue that stripped of

all its embellishments, the substance of the agree-ments between the appellant and the German firms, was ·that the latter were to pay compens-ation to the Indirm Companies; not in cash, · but in kind, by delivery of goods manufactured by them against new orders, that that . object could have been easily achieved by the Indian Companies and German firms entering into simple contract to that effect, without complicating the matter by associating the Deutsche Bank in tho transaction, and that there is therefore ground for suspecting that the present version of the terms of the arrange-ment is an after thought so conceived as to fit in with deposits which must have been made previously in the normal course.

We are unable to accept this ii.rgumPnt. The

DeutsC>he Bank occupies, it should be marked, position analogous to the State ·Bank in this coun-try, and it is Bank of great international repute, and Rtatus. Its statements as regards the conditions which the deposit• were mad(l &re not to b., lightly brushed aside, and no grounds have been shown as to why they should not be accepted. · On the other hand, there is on record unimpeachable evidence which fully supports them. · On M&rch 15, · 1958, when M/s. Voith & Company temitted to the Bank the sum equivalent to £ 17,900/- to the credit of the appellant, they gave the following instructions to the Bank:

"The said amount should be hold in the name of Mr. S. P. Jain, Chairman of Messrs. Rohtas Industries Ltd., who will arrive in Ger-many in the course of the next month. As soon· as we have arrived on final understanding wjtb ~fr. S. S. :r. Jain would be authorised to

have arrived on final understanding ~fr. S. S. :r. Jain would be authorised to

lllfJ

Bhanli Pr-4 J oitc Y, Thi Dinetor q/ Ellforumml A./JO' J,

--BIMli p,_,_ J #n •• n.D....,t! B"IJ .. _, Al,,or J.

utilise the above &mouat for pa.yment only of the purcha.se of further machinery by Messrs. Rohta.B Industries Limited from us. Please be a.dvised tha.t the a.mount may not be used otherwise by Mr. S. P. Ja.in or Messrs. Rohtas Industries Limited."

Thus the deposit Wiii! conditions.I, and it was

to be reps.id to the. depositors in payment of the prioo of goods, to be thereafter ordered by, and supplied to the Rohtas. The; importance of this lies in this that it is tho first of tho Hix credits in a.ocount No. 50180, which is now under scrutiny, and it was long prior to the settlement reached between the parties, which wa.s on August I, 1958. This completely shatters the theory that the state-ment of the Bank might ha.ve been 'inspired' a.s suggested for the respondents. The fact would a.ppear to be that when Mr. Zimmermann ca.me over to India. in February 1957 for settling the claim of the Rohtlll! for compensation, he must ha.ve been a.pprised of the intention of the appellant to expand the industries, a.nd a.s practica.l business-men, he, a.nd the appella.nt must have evolve the scheme of conditional deposits, to be applied in payment of future goods to be ordered by the Indian Companies. Such scheme would be of a.dvanta.ge to M/s. Voith & Company because that would insure them new business, a.nd they could make up for it in fixUig the price. The Indian Companies would uncler this a.rra.ngemeat be in position to overcome the difficulties of getting foreign exchange, and it would be ea.sy to get import lioonoe from the Government of India. And BS for depositing the a.mounts in tbe Bank, that would not merely lend a88Urance to the Indian Uompa.nies, but also enable the parti«s to comply with the German rel{Ula.t ions, as to payment of :!O por cent of the prioe of ma.nufoct ured goods, before they ue 11xported. This preoillely ill the eort of

2 S.C.R; SUPREME COUR'l' REPORTS

arrangement which businessmen might be expected to conclude in the situation in which _the parties were placed.

Shanti PraJad J oln T.. . rn~ Directn •I En/ofe.emt."':I. '~i.!.ar:·J.

It should be noted that when the proposal of Mfs. Voith & Company and the deposits made by them were communicated to the appellant, he, raised no objection in his reply dated May 14, 1958, to the conditions under which the deposit was made. He declined to accept it only because no compensation was awarded for deficiency in output, and it is this claim which was also settled on August 1, 1958, when second deposit was made by JI.Ifs. Voith & Company. The schem!l evolved by the appellant and JI.Ifs. Voith & Company set the· pattern for settlement with the other three -firms, and that is how all the four - contracts came to be -settled on the. same terms. - On the _ evidence above referred to, we are satisfied that -the deposits in account No. 50180 were made by the German firms on the conditions stated by the appel· lant. We have reached tbia·cnnclusion on a-con· sideration of the evidence - on record, without reference to any abstract doctrine as to burden_ of proof. Ilut it is only right to observe, that the proceedings under the Act are quasi-criminal in character and it is the duty of the respondents -as prosecutor to make out beyond all reasonable doubt that there bas been_ vio!ation of, the law. Vide the decision in re. H. P. C. Productions Ltd. (') cited for the appellant. The learned Attorney General did not contest this position. ·

- (2) That brings us on to the next question which is whether on our finding as to the nature of the deposits the appellant has contravened .S. 4(1) of the Act. The appellate Board has held that he has, for the reason that under the law the true relationship between Banker and customer is that of debtor and creditor and that it m'kes no difference in that relationship that the deposits were -conditional. The respondents maintain that this

(I) [1962] 2 W. L. R. 51.

Jllfl Sl1all Pru1' Jlfi,. •• TluD-•f E.,.,_

324 SUPREME OOURT REPORTS (1003]

Is the correct view to take of the relationship bet-ween the appellant and the Deutsche Bank with reference to account No. 50180 and that he must be held to have lent out the monies deposited in that account to the Bank. The contention of the appellant ou the other hand is threefold. Firstly, it is said, that on the terms of the deposits, he has no present right to the amounts standing to his credit in the account, that he would become entitl-ed to them only on the happening of certain contingencies, and that until then there was no debt due to him and that therefore there could be no lending in respect of that debt. Secondly, it is contended, that when the German firms transferred the amounts mentioned in account No. 50180 to the Deutsche Bank that was not by way of deposit with it as a. bank but by way of entruatment for safe custody to be pa.id over to the person who might become entitled to them in terms of the agreement and that the monies deposited under those agreements were not moni~ lent to the Bank. And thirdly, it. is argued, that on the terms on which the deposits were made in the Bank, the position of the Banker was not that of debtor but that of trustee,· the appellant being the beneficiary entitled to the amounts on fulfilment of the condi-tions of which the Bank had been apprised. We must now examine these oontentiona.

Now the law is well settled that when moneys are deposited in Bank, the relationship that is constituted between the banker e.nd the customer is one of debtor and creditor e.nd not trustee and beneficiary. The be.nker is entitled to use the monies without being called upon to account for such user, his only liability being to return "the amount in accordance wi~ the terms agreed bet-ween him and the cuatomer. And it me.kes no difference in the jural rele.tionship whether the depoett.· were made b1 the 01111k>mer himself, or

SUPREME ooun:r REPOR'rS

2 S.C.R.

by ,some other persons, provided the customer accepted them. There might be special arrange-ment under which Banker might be constituted trustee·, but apart from such an arrangeme.nt, his position qua Banker is.~hat of debtor, and not trustee. The law was stated in those terms in the old and well-known decision of the House of Lords in Foley v. Hill'('), and that has never been questioned.

IHI

8~111111 Prosad J Iii•

TMD;..-o/

Enfm;....,.1

If the point under oonsideration. fell to be decided solely on the basis of account · No. 50180 in the Deutsche Bank, there could be no answer to the oontentiion of the respondents that the appellant was creditor in respect of the amounts deposited in that account he must be h'eld to have advanced them as loan to the Bank. It needs hardly to be stated that it makes no difference in the legal position that the amounts shown in the account were not deposited by the appellant but by the -German firms as he had accepted t.hem. Bqt it is contended for the appellant that the acceptance of the deposits by him was under special agreements entered into with the German firms, which gave him no present right to the amounts, that though the account stands in his name he has no right to operate on it, that before he can do so he . must obtain licence from the Government of India to import the goods, then place an order with the respective German firms for supply of new machineries and parts and then only draw on the account and that even then it can only . be for the payment of the price payable to those firms for the supply of new goods. The right of the . appellant to the amounts in deposit is, it is argued, contingent on the happening of these events and that until then there was no debt due to him and s. 4(1) had no application.

(IJ [1848] ll H.L.C. 28-9 B.R. IOO'l.

IHI SNnll Pr.,od J .V. . .. Tiu Dimt"' •/ El!/.,.,_I

SUPREME OOURT REl>ORTS (1963]

T.n our opinion this oontention is well founded.

contingent debt is strictly speaking not debt at all. In its ordinary as well WI its legal sense, debt is sum of money payable under an existing obligation. It may be payable · forthwith, solven-dum in presenti, then it is debt "due"; or it may be payable at future date, solvendum futuro; then it is debt "aocuring". But in either.case it is debt. But contingent debt has no present existence, be· cause it is payable only when the contingency happens, and exhypotheei that may or may not happen.'

The question whether contingent debt is debt as understood in. law hWI often com~ up for consideration before English Court in connection with garnishee proceedings taker, by judgment ore.ditors to att.ach it as debt. The decision has invariably been that they are not debte "accruing" and could not be attached. In Webh v. 81R.nt<m ('), the point for decision was wh.,ther an amount pay· able by trustee to the beneficiary in fmuro could attached by judgment. creditor as debt "owing or accruing" and it was answered in the negative. Discussing the distinction between an existing debt and contingent debt, Lord Lindley observed: "I should say, apart from any authority, .that a.debt legal or equitable can be attached whether it be deb~ owing or accruing; but it must be debt, and debt is sum of money which is now payable or will become payable in the future• by reason of present obligation, debitum in preaenti, aolvendum in futuro. An accruing debt, therefore, is debt not yet actually payable .but debt which is represen-t.ed by an existing obligation.... The result seems to me to be this: you may attach all debt11, ·whether equitable or legal; but only debts can be att&ohed; and moneys which may or may not'beOome payable (I) (11185) 11 Q.B.D. 518.

2 s.c.R.

SUPRBME OOURT REPORTS

not

"The meaning of 'a.coming debt'· observed Lord Black burn in Tapp v. Jones('), "is debitum in preaenti BOlvandum in futuro, but it goes no further, and it does not comprise 'anything which ma.y be debt; however, probable or however soon it mav be debt."

The law is thus well settled that contingent

debt is no debt until the contingency happens, and a.a the right of the appellant to the a.mounts in deposit in his name in the Deutsche Bank .arises only on the happening of the contingencies already mentioned, it follows that there is no debt due to him in presenti and there could be no loan thereof within s. 4(1) of the Act.

We should add that our conclusion that there

is no present debt owing' to the appellant is based on the fact that the contingency on which his title to the a.mounts in deposit will arise, such as the grant of import licence by the Government is one· the ful-filment of which is wholly beyond his control. Different consideration might arise when the contin-_gency is one which . can be fulfilled by the very person, who is to take under it.

It is further contended on behalf of the app-

ellant that the payments ma.de by the . German firm in account No. 50180 cannot be regarded as deposits made by or on behalf of a. ciuiltomer in the normal course of banking business and that in con-sequence the principle of law that when banker receives monies from e. customer he becomes his debtor in respect of those moneys bas no appli-cation. There is considerable for-0e in this argu-ment. It is well know that Bank engage, in addi-tion to their normal work as Bankers, in . several (I) (l87S}L.R.10Q,B.-

1#11 Sh .. 11 Prosof,J «ia •• . T1" Di.~ I/ Er!,f°"""'1fl Ai,JarJ.

IHI

..f~.,.J.

SUPREME OOUl<T REPORTS [1963)

activities, which are not 888ociated with, and do not involve any elements of banking. In Hals-bury's Lawa of England, Third Edition, Vol. 2, Note (g) it is stated "Numerous other functions are undertaken at the present day by banks, such as the payment of domiciled bills, custody of Valu-ables, discounting bills, executor and trustee busi-ness or scting in relation to stock exchan~ tr11.as-actions, and banks have functions under certain financial legislation, e. g. by delegation under the Exchange Control Act, 1947, or as authorised dea-lers under that Act and subordinate legislation. Theee function, are not strictly banking busine88."

In Paget's Law of Banking, Sixth Edition, p. •3, it ia stated that ••superimposed on this gen-eral relationship of banker to customer there may be special relationships a.rising from particular circumatanoes and requirements" and that the ex-pr- terms of those relationships overrides the im-plied terms arising from the general relationship. It was argued for the respondents, that this state-ment of the law could have, as suggested by the word 'superimposed', reference only to special contracts entered into with customers, and that involves the admission that the appellant is cus-tomer. , Normally no doubt Banke would under-take these works for their customers, but there is nothing to prevent them from doing so for others as well. In Corpus Juris Secundum, Vol. 9, it•is stated ''The intention of the parties controls the charaoter of the relation between Bank and depositor, which may be that of bailee and bailor. but is ordinarily that of debtor and creditor" (Page 546). And it is pointed out when money is delivered to Bank "for application to a. particular specific purpose" it ia not general deposit creating the relationship of debtor and creditor, but "apecifio deposit" creating the relationship of bailee and bt.ilor or trustee and beneficiary. Vide p. f>70.

2 S.C.R.

Therefore the fact that money has been put in Bank does not necessarily import that it is deposit in the ordinary course of banking. We have to examine the substance of it to see whether it is in fact so or not. It is uoneceBBary for the purpose of this case to elaborately examine what banking busineBS, properly so called, consists in. It is summed up a11 follows in Halsbury's Laws of England. Third-Edition Vol. 2 p. 150 Para 277: "the receipt of money on current or deposit account and the payment of cheques drawn by and the collection of cheques paid in by customer." Applying these teats, can it be said that account No. 50180 is truly banking account? Did the appellant open the account in the Bank with & view to deposit his moneys from time to time, and to operate on it by drawing cheques? The question admits of only one answer, and that is in the nega-tive. The account was opened ~ the Bank with view. to effectuate the arrangement between the German firms, and the appellant, which was that the amounts were to be repaid to the depositors price of new machineries to be supplied by them and the appellant was not to operate on it except for that purpose. The Bank was informed of this arrangement and took the deposits with. notice of the rights of the parties thereunder. Under the · circumstances the Bank has really only custody of the money as if it were stakeholder, with liability to hand it over to the persons who would become entitled to it nnder the arrangement. On these facts it cannot be said that there is deposit in commercial sense of the .word. It would be more correct to say that the Bank holds the money under special arrangement which constitutes it not debtor, but sort of stakeholder.

It was also argued on behalf of the appellant that when DeiAtallhe llan\I; f60(liv11d tb,e &i1nounts

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1911 SAati Pr•1U ·.u. •• n, DirtUtJr of £1f/"'ee/fVfet AiJo<IT J •

SUPREME OOURT REPORTS [1963)

from the German firm• on the terms mentioned by them, the relationship th'\t was constituted between it a.nd tho appellant was one of trustee a.nd benefi-ciary a.nd not that of debtor and creditor a.nd that therefore s. 4{ 1) was out of the wa.y. We a.re unable to agree with this contention. Under the terms. of the arrangement between the German firms a.nd the appellant the deposits were to stand in the name of the appolla.nt a.nd so they never vested in the Bank. It is true that the Bank would have the right to use the funds but that ie not because they belong to it but because it must be taken to be the understand. ing of the parties, when they entrusted the moneys to it pending there repayment to the German firms in terms of the agreement, that the Bank was to have the right to use them uqtil a. demand is made for their return. Relience w;as placed for the appellant on the decision of the Privy Council in Official .A.ui8gree v. Bhat('), where it was held that trust fund which was authorised to be invested in business could be traced, on the principle laid down in re. Hallett's EstalR. ('), into the a.ssets of the business. But in that case it was admitted that the deposit was Trust and the point for decision was only whether the undoubted rights of the beneficiary to follow that a.mount was lost by the authority given to the trustee to use it in his bueinesH. But here the question is whether the Be.nk is a. trustee a.nd the fact that. they a.re entitled to use the funds does not clothe them with the cha.ra.ctor of a. trustee. If that were not so every banker must be a. trustee which clearly is not the la.w. Then again who a.re the beneficiaries under the truHt, the German firms or the appellant ? The fa.ct is that the arrangement under which the monies were deposited in the Bank is sui generis and its position in truth is that of bailee, not debtor or trustee. It is unnecessary to pursue the discussion further

ll) (193S)l. R.601.A.703.

(2) (1890) IS Ch. D. (196.

2 S.C.R. SUPREME COURT REPORTS

in view of our decision that the relationship between the Bank and the appellant is not that of debtor and creditor.

It remains to deal with the contention urged

on behalf of the appellant that even if it be held that the appellant had made the deposits in question in the Deutsche Bank as customer, there had been no oontravention of s. 4 (1) of the Act as the prohibition enacted therein is only against lending of foreign exchange by person who is resident in India and that at the time of the deposits in question the appellant was not in India but in Germany. There is no ~ubstance in this contention. The intention of the Legislature was plainly t0 prohibit all transactions in foreign exchange by persons who are residents of India whether such transactions take place during their actual residence in India or during their sojourn in foreign parts. To hold that tho prohibition under the Act does not extent to acts done outside India by residents of India must inevitably lead to large-scale evasion of the Act resulting in its object being defeated. construction which leads to such result must be avoided. The expression "resident in India" is clearly used in the sense "resident of India''.

It may be mentioned that the words used in

s. 1(1) of the corresponding British Statute Exchange Control Act, 1947 are "no person resident in the United Kingdom, other than an authorised dealer, shall, outside the United Kingdom, buy or borrow any gold or foreign currency from, or sell or lend a.ny gold or foreign currency to, any person other than an authorised dealer". It will be seen that the language in the Indian Statute is in identical terms. In re. H. P. O. Productdon Ltd. (') cited on behalf of the appellant the question was whether certain transactions entered into by resident of England (l) ll96212 W.L.R. SI.

Shanti Pt,asad Jain •• Thi Dim:w llf E•f ornioftll .. lf(JSIJ.

IHI Sha>tl l'r-41.m •• n. &,Jm....., •''""" of "'il"r J,

SUPREME OOURT REPoRTS [I963J

but outside England were hit by s. I and the basil

of the decision is th!it they would be if the other oonditions were sa.tiafied. We have no hesitation in holding that if the appellant did in fact land monies to the Deutsche Bank while he waa in Germany he would, have contravened s. 4 (I) of the Aot.

In view of our conclusion t.hat the appellant

h118 only contingent right to the amounts atanding in credit in account No. 50180 and that the depotJits were made in the Bank not in the courae of normal banking busineas but under special arrangement, it must be held that there we.s no lending of thoee amounts by the appellant to the Bank within s. 4( 1) of the Act and the order of the Appellate Board impotJing fine of Rs. 5 l&kbs on him under s. 23(l)(a) must be held to be illegal and set aside.

In the resnlt Appeal No. 319of1961 is &llowed

and Appeal No. 320 of 1961 dismiNed lf'ith coets, one hearing fee.