Bombay High Court
R. K. Jewllers v. Union of India
Writ Petition No. 2777 of 2003
(Per V.C.Daga, J.)
2. This petition, filed under Article 226, is directed against the order in original 28th February, 2001 passed by the Special Director of Enforcement under the provisions of Foreign Exchange Regulation Act, 1973 (the repealed Act) to the extend it does not consider the question of grant of interest on the amount seized from the premises of the petitioners and returned to them without interest.
Factual Backdrop :
3. The petitioner No.1 is the partnership firm, whereas petitioner No.2 is the proprietary concern having their places of business at Ahmedabad and Mumbai. On or about 12th November, 1998, the officers of the Enforcement Directorate of Bombay Zonal unit seized a cash amount of Rs.85 lakh in Indian currency belonging to petitioner No.1 and a cheque for the sum of Rs. 5,21,490/belonging to petitioner No.2 under section 37 of the Foreign Exchange Regulation Act, 1973 (“FERA” for short). A show cause notice dated 9th November, 1999, inter alia; alleging contravention of section 9(1)(b) and section 9(1)(d) of FERA, by the petitioners were issued and proceedings thereunder were initiated against them. Finally, after a detailed hearing of the matter, an order of adjudication dated 28th February, 2001 was passed by the Special Director of Enforcement, exonerating the representative of the petitioners under FERA holding that the aforesaid amounts were in no way involved in the contravention of any provisions of the FERA. However, no specific order directing refund with interest was passed by the Special Director while passing adjudication order dated 28th February, 2001; wherein the show cause notices issued to the petitioners were discharged.
4. The petitioners, after receipt of aforesaid order dated 28th February, 2001, requested the officer of the Enforcement Directorate for return of seized amount. After repeated follow up, an amount of Rs.5,21,490/was returned by bankers cheque dated 5th April, 2002 and amount of Rs.85,00,000/was returned on 23rd May, 2002 by bankers cheque dated 22nd May, 2002 both drawn on Punjab & Sind Bank, Ahmedabad. Thus, the said amounts were returned almost after three and half years after the illegal seizure.
5. The petitioners were also discharged by the Chief Metropolitan Magistrate, 3rd Court, Esplanade, Mumbai; wherein petitioners were expected to face criminal prosecution. In reply to the application whereunder the petitioners had sought discharge, the Enforcement Officer had admitted that no prosecution proceedings have been initiated by the department against the petitioners.
6. Even though the petitioners were discharged and the seized amounts were returned back to them, no interest which had accrued thereon was paid to them. According to the petitioners, the seized amounts were deposited by the officers of Enforcement Directorate in the bank and it earned substantial interest thereon. The petitioners called upon the Enforcement Directorate to pay the amount of interest accrued on the seized amount contending that they were entitled to interest on the amount illegally seized since they were deprived of the user thereof. The request of the petitioners did not yield fruits. Consequently, the petitioners have invoked extra ordinary jurisdiction of this Court as stated in the opening para of the judgment.
7. Mr.Andhyarujina, learned counsel for the petitioners urged that the respondents had no authority to pocket the interest admittedly accrued on the aforesaid seized amount and hence the retention of the said amount by the respondents is illegal, arbitrary and without any justification whatsoever. According to him, the amounts seized by the respondents on 12th November, 1998 under the provisions of FERA were not in any way involved in the contravention of any of the provisions of the FERA as held in the order dated 28th February, 2001, which has been passed after detailed hearing. Thus, there was no basis to seize the amounts at all. That having seized the amounts illegally, which were ordered to be returned back to the petitioners, the respondents are bound and liable to return the same together with interest accrued thereon as otherwise it would amount to travesty of justice. That on the face of the findings, the seized amounts were not in any way involved in contraventions of any provisions of the FERA, the petitioners cannot be deprived of the amount of interest accrued thereon without any basis of justification whatsoever.
8. Mr.Andhyarujina further submits that permitting the respondents to retain the said amount of interest would cause unjust enrichment in favour of Revenue at the cost and prejudice of the petitioners. Thus, in his submission, the retention of the amount of interest accrued, by the Revenue is totally arbitrary, illegal and without authority of law and violative of the fundamental rights of the petitioners guaranteed under Articles 14 and 19(1)(g) of the Constitution of India. He submits that under the provisions of section 42(3) of the FERA, the respondents are bound to return to the petitioners the interest on the seized amounts of cheque and currency notes from the date of seizure till the date of return. He also relied upon the provision of rule 8 of the Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000 read with section 37 of the Foreign Exchange Management Act, 1999.
Per Contra :
9. Mr.Pakale and Mr.Mishra, learned counsel appearing for the Revenue, relying upon counter affidavit filed in the nature of reply on behalf of the Revenue, submits that there is no provision under FERA to pay the interest on the seized amount. According to them, the seizure was made under the reasonable belief that moneys were involved in contravention of the provisions of the FERA. He further submits that seizure by the department was bonafide, therefore, the department cannot be saddled with the liability of interest. He, thus, prayed for dismissal of the petition with costs.
10. In rejoinder, Mr.Andhyarujina reiterated his earlier submissions and urged that the amounts seized from the petitioners were deposited in the fixed deposits with the bank. The interest earned thereon has become part of the principal, as such the petitioners are entitled to interest accrued on the fixed deposits. He further submits that the amounts were illegally seized and recovered by the department and were withheld unreasonably even after the order in original; whereunder the petitioners were exonerated in toto. He submits that the respondents have admitted in their affidavit that they have accepted the order of adjudication and the seized amounts were released to the petitioners on 5th April, 2002 and 23rd May, 2002 by bankers cheques. In the circumstances, he submits that the petitioners are not only entitled to the interest accrued on the fixed deposits but they are also entitled to further interest thereon till payment in full and final since they were deprived of the use of their property viz. seized amounts with accrued interest thereon.
The Issue :
11. In the aforesaid backdrop, the issue for consideration is:
“whether the petitioners are entitled to amount of interest earned on the seized amount which was invested by the respondents in the fixed deposits with the bank?”
12. Having heard rival parties, it is necessary to recapitulate undisputed and admitted facts. That on 12th November, 1998, the officers of the Enforcement Directorate, Bombay Zonal Unit seized cash amount of Rs. 7 85 lakh and cheque for Rs.5,21,490/from the petitioners under section 37 of the FERA. A show cause dated 9th November, 1999 alleging contravention of provisions of the FERA were contested by the notices and after fulfledged investigation, by an order in original dated 28th February, 2001, the petitioners were exonerated and, ultimately, on 5th April, 2002 and 23rd May, 2002 the seized amounts were released to the petitioners by bankers cheques without any payment of interest accrued thereon. It is not in dispute that the seized amounts were deposited in fixed deposits with the Bank and it earned interest.
13. In order to answer the issue involved, firstly, it is advisable to consider briefly the nature of doctrine of accretion. Accretion is, however, a doctrine of the common law and is, therefore, capable of adjustment and expansion by use of analogy as held in Southern Theosophy v. South Australia, (1982) 1 ALL ER 283. Before applying it to the case in hand, let us turn to the leading judgment of the Apex Court which is copious and in its result clear.
14. The Apex Court had an occasion to consider doctrine of accretion in the case of Standard Chartered Bank v. Custodian, (2000) 6 SCC 427 while considering issue arising out of the provisions of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992; wherein the Custodian appointed under the said Act had called upon Standard Chartered Bank (the Bank) to either hand over the shares and securities to the Custodian or the Bank should obtain an appropriate direction from the Court in case the Bank was claiming any title to the said shares held by them by way of security.
15. The aforesaid notice was subject matter of adjudication before the Special Court. The Special Court, after full trial delivered its judgment on 24th December, 1998 holding that bonus shares and dividend and interest accrued on the original shares pledged with the bank were not themselves the subject matter of the pledge and must be handed back by the Bank to the Custodian.
16. Not satisfied with the above view of the Special Court, matter was carried to the Supreme Court in an appeal by the Standard Chartered Bank. The Apex Court, while adjudicating upon the rights of the Bank, held that in respect of the pledged stock, rights shares were subscribed and obtained by the Bank. Bonus shares and dividend and interest were also received by it. On this factual matrix, two questions were considered by the Apex Court, firstly, whether these accretions form part of the pledged property and, secondly, if they do not, then whether the Special Court should have directed the Bank to hand them over to the Custodian.
17. The Apex Court, while adjudicating upon the aforesaid questions relied upon the Privy Council judgment in the case of Motilal Hirabhai v. Bai Mani, AIR 1925 PC 86; wherein the Privy Council ruled that bonus shares were received as arising out of and appertaining to the original shares and that it was impossible to contend that the right to these shares could be differentiated from the right to the original shares. Applying the same logic, holding against the findings of the Special Court, the Apex Court held that dividend and interest which were received by the Bank and which were relatable to the pledged stocks must also be regarded as accretions thereto.
18. In the aforesaid judgment, the Apex Court was required to consider the scope of section 163 and 172, 176 of the Contract Act. While considering the scope of Section 163 of the Contract Act, Apex Court observed that in absence of a contract to the contrary, the bailee is bound to deliver to the bailor or according to his directions any increase or profit which may have accrued from the bailed goods. The Apex Court, to bring home its view with clarity, relied upon the illustration given in the section that if a calf is born to a cow then the bailee is bound to deliver the calf as well as the cow to the bailor.
19. The Apex Court, in the above judgment of the Standard Chartered Bank, while considering the scope of Section 172 and 176 of the Contract Act observed as under:
“The section not only gives the pawnee the right to retain the goods pledged as collateral security but also entitled the pawnee to sell the pledged goods after giving the pawnor reasonable notice of the same. If the proceeds of the sale are less than the amount due, the pawnor continues liable to pay the balance. On the other hand if the proceeds realized on the sale being made are grater than the amount due the pawnee is under an obligation to pay over the surplus to the pawnor.”
The Apex Court also referred leading book on the subject, Story on Law of Bailment (para 292); wherein the observations were made reading as under:
“By the pledge of a thing, not only the thing itself is pledged, but also, accessory, the natural increase thereof. As if a flock of sheep are pledged, the young, afterwards born, are also pledged.” (Emphasis supplied)
This passage has been relied upon by Chitty on Contract, 28th Edn. at p.162 where it is noted that: “If during the pledge there is an increase in the value of the thing pledged, the pledgee is entitled to the increase as part of his security.” (Emphasis supplied)
20. The Apex Court finally held that where shares and debentures were pledged with the Bank, the bonus shares and dividend accrued on the pledged shares were accretions to the pledged stocks forming part of the pledged property. Hence such accretion are required to be returned only when the pledged goods are returned. That in case of pawner’s default in payment of the debt, pawnee has also a right to sell the accretion along with the original goods pledged after giving reasonable notice to the pawner. The Apex Court, in ultimate analysis was pleased to set aside the judgment of the Special Court on this count. Some more reported judgments are to be found in the Law books on the subject, but it is not necessary to refer them and burden this judgment.
21. On the aforesaid backdrop, turning to the case in hand, the doctrine of accretion is clearly applicable to the facts of the present case wherein the amount seized was invested in the fixed deposits by the Revenue. Interest earned thereon was nothing but accretion to the original investment i.e. amount seized from the petitioners. Applying same logic, it must be followed that the interest which was received by the Revenue was relatable to the seized amounts from the petitioners which were invested in the fixed deposits by the Revenue.
22. The petitioners, in our considered view, would be entitled to accrued interest on the seized amount and that the respondents were not justified in refusing to pay the said amount of interest. There is no justification on the part of the respondents in retaining the amount of interest earned on the seized amount especially, on the touchstone of the doctrine of accretion, which is squarely applicable to the facts of the case in hand.
23. It is quite clear from the orderinoriginal that the seizure of amounts in the sum of Rs.85,00,000/and Rs.5,21,490/from the petitioners was not in accordance with law and upon adjudication respondents refunded these amounts to the petitioners. There can be no dispute, therefore, that amounts of Rs.85,00,000/and Rs.5,21,490/were seized and retained by the respondents for a period of three and half years without authority of law. In a given case where aggrieved party requires to be compensated not merely by repayment of the amount so seized and withheld but also by the payment of interest though it is a matter of discretion of the Court. Undoubted, the discretion will have to be exercised looking to all the circumstances of the case.
24. In the present case, the amounts involved were large viz. Rs.85,00,000/and Rs.5,21,490/. It is an accepted position that these amounts were seized and retained without authority of law. The lone redeeming feature in the present case is that the respondents have refunded these amounts without the petitioners being required to come to Court for that purpose. As against this, the petitioners were deprived of the use of these amounts for a period of three and half years. 25. The submissions made by Mr.Pakale, learned counsel appearing for the Revenue that there is no provision under FERA for payment of interest in the facts and circumstances of the case is misplaced. The present petition, however, is under Article 226 of the Constitution for the purpose of securing compensation for retention of the amount without the authority of law. The orderinoriginal to the extent it denies interest to the petitioners is under challenge.
26. Mr.Andhyarujina, learned counsel appearing for the petitioners, on the other hand, has rightly pressed into service the Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000 in general and rule 8 thereof in particular which, specifically, lays down that where it is found after completion of the investigation that the Indian currency seized under section 37 of the Act is not involved in the contravention and is to be returned, the same shall be returned to such person together with interest at the rate of 6% per annum from the date of seizure till the date of payment. In his submission, bereft of the provisions of the Rules referred herein, the claim of interest can form a subject matter of the petition under Article 226 of the Constitution. He drew support for his argument by pointing out the provisions of sections 3 and 4 of the Interest Act, which also contemplate a claim being made only for interest even though the principal amount may have been received by the claimant. He also pointed out that provision of section 4 under which in circumstance specified in that section the Court can allow reasonable interest although no rate of interest may have been agreed upon between the parties or may have been provided by statute. Ofcourse, these sections have no application here. They are relied upon merely as illustrations of cases where only a claim for interest can be made. In the present case, interest is claimed to put a party whose money is retained without the authority of law, in the same position he would have occupied, had his money not been so retained. The Court can exercise discretionary powers under Article 226 in a given case to award interest if it is necessary in order to bring about an equitable result.
27. In the present case, however, as we have set out earlier, the respondents themselves have refunded the amounts seized from the petitioners which they had invested in the fixed deposits. The interest earned on the fixed deposits was nothing but accretion to the original amounts. The petitioners, were, therefore, entitled to receive proceeds of the fixed deposits in its entirety on the date when the fixed deposits were encashed. Having said so, the fixed deposits were encashed and seized amounts were refunded to the petitioners on 5th April, 2002 and 23rd May, 2002 but without interest accrued thereon, as such the respondents withheld the amount of accrued interest without any justification. In our considered view, on the amount of accrued interest, not paid to the petitioners, the petitioners would be entitled to interest at the rate of 6% per annum for the period for which they were deprived of the said amount of accrued interest on the seized amounts. Hence the following order :
O R D E R
The petition is allowed with costs quantified in the sum of Rs.10,000/. The petitioner No.2 shall be entitled to the accrued interest on the seized amount of Rs.5,21,490/invested by the respondents in fixed deposits quantified and admitted by the Revenue in the sum of Rs.2,50,398/with further interest thereon @ 6% per annum from 5th April, 2002 till repayment in full and final.
The petitioner No.1 shall be entitled to the accrued interest on the seized amount of Rs.85,00,000/invested by the respondents in fixed deposits quantified and admitted by the Revenue itself in the sum of Rs. 43,00,932/with further interest thereon @ 6% per annum from 23rd May, 2002 till repayment in full and final.
The respondents shall pay the amounts quantified hereinabove with interest thereon within a period of three months from today, failing which, the said amounts shall carry interest @ 12% per annum instead of 6% after expiry of period of three months. Rule is made absolute in terms of this order.
(K.K.TATED, J.) (V.C.DAGA J.)