UNION OF INDIA Vs. KANTI OIL MILLS

JUDGEMENT

(1.) Rescinding of a contract between two parties and further mutual arrangement between them as regards the amount of compensation has given rise to this proceeding, involving a comparatively short but equally important point for consideration about the interpretation of certain provisions of the Foreign Exchange Regulations Act, 1947 which has again been amended by an Act of 1973.

(2.) The transaction takes one back to the year 1964 when the respondent, Messrs Shree Kanti Oil Mills (shortly called as Mills), entered into a contract of sale and export of 1200 tons of Groundnut Extraction to Messrs European Grains and Shipping Company Ltd., London (shortly called as foreign Company), and the same was struck through the brokers Messrs Marshal Produce Brokers Company. Bombay. After entering into the said contract, but before exporting the goods to foreign Company, the Mills had a better and lucrative offer for their product from another customer in the European market and therefore, they re-purchased the said commodity covered under the said contract from the said foreign Company and sold the said commodity to the new customer of Czechoslovakia. This was done with the consent and permission of the foreign Company. It was agreed between the parties that instead of the deal, certain amount of compensation shall be paid by the Mills to the foreign Company. Initially, there was certain correspondence which reveals that there was dispute between the parties over the amount of compensation, the manner of payment and the revenue of payment, However, ultimately through the intervention of the Solicitors firms on behalf of both the parties an arrangement was struck, under which a total amount of Rs. 51,000/- in Indian Currency was agreed to be paid by the Mills to one Shri M.G. Mansukhani an authorised person on behalf of the foreign Company in Bombay, in full and final settlement of the dispute over the transaction between the parties. This proposal of settlement was made by the Mills and was accepted by the foreign Company which is depicted in their letter dated November 28, 1967, which came to be confirmed by the Foreign Company and it appears that the said arrangement in the form of an agreement sprang out if this correspondence between the parties. This will assume importance when we consider the main question. It was stipulated in the agreement that though the Mills were prepared to pay the said amount of compensation further stipulation was that the amount was to be given to the said Shri Mansukhari not by way of payment as such, but only by way of deposit, and the third stipulation was that the said amount would be made payable to the foreign Company only after the requisite sanction of the Reserve Bank could be obtained. For that purpose, the Mills had undertaken to move the Reserve Bank officials which they actually did. By this time, no permission was accorded and ultimately, the parties agreed that from the moment, it would be the responsibility of the foreign Company to move the Reserve Bank authorities for getting requisite permission. From that point of view, an officer was entrusted by the foreign Company to follow up the matter and as such the Mills were absolved of the liability of getting the permission from the concerned authorities. It may be mentioned at this juncture itself that it is common ground that on the date this amount was deposited or paid as and by way of deposit to Shri Mansukhari by the Mills, no formal permission was actually accorded by the Reserve Bank and it is a further common ground that the foreign Company has so far not been credited with the said amount nor was any attempt made by Shri Mansukhari to make over that payment to the foreign Company. It is also a common ground that the said amount has been paid in India to a person residing in India and in Indian Currency. I am referring to these facts as the same will assume some importance.

(3.) Acting on the information and the credible intelligence received by the concerned officers of the Directorate of Enforcement, Ahmedabad Unit, a search was conducted on the premises of the said Oil Mills on 26th October, 1967. However, nothing incriminating was recovered, yet, after having been confronted with the information about the 1964 transaction made by the Mills with the foreign Company, the Partners of the Mills informed the officers about the said deal and about their depositing the said amount with Shri Manskuhani and it was also revealed that the Mills had entered and shown the said amount in their Ledger. This amount appears to be qualified as being the difference in the price and the prevailing market rates.