Foreign exchange payment without Reserve Bank permission was treated as prohibited, with penalty reduced for a single proved contravention.

Payment in India to discharge a foreign-debt transaction, made without Reserve Bank permission, was treated as a prohibited payment on behalf of a person resident outside India under section 5(1)(c) of the Foreign Exchange Regulation Act, 1947. The court also considered penalty proportionality, noting that only one charge was proved and the other allegations were extraneous, so the original penalty was excessive for the single contravention. The penalty was therefore reduced to reflect the proved violation and the relative gravity of the conduct.

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Issues: (i) Whether the appellant's payment of Indian currency to discharge the foreign-debt transaction without Reserve Bank permission contravened section 5(1)(c) of the Foreign Exchange Regulation Act, 1947; (ii) whether the penalty imposed should be reduced because only one charge was proved and the penalty was disproportionate.

Issue (i): Whether the appellant's payment of Indian currency to discharge the foreign-debt transaction without Reserve Bank permission contravened section 5(1)(c) of the Foreign Exchange Regulation Act, 1947.

Analysis: The provision prohibits payment to or for the credit of a person resident outside India, or on behalf of such person, without the permission of the Reserve Bank. The appellant received Indian currency in exchange for foreign drafts transmitted from abroad and used it to satisfy the debt of his son in Canada. The transaction was thus treated as a payment made on behalf of a person resident outside India and effected without Reserve Bank permission.

Conclusion: The appellant was held to have contravened section 5(1)(c) of the Foreign Exchange Regulation Act, 1947.

Issue (ii): Whether the penalty imposed should be reduced because only one charge was proved and the penalty was disproportionate.

Analysis: The remaining charges were found to be extraneous, and the amount originally imposed was considered excessive in relation to the single proved contravention. The fact that the actual recipient of the drafts had been dealt with leniently was also taken into account while assessing the appropriate penalty.

Conclusion: The penalty was reduced to Rs. 500.

Final Conclusion: The appellant remained liable for contravention, but the punishment was scaled down to reflect only the proved violation and the relative gravity of the conduct.

Ratio Decidendi: A payment made in India to discharge a liability arising from funds sent by a person resident outside India, without Reserve Bank permission, falls within the prohibition in section 5(1)(c) of the Foreign Exchange Regulation Act, 1947.

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