Foreign vessel crew payments in India remained subject to foreign exchange control despite temporary port stay

Payments made in India to captains of foreign vessels during temporary berthing at an Indian port were treated as payments to persons resident outside India, because short physical presence did not make them residents in India for foreign exchange control purposes. The plea that such remittances reflected commercial custom could not override the statutory restriction, and the absence of an express definition in the 1947 Act did not change the result. The text also notes that the penalty fell within the statutory framework. The regulatory prohibition on such payments without permission was therefore upheld.

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Issues: Whether payments made in India to captains of foreign vessels during their temporary stay at an Indian port amounted to a contravention of section 5(1)(a) of the Foreign Exchange Regulation Act, 1947, and whether such payments could be justified as accepted international trade practice or as payments not involving foreign exchange.

Analysis: The payments were made to foreign citizens who remained resident outside India despite the ships being berthed in an Indian port for loading and unloading. Temporary presence on Indian soil did not convert such persons into residents in India, and the statutory object of conserving foreign exchange would be defeated if foreigners could freely receive Indian currency without regulatory control. The absence of a definition in the 1947 Act did not alter the position, and the later definition in section 2(p) of the Foreign Exchange Regulation Act, 1973 reinforced the distinction between residents in India and persons resident outside India. The plea of commercial custom could not override the statutory restriction, and the amount involved was not trivial. The penalty imposed was also within the statutory framework.

Conclusion: The payments constituted payments to persons resident outside India in contravention of section 5(1)(a) of the Foreign Exchange Regulation Act, 1947, and the appeal failed.

Final Conclusion: The regulatory restriction on making payments to foreign nationals without Reserve Bank permission was upheld, and the adjudication and penalty were sustained.

Ratio Decidendi: A foreign citizen temporarily present in India for ship operations does not become a resident in India for foreign exchange control purposes, and any payment to such a person without the required permission attracts the statutory prohibition.

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