Foreign exchange law presumption rebuttal and factual findings prevented interference with alleged FERA contraventions.

An appeal confined to questions of law under FERA could not disturb concurrent factual findings that the statutory presumption of culpable mental state under section 59 had been rebutted, absent perversity or legal error. The court held that incorporation of an Indian company by a foreign investor, foreign equity allotment under the automatic approval route, and disclosures in RBI forms did not, on the record, establish contravention after the 1993 amendment and the 1998 notification permitting such investment. It also held that the bank's opening of accounts and sale of gold were not shown to be foreign exchange transactions on behalf of the investor, so no violation by the bank was proved.

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Issues: (i) Whether the appeal under section 54 of the Foreign Exchange Regulation Act, 1973 raised any question of law in view of the Tribunal's findings on culpable mental state under section 59 of the Foreign Exchange Regulation Act, 1973; (ii) whether respondent Nos. 2 to 4 violated the Foreign Exchange Regulation Act, 1973 by incorporating the company, allotting foreign equity, using the automatic approval route, and making the declarations in the RBI form; (iii) whether respondent No. 1-bank contravened the Foreign Exchange Regulation Act, 1973 by opening accounts and selling gold to respondent No. 2.

Issue (i): Whether the appeal under section 54 of the Foreign Exchange Regulation Act, 1973 raised any question of law in view of the Tribunal's findings on culpable mental state under section 59 of the Foreign Exchange Regulation Act, 1973.

Analysis: Section 59 creates a rebuttable presumption of culpable mental state, but permits the accused to disprove it. The Court held that the Tribunal was entitled to examine the material on record to determine whether the respondents had rebutted that presumption. The Tribunal's conclusion was based on appreciation of facts and circumstances, and no misinterpretation of law or perversity was shown.

Conclusion: The appeal did not raise any question of law on this aspect and the Tribunal's factual findings could not be interfered with.

Issue (ii): Whether respondent Nos. 2 to 4 violated the Foreign Exchange Regulation Act, 1973 by incorporating the company, allotting foreign equity, using the automatic approval route, and making the declarations in the RBI form.

Analysis: The Court held that incorporation of the company in India at the instance of a foreign investor was not unlawful after the 1993 amendment. Notification No. 180 of 1998 permitted foreign investment in a trading company primarily engaged in exports. The record showed disclosure of foreign equity, an application for further FIPB approval, and material indicating export plans. The RBI form was treated as outdated and not sufficient by itself to establish concealment or mala fides. The Court further held that the presumption under section 59 stood rebutted and that no violation of the relevant FERA provisions was established.

Conclusion: Respondent Nos. 2 to 4 were held not to have committed the alleged violations of the Foreign Exchange Regulation Act, 1973.

Issue (iii): Whether respondent No. 1-bank contravened the Foreign Exchange Regulation Act, 1973 by opening accounts and selling gold to respondent No. 2.

Analysis: The Court held that the bank had imported gold on its own behalf and sold it for Indian currency, so the transaction was not a foreign exchange transaction on behalf of respondent No. 2. Since no foreign exchange outflow was shown and the bank had no material to suspect illegality, the alleged contravention was not made out.

Conclusion: No violation by respondent No. 1-bank was established.

Final Conclusion: The Tribunal's order was found to be supported by factual findings and consistent with the statutory scheme, and the appellate challenge failed for want of any legal infirmity or question of law.

Ratio Decidendi: In an appeal limited to questions of law, concurrent factual findings that the statutory presumption of culpable mental state has been rebutted and that no contravention of foreign exchange law is proved cannot be disturbed unless shown to be perverse or based on a legal error.

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