Penalty for NRI account deposits set aside where the governing position was clarified later and records were no longer preserved.

Penalty proceedings under FERA for accepting foreign exchange deposits in an NRI account through a person other than the account holder were held unsustainable where the legal position was not clearly settled until a later RBI clarificatory circular and the show-cause notice was issued after the record-preservation period had expired. The Delhi HC noted that the issue had already been covered by an earlier Division Bench decision and that liability could not be fastened on the bank on the basis of an earlier uncertain position. The show-cause notice and consequential adjudication order were therefore set aside and the appeal was allowed in favour of the bank.

---

---

Issues: Whether the show-cause notice and consequential adjudication imposing penalty on the bank for accepting foreign exchange deposits in an NRI account through a person other than the account holder were sustainable in view of the later clarificatory instructions, the bank's record-preservation obligations, and the prior Division Bench decision covering the same issue.

Analysis: The appeal arose from penalty proceedings under the Foreign Exchange Regulation Act, 1973 for alleged contravention connected with deposits in NRI accounts. The bank contended that the notice was issued long after the transactions, after the prescribed period for preservation of records, and that the legal position regarding deposits by persons other than the NRI account holder was not clear until the Reserve Bank of India's later clarification. The Court noted that similar matters had already been decided by a Division Bench, which had held that the issue stood covered by the earlier decision and that the position was not clearly stated before the clarificatory circular. In that backdrop, the Court found that the liability attributed to the bank was not tenable and that the adjudication could not be sustained.

Conclusion: The show-cause notice and the consequential adjudication order were held unsustainable, and the appeal was allowed in favour of the bank.

Ratio Decidendi: Where the governing position was not clearly stipulated until a later clarificatory circular, and the notice was issued after the statutory period for maintaining records had expired, penalty proceedings based on the earlier uncertain position could not be sustained.

---