Statutory foreign exchange compliance prevails over internal instructions; penalty follows breach without proof of mens rea.
An authorised dealer or money-changer must comply with the statutory duties under the Foreign Exchange Regulation Act independently of internal instructions in the money-changer memorandum, because those instructions cannot override the Act or dilute obligations to verify authority and obtain reasonable declarations. Free inter-money-changer transactions remain subject to statutory restrictions, including the prohibition on unauthorised exchange rates. The text also states that adjudicatory penalty for foreign exchange contravention is attracted on proof of breach of the regulatory obligation, and mens rea is not required in the criminal law sense. On that basis, the contravention and penalty were maintained.
Issues: (i) Whether an authorised dealer or money-changer, while dealing with another licensed money-changer, could rely on the instructions in the Memorandum of Instructions to Full Fledged Money Changers to avoid the obligations under sections 6(4) and 6(5) of the Foreign Exchange Regulation Act, 1973. (ii) Whether violation of the foreign exchange control provisions could be established and penalty sustained without proof of mens rea.
Issue (i): Whether an authorised dealer or money-changer, while dealing with another licensed money-changer, could rely on the instructions in the Memorandum of Instructions to Full Fledged Money Changers to avoid the obligations under sections 6(4) and 6(5) of the Foreign Exchange Regulation Act, 1973.
Analysis: The statutory scheme required an authorised dealer to act only within the terms of authorisation and to satisfy itself that a foreign exchange transaction would not involve contravention of the Act. The duty under section 6(5) extended to requiring reasonable declaration and information from the person on whose behalf the transaction was undertaken, and section 7(4) made those obligations applicable to money-changers as well. The instructions in the memorandum, including the requirement to verify authorised representatives, could not override or dilute the Act. The Court also held that free inter-money-changer transactions under the memorandum remained subject to the Act and its restrictions, including the prohibition against transactions at unauthorised exchange rates.
Conclusion: The contention that compliance with the memorandum alone insulated the appellants from liability was rejected, and the contravention under sections 6(4), 6(5), 7 and 8(2) was upheld.
Issue (ii): Whether violation of the foreign exchange control provisions could be established and penalty sustained without proof of mens rea.
Analysis: The Court applied the principle that adjudicatory penalty under FERA is attracted on proof of breach of the statutory obligation, and that mens rea in the criminal law sense is not an essential ingredient. The foreign exchange was handed over without proper verification of the representative's authority and the transaction facilitated resale in the black market. The fact that the foreign exchange ultimately reached the licensed recipient did not cure the earlier non-compliance, and the higher-rate transaction also offended section 8(2) in the absence of RBI permission.
Conclusion: Mens rea was not required, and the penalty was validly maintained.
Final Conclusion: The impugned order was sustained and the question of law was answered against the appellants, with the appeals dismissed.
Ratio Decidendi: An authorised dealer or money-changer must comply with the statutory duties under FERA independently of internal RBI instructions, and penalty for contravention is attracted upon proof of breach of the regulatory obligation without needing to establish mens rea.
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