Seconded employees and foreign exchange liability: salary remittances by the parent did not create a contravention by the Indian office.

Expatriate employees seconded by a foreign parent company to an Indian liaison or branch office remained employees of the foreign parent, and in the absence of any privity of contract with the Indian office, salary remittances by the parent did not amount to acquisition or repayment of foreign exchange by that office under section 8(1) of the Foreign Exchange Regulation Act, 1973. The same factual basis could not sustain a contravention finding under section 8(1), and the penalty under section 50 was unsustainable because no reasons were recorded for quantification.

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Issues: Whether expatriate employees seconded by a foreign parent company to its liaison or branch office in India could be treated as borrowed employees of the Indian office so as to attract a violation of section 8(1) of the Foreign Exchange Regulation Act, 1973, and whether the penalty imposed under section 50 of that Act was sustainable.

Analysis: The dispute turned on the nature of the employment relationship and the consequent foreign exchange liability. The employees remained employees of the foreign parent corporation despite being posted in India, and there was no privity of contract between them and the Indian liaison or branch office. On that footing, the remittance of salary funds by the foreign parent for disbursal in India did not amount to the Indian office acquiring foreign exchange, nor did it create any liability on the Indian office to repay the parent corporation. The finding of a violation under section 9(1)(c) of the Foreign Exchange Regulation Act, 1973 was itself rejected, and the same factual basis could not sustain a violation under section 8(1). The penalty was also unsustainable because no reasons had been recorded for its quantification.

Conclusion: The finding of contravention of section 8(1) of the Foreign Exchange Regulation Act, 1973 and the penalty imposed under section 50 of that Act were set aside, and the appeals succeeded.

Ratio Decidendi: Seconded employees of a foreign parent company continue to remain its employees, and in the absence of any contractual liability of the Indian branch or liaison office, salary remittances by the parent do not constitute acquisition or repayment of foreign exchange by the Indian office under section 8(1) of the Foreign Exchange Regulation Act, 1973.

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