Foreign exchange acquisition by liaison office rejected where seconded employees remained with the foreign parent, and penalty lacked reasons.

Remittance by a foreign parent for salaries of employees seconded to a liaison office was analysed under FERA to determine whether the liaison office had purchased or otherwise acquired foreign exchange. The note states that, where the seconded personnel remained employees of the foreign parent and no privity of contract or reimbursement liability existed in favour of the liaison office, the salary remittance did not amount to acquisition or borrowing of foreign exchange. It also explains that penalty quantification under Section 50 required judicial application of mind and reasons; an unexplained, arbitrary penalty figure was treated as unsustainable.

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Issues: (i) Whether the salaries paid abroad to employees seconded to the liaison office amounted to the appellant purchasing or otherwise acquiring foreign exchange in contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973. (ii) Whether the penalty imposed under Section 50 of the Foreign Exchange Regulation Act, 1973 was sustainable.

Issue (i): Whether the salaries paid abroad to employees seconded to the liaison office amounted to the appellant purchasing or otherwise acquiring foreign exchange in contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Analysis: The seconded employees continued to remain employees of the foreign parent and were not borrowed employees of the liaison office. There was no privity of contract between the liaison office and the seconded employees, and the liability to pay their salaries remained with the parent company. In that situation, remittance by the parent company for disbursal of local salary components did not amount to acquisition or borrowing of foreign exchange by the liaison office. The finding that the liaison office had incurred a liability to reimburse the parent company was also inconsistent with the conclusion that no debt was owed under Section 9(1)(c).

Conclusion: The alleged contravention of Section 8(1) was not made out and the finding against the appellant could not stand.

Issue (ii): Whether the penalty imposed under Section 50 of the Foreign Exchange Regulation Act, 1973 was sustainable.

Analysis: Penalty under Section 50 required a judicial application of mind to the relevant facts and to the amount to be adjudged. The penalty figure imposed was unexplained and arbitrary, and the appellate authority failed to insist on reasons or a proper basis for quantification.

Conclusion: The penalty determination was unsustainable in law.

Final Conclusion: The adjudication order and the appellate order were set aside, and the appeal succeeded with consequential refund of any deposited amount in accordance with law.

Ratio Decidendi: Where employees remain employed by the foreign parent and are merely seconded to a liaison office, remittance by the parent for their salary disbursal does not amount to acquisition of foreign exchange by the liaison office absent a legal liability to reimburse the parent, and any penalty under FERA must be reasoned and judicially quantified.

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