FERA liability in bona fide banking transactions failed where rupee vostro credits, penalty basis, and officer notice allegations were not proved.

An authorised dealer was treated as a distinct class under FERA, and the Tribunal held that the general prohibitions in Sections 8 and 9 did not, on these facts, fasten liability for rupee credit entries in vostro accounts made through ordinary inter-bank banking channels. It further held that alleged breaches of Sections 6(4), 6(5) and 49, and of the Exchange Control Manual, did not justify penalties where the transactions were bona fide, amounts were repatriated, and no deliberate defiance or dishonest intent was shown. As to Section 68, the notices lacked specific foundational averments for vicarious or negligence-based liability, so the officer-wise penalties could not stand and the adjudication orders were set aside.

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Issues: (i) whether an authorised dealer could be held liable under Sections 8 and 9 of the Foreign Exchange Regulation Act, 1973 for the impugned credit entries in rupee vostro accounts; (ii) whether the alleged breaches of Sections 6(4), 6(5) and 49 of the Foreign Exchange Regulation Act, 1973 and the Exchange Control Manual, 1987 justified the penalties imposed; and (iii) whether the officers could be proceeded against under Section 68 on the basis of the show-cause notices and the material on record.

Issue (i): Whether an authorised dealer could be held liable under Sections 8 and 9 of the Foreign Exchange Regulation Act, 1973 for the impugned credit entries in rupee vostro accounts.

Analysis: The authorised dealer was treated as a distinct class under the statutory scheme and the Tribunal held that the prohibitory provisions aimed at "person" dealing in foreign exchange were not intended to fasten the same liability on an authorised dealer acting within the banking channel. The credit entries were in rupees in vostro accounts, the bank had acted in the course of inter-bank transactions, and the transactions were not shown to involve a culpable acquisition or transfer of foreign exchange by the bank itself in the manner alleged.

Conclusion: The issue was answered in favour of the appellants and against the revenue.

Issue (ii): Whether the alleged breaches of Sections 6(4), 6(5) and 49 of the Foreign Exchange Regulation Act, 1973 and the Exchange Control Manual, 1987 justified the penalties imposed.

Analysis: The Tribunal held that the bank had acted in good faith in the course of routine banking transactions, that the amounts had been repatriated, and that there was no material showing deliberate defiance, contumacious conduct, or dishonest intent. It also found that the Exchange Control Manual and related circulars could not be used to enlarge the penal scope of the parent statute beyond what was warranted by the Act and the facts proved.

Conclusion: The issue was answered in favour of the appellants and against the revenue.

Issue (iii): Whether the officers could be proceeded against under Section 68 on the basis of the show-cause notices and the material on record.

Analysis: The Tribunal held that the notices did not contain the necessary specific allegations to sustain liability under the negligence limb of Section 68(2), and that mere bald assertions of responsibility were insufficient for vicarious liability under Section 68(1). It further held that, in the absence of adequate foundational averments and proof of the requisite mental element, the officer-wise penalties could not stand.

Conclusion: The issue was answered in favour of the appellants and against the revenue.

Final Conclusion: The penalties could not be sustained on the facts and in law, and the adjudication orders were set aside.

Ratio Decidendi: An authorised dealer cannot be penalised under the general prohibitory provisions of FERA merely for crediting rupees to a vostro account in bona fide banking transactions unless the statutory contravention, the requisite mental element, and the specific basis of officer liability are clearly established on the record and in the show-cause notice.

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