Foreign exchange diligence duty upheld for authorised dealers handling suspicious NRE currency deposits and related contravention findings.

The foreign exchange regime was interpreted to treat the signing of a show-cause notice as sufficient for "take notice of" within the saving provision, so service after the two-year period did not bar adjudication. Procedural objections based on delay and hearing notice defects were rejected where substantial compliance was found and no prejudice was shown. On merits, the Tribunal held that an authorised dealer must act with good faith, due care and caution when scrutinising foreign currency deposits, and repeated suspicious deposits in an NRE account required enquiry. The dealer's failure to do so was treated as aiding contravention, and the depositor's inability to prove lawful import of foreign currency also sustained liability.

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Issues: (i) whether the show-cause notice and adjudication were barred by limitation under the repealed foreign exchange regime, and whether delay or service defects vitiated the proceedings; (ii) whether an authorised dealer, on the facts, failed to act with good faith, due care and caution while permitting repeated foreign currency deposits in an NRE account, thereby committing or aiding contravention under the foreign exchange law.

Issue (i): whether the show-cause notice and adjudication were barred by limitation under the repealed foreign exchange regime, and whether delay or service defects vitiated the proceedings.

Analysis: The limitation objection was rejected by reading the expression "take notice of" in the saving provision as referring to the date on which the adjudicating authority signed the show-cause notice, and not the later service date. The Tribunal held that the statutory text did not require service within the two-year period. The complaint of violation of natural justice was also repelled because the procedural requirements were treated as substantially complied with, and no prejudice was shown from the delay or the manner in which hearing notices were issued.

Conclusion: The limitation and procedural objections were rejected.

Issue (ii): whether an authorised dealer, on the facts, failed to act with good faith, due care and caution while permitting repeated foreign currency deposits in an NRE account, thereby committing or aiding contravention under the foreign exchange law.

Analysis: The Tribunal held that authorisation to deal in foreign exchange carried an implied and express duty under the governing provisions to act with good faith, due care and caution, and to scrutinise suspicious transactions. Repeated deposits on overlapping dates, all within a short span, were treated as circumstances that should have prompted enquiry by a reasonable authorised dealer. The Tribunal applied a purposive construction of the foreign exchange law and held that the bank's conduct amounted to lack of due care and aided the underlying contravention. The plea that old records were unavailable and that no currency declaration was required for each individual deposit was not accepted as a defence on the facts. The Tribunal also sustained the finding against the individual depositor for failure to discharge the burden regarding lawful import of foreign currency.

Conclusion: The finding of contravention was upheld and the appellants' liability was affirmed.

Final Conclusion: The appeals failed on both limitation and merits, and the impugned penalty order was sustained.

Ratio Decidendi: Under the foreign exchange regulatory regime, an authorised dealer must act with good faith, due care and caution in scrutinising suspicious foreign-currency transactions, and the statutory phrase "take notice of" is satisfied when the adjudicating authority signs the show-cause notice within the prescribed period.

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