RBI permission and notice-bound adjudication barred foreign exchange liability beyond the show cause notice.

Where Reserve Bank permission covered the acceptance of NRI deposits, the transaction fell outside the prohibition in section 9(1)(e) of the Foreign Exchange Regulation Act, 1973, so contravention could not be sustained on that basis. The adjudicating authority was also confined to the allegations stated in the show cause notice: under section 51 of the Act read with Rule 3 of the Adjudication Proceedings and Appeal Rules, 1974, it could not rely on facts not pleaded or travel beyond the notice. Liability based on extraneous material was therefore impermissible.

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Issues: (i) Whether, in view of the Reserve Bank of India permission to accept the NRI deposits, contravention of section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 was made out. (ii) Whether the adjudicating authority could rely on facts not set out in the show cause notice and travel beyond its scope.

Issue (i): Whether, in view of the Reserve Bank of India permission to accept the NRI deposits, contravention of section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 was made out.

Analysis: The notice proceeded on the footing that the amounts were placed to the credit of non-resident persons, but the record showed that the Reserve Bank of India had permitted acceptance of the deposits. Transactions covered by general or special permission of the Reserve Bank are outside the prohibition in section 9. Once permission existed for receipt of the deposits from NRIs, the alleged contravention could not be sustained on that basis.

Conclusion: The issue was answered in favour of the appellants, and contravention of section 9(1)(e) was not established.

Issue (ii): Whether the adjudicating authority could rely on facts not set out in the show cause notice and travel beyond its scope.

Analysis: Section 51 of the Foreign Exchange Regulation Act, 1973 read with Rule 3 of the Adjudication Proceedings and Appeal Rules, 1974 requires notice of the alleged offence and a reasonable opportunity to meet that allegation. The adjudication must remain confined to the case pleaded in the show cause notice, and extraneous material not forming part of the notice cannot be used to hold the noticee guilty.

Conclusion: The issue was answered in favour of the appellants, and material beyond the show cause notice could not be relied upon.

Final Conclusion: The reference was resolved against the enforcement case and the appellants were held not liable on the allegations framed in the notice.

Ratio Decidendi: Where Reserve Bank permission covers the impugned foreign exchange transaction, the statutory prohibition does not apply, and an adjudicating authority cannot sustain liability on facts outside the show cause notice.

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