Purported gift drafts through non-resident accounts attracted foreign exchange contravention and penalty after adverse inference.

Purported gifts routed through non-resident accounts were scrutinised under section 9(1)(a) of the Foreign Exchange Regulation Act, 1973, where the surrounding circumstances suggested that consideration had passed rather than genuine voluntary transfers. The tribunal noted that substantial draft receipts, the tainted nature of the accounts, admissions by other beneficiaries, and the appellants' failure to explain facts within their special knowledge justified an adverse inference. On that basis, the alleged gifts were treated as a colourable commercial arrangement, the contravention was found to be established, and the penalty was sustained.

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Issues: Whether the appellants contravened section 9(1)(a) of the Foreign Exchange Regulation Act, 1973 by making payments to or for the credit of persons resident outside India in connection with the alleged gift drafts, and whether the penalty imposed for such contravention was liable to be set aside.

Analysis: The record showed that substantial sums were received through drafts from NRE accounts of non-resident persons, while the appellants had no convincing evidence of any close relationship or voluntary generosity explaining such large transfers. The surrounding circumstances, including the tainted nature of the accounts, the statements of other beneficiaries who admitted payment of cash plus premium, and the appellants' own admissions that they had not met several of the donors, supported the inference that consideration had in fact passed. The burden lay on the appellants to explain facts within their special knowledge, and in the absence of a satisfactory explanation, adverse inference was justified. The alleged gifts could not be accepted as genuine voluntary transfers without consideration, and the transaction was treated as a colourable commercial arrangement.

Conclusion: The contravention was established and the penalty was correctly imposed.

Final Conclusion: The appeals failed on merits and the adjudication order was sustained.

Ratio Decidendi: In proceedings under the foreign exchange law, where the surrounding circumstances and the conduct of the parties reasonably establish that consideration passed for purported gifts routed through non-resident accounts, the burden shifts to the recipient to disprove the transaction, and failure to do so permits an adverse inference and confirmation of penalty.

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