Reserve Bank approval conditions under FERA: overseas expenses and pre-incorporation remittances were treated as statutory contraventions.

Breach of Reserve Bank approval conditions under FERA was treated as a substantive contravention where an overseas representative's travel and living expenses were paid from the appellants' funds instead of by the subsidiary, and where US dollars were remitted before incorporation for the subsidiary's benefit. The Tribunal's reasoning was that the expenses and transfers were directly connected with the foreign subsidiary's business and were made without the required permission, bringing both Section 9(1)(d) and Section 8(1) into breach. The note also records that penalties were upheld because the violations were not regarded as merely technical.

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Issues: (i) Whether the appellants committed contravention of Section 9(1)(d) of the Foreign Exchange Regulation Act, 1973 by meeting the travel and living expenses of their representative in connection with the overseas subsidiary's business. (ii) Whether the transfer of US dollars 40,000 to the overseas office before incorporation of the subsidiary amounted to contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether the appellants committed contravention of Section 9(1)(d) of the Foreign Exchange Regulation Act, 1973 by meeting the travel and living expenses of their representative in connection with the overseas subsidiary's business.

Analysis: The approval granted by the Reserve Bank required that when representatives travelled abroad in connection with the overseas subsidiary's business, their passage and living expenses were to be borne by the subsidiary. The record showed that the representative travelled to the United States and incurred expenses from the appellants' funds while attending to work connected with the subsidiary. The Tribunal treated the nature of the visit and the surrounding circumstances as sufficient to establish that the expenses were incurred on behalf of the subsidiary and that the prior condition imposed by the Reserve Bank had been breached. It held that the violation was not a mere technicality but a substantive contravention.

Conclusion: The contravention under Section 9(1)(d) of the Foreign Exchange Regulation Act, 1973 was established against the appellants.

Issue (ii): Whether the transfer of US dollars 40,000 to the overseas office before incorporation of the subsidiary amounted to contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Analysis: The transfers were made in instalments before the overseas subsidiary came into existence, and the Tribunal found that the remittances were integrally connected with the establishment of that subsidiary. It rejected the argument that the amounts related only to a liaison office and accepted that the funds were effectively transferred for the benefit of the soon-to-be-formed subsidiary without the necessary permission. On that basis, the Tribunal held that the Reserve Bank's approval conditions were violated and that the remittances constituted an unauthorised transfer in breach of the foreign exchange law.

Conclusion: The contravention under Section 8(1) of the Foreign Exchange Regulation Act, 1973 was established against the appellants.

Final Conclusion: The penalties were upheld and the appeals were dismissed, leaving the adjudication order undisturbed.

Ratio Decidendi: Where expenses or remittances are incurred or transferred in breach of Reserve Bank approval conditions and in connection with a foreign subsidiary's business, such conduct constitutes a statutory contravention under the foreign exchange regime and justifies penalty.

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