Foreign exchange share purchase rules required delivery compliance, and appellate power extended to enhancing penalty for deterrence.

Foreign exchange control rules required a non-resident purchaser of shares to comply with the mandatory delivery condition attached to the purchase. The Tribunal applied a plain reading of Para 10C.21(c)(v) of the Exchange Control Manual and treated failure to take delivery, coupled with the absence of RBI permission on record, as a contravention of the governing regime. It also stated that an appellate tribunal empowered to confirm, modify or set aside an order may enhance penalty where needed to secure compliance and deterrence, even without an appeal by the enforcement authority. The penalties were enhanced accordingly.

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Issues: (i) Whether a non-resident purchaser contravened the foreign exchange regime by purchasing shares without taking delivery as required by the applicable control conditions; and (ii) whether the appellate tribunal could enhance the penalty while dismissing the appeals.

Issue (i): Whether a non-resident purchaser contravened the foreign exchange regime by purchasing shares without taking delivery as required by the applicable control conditions.

Analysis: The purchase of shares by a person resident outside India required permission and compliance with the governing conditions. The record showed that the shares were purchased but delivery was not taken, and the appellants failed to produce the RBI permission on which they relied. The applicable condition in Para 10C.21(c)(v) of the Exchange Control Manual required an overseas purchaser to take delivery of the shares purchased. The Tribunal applied a plain reading of the regulatory text and held that failure to take delivery constituted breach of the governing condition.

Conclusion: The contravention was proved and the finding of guilt was upheld against the appellants.

Issue (ii): Whether the appellate tribunal could enhance the penalty while dismissing the appeals.

Analysis: The Tribunal held that its power to confirm, modify, or set aside the impugned order included power to increase the penalty. It further held that, in a regulatory regime intended to secure compliance, an inadequate penalty would undermine deterrence. On that basis, and considering the amount involved, the Tribunal exercised its appellate power to enhance the penalty despite the absence of an appeal or revision by the enforcement authority.

Conclusion: The penalty was validly enhanced to Rs. 2 crores each against both appellants.

Final Conclusion: The appeals failed on merits, the adverse finding was sustained, and the monetary penalty was enhanced to a deterrent level under the appellate powers of the Tribunal.

Ratio Decidendi: A non-resident purchaser must comply with the mandatory delivery condition attached to share purchases under the foreign exchange control regime, and an appellate tribunal empowered to modify an order may enhance penalty where necessary to secure statutory compliance and deterrence.

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