Foreign exchange contravention: knowledge of non-resident creditor proved by surrounding evidence, with penalty reduced for an agent.

Knowledge of a creditor's non-resident status may be inferred from direct and circumstantial evidence, including surrounding documents, residence abroad, association between the parties, and the noticee's non-cooperation. On those facts, payment to, credit in favour of, and acknowledgment of a debt owed to a person resident outside India constituted contraventions of section 9(1)(a), 9(1)(c) and 9(1)(e) of the Foreign Exchange Regulation Act, 1973. The penalty was sustained for the principal appellants as commensurate with the offence, but was reduced to half for the third appellant because his role was only that of an agent.

---

---

Issues: (i) Whether the appellants contravened section 9(1)(a), section 9(1)(c) and section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 by making payment to, placing sums to the credit of, and acknowledging a debt in favour of a person resident outside India. (ii) Whether the penalty imposed on the appellants required interference.

Issue (i): Whether the appellants contravened section 9(1)(a), section 9(1)(c) and section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 by making payment to, placing sums to the credit of, and acknowledging a debt in favour of a person resident outside India.

Analysis: The evidence showed that the appellants had taken a loan from N.C. Rangesh, had acknowledged the debt, had credited the amount in his favour, and had also made payments towards interest. The surrounding circumstances, including the recovery of documents, the disclosure of non-resident status by the creditor, his established residence in Singapore, and the close association between the parties, supported the finding that the appellants knew that he was a person resident outside India. The appellants failed to discharge the burden of showing absence of such knowledge, and an adverse inference was justified from their non-cooperation during the inquiry.

Conclusion: The contravention of section 9(1)(a), section 9(1)(c) and section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 was proved.

Issue (ii): Whether the penalty imposed on the appellants required interference.

Analysis: The penalty imposed on the main appellants was found commensurate with the gravity of the offence. However, in the case of the third appellant, who acted only as an agent, the penalty was considered excessive and liable to be reduced.

Conclusion: The penalty was upheld for the first two appellants and reduced to fifty per cent for the third appellant.

Final Conclusion: The liability findings were sustained, but limited relief was granted by reducing the penalty only in respect of the third appellant.

Ratio Decidendi: Where knowledge of the creditor's non-resident status is established by direct and circumstantial evidence, and the noticee fails to rebut the inference drawn from the surrounding facts and non-cooperation, contravention under the foreign exchange restrictions is made out; penalty may still be moderated having regard to the role of the particular appellant.

---