Foreign exchange contravention established on routed payment structure, with penalty reduced on equitable considerations.

A payment routed through an Indian concern was treated as a payment to or for the credit of a person resident outside India where the evidence showed the Indian entity was linked to the overseas consultant and the arrangement had been restructured to avoid obtaining RBI permission. The regulatory contravention was therefore established on the basis of the transaction structure and surrounding evidence, and proof of mens rea was not required for penalty. The penalty amount was nevertheless moderated because the services were connected with attracting foreign investment and there was no vested-interest element, resulting in reduction to fifty per cent of the amount imposed.

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Issues: (i) Whether the payment made by the appellant company to the Indian concern was in substance payment to or for the credit of a person resident outside India so as to attract contravention of foreign exchange restrictions; (ii) Whether the penalty imposed required reduction on the facts and circumstances of the case.

Issue (i): Whether the payment made by the appellant company to the Indian concern was in substance payment to or for the credit of a person resident outside India so as to attract contravention of foreign exchange restrictions.

Analysis: The evidence, including the recorded statement of the manager, seized documents, and surrounding circumstances, showed that the Indian concern was not acting independently but was associated with the overseas entity. The original arrangement with the foreign consultant was replaced by a rupee payment structure through the Indian concern after RBI permission was not obtained. The transaction was found to have been structured to route consideration for services actually rendered by the foreign entity, bringing the payment within the mischief of the prohibition on making payment to or for the credit of a person resident outside India. The absence of permission and the nature of the arrangement established the contravention; proof of guilty intention was not necessary for imposing penalty in such regulatory contraventions.

Conclusion: The contravention was proved and the finding of liability was sustained against the appellants.

Issue (ii): Whether the penalty imposed required reduction on the facts and circumstances of the case.

Analysis: Although the contravention stood established, the amount of penalty was examined on the basis that the services were rendered in connection with attracting foreign investment and there was no case of vested interest. On that footing, the penalty was considered excessive and was warranted to be moderated to achieve the ends of justice.

Conclusion: The penalty was reduced to fifty per cent of the amount imposed.

Final Conclusion: The liability findings were affirmed, but the quantum of penalty was substantially reduced, resulting in partial relief to the appellants.

Ratio Decidendi: In regulatory foreign exchange contraventions, once the prohibited payment structure is established by evidence, penalty follows without proof of mens rea, though the quantum may be moderated on equitable considerations.

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