Residential status under FERA depends on intention and surrounding circumstances, not income-tax residency tests.

Residential status under the Foreign Exchange Regulation Act, 1973 turns on the person's intention as shown by surrounding circumstances, including whether he is staying outside India for an uncertain period. On that test, a long period of living and business activity in Malaysia, admissions that the person stayed mostly abroad, and the bank's own enquiry report supported treatment as a person resident outside India. Income-tax residency findings were not determinative because the statutory tests differ. The note states that transactions with such a person required compliance with FERA, that contraventions under sections 9(1)(a) and 9(1)(d) were sustained, and that the penalty was reduced as excessive.

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Issues: Whether the appellant-bank had contravened section 9(1)(a) and section 9(1)(d) of the Foreign Exchange Regulation Act, 1973 by advancing loans and making payments on behalf of a person who was resident outside India, and whether the penalty required reduction.

Analysis: The residential status of the borrower had to be determined under section 2(p) and section 2(q) of the Foreign Exchange Regulation Act, 1973, where the controlling consideration is the person's intention and the circumstances showing whether he was staying outside India for an uncertain period. The evidence showed that the borrower had been living and carrying on business in Malaysia for a long period, had admitted that he stayed mostly abroad, and the bank's own enquiry report also indicated that he was staying outside India for most of the time. The income-tax assessment orders relied upon by the appellant were not determinative for the purposes of foreign exchange regulation, because the test under the two enactments is different.

Conclusion: The contraventions under section 9(1)(a) and section 9(1)(d) were sustained, but the penalty was held to be excessive and was reduced.

Final Conclusion: The appeal succeeded only to the extent of reduction of penalty, while the finding of contravention remained undisturbed.

Ratio Decidendi: For determining whether a person is resident in India under the Foreign Exchange Regulation Act, 1973, the decisive test is the person's intention as reflected by the surrounding circumstances, not the criteria used under income-tax law; where that test shows residence outside India, foreign exchange transactions with such person require compliance with the Act.

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