Foreign exchange penalty reduced for a hotel firm; vicarious liability of manager and partner was not established.

Acceptance of Indian currency from foreign guests was treated as a contravention of the Foreign Exchange Regulation Act, 1973 and the section 15 notification, but the firm's cooperation, proper records, absence of mala fide intent and lack of prior breach justified a 50% reduction in penalty. Vicarious liability for the manager was not sustained because the record did not establish the consent or participation required under section 68(2). The penalty on the partner in charge was also set aside because section 68(1) was not satisfied on the available material and the contravention was shown to have occurred without knowledge.

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Issues: (i) Whether the penalty imposed on the appellant firm for acceptance of Indian currency from foreign guests in contravention of section 15 of the Foreign Exchange Regulation Act, 1973 and the notification issued thereunder should be reduced; (ii) Whether the penalty imposed on the manager could be sustained under section 68(2); (iii) Whether the penalty imposed on the partner in charge could be sustained under section 68(1).

Issue (i): Whether the penalty imposed on the appellant firm for acceptance of Indian currency from foreign guests in contravention of section 15 of the Foreign Exchange Regulation Act, 1973 and the notification issued thereunder should be reduced

Analysis: The notification under section 15 permitted payment in Indian rupees where the source of funds was properly evidenced by conversion or encashment certificates endorsed by the hotel. The acceptance of payment in Indian currency therefore amounted to a contravention of section 15(1) and 15(2), but the record showed that the firm had co-operated with the department, kept proper records, derived no personal gain, and acted without mala fide intention or prior history of breach. On those facts, a lenient view was considered appropriate.

Conclusion: The penalty on the appellant firm was reduced by 50 per cent.

Issue (ii): Whether the penalty imposed on the manager could be sustained under section 68(2)

Analysis: Liability under section 68(2) required a legally sufficient basis showing the manager's consent or participation in the contravention. The impugned order did not disclose material establishing the requisite consent, and the finding of knowledge and consent rested on presupposition rather than proved facts. In the absence of the required legal foundation, the penalty could not stand.

Conclusion: The penalty imposed on the manager was set aside.

Issue (iii): Whether the penalty imposed on the partner in charge could be sustained under section 68(1)

Analysis: Section 68(1) attaches liability to persons in charge of the conduct of business, but the proviso excludes punishment where the contravention took place without knowledge. The material indicated that the firm accepted payments after oral verification and the appellant's submissions showed absence of knowledge of the contravention. In those circumstances, the statutory basis for fastening penalty was not made out.

Conclusion: The penalty imposed on the partner in charge was set aside.

Final Conclusion: The penalties were interfered with in part by reducing the firm's penalty and completely setting aside the penalties imposed on the manager and the partner in charge.

Ratio Decidendi: Where a contravention under section 15 of the Foreign Exchange Regulation Act, 1973 is committed without mala fide intention and the statutory conditions for vicarious liability are not established, the penal consequence may be reduced or set aside, particularly when the record shows absence of knowledge or legally sufficient consent.

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