Foreign-exchange penalties require proof of each statutory ingredient; disputed claims, approved transactions, and residency assumptions are insufficient.

Foreign-exchange penalties cannot rest on assumptions about residential status or on incomplete proof of the statutory ingredients of contravention. The commentary explains that residency must be determined under the statutory tests, disputed or contingent foreign-exchange claims are not automatically receivables for delayed-realisation charges, and approved project transactions, overdraft arrangements, inter-project movements, equipment transfers, agency commission, and sanctioned overseas office payments require examination against the actual approval framework and notice allegations. It emphasises that liability cannot be imposed by relying on inapplicable manual provisions, collateral observations, or unproven breaches, and that each alleged contravention must be established on reasoned findings from the relevant records and legal requirements.

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Issues: (i) Whether the findings of contravention under section 29 and the related foreign-exchange restrictions, based on the assumption that certain shareholders and a director were persons resident outside India, were sustainable. (ii) Whether the findings of contravention under section 16(1)(a) in respect of alleged non-realisation or delayed realisation of foreign exchange claims under multiple show-cause notices were sustainable. (iii) Whether the findings of contravention relating to overdraft borrowing, inter-project transfer, removal of equipment, and other project-related movement of funds or assets were sustainable. (iv) Whether the findings regarding agency commission and payments to the London office were sustainable.

Issue (i): Whether the findings of contravention under section 29 and the related foreign-exchange restrictions, based on the assumption that certain shareholders and a director were persons resident outside India, were sustainable.

Analysis: The status of a person as resident in India or resident outside India had to be determined on the statutory tests and could not be assumed merely from prior temporary residence abroad. On the facts, the persons concerned had gone abroad for specific purposes and with an intention to return, and the company's director was acting in the course of employment of the Indian company, not in an independent non-resident capacity. The charge under section 29(4)(a) was also misconceived because the statutory scheme required the matter to be brought before the Reserve Bank and did not justify penal action on the premise adopted in the impugned order. The related findings under section 9(1)(d) and section 9(1)(e), founded on the same incorrect non-resident assumption, also could not stand.

Conclusion: The findings of contravention under section 29 and the related findings under section 9(1)(d) and section 9(1)(e) were set aside.

Issue (ii): Whether the findings of contravention under section 16(1)(a) in respect of alleged non-realisation or delayed realisation of foreign exchange claims under multiple show-cause notices were sustainable.

Analysis: A contravention under section 16(1)(a) required proof that the appellant had a statutory right to receive foreign exchange and had refrained from taking action causing delay in receipt. The claims in question were either disputed contractual claims, not finally ascertained dues, or amounts that had already been received in net form after permissible deductions and adjustments. In some instances the foreign party had directly dealt with labour or other payees, so no receipt by the appellant company arose at all. The adjudicating authority had not established the essential ingredients of the provision and had treated disputed or contingent claims as if they were admitted receivables.

Conclusion: The findings of contravention under section 16(1)(a) were unsustainable and were set aside.

Issue (iii): Whether the findings of contravention relating to overdraft borrowing, inter-project transfer, removal of equipment, and other project-related movement of funds or assets were sustainable.

Analysis: The overdraft issue was covered by approvals granted through the Working Group and supported by the Reserve Bank's subsequent communication, so the absence of a separate formal permission could not support the penalty. The alleged inter-project transfer was not established as a prohibited diversion of project funds and the authority wrongly relied on an inapplicable manual provision not invoked in the notice. As regards equipment removal, the notice did not allege sale or hiring out, and mere shifting or storage of equipment did not amount to the prohibited conduct under the cited manual provision. The adjudicating authority had failed to decide these matters on the actual statutory ingredients and instead relied on assumptions or collateral observations.

Conclusion: The findings of contravention on these charges were set aside.

Issue (iv): Whether the findings regarding agency commission and payments to the London office were sustainable.

Analysis: The agency commission payment was supported by the project approval structure, the Working Group mechanism, and the returns filed with the Reserve Bank, while the department did not disprove the company's assertion by reference to the relevant records. The payment to the London office was made in the course of the approved office arrangement and within the sanctioned purpose of the overseas posting, so no additional permission was required in the absence of any breach of the approval conditions. The impugned order had imposed liability without establishing the essential statutory breach.

Conclusion: The findings on these charges were unsustainable and were set aside.

Final Conclusion: The entire penalty structure failed because the adjudication proceeded on incorrect assumptions of status, omitted essential statutory findings, and did not establish the constituent ingredients of the alleged contraventions.

Ratio Decidendi: A penalty under the foreign-exchange law cannot be sustained unless the authority first establishes each statutory ingredient of the alleged contravention on reasoned findings, and it cannot treat disputed, contingent, or approved transactions as breaches by assuming non-resident status or by relying on inapplicable materials.

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