Foreign exchange penalty cannot stand without proof of prohibited payment; receipt of NRE cheques alone is insufficient.

Penalties for alleged contravention of foreign exchange restrictions were found unsustainable where the record did not prove any payment to non-residents in return for NRE cheques. Mere receipt of NRE cheques, even coupled with rejection of a gift explanation and surrounding circumstances, was insufficient without supporting evidence of the prohibited transaction. Reliance on the Reserve Bank of India notification was rejected because the exemption did not extend to the alleged contravention under section 9(1)(a) of the Foreign Exchange Regulation Act, 1973. As the primary contravention was not established, the consequential finding of abetment under section 64(2) also could not stand, and the penalties were set aside.

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Issues: Whether the penalties imposed for contravention of section 9(1)(a) of the Foreign Exchange Regulation Act, 1973 and for alleged abetment under section 64(2) were sustainable in the absence of evidence proving payment to the non-residents, notwithstanding the receipt of NRE cheques said to have been obtained as gifts.

Analysis: The impugned findings were held unsustainable because they did not rest on any evidence showing that the appellants had made payment to the non-residents in return for the cheques. The fact that the appellants had received NRE cheques was not enough by itself to prove the alleged prohibited payment, and the adjudicating orders did not identify any supporting material establishing such a transaction. The attempt to infer liability merely from surrounding circumstances and a rejected gift explanation was found insufficient. The reliance on the Reserve Bank of India notification was also rejected as that exemption did not apply to section 9(1)(a). As the main contravention was not proved, the finding of abetment against the appellant in the connected appeals could not survive.

Conclusion: The penalties for contravention under section 9(1)(a) and the consequential finding of abetment under section 64(2) were not able and were set aside in favour of the appellants.

Final Conclusion: The common order annulled all the impugned penalties and directed refund of the deposited amounts to the relevant appellants.

Ratio Decidendi: A penalty for prohibited foreign exchange payment cannot be sustained unless the alleged payment is proved by evidence; receipt of NRE cheques alone does not establish the statutory contravention or consequential abetment.

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