Foreign exchange penalty requires prior Reserve Bank directions; consequential director liability also falls when company proceedings fail.

Penalty for failure to secure receipt of foreign exchange could not be sustained without prior directions from the Reserve Bank under the enabling provision, because the statutory scheme required non-compliance with such directions before action under the penal provisions could follow. Mere delay in bringing in the commission amount was therefore insufficient to attract adjudication and penalty against the company. The consequential penalty on the Director also failed, because his liability depended on the same unsustainable proceedings against the company and there was no independent basis for separate punishment.

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Issues: (i) Whether contravention of section 16(1)(a) of the Foreign Exchange Regulation Act, 1973, by itself attracted adjudication and penalty under sections 51 and 50 in the absence of directions by the Reserve Bank under section 16(2). (ii) Whether the penalty imposed on the Director under section 68(1) could survive when the proceedings against the company were not sustainable.

Issue (i): Whether contravention of section 16(1)(a) of the Foreign Exchange Regulation Act, 1973, by itself attracted adjudication and penalty under sections 51 and 50 in the absence of directions by the Reserve Bank under section 16(2).

Analysis: Section 16(2) provides the statutory consequence where a person fails to comply with section 16(1) in relation to foreign exchange receivable by him. The mechanism contemplated is that the Reserve Bank may first issue directions for securing receipt of the foreign exchange, and only non-compliance with such directions can support action under the penal provisions. As no directions had been issued by the Reserve Bank, mere delay in bringing in the commission amount was insufficient to sustain adjudication under sections 51 and 50.

Conclusion: The issue is answered in favour of the appellant and against the respondent; the adjudication and penalty against the company were not sustainable.

Issue (ii): Whether the penalty imposed on the Director under section 68(1) could survive when the proceedings against the company were not sustainable.

Analysis: The Director's liability was founded on the same alleged contravention and was consequential to the company's liability. Once proceedings under section 51 against the company could not be sustained, there was no independent basis for the penalty imposed on the Director under section 68(1).

Conclusion: The issue is answered in favour of the appellant and against the respondent; the penalty on the Director also could not stand.

Final Conclusion: The appellate challenge succeeded on the legal ground that the statutory precondition for penal action had not been satisfied, and the impugned penalties were set aside in entirety.

Ratio Decidendi: Penalty proceedings for failure to secure receipt of foreign exchange cannot be sustained under the penal provisions unless the Reserve Bank has first issued directions under the enabling provision and those directions have been disobeyed.

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