FERA compensatory payment rules and authorised dealer controls shaped the outcome on foreign exchange contraventions.

Section 9 of FERA applies only to compensatory foreign-exchange payments: receipt of Indian currency by a partner in settlement of partnership accounts, where the money was received in her own right, did not amount to payment by or on behalf of a non-resident, so contravention under section 9(1)(b) was not established. A later transfer of equivalent Indian currency to the same non-resident after foreign exchange was received through normal banking channels likewise did not attract section 9(1)(a), as there was no compensatory payment or loss of foreign exchange. By contrast, acquisition of foreign currency otherwise than through authorised dealers sustained contravention under section 8(1), although confiscation was set aside for want of deliberate unlawful acquisition or intended prohibited use.

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Issues: (i) Whether receipt of Indian currency by a partner on settlement of partnership accounts amounted to receipt of payment by order or on behalf of a non-resident under section 9(1)(b) of the Foreign Exchange Regulation Act, 1973; (ii) Whether the appellant's transfer of an equivalent amount in Indian currency to a non-resident after receiving foreign exchange through banking channels attracted section 9(1)(a) of the Foreign Exchange Regulation Act, 1973; (iii) Whether acquisition of foreign exchange from persons other than authorised dealers contravened section 8(1) of the Foreign Exchange Regulation Act, 1973 and whether confiscation of the foreign currency was justified.

Issue (i): Whether receipt of Indian currency by a partner on settlement of partnership accounts amounted to receipt of payment by order or on behalf of a non-resident under section 9(1)(b) of the Foreign Exchange Regulation Act, 1973.

Analysis: The payment was received by the appellant in her own right as part of the settlement of accounts on reconstitution of the firm. The prohibition in section 9(1)(b) is directed against compensatory payments made by or on behalf of a foreigner, and not against a person receiving money to which she is independently entitled. The alleged control of the money by the non-resident did not alter the character of the payment, since the appellant was enforcing her own right against the firm.

Conclusion: The charge under section 9(1)(b) was not established and the finding of contravention was set aside in favour of the appellant.

Issue (ii): Whether the appellant's transfer of an equivalent amount in Indian currency to a non-resident after receiving foreign exchange through banking channels attracted section 9(1)(a) of the Foreign Exchange Regulation Act, 1973.

Analysis: The foreign exchange was received from the non-resident himself through normal banking channels, converted by the bank at the prevailing rate, and the equivalent Indian currency was then paid back to the same non-resident. As there was no scope for any compensatory payment or loss of foreign exchange to the country, the transaction did not fall within the mischief of section 9(1)(a).

Conclusion: The charge under section 9(1)(a) was not made out and the finding of contravention was set aside in favour of the appellant.

Issue (iii): Whether acquisition of foreign exchange from persons other than authorised dealers contravened section 8(1) of the Foreign Exchange Regulation Act, 1973 and whether confiscation of the foreign currency was justified.

Analysis: The appellant did not receive the foreign currency through an authorised dealer or offer it for sale through the prescribed channel. Section 71 placed the burden on her to show lawful possession, and that burden was not discharged. The contravention under section 8(1) was therefore sustained. However, the confiscation of Sterling 550 was considered unwarranted because the currency was not obtained in deliberate violation of law and there was no evidence of intended prohibited use.

Conclusion: The finding of contravention under section 8(1) was upheld, but the confiscation of Sterling 550 was set aside.

Final Conclusion: The appeal succeeded in part: the findings under sections 9(1)(b) and 9(1)(a) were annulled, the section 8(1) contravention was maintained, and the confiscation of the foreign currency was removed while the monetary penalties were substantially sustained.

Ratio Decidendi: Section 9 of the Foreign Exchange Regulation Act, 1973 is attracted only where the payment has the character of a compensatory foreign-exchange transaction; where the recipient receives money in her own right and the transaction discloses no possibility of compensatory payment, contravention is not established.

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