Foreign exchange controls: payments to third parties abroad require prior RBI permission; personal expenses excluded and ignorance is no defence.

The note addresses contravention of the Foreign Exchange Regulation Act, 1947 where payments of foreign exchange to third parties in Singapore without prior Reserve Bank permission fall within Section 5(1)(a), whereas amounts spent personally by the remitter abroad are excluded. It states that ignorance or absence of mens rea does not excuse non compliance with statutory permission requirements. On penalties, it explains Section 23(1)(a) permits fines up to three times the foreign exchange involved and that appellate reduction of penalties is acceptable if within statutory maxima.

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Issues: (i) Whether the appellant contravened Section 5(1)(a) of the Foreign Exchange Regulation Act, 1947 by making payments to persons resident in Singapore without Reserve Bank permission; (ii) Whether the penalty imposed by the Appellate Board is excessive and ought to be reduced.

Analysis: The Court examined admitted facts that the appellant sold property in Singapore and made payments of foreign exchange to third parties (including an advocate and the appellant's stepmother and her children) without obtaining the requisite permission of the Reserve Bank of India. The Court considered prior authority distinguishing amounts spent by a person on himself from payments to third parties, and accepted that amounts spent personally by the appellant in Singapore do not fall within Section 5(1)(a). The Court analysed Section 23(1)(a) which permits imposition of a penalty up to three times the foreign exchange involved and noted the Appellate Board's view characterising the violation as technical. The Court rejected the submission that lack of mens rea or ignorance of the statutory requirement absolved the appellant, applying the principle that ignorance of law is no excuse and that statutory permission requirements cannot be evaded by a claim of unawareness. Having thus separated the personal expenditure (not covered by Section 5(1)(a)) from payments to third parties (covered by Section 5(1)(a)), the Court considered whether interference with the Appellate Board's reduction of penalty from Rs. 20,000 to Rs. 10,000 was warranted, observing that the reduced penalty was well within the statutory limits under Section 23(1)(a).

Conclusion: The Court held that the appellant contravened Section 5(1)(a) of the Foreign Exchange Regulation Act, 1947 in respect of payments made to third parties without Reserve Bank permission; amounts spent by the appellant on himself in Singapore do not attract Section 5(1)(a). The Court declined to interfere with the Appellate Board's reduction of the penalty and dismissed the appeal.

Ratio Decidendi: A payment of foreign exchange to third parties outside India without prior Reserve Bank permission constitutes a contravention of Section 5(1)(a) of the Foreign Exchange Regulation Act, 1947 irrespective of the appellant's lack of mens rea or ignorance of the requirement; penalties imposed under Section 23(1)(a) are subject to the statutory maxima and appellate reduction will not be disturbed if within those limits.

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