Abetment in foreign exchange transfers upheld, but disproportionate penalty was reduced after review of the contravention

Instructions issued by a party that cause authorised dealers to make transfers to non-resident convertible rupee accounts from non-convertible rupee funds can amount to abetment of foreign exchange law contravention, particularly where the payments fall outside the governing bilateral trade and banking framework. The adjudicatory proceeding treated the presumption of culpable mental state as applicable and rejected the defence that responsibility rested only with the banks. The Tribunal upheld liability but found the penalty disproportionate and reduced the monetary sanction substantially.

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Issues: (i) Whether the appellant was liable for contravention of the foreign exchange law by abetting the authorised dealers in making impermissible transfers to non-resident convertible rupee accounts; (ii) Whether the penalty imposed was excessive and required reduction.

Issue (i): Whether the appellant was liable for contravention of the foreign exchange law by abetting the authorised dealers in making impermissible transfers to non-resident convertible rupee accounts.

Analysis: The transactions were made on the appellant's instructions and resulted in credits to non-resident convertible rupee accounts from non-convertible rupee funds maintained in India. The bilateral trade and banking arrangements required payments to be effected only in non-convertible Indian rupees and within the framework of the arrangement between India and the USSR. The appellant's conduct was found to have initiated and facilitated the prohibited transfers, and the presumption relating to culpable mental state was treated as applicable in the adjudicatory proceeding. The defence that the Indian banks alone bore responsibility was rejected.

Conclusion: The charge of abetment and contravention was established against the appellant.

Issue (ii): Whether the penalty imposed was excessive and required reduction.

Analysis: Although the contravention was upheld, the amount of penalty was found to be disproportionate in the circumstances of the case. The Tribunal therefore interfered with the quantum and substituted a substantially lower penalty to meet the ends of justice.

Conclusion: The penalty was reduced from Rs. 7,67,45,000/- to Rs. 75,00,000/-.

Final Conclusion: The appeal failed on liability but succeeded on penalty, resulting in modification of the impugned order by reducing the monetary sanction.

Ratio Decidendi: A party that, while being bound by a restrictive payment arrangement, itself issues instructions causing prohibited transfers to be made through authorised dealers can be held liable for abetment, and the penalty may be reduced where it is found disproportionate to the proved contravention.

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