FERA payment routing and debt settlement to foreign residents can trigger contravention liability; abetment charge failed.

A structured banking route used to make payment to a foreign resident without Reserve Bank permission was treated as a contravention of Section 9(1)(a) of FERA, and officers were liable where they actively participated and did not rebut the statutory presumption of culpable mental state. Settlement of service charges owed to a foreign company was also treated as an acknowledgment of debt creating a right to receive payment outside India, amounting to contravention of Section 9(1)(c) with corresponding officer liability under Section 68(1). By contrast, the separate abetment charge under Section 64(2) read with Section 8(1) was not sustained, so the related penalties were set aside.

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Issues: (i) whether payment routed through bank drafts and credited through non-resident accounts amounted to contravention of Section 9(1)(a) of the Foreign Exchange Regulation Act, 1973 and attracted liability of the company and its officers under Section 68(1); (ii) whether settlement of the service charges created an acknowledgment of debt so as to constitute contravention of Section 9(1)(c) of the Foreign Exchange Regulation Act, 1973 and corresponding liability of the officers under Section 68(1); (iii) whether the charge of abetment under Section 64(2) read with Section 8(1) of the Foreign Exchange Regulation Act, 1973 was made out, and whether the related penalties could be sustained.

Issue (i): whether payment routed through bank drafts and credited through non-resident accounts amounted to contravention of Section 9(1)(a) of the Foreign Exchange Regulation Act, 1973 and attracted liability of the company and its officers under Section 68(1)

Analysis: The payment was arranged through bank drafts purchased in India, made payable at Madras branches, and ultimately credited through a foreign bank account without Reserve Bank permission. The arrangement was not a mere banking formality but a deliberate mode of effecting payment to a foreign company resident in the United Kingdom. The conduct of the company and its officers showed participation in the transaction, and the statutory presumption regarding mental state was not rebutted.

Conclusion: The contravention under Section 9(1)(a) stands proved against the company, and the officers are liable under Section 68(1).

Issue (ii): whether settlement of the service charges created an acknowledgment of debt so as to constitute contravention of Section 9(1)(c) of the Foreign Exchange Regulation Act, 1973 and corresponding liability of the officers under Section 68(1)

Analysis: The record showed a settlement of liability for service charges due to the foreign company, and the payment was made in acknowledgement of the outstanding debt. Such acknowledgment created a right to receive payment in favour of a person resident outside India, which fell within the statutory prohibition. The officers were directly involved in the settlement and payment arrangement, and their responsibility for the company's conduct of business was established.

Conclusion: The contravention under Section 9(1)(c) stands proved against the company, and the officers are liable under Section 68(1).

Issue (iii): whether the charge of abetment under Section 64(2) read with Section 8(1) of the Foreign Exchange Regulation Act, 1973 was made out, and whether the related penalties could be sustained

Analysis: The evidence showed direct participation by the appellants in the payment mechanism, but not merely assistance to the foreign company in acquiring foreign exchange. The charge as framed under Section 64(2) for abetment of the foreign company's contravention under Section 8(1) was not made out on the same footing as the direct contravention by the appellants. The penalties imposed for the Section 8(1) charge were therefore not sustainable.

Conclusion: The abetment charge under Section 64(2) read with Section 8(1) fails, and the corresponding penalties are set aside.

Final Conclusion: The liability for contraventions under Sections 9(1)(a) and 9(1)(c) was maintained, but the separate abetment-based penalty relating to Section 8(1) was deleted, resulting in a partial allowance of the appeals and reduction of the total penalties to the pre-deposit amounts adjusted under the order.

Ratio Decidendi: A payment to a foreign resident through a structured banking route without Reserve Bank permission, and a settlement creating a debt in favour of a foreign resident, both amount to contraventions of Section 9 of the Foreign Exchange Regulation Act, 1973, and responsible officers are liable where they actively participate and fail to rebut the statutory presumption of culpable mental state.

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