Bank penalized for unauthorized foreign transfers without RBI permission despite funds being returned later

The Appellate Tribunal under SAFEMA upheld contraventions of the Foreign Exchange Management Act 1973 by a bank and its officers for repeatedly transferring non-convertible amounts outside India without RBI permission. Despite the bank's argument that funds were subsequently returned, the Tribunal found negligence established through multiple unauthorized transfers. While confirming the violations, the Tribunal reduced penalties from Rs.65 lakhs to Rs.30 lakhs for the bank and from Rs.10 lakhs to Rs.3 lakhs for individual officers, finding the original penalties disproportionate to the contraventions.

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Issues:
- Challenge to penalty imposed under the Foreign Exchange Management Act, 1999
- Allegation of contravention of provisions of the Foreign Exchange Regulation Act, 1973
- Negligence vs. connivance of appellants
- Adjudicating Authority passing order without ED's representation
- Justification of penalty imposed

Analysis:

The judgment pertains to a batch of appeals challenging an order passed under the Foreign Exchange Management Act, 1999. The appellants, including a bank and its employees, were penalized for contravening provisions of the Foreign Exchange Regulation Act, 1973 by allowing non-convertible funds to be transferred and made convertible without permission. The bank account in question belonged to a person who initially claimed to be a resident of Libya but later resided in India. The appellants argued that the transfer was inadvertent due to the account holder's change in status. However, the authorities found negligence on the part of the appellants for allowing the conversion of non-convertible funds. The appellants contended that no loss occurred as the funds were brought back, but the contravention of the law remained. The High Court's judgment limited the case to negligence. The Adjudicating Authority imposed penalties, which the appellants challenged on various grounds.

The appellants argued that the penalty was excessive considering the inadvertent nature of the transfer and the subsequent return of the funds. They also contended that the Adjudicating Authority acted as a judge of its own cause by not involving the ED in the proceedings. However, the Tribunal found that the Authority considered all aspects of the case and did not overstep its jurisdiction. The penalty was deemed disproportionate to the contravention, leading to a reduction in the amount imposed. The Tribunal reduced the penalty from Rs. 65 lakhs to Rs. 30 lakhs on the bank and from Rs. 10 lakhs to Rs. 3 lakhs on individual appellants. As the pre-deposit requirements were already met by the appellants, no further amounts were deemed recoverable. The appeals were disposed of accordingly.

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