Foreign exchange abetment: banks may incur liability when they keep remitting despite known documentary defaults and irregularities.

An appellate tribunal under SAFEMA examined whether banks and their officers could be treated as having abetted foreign exchange contraventions by continuing letters of credit and remittances despite repeated non-submission of Bills of Entry and other documentary deficiencies. It also considered whether banks could avoid responsibility by saying they were bound only to process documents and not verify the underlying import transaction. The tribunal applied the Exchange Control Manual and the Uniform Customs and Practice for Documentary Credits, holding that authorised dealers must exercise due care and comply with banking safeguards; a purely mechanical role was insufficient where persistent defaults and obvious irregularities were known. Continued facilitation of remittances in those circumstances was treated as abetment.

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Issues: (i) Whether the appellant banks and their officers abetted contravention of foreign exchange restrictions by continuing to open letters of credit and remit foreign exchange despite repeated non-submission of Bills of Entry and other documentary deficiencies; (ii) Whether the banks could avoid liability by contending that they were only bound to act on the documents presented and not to verify the underlying genuineness of the import transactions.

Issue (i): Whether the appellant banks and their officers abetted contravention of foreign exchange restrictions by continuing to open letters of credit and remit foreign exchange despite repeated non-submission of Bills of Entry and other documentary deficiencies.

Analysis: The record showed a repeated and continuing pattern of remittances over several years despite the importers' failure to furnish exchange control copies of Bills of Entry, despite reminders, and despite quarterly reporting of defaults. The Tribunal held that the banks were not entitled to keep extending facilities indefinitely once the defaults were known. Continued remittances in the face of persistent non-compliance, together with the handling of transactions involving disputed insurance claims and deficient shipping documents, amounted to facilitation of the contraventions.

Conclusion: The issue was decided against the appellant banks and their officers; the conduct constituted abetment and attracted liability under the foreign exchange law.

Issue (ii): Whether the banks could avoid liability by contending that they were only bound to act on the documents presented and not to verify the underlying genuineness of the import transactions.

Analysis: The Tribunal held that the banks were required to act in accordance with the Exchange Control Manual and the Uniform Customs and Practice for Documentary Credits, which required due care in examining documents and compliance with prescribed banking safeguards. The duty was not limited to mechanical acceptance of papers. Where the documents repeatedly lacked essential particulars and where the banks continued remitting funds despite obvious irregularities and non-submission of Bills of Entry, the plea of mere documentary processing was rejected.

Conclusion: The issue was decided against the appellant banks; they could not rely on a purely ministerial role to escape liability.

Final Conclusion: The Tribunal found no ground to interfere with the adjudication order and upheld the penalties imposed on the appellant banks and the concerned officers, resulting in dismissal of all appeals.

Ratio Decidendi: Where an authorised dealer, with knowledge of repeated non-compliance and documentary irregularities, continues to facilitate foreign exchange remittances, such continued facilitation can amount to abetment of contravention notwithstanding the contention that banks deal only with documents and not goods.

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