Strict FERA contravention by a bank upheld, but penalty reduced for mitigating circumstances and absence of deliberate mala fides.

A bank was found to have contravened the FERA prohibition on placing funds to the credit of a non-resident by opening and maintaining an account without RBI permission, and absence of mens rea did not avoid liability because the statutory scheme treated the breach on a strict basis and deemed the permission holder to have contravened the provision. However, the penalty was reduced substantially because the bank had disclosed the lapse to the authorities, no deliberate mala fides or wilful non-cooperation was established, the transaction arose in an older regulatory context, and the institution handled public money. The contravention finding was maintained, but the monetary penalty was scaled down.

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Issues: (i) whether the bank contravened section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 and was liable to penalty in view of section 49 of that Act; (ii) whether the penalty imposed on the bank required reduction on the facts of the case.

Issue (i): Whether the bank contravened section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 and was liable to penalty in view of section 49 of that Act.

Analysis: Section 9(1)(e) prohibits a person in or resident in India from placing any sum to the credit of a person resident outside India. The bank had admitted lapses in opening the account for a non-resident entity without RBI permission, and the absence of mens rea did not exonerate the contravention because FERA treated such contraventions on a strict footing and presumed culpable mental state where relevant. At the same time, the liability could not be characterised merely as abetment, because section 49 deems the holder of the permission or licence to have contravened the provision when the statutory conditions are breached.

Conclusion: The bank was held to have contravened the provision and was liable in principle for penalty.

Issue (ii): Whether the penalty imposed on the bank required reduction on the facts of the case.

Analysis: The bank had itself brought the matter to the notice of the RBI and the Enforcement Directorate, deliberate mala fides were not established, and the record did not satisfactorily prove wilful non-cooperation. The lapse occurred in the context of an older transaction period when KYC norms were less stringent and enforcement was less rigorous. Considering these mitigating circumstances and the status of the bank as a public sector institution holding public money, the original penalty was found excessive.

Conclusion: The penalty was reduced substantially to Rs. 5,00,000/-.

Final Conclusion: The finding of contravention was maintained, but the monetary penalty was materially scaled down in view of mitigating circumstances.

Ratio Decidendi: A person or institution holding permission under FERA is deemed to have contravened the statutory condition if that permission is used in breach of the Act, while the quantum of penalty may be moderated where the lapse is non-fraudulent and mitigating circumstances substantially diminish culpability.

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