FERA violation involving joint bank accounts and service by affixation affirmed, penalty reduced for joint account holder

Violation of foreign exchange law concerned liability of a joint account holder for illegal foreign currency deposits and service of notices by affixation under procedural rules; service by affixation at the last known address was held effective, and delayed communication was condoned. The joint account holder was not found to be an active participant on record, prompting mitigation of the penalty; banks failed to exercise required due diligence and were penalized. Consequentially, the appeal was partly allowed and the monetary penalty on the appellant was reduced.

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Issues: (i) Whether penalty imposed for contravention of Section 8(1) of FERA on the Appellant is justified and, if so, whether the quantum of penalty requires modification.

Analysis: The Appellant jointly held two NRE accounts in which repeated deposits of foreign exchange were made in amounts below US$10,000 across 1992-1994. Transaction patterns, absence of documentation proving that the foreign exchange was brought from abroad, and bank records showing frequent deposits supported a finding of acquisition of foreign exchange without prior permission. The service of show-cause notices and call notices by affixation at the last known address was recorded. The Appellant's contention of lack of knowledge of transactions was weighed against her status as joint account-holder and the failure of banks to exercise due diligence; the banks were also held liable on the facts. The Tribunal found that, while violation of Section 8(1) of FERA was established, there was no material to show active participation by the Appellant in the contraventions at the same degree as the primary noticee.

Conclusion: (i) Penalty for breach of Section 8(1) of FERA is established against the Appellant but the quantum is reduced. The Appeal is partly allowed by reducing the penalty on the Appellant to Rs. 3,00,000/-.

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