Contravention of foreign exchange rules for offshore import payments -- tribunal reduces penalty to proportionate amount after delay and predeposit

Alleged contravention of foreign exchange rules for routing import payments outside authorised dealers without prior RBI approval was treated as breach; tribunal applied appellate discretion and proportionality to reduce penalty, noting long delay, partial pre-deposit payment, and practical recovery inability, and directed reduction of penalty to 50% for one appellant while maintaining the penalty for others. The tribunal relied on comparative reasoning with a similar transaction chain involving redirected import payments and held that proportional reduction to the amount already paid was appropriate as a mitigating consequence.

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Issues: (i) Whether contraventions under Section 3(b) of the Foreign Exchange Management Act, 1999 (FEMA) were made out in respect of the transactions described and confirmed by the Special Director (Appeals); (ii) Whether the quantum of penalty imposed by the Adjudicating Authority and affirmed by the Special Director (Appeals) is disproportionate and requires interference.

Issue (i): Whether contraventions under Section 3(b) of FEMA, 1999 were established for the transactions described in the adjudication and appeal records.

Analysis: The Tribunal considered the recital of facts in the impugned order and the Special Director (Appeals)'s findings (paras 6.2.1 and 6.2.2) describing adjustments and transfers of foreign-exchange-linked payments among parties without routing through authorised dealers or obtaining RBI permission. The record showed transactions involving set-off of amounts and transfers of rough diamonds resulting in alleged dealing in foreign exchange outside authorised channels. The appellants did not press for a reversal of the contravention findings before the Tribunal, instead seeking reduction in penalty.

Conclusion: The findings of contravention under Section 3(b) of FEMA, 1999 as recorded by the Adjudicating Authority and affirmed by the Special Director (Appeals) are treated as established for the purposes of these appeals.

Issue (ii): Whether the penalty quantum imposed required interference on grounds of disproportionality.

Analysis: Having regard to the age of the matters, partial payment already made by appellants pursuant to pre-deposit directions, inability of the respondent to recover the balance in the intervening period, and the appellants' election before the Tribunal to seek relief only on proportionality of penalty, the Tribunal examined the fitness of reducing the monetary sanction. The Tribunal did not re-adjudicate the merits of contravention but focused on quantum and equity in disposal.

Conclusion: The Tribunal interfered with the penalty quantum only and reduced the penalty to 50% of the amount imposed by the Adjudicating Authority (equivalent to the amount already paid pursuant to pre-deposit) for the appellants, while maintaining the established contraventions.

Final Conclusion: The appeals are disposed of by confirming the contraventions under Section 3(b) of FEMA, 1999 and by moderating the monetary sanction; interference is limited to reducing the penalty quantum to 50% of the originally imposed amount in the interests of equity and final settlement.

Ratio Decidendi: Transactions constituting dealing in foreign exchange without routing through authorised dealers or without RBI permission fall within Section 3(b) of FEMA, 1999, and where contraventions are treated as established but equitable considerations (age of matter, pre-deposit paid, and recovery failure) apply, a Tribunal may lawfully moderate the penalty quantum to achieve proportionality.

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