Section 6(4) FEMA protects only legitimately substantiated foreign funds; breach of foreign exchange rules found, penalty reduced.

Section 6(4) of the Foreign Exchange Management Act permits a resident to hold, transfer or invest foreign currency acquired while non-resident only if the funds are legitimately acquired and duly substantiated; unexplained or illegitimate funds fall outside its protection. On the facts, transfer messages, cash and fragmented receipts, and uncorroborated third party explanations led to rejection of the appellant's claim under that provision. Factual findings that receipts were not appellant's salary, were in cash and in parts, and were afterthoughts sustain contravention of the foreign exchange provisions; the tribunal nevertheless reduced the monetary penalty on mitigating grounds.

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Issues: (i) Whether a person resident in India can hold, transfer or invest foreign currency acquired while resident outside India under Section 6(4) of the Foreign Exchange Management Act, 1999 and whether that provision applies to the transactions in question; (ii) Whether contravention of Section 3(a) read with Section 4 of the Foreign Exchange Management Act, 1999 is established on the facts and what penalty is appropriate.

Issue (i): Whether Section 6(4) of the Foreign Exchange Management Act, 1999 permitted the Appellant, a person resident in India, to hold and transfer US$1.28 lakhs acquired while he was a non-resident.

Analysis: Section 6(4) allows a person resident in India to hold, own, transfer or invest foreign currency acquired when resident outside India or inherited from such a person. The provision does not protect funds that are illegitimate or unexplained. The material showed the funds were described in transfer messages as proceeds of sale of bonds, were received in cash and in parts, and the explanation that the funds belonged to a third party was found uncorroborated and an afterthought on the record.

Conclusion: Section 6(4) of the Foreign Exchange Management Act, 1999 does not cover the Appellant's transactions on the found facts; the provision is not applicable to protect the transfers in question.

Issue (ii): Whether contravention of Section 3(a) read with Section 4 of the Foreign Exchange Management Act, 1999 is established and what penalty should be imposed.

Analysis: The adjudicating authority's findings that the funds did not originate from the Appellant's salary abroad, that receipts were in cash and in parts, that supporting documents and third-party statements were afterthoughts, and that transfers were routed through the Appellant's non-resident account were accepted. Those factual findings sustain contravention of Section 3(a) read with Section 4. Considering the facts and circumstances and the Appellant's partial pre-deposit, the Tribunal exercised discretion to reduce the monetary penalty.

Conclusion: Contravention of Section 3(a) read with Section 4 of the Foreign Exchange Management Act, 1999 is established against the Appellant; however, the penalty is reduced to Rs. 1.5 lakhs and any pre-deposit shall be adjusted against the reduced penalty.

Final Conclusion: The appeal is partly allowed by upholding the finding of contravention but reducing the penalty to Rs. 1.5 lakhs; the reduced penalty reflects mitigation while affirming the substantive breach of FEMA provisions.

Ratio Decidendi: Section 6(4) of the Foreign Exchange Management Act, 1999 permits holding or transfer of foreign currency acquired while resident outside India only where the funds are legitimately acquired and duly substantiated; unexplained or illegitimate funds are not protected by that provision.

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