Deemed liability under FEMA cannot survive once the firm's contravention is finally set aside; partner's penalty and confiscation fall.

Section 42 of the Foreign Exchange Management Act, 1999 imposes deemed liability on a firm and on persons in charge of its business only where contravention by the firm is first established. Here, the firm's liability had already been set aside and that decision had attained finality after further appeals were dismissed. On that basis, the Tribunal held that the partner's derivative liability could not survive independently on the same allegations, and the penalties and confiscation against him were unsustainable. The impugned penalty and confiscatory orders were therefore quashed, and the seized amounts and pre-deposit were ordered to be released in the appellant's favour.

---

---

Issues: Whether, after the firm's liability under FEMA had been set aside and attained finality, the penalty and confiscatory consequences could continue against a partner invoking Section 42 of the Foreign Exchange Management Act, 1999.

Analysis: Section 42 of the Foreign Exchange Management Act, 1999 applies the principle of deemed liability to a firm and to the persons in charge of its business, but only where contravention by the firm is first established. The Tribunal noted that the earlier appellate order had quashed the impugned order against the firm and other noticees and that the High Court had dismissed the further appeals, rendering that decision final. On that footing, the partner's liability could not survive independently when the firm itself had been exonerated on the same set of allegations. The Tribunal therefore treated the impugned penalties and confiscation orders against the appellant as unsustainable.

Conclusion: The penalty and confiscation imposed on the appellant were quashed and the seized amounts and pre-deposit were directed to be released in his favour.

Final Conclusion: The appeal succeeded, and the appellant was relieved from the penalties and confiscatory consequences arising from the impugned order.

Ratio Decidendi: Liability under Section 42 of the Foreign Exchange Management Act, 1999 is contingent on a proved contravention by the firm or company, and once the principal entity's contravention is finally set aside, the derivative liability of the partner or person in charge cannot be sustained.

---