NRNR account contravention: prior violations remain punishable after omission, but confiscation needs recorded reasons.

Contravention of NRNR account requirements was held to attract penalty against account holders even after the relevant regulatory clause was omitted, because the omission operated prospectively and did not erase earlier violations committed while the provision was in force. By contrast, confiscation of amounts credited to the accounts was set aside because the authority gave no recorded reasons showing why penalty alone was insufficient, and confiscation under the foreign exchange law must be exercised on judicial principles. The record also showed repayment through maturity proceeds and no established foreign exchange loss, which reinforced the absence of a basis for confiscation. Penalty was upheld, but confiscation failed.

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Issues: (i) Whether contravention of the NRNR account requirements under the foreign exchange regulations could attract penalty against the account holders notwithstanding the omission of the specific regulatory clause. (ii) Whether confiscation of the amounts standing to the credit of the NRNR accounts could be sustained without recorded reasons.

Issue (i): Whether contravention of the NRNR account requirements under the foreign exchange regulations could attract penalty against the account holders notwithstanding the omission of the specific regulatory clause.

Analysis: The regulatory scheme permitted NRNR accounts only when opened by a person resident outside India and funded through remittances from outside India. The obligation was not confined to the authorised dealer alone, but extended to the account holder who opened and maintained the account. The later omission of the relevant clause did not erase prior violations already committed when the provision was in force. The effect of the omission was only prospective and did not bar proceedings for earlier contraventions.

Conclusion: Penalty on the account holders was valid and the challenge on this ground failed.

Issue (ii): Whether confiscation of the amounts standing to the credit of the NRNR accounts could be sustained without recorded reasons.

Analysis: Confiscation under the Act is discretionary and must be exercised on judicial principles. An order directing confiscation requires reasons showing why penalty alone is insufficient and why the property should additionally be confiscated. Neither the adjudicating authority nor the appellate tribunal recorded any such reasons, and the record also showed that the loan transaction had been repaid through maturity proceeds, with no loss of foreign exchange established. In these circumstances, the confiscation direction was unsustainable.

Conclusion: The confiscation direction was set aside.

Final Conclusion: The penalty component was upheld, but the confiscation of the amounts lying in the NRNR accounts was invalidated, resulting in only partial relief to the account holders.

Ratio Decidendi: Repeal or omission of a regulatory provision does not extinguish liability for contraventions committed while the provision was operative, and discretionary confiscation under FEMA must be supported by recorded reasons.

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