Omission of a foreign exchange regulation did not erase past liability, but confiscation required recorded reasons.

Contravention of Regulation 5(1)(iv) of the Foreign Exchange Management (Deposit) Regulations, 2000 sustained penalty against NRNR account holders because the regulatory obligation applied to the account holders as well as the authorised dealer, and later omission of the provision did not extinguish liability for prior breaches. The penalty was therefore upheld under FEMA. Confiscation of the amounts in the accounts, however, was set aside because the authority exercised a discretionary power without recorded reasons showing why penalty alone was inadequate; the non-speaking confiscatory order could not stand, and remand was declined after the lapse of time.

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Issues: (i) Whether contravention of Regulation 5(1)(iv) of the Foreign Exchange Management (Deposit) Regulations, 2000 could sustain penalty against the account holders, notwithstanding that the provision also regulated the authorised dealer and had been omitted later; (ii) Whether confiscation of the amounts lying in the NRNR accounts could be sustained without recorded reasons.

Issue (i): Whether contravention of Regulation 5(1)(iv) of the Foreign Exchange Management (Deposit) Regulations, 2000 could sustain penalty against the account holders, notwithstanding that the provision also regulated the authorised dealer and had been omitted later.

Analysis: Regulation 5(1)(iv), read with Schedule 4, permitted NRNR accounts to be opened only by persons resident outside India and out of funds remitted from outside India through normal banking channels. The obligation was not confined to the authorised dealer alone; the account holder was also bound by the regulatory scheme. Contravention therefore attracted liability under Section 13(1) of the Foreign Exchange Management Act, 1999. The later omission of Regulation 5(1)(iv) did not erase prior violations or prevent proceedings in respect of conduct committed when the regulation was in force. The effect of omission was only prospective and did not nullify accrued liability.

Conclusion: The challenge to the penalty failed. The penalty against the assessees was sustained.

Issue (ii): Whether confiscation of the amounts lying in the NRNR accounts could be sustained without recorded reasons.

Analysis: Confiscation under Section 13(2) of the Foreign Exchange Management Act, 1999 is discretionary and quasi-judicial in nature. The authority must record reasons showing why penalty alone is insufficient and why confiscation is warranted on the facts. Here, neither the Adjudicating Authority nor the Appellate Tribunal gave reasons for confiscating the amounts in the accounts, and the record showed that the loan transaction had been repaid through maturity proceeds with no loss of foreign exchange. A non-speaking confiscatory order could not stand. In view of the long lapse of time, remand was declined.

Conclusion: The confiscation directions were set aside.

Final Conclusion: The regulatory violation and consequent penalty were upheld, but the confiscation of the amounts in the NRNR accounts was annulled for want of reasons.

Ratio Decidendi: A provision omitted from a fiscal or regulatory regime does not obliterate liability incurred for its breach while it was in force, and discretionary confiscation affecting property must rest on recorded reasons demonstrating why penalty alone is inadequate.

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