Foreign exchange contravention requires proof of dealing or unauthorised conversion; mere receipt of rupees from NRE account is insufficient.

Receipt of Indian rupees from an NRE account did not constitute contravention of section 8(1) or section 8(2) of the Foreign Exchange Regulation Act, 1973. The court noted that section 8(1) targets dealings in foreign exchange, including purchase, acquisition, transfer, lending or exchange, and its Explanation cannot be extended to a mere receipt of Indian currency. Section 8(2) also was not attracted because there was no unauthorised conversion between Indian currency and foreign currency at an impermissible rate. In the absence of proof of dealing in foreign exchange or an unauthorised conversion transaction, the penalty could not stand.

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Issues: Whether receipt of an amount in Indian rupees from an NRE account, on the facts of the case, constituted contravention of section 8(1) or section 8(2) of the Foreign Exchange Regulation Act, 1973.

Analysis: The statutory scheme of section 2(h) of the Foreign Exchange Regulation Act, 1973 shows that foreign exchange includes foreign currency and certain instruments or balances linked to foreign currency, but the operative feature remains the existence of foreign exchange as such. Section 8(1) prohibits dealing in foreign exchange by purchase, acquisition, transfer, lending or exchange, save with permission, while the Explanation deems lending where foreign exchange is deposited with another person or an account in foreign exchange is opened with another person. On the admitted facts, the appellant received only a cheque in Indian currency, and there was no allegation that he dealt in foreign exchange, acquired foreign currency, or received money in a foreign currency instrument. The Explanation could not be expanded to cover a mere receipt of Indian rupees from an NRE account. Section 8(2) also had no application because there was no transaction of conversion of Indian currency into foreign currency or vice versa at an unauthorised rate.

Conclusion: Receipt of Indian rupees from the NRE account did not amount to contravention of section 8(1) or section 8(2) of the Foreign Exchange Regulation Act, 1973, and the penalty was unsustainable.

Ratio Decidendi: A receipt of Indian rupees from an NRE account, without proof of dealing in foreign exchange or of an unauthorised conversion transaction, does not attract sections 8(1) or 8(2) of the Foreign Exchange Regulation Act, 1973.

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