Foreign exchange contravention requires actual dealing or unauthorised currency conversion; Indian-currency cheque from NRE account was not enough.

Receipt of a cheque payable in Indian currency from an NRE account did not amount to dealing in foreign exchange under Section 8(1) of the Foreign Exchange Regulation Act, 1973, because the transaction involved no foreign-currency instrument, no acquisition or transfer of foreign exchange, and no statutory deeming circumstance. Section 8(2) was also inapplicable because there was no conversion between Indian and foreign currency at an unauthorised rate fixed other than by the Reserve Bank. On that basis, the penal action could not be sustained and the impugned order was set aside with consequential refund of the penalty amount.

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Issues: (i) Whether receipt of a cheque in Indian currency from an NRE account amounted to contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973. (ii) Whether the transaction attracted Section 8(2) of the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether receipt of a cheque in Indian currency from an NRE account amounted to contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Analysis: Section 8(1) prohibits purchase, acquisition, transfer, lending, exchange or other dealing in foreign exchange, and its Explanation deems lending where foreign exchange is deposited with another person or an account in foreign exchange is opened with another person. The expression has to be applied to the actual transaction alleged. The cheque received by the appellant was payable only in Indian currency, and there was no allegation that he dealt in foreign exchange, acquired foreign exchange, or received a foreign-currency instrument. The deeming Explanation was held inapplicable because there was no allegation that the appellant had opened or held an account in foreign exchange or had been lent foreign exchange in the statutory sense.

Conclusion: Receipt of Indian currency from the NRE account did not constitute a violation of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Issue (ii): Whether the transaction attracted Section 8(2) of the Foreign Exchange Regulation Act, 1973.

Analysis: Section 8(2) applies where a transaction provides for conversion of Indian currency into foreign currency, or foreign currency into Indian currency, at rates other than those authorised by the Reserve Bank. In the present transaction, there was no allegation of conversion between currencies at any unauthorised rate. The mere receipt of a cheque in Indian currency did not satisfy the statutory ingredients of Section 8(2).

Conclusion: Section 8(2) of the Foreign Exchange Regulation Act, 1973 was not attracted.

Final Conclusion: The penalty and the appellate affirmation could not stand because the statutory elements of contravention were not established on the admitted facts, and the impugned order was set aside with consequential refund of the penalty amount.

Ratio Decidendi: Mere receipt of Indian currency from an NRE account does not amount to dealing in foreign exchange under Section 8(1) of the Foreign Exchange Regulation Act, 1973, and Section 8(2) applies only where there is conversion of currency at an unauthorised rate.

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