Strict construction of foreign exchange penalty provisions barred adjudication after compliance with Reserve Bank repatriation directions.

Section 10 of the Foreign Exchange Regulation Act, 1947 was construed as a whole, so penal action could not rest on isolated failure under sub-section (1) without non-compliance with a Reserve Bank direction under sub-section (2). Where repatriation was made after RBI directions, the proposed penalty was unsustainable because the statutory direction had been complied with. The Court also treated the proceeding as penal in nature, requiring strict construction, and noted that absence of mens rea and prior lawful conduct under an accepted remittance policy supported quashing the memorandum and adjudication.

---

---

Issues: Whether the show cause memorandum and the proposed adjudication for alleged contravention of foreign exchange repatriation requirements were legally sustainable when the amount was repatriated after directions of the Reserve Bank of India and the delay was counted from the date of income-tax reassessment.

Analysis: The issue turned on the proper construction of Section 10 of the Foreign Exchange Regulation Act, 1947, read as a whole. The Court held that sub-section (1)(a) could not be isolated from sub-section (2). Where a person fails to comply with Section 10(1), the Reserve Bank of India may issue directions under Section 10(2) to secure receipt of the foreign exchange, and penal consequences under Section 23 arise only upon non-compliance with that statutory direction. On the facts, the Reserve Bank had already directed repatriation and the petitioners complied. The Court further held that the proceeding was penal in nature and required strict construction, and that the absence of mens rea and the petitioners' prior lawful conduct under an accepted remittance policy negatived the proposed penalty basis.

Conclusion: The impugned memorandum and the consequential initiation of adjudication were held unsustainable in law and were quashed.

Final Conclusion: The writ petition succeeded, and the foreign exchange adjudication could not proceed on the basis of delay computed from the reassessment date rather than from non-compliance with the Reserve Bank's direction.

Ratio Decidendi: For contravention of Section 10 of the Foreign Exchange Regulation Act, 1947, the penal process under Section 23 can be invoked only after the Reserve Bank of India exercises its power under Section 10(2) and the direction so issued is not complied with; a penal provision must be construed strictly.

---