Foreign exchange deposits are not necessarily loans, but unused foreign exchange must be sold without delay to an authorised dealer.

A deposit of unspent foreign exchange in a current account with foreign bank branches was held not to be lending within section 4(1) of the Foreign Exchange Regulation Act, 1947, because the arrangement was only for safekeeping and the traveller's own use, not a loan. By contrast, foreign exchange acquired for a specific purpose had to be used for that purpose, and any unutilised balance had to be sold without delay to an authorised dealer. Retaining the unused foreign exchange in bank accounts for years breached section 4(3), so liability remained only for that statutory default.

---

---

Issues: (i) Whether depositing unspent foreign exchange in current accounts with foreign bank branches amounted to lending foreign exchange to a non-authorised dealer so as to contravene section 4(1) of the Foreign Exchange Regulation Act, 1947; (ii) Whether the failure to sell unutilised foreign exchange without delay to an authorised dealer contravened section 4(3) of the Foreign Exchange Regulation Act, 1947.

Issue (i): Whether depositing unspent foreign exchange in current accounts with foreign bank branches amounted to lending foreign exchange to a non-authorised dealer so as to contravene section 4(1) of the Foreign Exchange Regulation Act, 1947.

Analysis: A deposit in a bank account ordinarily creates a debtor-creditor relationship, but it does not necessarily amount to a loan. The legal character of the transaction depends on the terms and purpose of the deposit. Where foreign exchange is kept in a current account merely to be drawn as needed for the traveller's own expenditure, the deposit is only a safekeeping arrangement for use and not a contract of lending within the meaning of section 4(1).

Conclusion: The appellant did not contravene section 4(1) of the Foreign Exchange Regulation Act, 1947.

Issue (ii): Whether the failure to sell unutilised foreign exchange without delay to an authorised dealer contravened section 4(3) of the Foreign Exchange Regulation Act, 1947.

Analysis: Foreign exchange acquired for a particular purpose must be used for that purpose, and any balance that cannot so be used must, without delay, be sold to an authorised dealer. Since the appellant retained the unspent foreign exchange in bank accounts for years instead of disposing of it as required, the statutory obligation under section 4(3) was not complied with.

Conclusion: The appellant contravened section 4(3) of the Foreign Exchange Regulation Act, 1947.

Final Conclusion: Liability was upheld only to the extent of the statutory duty to dispose of unused foreign exchange, while the finding of lending under section 4(1) was set aside, resulting in a reduced penalty.

Ratio Decidendi: A bank deposit kept for the depositor's own use is not necessarily a loan or lending transaction, but unutilised foreign exchange acquired for a specified purpose must be sold without delay to an authorised dealer when it cannot be so used.

---