1996 (9) TMI 669 - AT - FEMA

Issues Involved:

1. Contravention of Section 49(1) read with Section 7 of the Foreign Exchange Regulation Act, 1973.
2. Liability under Section 68(2) of the Foreign Exchange Regulation Act, 1973.
3. Role and responsibility of the first appellant as the manager.
4. Role and responsibility of the second appellant as the cashier.
5. Admissibility of evidence and statements under Section 40.
6. Practice of accepting Indian currency from foreign naval officers.
7. Quantum of penalty imposed.

Issue-wise Detailed Analysis:

1. Contravention of Section 49(1) read with Section 7 of the Foreign Exchange Regulation Act, 1973:

The Central Cottage Industries Emporium was charged with violating para 19 of the Memorandum of Instructions to Restricted Money Changers by accepting payment in Indian currency from foreign customers, thereby contravening Section 49(1) read with Section 7 of the Act. The company was found guilty of this charge.

2. Liability under Section 68(2) of the Foreign Exchange Regulation Act, 1973:

Section 68(2) stipulates that if a contravention is committed by a company with the consent, connivance, or neglect of any director, manager, secretary, or other officer, they shall also be deemed guilty. The liability under this section is primary and must be independently established apart from the company's liability.

3. Role and Responsibility of the First Appellant as the Manager:

The first appellant was the manager at the relevant time. The argument was made that he was not responsible for the contravention as he did not handle the transactions directly. The defense argued that the Finance Manager had the responsibility for the Restricted Money Changer Licence. The Board found that the first appellant's role did not involve direct handling of the currency transactions and thus could not be held liable under Section 68(2).

4. Role and Responsibility of the Second Appellant as the Cashier:

The second appellant, as the cashier, received the payment in Indian currency, directly contravening the provisions. The Board found that the contravention took place with his consent, as he was the one who accepted the payment. However, considering the practice of accepting Indian currency from naval personnel, the Board decided that the action was not a deliberate act for personal gain and thus did not warrant a penalty.

5. Admissibility of Evidence and Statements under Section 40:

The statements made by the appellants under Section 40 were scrutinized. The first appellant's statement did not indicate any direct involvement or knowledge of the contravention. The second appellant's statement did not absolve him of liability, as it was established that he received the payment in Indian currency.

6. Practice of Accepting Indian Currency from Foreign Naval Officers:

The defense argued that it was a common practice for naval officers to pay in Indian currency, which was provided by their employers' agents and adjusted in their salaries. This practice was brought to the attention of the RBI, and the company's licence was not revoked, indicating that the RBI did not consider it a severe contravention.

7. Quantum of Penalty Imposed:

The penalty of Rs. 15,000 each on the appellants was challenged. The Board found that while the second appellant was involved in the contravention, the penalty was not warranted due to the bona fide nature of the act. The first appellant was found not liable under Section 68(2), and thus the penalty on him was set aside.

Conclusion:

The appeal of the first appellant was allowed, and the impugned order was set aside against him. The appeal of the second appellant was partly allowed; while the finding of contravention was upheld, the penalty imposed on him was set aside. The Board emphasized the need for the RBI to issue clear directions regarding the acceptance of Indian currency from foreign naval personnel.

← Previous Next →