Court Finds No Violation of FERA Provisions in Receipt of Funds from NRE Account; Orders Refund of Penalty
In a significant judgment, the Delhi High Court has set aside the penalty of Rs. 5 lakhs imposed on Prakash Chandra Yadav by the Directorate of Enforcement for allegedly contravening the provisions of the Foreign Exchange Regulation Act, 1973 (FERA). The High Court ruled that the receipt of Rs. 30 lakhs in Indian currency from a Non-Resident External (NRE) account does not constitute a violation of Sections 8(1) or 8(2) of FERA in the absence of evidence of unauthorized dealing in foreign exchange or conversion.
The bench, comprising Justices Navin Chawla and Ravinder Dudeja, was hearing an appeal filed by Yadav challenging the order dated May 29, 2024, passed by the Appellate Tribunal for Foreign Exchange, which upheld the penalty. The Directorate of Enforcement had initiated proceedings against Yadav, alleging contravention of FERA following a transaction involving an NRE account opened by Akbar Veerji, an NRI, at Canara Bank. The case revolved around the transfer of Rs. 30 lakhs to Yadav's account from Veerji's NRE account, which was funded by foreign currency deposits.
The High Court examined the provisions of FERA, particularly Sections 8(1) and 8(2), and concluded that the transaction did not involve any dealing in foreign exchange or unauthorized conversion rates. The court emphasized that the funds were received in Indian currency, and there was no evidence of foreign exchange lending or dealing, as prohibited under Section 8(1). Furthermore, the transaction did not contravene Section 8(2), which restricts conversion of currencies at unauthorized rates, as there was no exchange of foreign currency into Indian currency.
The court also noted that Yadav was acquitted in the criminal prosecution related to the same transaction due to lack of evidence of any foreign exchange violation. The tribunal's interpretation of the FERA provisions was deemed incorrect, and the High Court corrected this misinterpretation, thereby setting aside the penalty order.
This judgment underscores the importance of strict and accurate interpretation of statutory provisions. The High Court's decision to refund the penalty amount to Yadav marks a significant victory, reaffirming the protection of individuals from unjust penalties when statutory provisions are misapplied.
Bottom line:-
Foreign Exchange Regulation Act, 1973 (FERA) - Receipt of money in Indian currency from a Non-Resident External (NRE) account does not amount to violation of Section 8(1) or Section 8(2) of the FERA in the absence of evidence of dealing in foreign exchange or conversion at unauthorized rates.
Statutory provision(s): Foreign Exchange Regulation Act, 1973 Sections 8(1) and 8(2), Foreign Exchange Management Act, 1999 Section 35, Foreign Exchange Regulation Act, 1973 Section 54
Prakash Chandra Yadav v. Directorate of Enforcement, (Delhi)(DB) : Law Finder Doc id # 2892963
