FERA penalties must be reasoned and proportionate; falling within the statutory maximum alone is insufficient.

M/s Intersales was originally a partnership firm constituted in 1986 by Rajiv Chachra and his mother, Pushpa Chachra, for exporting garments. The partnership was dissolved in August 1998, after which Rajiv Chachra allegedly took over the business as a sole proprietorship concern.

The Enforcement Directorate alleged that the appellants failed to realise export proceeds totalling US$62,256.50 under six Guaranteed Remittance Forms, without obtaining the requisite extension or permission from the Reserve Bank of India, thereby contravening Sections 18(2) and 18(3) read with Section 68(1) of the Foreign Exchange Regulation Act, 1973 (FERA).

The Adjudicating Authority imposed penalties of Rs.25,00,000 on M/s Intersales and Rs.2,50,000 each on Rajiv Chachra and Pushpa Chachra under Section 50 of FERA.

On appeal, the Appellate Tribunal held that two of the relevant G.Rs. had already been adjudicated in an earlier proceeding and that one G.R. had been written off by the RBI. It nevertheless sustained the Rs.25,00,000 penalty on the firm in respect of the remaining three G.Rs., while setting aside the individual penalties.

Section 50 of FERA authorised imposition of a penalty “not exceeding five times” the amount or value involved in the contravention, thereby conferring a discretion rather than mandating the maximum penalty.

The Court held that such discretion must be exercised reasonably, judicially, and proportionately, with reasons supporting both the decision to impose the penalty and its quantum.

Applying the doctrine of proportionality, the Court relied on Coimbatore District Central Cooperative Bank v. Coimbatore District Central Cooperative Bank Employees Association, which permits judicial interference where administrative action is improper, irrational, unreasonable, or excessively onerous.

It also relied on Excel Crop Care Ltd. v. Competition Commission of India, Special Director, Directorate of Enforcement v. Jaipur IPL Cricket Pvt. Ltd., Mrs. Sudershan Boury v. Director of Enforcement, Fuji Bank Ltd. v. Special Director of Enforcement, Marubeni India P. Ltd. v. Special Director of Enforcement, and Sunita Mehta v. Special Director, Enforcement Directorate, for the principles that penalty is discretionary, must be based on relevant factors, and cannot be sustained where the authority gives no justification for the quantum imposed.

The Court further noted that the maximum statutory limit does not, by itself, validate the penalty.

The Court confined its examination to the legality and proportionality of the penalty because the appellants did not dispute the underlying contraventions concerning G.Rs. Nos. 1, 5 and 6.

Although the original penalty of Rs.25,00,000 had been imposed by considering contraventions relating to additional G.Rs., the Tribunal subsequently excluded G.Rs. Nos. 2 and 3 because they had already been adjudicated, and recognised the RBI’s write-off concerning G.R. No. 4.

Despite this substantial reduction in the amount of contravention, the Tribunal retained the original penalty and merely stated that it was not harsh or excessive, without explaining the basis for the quantum.

The High Court held that this failed to satisfy the requirement of reasoned and proportionate exercise of discretion under Section 50.

Considering the earlier Rs.1,00,000 penalty for US$17,460 and the remaining contravention of US$44,796.50, the Court found the Rs.25,00,000 penalty manifestly disproportionate in the absence of supporting reasons.

Given the considerable passage of time since the transactions and the prior orders, the Court considered a remand undesirable and determined the appropriate penalty itself.

Instead of remanding the matter, it substituted the penalty with Rs.3,00,000, applying the comparative yardstick reflected in the earlier adjudication and the amount of the remaining contravention.

The appeal was accordingly allowed in part, with no order as to costs.