Mens rea is not required to impose penalties for civil contraventions under FERA.

Following an investigation into an alleged payment network, the respondent gave a statement admitting that he received ₹19,50,000 from an unidentified person on the instructions of his brother, who resided in Hong Kong, and paid it to Girish Rai

The Enforcement Directorate issued a show-cause notice alleging contraventions of Sections 9(1)(b) and 9(1)(d) of the Foreign Exchange Regulation Act, 1973 (FERA).

The Adjudicating Authority found the respondent liable and imposed a penalty of ₹5,00,000

The Appellate Tribunal upheld the finding of contravention but reduced the penalty to ₹15,000, citing the absence of criminal intent, the respondent’s lack of compensation, and his financial circumstances.

The Union of India appealed against that reduction under Section 54 of FERA read with Section 35 of the Foreign Exchange Management Act, 1999

Whether the Tribunal could reduce the penalty on the ground that the respondent lacked mens rea for contravening FERA

Whether the Tribunal was justified in reducing the penalty as disproportionate to the contravention

Sections 9(1)(b) and 9(1)(d) of FERA prohibit the relevant dealings in foreign exchange, while Section 50 authorises the imposition of a penalty for contravention

A penalty for breach of a civil obligation under FERA does not require proof of mens rea; once the contravention is established, the person’s intention is generally irrelevant (Director of Enforcement v. M.C.T.M. Corporation Pvt. Ltd. and Chairman, SEBI v. Shriram Mutual Fund)

Under the proportionality doctrine, a reviewing court may interfere with a penalty where it is so excessive or harsh as to shock the conscience; the penalty must be grossly disproportionate, not merely capable of being reduced (Ranjit Thakur v. Union of India; Coimbatore District Central Cooperative Bank v. Coimbatore District Central Cooperative Bank Employees Association)

The Tribunal upheld the finding that the respondent had contravened FERA, and that finding was not challenged before the High Court

It nevertheless reduced the penalty based on the absence of criminal intent and the respondent’s lack of remuneration. Applying the rule that mens rea is not required for a civil penalty under FERA, the Court held that neither factor justified reducing the penalty

Nor had the Tribunal explained how a ₹5,00,000 penalty for a ₹19,50,000 contravention was so excessive as to shock the conscience; the penalty was therefore not shown to meet the threshold for interference under the proportionality doctrine

It set aside the Tribunal’s order, restored the Adjudicating Authority’s penalty of ₹5,00,000, and directed the respondent to deposit the balance, after credit for any amount already paid, within eight weeks

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