Receipt of Indian currency via cheque from an NRE account does not constitute a violation of Section 8 FERA.

In brief

The question

1. Whether the receipt of Indian currency via a cheque drawn on an NRE account constitutes a violation of Section 8(1) or Section 8(2) of FERA

The court held

The court answered the primary issue in the negative, holding that no violation of Section 8(1) or 8(2) of FERA was made out

It also directed

The High Court set aside the Appellate Tribunal’s order dated May 29, 2024, and directed the Respondent to refund the deposited penalty amount to the appellant within four weeks

01Facts

The appellant received a cheque for Rs. 30 Lakhs in Indian currency on July 17, 1992, from an NRI, Akbar Veerji

p. 2

The funds originated from Veerji’s Non-Resident External (NRE) account, which had been funded by deposits in US Dollars

p. 2

The Respondent (ED) initiated proceedings alleging that receiving these funds constituted a violation of Section 8(1) of the Foreign Exchange Regulation Act (FERA), 1973.

p. 2

On November 30, 2004, the Adjudicating Authority imposed a penalty of Rs. 5 Lakhs

p. 2

Concurrently, the appellant was prosecuted and subsequently acquitted in criminal proceedings in 2017

p. 2, 9

The Appellate Tribunal upheld the penalty on May 29, 2024, prompting this appeal

pp. 1-2

02Issues

i.1. Whether the receipt of Indian currency via a cheque drawn on an NRE account constitutes a violation of Section 8(1) or Section 8(2) of FERA

p. 4, para 11

ii.2. Whether the appeal was liable to be dismissed for suppression of a prior 2009 High Court order rejecting a challenge to the framing of criminal charges

pp. 7-8, para 20

03Law Applied

Section 2(h) of FERA, which defines "foreign exchange" as foreign currency or instruments payable in foreign currency

pp. 4, para 12-13

Section 8(1) restricts unauthorized persons from dealing (purchasing, borrowing, lending, or transferring) in "foreign exchange"

pp. 4-5, para 15

Section 8(2), which prohibits the conversion of Indian currency into foreign currency (or vice versa) at rates other than those authorized by the Reserve Bank of India

p. 5, 7, para 18

Provisions in the judgment · 1 · Linked ones open on LawLens

Foreign Exchange Management Act, 1999 Section 35

04Reasoning

The court found that Section 2(h) requires an instrument to be payable in foreign currency to qualify as "foreign exchange"; here, the cheque was strictly payable in Indian Rupees

p. 5, para 14

Analyzing Section 8(1), the court held that the provision prohibits dealing in foreign exchange, not receiving Indian currency from an NRE account

p. 6, para 16

It rejected the Tribunal’s reliance on the "Explanation" to Section 8(1), clarifying that the appellant neither opened an account in foreign exchange nor was lent money in foreign exchange

pp. 6-7, para 17

Regarding Section 8(2), the court observed that there was no allegation of currency conversion at an unauthorized rate, rendering the section inapplicable

p. 7, para 19

The court dismissed the "suppression" argument, noting that the 2009 order regarding the framing of charges was superseded by the eventual acquittal and was irrelevant to the merits of the penalty appeal

pp. 8-11, para 21-22

05Holding

The court answered the primary issue in the negative, holding that no violation of Section 8(1) or 8(2) of FERA was made out

p. 11, para 23

The High Court set aside the Appellate Tribunal’s order dated May 29, 2024, and directed the Respondent to refund the deposited penalty amount to the appellant within four weeks

pp. 11, para 24-25

LawLens.Delhi High Court

Original Court PDF