Prakash Chandra Yadav v. Directorate of Enforcement

What happened

The appeal under section 35 of FEMA read with section 54 of FERA challenged the Tribunal's order of 29 May 2024 in Appeal No. FPA-FE-311/DLI/2005, which upheld the Adjudicating Authority's order of 30 November 2004 imposing a penalty of ₹5 lakh for alleged contravention of section 8(1) of FERA. The allegation was that Akbar Veerji, a non-resident Indian, opened an NRE account with Canara Bank in July 1992 with deposits of US$500 and US$10,000 in cash and US$1,39,000 by foreign inward remittance, and issued a cheque for ₹30 lakh to the appellant on 17 July 1992. Proceedings under section 50 and a prosecution were initiated; by an order of 30 November 2017 in CC No. 42/1/14 (Enforcement v. Nemi Chand Jain & Ors.), the ACMM, Patiala House Courts acquitted the appellant. The Directorate of Enforcement said the appeal should be dismissed for suppression of the High Court's order of 6 April 2009 in Crl. Rev. P. 146/2007 rejecting a challenge to the framing of charge, and that a loan agreement dated 3 July 1992 showed the appellant knew the money came from an NRE account. The Tribunal relied on the Explanation to section 8(1) and also on section 8(2).

Questions before the court

• Does receiving rupees by cheque from a non-resident's NRE account contravene section 8(1) or 8(2) of FERA?

Why the court ruled this way

It was undisputed that the cheque of ₹30 lakh was drawn on the NRE account, funded in dollars, and payable in Indian currency (paragraph 10). Foreign exchange under section 2(h) means foreign currency and instruments payable in foreign currency, and the cheque was payable only in Indian currency (paragraphs 13 and 14). Section 8(1) prohibits dealing in foreign exchange by purchase, acquisition, borrowing, sale, transfer, lending or exchange, and the allegation here was of receiving rupees from an NRE account, which cannot amount to such a violation (paragraphs 15 and 16). The Explanation deems a person who deposits foreign exchange with another person or opens a foreign-exchange account with another to lend foreign exchange; here there was no allegation that Akbar Veerji opened such an account with the appellant or lent foreign exchange, so the Tribunal's reading was wrong (paragraph 17). Section 8(2), which bars conversion of currency at rates other than those authorised by the Reserve Bank, had no application as there was no allegation of conversion at all (paragraphs 18 and 19). The earlier order rejecting the challenge to the charge was not relevant and its non-disclosure could not cause dismissal (paragraphs 20 to 22).

Controlling point

Violation of section 8(1) or 8(2) of FERA was not made out on the facts alleged against the appellant.

Order and next steps

The Tribunal's order of 29 May 2024 was set aside and the appeal allowed. The penalty deposited was to be refunded to the appellant within four weeks, and there was no order as to costs.

Practical implications

A person who received only rupees from a non-resident's account and did not deal in foreign currency can resist a FERA penalty by showing the money was paid in Indian currency with no foreign-exchange account or conversion involved.

Limits of this ruling

• The ruling decides only that the facts alleged did not amount to a contravention; the earlier criminal charge was rejected in revision in 2009, and the Court said nothing about proof of the source of the funds.