Case Note & Summary
The petitioner, M/s. Brentfield Travels Co. Pvt. Ltd., filed a writ petition under Article 226 of the Constitution of India challenging an order dated 22 March 2011 passed by the Deputy General Manager of the Reserve Bank of India (RBI) refusing to compound contraventions of the Foreign Exchange Management Act, 1999 (FEMA). The petitioner had received foreign exchange from the NRO account of two British nationals, Mr. Sayed Abad Ahmed and Mrs. Moya Ahmed, towards equity subscription. The amount of Pound Sterling 57,400 (equivalent to Rs. 49.95 lacs) was remitted to the Bank of India, Madgaon Branch and credited to the NRO/NRE account of the foreign nationals. The petitioner admitted that a mistake was made by remitting the foreign exchange in the individual names of the directors instead of the company's account and sought compounding under Section 15 of FEMA. The RBI, after a personal hearing, rejected the compounding application on the ground that the contraventions were of a sensitive nature requiring further investigation by the Directorate of Enforcement. The court examined Section 15 of FEMA and noted that compounding is a statutory right and the RBI must consider the application on its merits. The impugned order was cryptic and did not provide any specific finding or reasoning. The court quashed the order and directed the RBI to decide the compounding application afresh by a reasoned order within four weeks. The court held that the RBI cannot refuse compounding solely on the ground that the matter requires investigation; it must apply its mind and pass a speaking order.
Headnote
A) Foreign Exchange Management Act - Compounding of Contraventions - Section 15 FEMA, 1999 - Statutory Right - The petitioner sought compounding of contraventions under Section 15 FEMA. RBI refused on ground that contraventions were sensitive and required investigation by Enforcement Directorate. Court held that compounding is a statutory right and RBI must consider the application on merits and pass a reasoned order. The impugned order was quashed and RBI directed to decide afresh. (Paras 1-6) B) Administrative Law - Reasoned Order - Duty to Give Reasons - The impugned order merely stated that contraventions were sensitive and required investigation without any specific finding. Court held that such a cryptic order is unsustainable and RBI must pass a speaking order. (Paras 3-6)
Issue of Consideration
Whether the Reserve Bank of India can refuse to consider a compounding application under Section 15 of the Foreign Exchange Management Act, 1999 on the ground that the contraventions are of a sensitive nature requiring further investigation by the Directorate of Enforcement.
Final Decision
The court quashed the impugned order dated 22 March 2011 and directed the Reserve Bank of India to decide the compounding application afresh by a reasoned order within four weeks from the date of the judgment.
Law Points
- Compounding under Section 15 FEMA is a statutory right
- RBI cannot refuse solely on ground of sensitive nature requiring investigation
- RBI must consider application on merits and pass reasoned order
