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2024 (9) TMI 121 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the adjudication order was vitiated for breach of natural justice by denial of cross-examination and alleged non-supply of relied upon materials; (ii) Whether the retracted statements recorded under the foreign exchange law could be relied upon when corroborated by seized documents and other independent material.

Issue (i): Whether the adjudication order was vitiated for breach of natural justice by denial of cross-examination and alleged non-supply of relied upon materials.

Analysis: The relied upon documents had been made available and inspected by the noticees, and the materials forming the basis of the notice were explained in their own statements. The request for cross-examination was not found necessary because the statements were explanatory of documents recovered during search and the proceedings had already afforded repeated opportunities of hearing. No prejudice was shown from the refusal of cross-examination.

Conclusion: The order was not vitiated on the ground of violation of natural justice, and the denial of cross-examination was justified.

Issue (ii): Whether the retracted statements recorded under the foreign exchange law could be relied upon when corroborated by seized documents and other independent material.

Analysis: A retracted statement is not automatically inadmissible. It can be acted upon when voluntary in character, the retraction is considered, and the statement is supported by independent documentary evidence. Here, the statements were recorded under the foreign exchange law, were considered despite retraction, and stood corroborated by the seized records and other cogent material.

Conclusion: The retracted statements were admissible and could validly be relied upon against the appellants.

Final Conclusion: The challenge to the adjudication failed on merits, as the findings on contravention were supported by material on record and no procedural illegality warranting interference was established.

Ratio Decidendi: A retracted inculpatory statement may be relied upon in adjudication when it is considered along with the retraction and is independently corroborated by documentary evidence, and refusal of cross-examination does not vitiate the order where disclosure of relied upon documents and prior opportunity to explain them have afforded substantial compliance with natural justice.

Retraction and cross-examination in adjudication: corroborated statements remained reliable, and the natural justice challenge failed.
A retracted inculpatory statement may be relied upon in adjudication where it is voluntary, the retraction is considered, and independent documentary material corroborates it; the statements here were supported by seized records and other cogent evidence, so they were admissible. Denial of cross-examination did not vitiate the order because the relied upon documents had been supplied or inspected, the noticees had opportunities to explain the material, and no prejudice was shown. The challenge to the adjudication therefore failed, and the findings of contravention were sustained on the record.

Admissibility of retracted statements - requirement of corroboration for retracted confessions - principles of natural justice - denial of cross-examination - reliance on seized documents and statements recorded under Section 40 FERA - lawful conduct of search and seizureAdmissibility of retracted statements - requirement of corroboration for retracted confessions - Whether retracted statements of the noticees were admissible and could be relied upon in the adjudication proceedings - HELD THAT: - The Tribunal upheld the Adjudicating Authority's view that retracted inculpatory statements are admissible in quasi judicial proceedings provided they are corroborated by independent documentary evidence. The Adjudicating Authority had applied its mind to the subsequent retractions and recorded reasons for accepting the statements. The statements in the present case were explanatory of documents seized during search, and those documents corroborated the statements. Reliance placed upon Supreme Court authorities recognising that retracted confessional statements may be used as corroborative evidence was approved. The Tribunal found no infirmity in treating the retracted statements as admissible given the corroboration and the Adjudicating Authority's recorded consideration of the retractions. [Paras 6, 8]Retracted statements were admissible and properly relied upon as they were corroborated by independent seized documents and the Adjudicating Authority had recorded reasons after considering the retractions.Principles of natural justice - denial of cross-examination - reliance on seized documents and statements recorded under Section 40 FERA - Whether denial of the request for cross examination vitiated the adjudication for lack of fair hearing - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that the noticees had been repeatedly granted opportunities over the long course of proceedings and that the relied upon documents and statements had been supplied to and inspected by the noticees. The Adjudicating Authority concluded that the demand for cross examination was not substantiated by material showing prejudice, and in any event cross examination of a foreign resident witness (allegedly resident in Dhaka) was impracticable. Authorities were noted to the effect that disclosure of documents and opportunity to explain them may constitute substantial compliance with natural justice where cross examination is not demonstrably necessary to avoid prejudice. On the facts the Tribunal found no miscarriage of justice from refusing further cross examination. [Paras 7, 9]Denial of cross examination did not vitiate the proceedings; there was substantial compliance with principles of natural justice because relied upon documents were disclosed and opportunities to be heard had been afforded.Lawful conduct of search and seizure - reliance on seized documents and statements recorded under Section 40 FERA - Whether the search, seizure and identification of seized documents were illegal or rendered the proceedings unsustainable - HELD THAT: - The Adjudicating Authority recorded that searches and seizures were conducted in the presence of independent witnesses and concerned persons who signed the seizure memo and the seized documents. The Tribunal found that these factual findings had been adequately considered and that allegations of fabrication were unsubstantiated by any material. Because the seized documents were produced, inspected by the noticees and explained in statements, the Tribunal found no reason to hold the seizures illegal or to set aside reliance on the seized material. [Paras 6]Search and seizure were held to have been carried out in accordance with procedure and the seized documents could be relied upon.Requirement of proof for allegations of coercion - burden on maker to establish inducement, threat or coercion - Whether allegations that statements were recorded under threat, coercion or torture were established and vitiated the proceedings - HELD THAT: - The Tribunal endorsed the Adjudicating Authority's view that mere allegations of coercion without supporting material were insufficient. It noted the legal principle that the maker of a statement who alleges inducement, threat or coercion must establish such improper means; absent such proof, the authority must still consciously consider retraction but may accept the statement if corroborated. On the record the Adjudicating Authority had considered and rejected the coercion claims in writing and the Tribunal found no error in that approach. [Paras 6, 8]Allegations of coercion were not established and did not vitiate the statements or proceedings.Effect of delay and non cooperation on entitlement to relief - Whether appellants' delay, repeated adjournments and/ or non cooperation warranted intervention in the Adjudicating Authority's conclusion - HELD THAT: - The Adjudicating Authority noted the noticees' pattern of seeking adjournments and the long duration of proceedings; it also recorded lack of co operation by certain noticees during investigation and adjudication. The Tribunal accepted that these factual findings supported the Adjudicating Authority's decision to proceed on available materials after giving multiple opportunities. The appellants' belated attempts to challenge identity of agents or other factual denials without corroboration were held insufficient to upset the adjudication. [Paras 6, 7]Delay and non cooperation did not afford appellants relief; the Adjudicating Authority was justified in deciding on the materials on record.Final Conclusion: The Tribunal found no infirmity in the impugned order: retracted statements corroborated by seized documents were admissible, the refusal to permit further cross examination did not deny principles of natural justice on the facts, searches and seizures were held lawful, and allegations of coercion were unproved. The Appeals are dismissed.

2024 (9) TMI 120 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the appeals were barred by limitation or invalid for want of cognizance within the period preserved under the saving clause; (ii) Whether statements and materials arising from proceedings under other statutes could be relied upon in adjudication under FEMA and the repealed foreign exchange regime; (iii) Whether the transactions amounted to contravention of the foreign exchange restrictions so as to justify the penalties imposed.

Issue (i): Whether the appeals were barred by limitation or invalid for want of cognizance within the period preserved under the saving clause.

Analysis: The challenge based on the sunset period under the foreign exchange transition provisions was rejected on the factual matrix of the case. The adjudication was treated as maintainable in the context of the alleged contraventions under the repealed regime and the continuation of proceedings was not held to be vitiated on that ground.

Conclusion: The limitation challenge failed and was decided against the appellants.

Issue (ii): Whether statements and materials arising from proceedings under other statutes could be relied upon in adjudication under FEMA and the repealed foreign exchange regime.

Analysis: The Tribunal held that adjudication and prosecution operate in distinct fields and that observations in criminal or collateral proceedings under the customs and income-tax regimes were not determinative of the present civil adjudication. It nevertheless considered the record, including statements, shipping documents, valuation materials, and bank-related documents, for the purpose of examining the alleged contraventions independently.

Conclusion: The objection to reliance on collateral proceedings did not succeed.

Issue (iii): Whether the transactions amounted to contravention of the foreign exchange restrictions so as to justify the penalties imposed.

Analysis: The Tribunal found that the same machinery had been exported from India to Singapore and re-exported to India at vastly inflated values without breaking the seal, and that the plea of turnkey supply, software, drawings, and online support did not explain the substantial inflation in invoice values. It accepted that the appellants had used foreign exchange for a purpose different from the one for which it was acquired and that the conduct attracted the restrictions on acquisition and use of foreign exchange. The role of the principal actors and the participating financial institutions was also found to support the contravention.

Conclusion: The penalties and findings of contravention were upheld and the appellants' challenge was rejected.

Final Conclusion: The batch of appeals was rejected after affirming the findings of foreign exchange contravention and the consequent penalties.

Ratio Decidendi: Where foreign exchange is acquired for a specified import purpose but is used to finance an inflated re-import of the same goods on materially different terms, the statutory presumption of misuse applies and adjudicatory liability can be sustained independently of collateral proceedings under other enactments.

Foreign exchange misuse upheld where imported goods were re-exported and re-imported at inflated values.
Limitation objections based on the foreign exchange transition saving clause were rejected on the facts, and the continuation of adjudication under the repealed regime was treated as maintainable. Statements and materials from customs, income-tax, and other collateral proceedings were not treated as determinative, but could still be examined independently in FEMA adjudication. On the merits, the Tribunal found that the same machinery was exported and re-imported at materially inflated values, and that the foreign exchange had been used for a purpose different from the one for which it was acquired. The findings of contravention and the penalties were therefore upheld.

Contravention of Section 8(1), 8(3) and 8(4) read with Section 64(2) of the Foreign Exchange Regulations Act, 1973 - Over invoicing and re export without breaking the container seal as a device to obtain foreign exchange - Liability of financial institutions and authorised dealers for facilitating foreign exchange contraventions - Adjudication proceedings under FERA are independent of criminal prosecution; outcomes in criminal proceedings do not bind civil adjudicationContravention of Section 8(1), 8(3) and 8(4) read with Section 64(2) of the Foreign Exchange Regulations Act, 1973 - Over invoicing and re export without breaking the container seal - Findings on whether the appellants contravened the provisions of the Act of 1973 by re exporting the same machinery from Singapore to India at vastly inflated values for obtaining foreign exchange - HELD THAT: - The Tribunal found on the material on record that consignments exported from India to Singapore were re exported back to India without opening the one time seal and at substantially higher invoice values (multiplication of value to the order of 40 times). Documentary evidence of shipping bills and bills of entry, expert inspection report (showing the imported machinery were not fit to produce the claimed output and were not in conformity with specifications), and valuation/investigation material led to the conclusion that the purported additions (detailed engineering, AutoCAD drawings, software and online support) did not support the inflated re invoice. The appellants' explanations and valuation/inspection procured on their instance failed to establish that the higher invoiced value represented genuine additional services or goods. On these findings the Tribunal concluded that the facts established over invoicing and wrongful realization of foreign exchange and therefore constituted contravention of Section 8(1), 8(3) and 8(4) read with Section 64(2) of the Act of 1973. [Paras 33, 35, 36, 50, 51]Contravention of the cited provisions of the Act of 1973 is established against the relevant appellants; the adjudication findings on over invoicing and re export without opening seals are upheld.Liability of financial institutions and authorised dealers for facilitating foreign exchange contraventions - Aiding and abetting by lessors/financiers in import transactions - Whether Bank of Madura (erstwhile) / ICICI Bank, M/s Sundaram Finance Ltd. and responsible officers shared liability for the contraventions - HELD THAT: - The Tribunal examined the role of the financial institutions in arranging lease finance, filing bills of entry and operating accounts which facilitated the re importation and release of foreign exchange. Evidence showed that lease finance agreements were executed, bills of entry were filed in the names of financing institutions, funds were placed in FCNR deposits and convertible accounts, and authorised signatories of leasing/finance companies participated in import documentation. The Tribunal found that the banks and finance company materially facilitated the transactions that led to release of foreign exchange on inflated invoices and that officials of those institutions had involvement in processing the transactions. While noting earlier divergent findings by the Madras High Court in related criminal proceedings, the Tribunal concluded on the adjudication record that the financial institutions and responsible officers aided the contraventions and were thus liable under the Act of 1973. [Paras 41, 42, 48, 49, 50]Bank of Madura (now ICICI Bank), M/s Sundaram Finance Ltd. and relevant officers are held to have participated in and facilitated the contraventions and are liable in the adjudication proceedings.Adjudication proceedings under FERA are independent of criminal prosecution - Non binding nature of criminal outcomes on civil adjudication under the Act of 1973 - Whether orders/observations in criminal proceedings or collateral appellate decisions bind the adjudication under the Act of 1973 - HELD THAT: - The Tribunal noted conflicting orders in collateral criminal and appellate proceedings but emphasised that adjudication under the Act of 1973 is a distinct civil process separate from criminal prosecution. Reliance was placed on the principle that outcomes in criminal proceedings do not automatically determine adjudicatory liability unless the same material and merits have been marshalled and considered in the same adjudicatory forum. The Tribunal accordingly declined to treat favourable criminal or other collateral orders as dispositive of the adjudication before it, and proceeded to decide the matter on the record and material relevant to the adjudication. [Paras 45, 46, 47]Collateral criminal or appellate outcomes do not bind the adjudication; the Tribunal will decide the adjudicatory issues independently on the record.Final Conclusion: The Tribunal upheld the adjudication findings that the appellants (including corporate entities, individuals and financing institutions) engaged in over invoicing and re export schemes that contravened Section 8(1), 8(3) and 8(4) read with Section 64(2) of the Act of 1973, and dismissed the appeals.

2024 (9) TMI 70 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Knowingly facilitating export cargo diversion while retaining misleading shipping documents amounts to abetment and penalty liability.
A shipping agent who knowingly facilitated diversion of export cargo from the declared destination while keeping shipping documents showing the original destination was treated as an active participant in the contravention of foreign exchange law. The record showed that consignments booked for Moscow were diverted to Dubai, that the bills of lading continued to reflect Moscow, and that freight entries and related documents aligned with the diverted destination. On these facts, the tribunal found active involvement in the exporter's design, held the agent liable for abetment and contravention of the foreign exchange regime and RBI guidelines, and upheld the penalty.

Diversion of export shipment - contravention of Foreign Exchange Regulation Act, 1973 - abetment - Bills of Lading as evidentiary record - RBI guidelines on export shippingDiversion of export shipment - Bills of Lading as evidentiary record - abetment - Whether the appellant actively participated in and abetted diversion of the consignments from the declared destination thereby contravening the Act of 1973 and RBI guidelines. - HELD THAT: - The Tribunal accepted the Deputy Director's finding that the appellant played an active role in diverting the four containers to Dubai despite Bills of Lading showing Moscow as the destination. The decision notes that original Bills of Lading issued by the appellant contained full shipment details and were not cancelled or replaced when diversion occurred; freight was declared for Dubai in Income-Tax returns prior to discharge; delivery orders and discharge records showed vessels bound for Dubai; and the chronology established diversion instructions proximate to sailing. The Deputy Director found these facts to demonstrate that the appellant's actions fitted the exporter's design and facilitated the violation. The Tribunal found the appellant's plea that it merely followed exporter instructions and was unaware of the Scheme to be unacceptable in view of the documentary and chronological evidence, and that the appellant thus abetted the contravention of the Act and RBI guidelines. [Paras 12, 13, 14, 15, 16]The appellant actively participated in and abetted the diversion of the consignments and thereby contravened the Act of 1973 and applicable RBI guidelines.Contravention of Foreign Exchange Regulation Act, 1973 - RBI guidelines on export shipping - Whether the penalty imposed on the appellant for the contraventions should be interfered with. - HELD THAT: - The Tribunal reviewed the Deputy Director's adjudication, which considered the role of the appellant, documentary records (Bills of Lading, delivery orders, Income-Tax returns), and the chronology showing diversion and lower freight declaration for Dubai. Given the finding that the appellant facilitated the exporter's scheme and abetted the contravention, the Tribunal found no reason to interfere with the penalty imposition. The Tribunal upheld the Deputy Director's conclusion that the appellant's conduct warranted the penalty imposed under the Act of 1973. [Paras 1, 6, 17]No interference with the penalty; the imposition of penalty is upheld.Final Conclusion: The appeal is dismissed: the Tribunal affirms the finding that the appellant facilitated and abetted diversion of the consignments in breach of the Act of 1973 and RBI guidelines, and declines to interfere with the penalty imposed.

2024 (9) TMI 69 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Retracted statement needs corroboration before foreign exchange penalty can stand; unproved allegations fail.
A penalty for alleged contravention of foreign exchange law cannot be sustained on a promptly retracted custody statement unless the allegation is independently corroborated by reliable evidence. The record did not reliably prove transfer of foreign exchange to the United Kingdom or purchase of overseas property, as the brother-in-law's account lacked specificity, there were no supporting bank records or documentary proof, and the alleged power of attorney and the father's statement were insufficient. The seized Indian currency by itself did not establish the foreign exchange violation. The contravention was therefore not proved and the impugned penalty order was unsustainable.

Contravention of provisions of the Foreign Exchange Regulation Act, 1973 - proof of transfer of foreign exchange for acquisition of immovable property abroad - retracted statement and corroborative evidence - burden of proof for imposing penalty - confiscation of currency under Section 63 of the Act of 1973Proof of transfer of foreign exchange for acquisition of immovable property abroad - burden of proof for imposing penalty - Whether the penalties imposed for alleged transfer of 70,000 and purchase of immovable property in the UK were sustainable in absence of proof of transfer or executed documents - HELD THAT: - The Appellate Tribunal found that the respondent failed to produce material evidence to prove transfer of 70,000 or execution of documents effecting transfer or purchase of the UK property. The impugned order did not disclose the contents of the seized documents relied upon, and no bank statements or other corroborative material showing remittance were placed on record. The affidavit and document produced by the informant in the UK proceedings indicated ownership in the informant, undermining the respondent's case. The Tribunal reiterated that penalty cannot be imposed without proof of contravention and that mere allegations or unsubstantiated information are insufficient to sustain a penalty under the Act of 1973. [Paras 14, 15, 16]Penalties imposed for alleged transfer and purchase abroad set aside for want of proof.Retracted statement and corroborative evidence - burden of proof for imposing penalty - Whether the statement recorded from the appellant in custody, subsequently retracted the next day, could be relied upon in absence of corroborative evidence - HELD THAT: - The Tribunal noted that the appellant retracted his statement on the next date, and held that a retracted statement may be relied upon only if there is corroborative evidence. In the instant case the respondent produced no independent corroboration establishing the transfer or purchase; the retraction was prompt and the respondent relied primarily on that statement without adducing further proof. Consequently the recorded-and-retracted statement could not sustain the findings of contravention relied upon to impose penalty. [Paras 14]Reliance on the retracted statement without corroboration rejected; it did not support the imposition of penalty.Confiscation of currency under Section 63 of the Act of 1973 - proof of contravention of the Act of 1973 - Whether the seizure and confiscation of Indian currency found on search (Rs.36000) could be treated as clinching evidence of contravention warranting confiscation and penalty - HELD THAT: - The Tribunal observed that the presence of Indian currency seized at the premises could not be treated as conclusive proof of the alleged contravention involving foreign exchange transfer and purchase of foreign immovable property. The respondent neither connected the seized currency to the alleged offence nor produced reliable supporting documentation. Given the overall failure to prove transfer or purchase, the confiscation and its use as a basis for imposing penalties were held to be unsustainable. [Paras 2, 14, 15]Confiscation and its evidentiary weight rejected; it did not justify the penalties.Final Conclusion: The impugned order imposing penalties and confirming confiscation is set aside for want of proof of transfer of foreign exchange or purchase of property abroad, absence of corroborative evidence for the retracted statement, and insufficiency of the seized currency as evidence; the appeal is allowed.

2024 (9) TMI 68 - APPELLATE TRIBUNAL FOR SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the show cause notice and adjudication proceedings were vitiated for want of service and violation of natural justice. (ii) Whether the confiscation of the foreign exchange amount under the Foreign Exchange Regulation Act, 1973 was sustainable on the evidence and unaffected by the outcome of connected prosecution or tax proceedings.

Issue (i): Whether the show cause notice and adjudication proceedings were vitiated for want of service and violation of natural justice.

Analysis: The noticee participated in the adjudication proceedings through counsel, the relied upon documents were furnished, and opportunities were granted for hearing and cross-examination. The record showed that witnesses were made available for cross-examination and that the failure to utilise those opportunities was not attributable to the Authority. The proceedings were also conducted in accordance with the directions of the High Court and the governing statutory framework.

Conclusion: The plea of violation of natural justice was rejected and the proceedings were held to be valid.

Issue (ii): Whether the confiscation of the foreign exchange amount under the Foreign Exchange Regulation Act, 1973 was sustainable on the evidence and unaffected by the outcome of connected prosecution or tax proceedings.

Analysis: The Authority found that the material on record, including bank records, witness statements, and overseas tax enquiry reports, established that the funds standing in the appellant's name were not proved to be her own and that she was only a name lender. It further held that the confiscated amount was directly involved in the contravention under the Act. The Authority also held that adjudication under the foreign exchange law is independent of prosecution, and that the discharge in criminal proceedings and the income-tax findings did not control the confiscation proceedings.

Conclusion: The confiscation order was upheld as lawful and justified.

Final Conclusion: The appeal failed in its entirety and the confiscatory adjudication under the foreign exchange law was sustained.

Ratio Decidendi: Where documentary, circumstantial, and witness evidence establish that the holder of foreign exchange assets is only a name lender, confiscation under the foreign exchange law can be sustained, and parallel criminal or tax proceedings do not bind the adjudicating authority because adjudication and prosecution are independent.

Natural justice and independent foreign exchange adjudication sustained confiscation where evidence showed the holder was a name lender.
Participation in adjudication through counsel, supply of relied-upon documents, and opportunities for hearing and cross-examination were treated as sufficient compliance with natural justice, so the challenge to service and procedure failed. On the confiscation issue, the record of bank material, witness statements, and overseas tax enquiry reports was said to show that the foreign exchange stood in the appellant's name only as a name lender and was directly involved in the contravention. The commentary also states that foreign exchange adjudication is independent of criminal prosecution and tax findings, so discharge and income-tax conclusions did not bind the confiscation proceedings.

Confiscation to Government under Section 63 of FERA - contravention of Section 8(1) of FERA - principles of natural justice in adjudication proceedings - admissibility of statements recorded under Section 40 of FERA - evidentiary value of documentary and circumstantial evidence - distinction between adjudication and criminal prosecutionPrinciples of natural justice in adjudication proceedings - admissibility of statements recorded under Section 40 of FERA - SCN was issued to the appellant and the adjudication proceedings complied with principles of natural justice. - HELD THAT: - The Tribunal found on the record that the Show Cause Notice dated 18.06.1999 and the documents relied upon were furnished to the appellant and her advocates, who participated in the adjudication and made oral submissions. The adjudicating authority conducted hearings, made witnesses available for cross-examination and relied on statements recorded under Section 40 of FERA, which it held to be admissible. The proceedings were also the subject of interim challenges before the Madras High Court, which upheld continuation of adjudicatory proceedings. On these facts the contention of non-issuance of SCN or violation of natural justice was rejected. [Paras 6, 7, 9]The contention of violation of principles of natural justice is rejected and the challenge to the adjudicatory process fails.Confiscation to Government under Section 63 of FERA - contravention of Section 8(1) of FERA - evidentiary value of documentary and circumstantial evidence - The adjudicating authority's finding that the appellant was not the beneficial owner of the foreign currency deposits and that the amount was involved in contravention of Section 8(1) of FERA, warranting confiscation under Section 63, is affirmed. - HELD THAT: - The Tribunal accepted the adjudicating authority's analysis that documentary enquiries (including the Inland Revenue Board, Malaysia report), contradictory claims by the appellant and her husband, absence of corroborative documents for the asserted overseas transactions, evidence of cash deposits, and the routing of funds indicated the appellant was a name-lender and not the beneficial owner. The adjudicator found sufficient documentary and circumstantial evidence to conclude the funds were beneficially for Smt. N. Sasikala and directly involved in contravention of Section 8(1). On that basis the confiscation of the US$ 6,25,000 in the appellant's FCNR accounts under Section 63 was upheld. [Paras 10, 105, 106, 107, 110]The finding that the appellant did not own the funds and that confiscation under Section 63 was justified is upheld.Distinction between adjudication and criminal prosecution - The discharge of Smt. N. Sasikala in criminal prosecution does not bind or invalidate the adjudication under FERA. - HELD THAT: - The Tribunal reiterated that adjudication proceedings under FERA and criminal prosecution are distinct and independent. Reliance on the discharge in prosecution was therefore held not to have a binding effect on the adjudicatory determination; the authorities cited establish that findings in adjudication are separate from prosecution outcomes. [Paras 11]The prosecution discharge does not affect the validity of the adjudication or the confiscation order.Final Conclusion: The appeal is dismissed and the adjudicating authority's order confiscating the impugned foreign currency amount is affirmed.

2024 (8) TMI 667 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues:
Challenge to the order of the Adjudicating Authority confirming retention of incriminating documents and evidence.
Interference in the impugned orders based on discharge from predicate offence.
Validity of proceedings under the Prevention of Money Laundering Act, 2002 after discharge from scheduled offence.
Survival of provisional attachment order and its confirmation.

Detailed Analysis:
The appeal before the Appellate Tribunal challenged the order of the Adjudicating Authority confirming the retention of incriminating documents and digital evidence seized from the appellants' office premises. The appellants had been discharged from the predicate offence, with the closure report submitted before the learned Magistrate leading to no issuance of process. Subsequently, the Special Court discharged the appellants, stating that when the predicate offence ceases to exist, proceedings under the Prevention of Money Laundering Act, 2002 cannot continue. The appellants sought interference in the impugned orders based on this development (paragraph 2).

The appellants relied on the judgment of the Apex Court in a specific case to support their argument that once an accused is discharged from the scheduled offence or acquitted, proceedings under the Prevention of Money Laundering Act, 2002 cannot persist (paragraph 3). The respondent, however, contested this prayer, acknowledging that cognizance for the predicate offence was not taken by the learned Magistrate after the closure report. The respondent argued that the order of the Special Court discharging the appellants could be challenged further, and the provisional attachment order and its confirmation could not survive if the impugned orders were set aside (paragraph 4).

After considering the submissions, the Appellate Tribunal found that due to the orders of the learned Magistrate and the Special Court discharging the appellants from the predicate offence and money laundering offence under the Act of 2002, the provisional attachment order and its confirmation could not stand. The Tribunal's decision was supported by the Apex Court's judgment cited by the appellants (paragraph 5). Consequently, the impugned orders were set aside, and the appeals were allowed, granting the respondents the liberty to seek recall or revival of the appeal if the predicate agency or Enforcement Directorate succeeded in challenging the orders of the Learned Magistrate or the Special Court for the discharge of the appellants (paragraph 6).

Appellate Tribunal Overturns Orders Due to Appellants' Discharge from Offences; Revival Possible if Discharge Challenged.
The Appellate Tribunal set aside the impugned orders, allowing the appeal after determining that the provisional attachment order and its confirmation could not persist due to the appellants' discharge from the predicate and money laundering offences. The Tribunal's decision aligned with the Apex Court's judgment, granting respondents the option to seek revival if the predicate agency successfully challenges the discharge orders.

Discharge of accused in predicate offence - proceedings under the Prevention of Money Laundering Act, 2002 cannot continue if predicate offence ceases - provisional attachment and its confirmation cannot survive - liberty to recall or revive proceedings upon successful challenge by predicate agencyDischarge of accused in predicate offence - proceedings under the Prevention of Money Laundering Act, 2002 cannot continue if predicate offence ceases - provisional attachment and its confirmation cannot survive - Whether the impugned orders retaining seized documents, digital evidence and Indian currency should be set aside in view of the appellants' discharge from the predicate offence and consequent termination of proceedings under the Prevention of Money Laundering Act, 2002. - HELD THAT: - The appellants were discharged in respect of the scheduled/predicate offence by the Magistrate on 20.05.2019 and the Special Court, PMLA, discharged the appellants from money laundering proceedings by order dated 16.12.2022. Relying on the principle affirmed by the Apex Court in Vijay Madanlal Choudhary , the Tribunal accepted that once the accused are discharged in the predicate offence the proceedings under the Prevention of Money Laundering Act, 2002 cannot continue. Consequent upon the termination of the scheduled offence, the foundation for the provisional attachment and its confirmation ceases to exist and therefore those orders cannot be sustained. The Tribunal, while setting aside the impugned orders, recognised that the respondent/predicate agency retains the right to challenge the orders of the Magistrate or the Special Court and accordingly granted liberty to seek recall or revival of these appeals should the predicate agency or Enforcement Directorate succeed in such challenges.Impugned orders set aside and appeals allowed, with liberty to respondent to seek recall or revival if the predicate agency succeeds in challenging the Magistrate's or Special Court's orders.Final Conclusion: The Tribunal set aside the orders confirming retention of seized material and allowed the appeals on the ground that proceedings under the Prevention of Money Laundering Act, 2002 cannot continue after discharge in the predicate offence; liberty granted to the respondent to seek recall or revival if the predicate agency succeeds on challenge.

2024 (8) TMI 726 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the forfeiture proceedings under SAFEMA could be invalidated on the ground that some of the properties had been dealt with in TADA proceedings; (ii) Whether a notice under Section 6 of SAFEMA required the Competent Authority to establish a prior nexus between the detenu's income and the properties sought to be forfeited; (iii) Whether the impugned order was vitiated for breach of natural justice; and (iv) whether forfeiture of the individual properties could be sustained on the facts of each appeal.

Issue (i): Whether the forfeiture proceedings under SAFEMA could be invalidated on the ground that some of the properties had been dealt with in TADA proceedings.

Analysis: The scheme of SAFEMA was treated as distinct from the forfeiture regime under TADA. The earlier decision relied upon by the appellants was held to arise from different statutory provisions and a different factual context, and therefore could not control proceedings under SAFEMA. The pendency of connected proceedings before other fora was also held not to affect the statutory action taken under SAFEMA.

Conclusion: The objection was rejected and the SAFEMA forfeiture action was upheld on this ground.

Issue (ii): Whether a notice under Section 6 of SAFEMA required the Competent Authority to establish a prior nexus between the detenu's income and the properties sought to be forfeited.

Analysis: Sections 6, 7 and 8 of SAFEMA were read together as creating a statutory burden on the person affected to explain the source of acquisition and prove that the properties were not illegally acquired. The Court treated the requirement of recording reasons to believe as sufficient for issuance of notice and held that the statute did not impose an additional obligation to prove a pre-notice link or nexus between the detenu's funds and the properties. The prior authorities cited were understood consistently with that burden-shifting scheme.

Conclusion: The notice under Section 6 was held valid and the challenge on the ground of absence of nexus was rejected.

Issue (iii): Whether the impugned order was vitiated for breach of natural justice.

Analysis: The record showed that the matter was heard by the same Competent Authority that passed the order, and the complaint that the proceedings had been dealt with by different officers was found unsubstantial. No procedural prejudice was established and the grievance was rejected summarily.

Conclusion: No violation of natural justice was found.

Issue (iv): Whether forfeiture of the individual properties could be sustained on the facts of each appeal.

Analysis: On the individual facts, one appellant showed a prior independent source and a decree in her favour predating detention, so forfeiture of that flat was held unsustainable. In the remaining appeals, the appellants failed to establish lawful acquisition or credible source of funds, and in several matters the claimed tenancy or payment arrangements were found insufficient to displace the forfeiture, particularly where the appellants could not prove any genuine source for acquisition or consideration.

Conclusion: Forfeiture was set aside only in respect of Flat No. 604 in the appeal of Abida Mohd. Dossa, and the remaining appeals were dismissed.

Final Conclusion: The statutory forfeiture regime under SAFEMA was upheld in principle, but relief was granted in one appeal on the strength of independent title and prior settlement, resulting in a partial interference with the impugned order.

Ratio Decidendi: Under SAFEMA, a notice under Section 6 can validly issue on the Competent Authority's reason to believe without first proving a nexus between the detenu and the property, because the burden then shifts to the affected person to prove lawful acquisition; SAFEMA operates independently of TADA proceedings and forfeiture will be disturbed only where the claimant establishes a credible independent source or title.

SAFEMA forfeiture turns on burden-shifting and lawful acquisition, with independent title defeating forfeiture on specific facts.
SAFEMA forfeiture proceedings operate independently of TADA proceedings, so parallel or earlier action under TADA does not invalidate forfeiture under SAFEMA. A notice under Section 6 may issue on the Competent Authority's reason to believe without first proving a pre-notice nexus between the detenu's income and the properties, because the statutory burden shifts to the affected person to explain lawful acquisition. Natural justice was not violated on the record. On the individual facts, forfeiture was sustained where lawful source was not proved, but was set aside for one flat where independent title and a prior decree established a credible lawful basis.

Forfeiture of property - Notice under Section 6 of SAFEMA - Burden of proof under Section 8 of SAFEMA - Illegally acquired property - Nexus or link between detenue's income and property - Principles of natural justice - Tenancy rights and effect of forfeiture - Effect of orders under TADA on SAFEMA proceedingsEffect of orders under TADA on SAFEMA proceedings - Forfeiture of property - Applicability of TADA orders and Amina Ahmed Dossa precedent to challenge forfeiture under SAFEMA - HELD THAT: - The Tribunal held that the Apex Court decision in Amina Ahmed Dossa concerned Section 8 of the TADA Act and the applicability of certain CrPC provisions to TADA attachments, and therefore is distinguishable from SAFEMA which has a different statutory scheme. Forfeiture under TADA is governed by TADA provisions and attachments/orders under TADA do not operate to nullify or preclude proceedings under SAFEMA; orders or suits pending under other regimes have no automatic bearing on SAFEMA proceedings. Consequently, the argument that TADA proceedings or related appellate decisions entitled appellants to set aside SAFEMA forfeiture was rejected.TADA orders and the Amina Ahmed Dossa decision do not invalidate or preclude forfeiture proceedings under SAFEMA; the contention is rejected.Notice under Section 6 of SAFEMA - Burden of proof under Section 8 of SAFEMA - Nexus or link between detenue's income and property - Illegally acquired property - Whether the Competent Authority was required to establish a link/nexus between the detenue's income and the property before issuing a notice under Section 6 - HELD THAT: - Relying on precedents including Aslam Mohammed Merchants and subsequent Supreme Court decisions, the Tribunal held that Section 6 requires the competent authority to have a reason to believe (to be recorded) that properties are illegally acquired, and Section 8 places the burden on the person served to prove that the property is not illegally acquired. The statutory scheme does not mandate that the competent authority must, as a precondition to issuing a Section 6 notice, demonstrate a direct monetary nexus between the detenue's funds and the specific property; to impose such a requirement would render Section 8 otiose and frustrate the legislative purpose of reaching properties held for or on behalf of detenu/convict. The Tribunal noted that in cases involving remote relations a further indication of link may be necessary, but no general pre-issue nexus requirement exists.No pre-issuance requirement to establish a direct nexus between the detenue's income and the property; contention dismissed.Principles of natural justice - Allegation that principles of natural justice were violated because proceedings were taken up/passed by different officers and final hearing was brief - HELD THAT: - The Tribunal found the written contentions insufficient to establish breach of natural justice. Proceedings being taken up by the authority on the date of hearing and the order being passed by the same Competent Authority who conducted the hearing did not, on the material placed, demonstrate violation of the right to be heard. The appellants' assertion of a brief hearing without corroborative proof did not warrant interference.No violation of principles of natural justice shown; contention rejected.Forfeiture of property - Illegally acquired property - Tenancy rights and effect of forfeiture - Whether Flat No. 604, Bagh-e-Rehmat (Abida Mohd. Dossa) was rightly forfeited - HELD THAT: - The Tribunal accepted the appellant's evidence that the flat was acquired in her favour pursuant to a consent decree regarding mehr dated 16.8.1983, approximately ten years prior to the detenue's detention, and that she had disclosed the source of acquisition. The Tribunal observed that forfeiture in such circumstances would nullify a prior judicial decree and, absent evidence of collusion or that the decree was a device to conceal detenu's property, interference was warranted.Forfeiture of Flat No. 604 set aside; appeal allowed in respect of this property.Forfeiture of property - Tenancy rights and effect of forfeiture - Illegally acquired property - Whether Room No. 2B and Flat No. 12, Zaveri Mansion (Mohd. Yaseen Mohd. Dossa & Anr.) were rightly forfeited - HELD THAT: - The Tribunal found that appellants claimed tenancy but produced rent agreements that, on their terms, demonstrated ownership-like rights and the appellants failed to satisfactorily disclose sources of consideration or demonstrate absence of premium/pagdi. Given the possibility of owner-tenant collusion and the statutory scheme which targets properties effectively held for detenu, the appellants' evidence was held inadequate to rebut the presumption.Forfeiture upheld; appeals dismissed in respect of these properties.Forfeiture of property - Tenancy rights and effect of forfeiture - Illegally acquired property - Whether Flat No. 611-C, Meena Apartment and Shop No.1, Ruksana Palace (Arafat Haroon Merchant) were rightly forfeited - HELD THAT: - The appellant asserted tenancy and various claimed sources (gifts, FEIS remittance, loan) but failed to produce supporting documentary evidence such as tax returns corroborating such receipts or loan agreements. FEIS entries and unsubstantiated claims were insufficient proof of legitimate source. The shop being on rent, if genuinely a tenancy without premium, would not be affected, but the record did not support such claim.Forfeiture upheld; appeal dismissed in respect of these properties.Forfeiture of property - Illegally acquired property - Tenancy rights and effect of forfeiture - Whether Shop No. 1/18, Green House (Tabrez Mohd. Dossa) was rightly forfeited - HELD THAT: - The appellant claimed prior business income and savings but failed to produce documentary evidence to substantiate sources (bank records, income tax returns, documents for equipment purchase or FEIS receipts). The absence of proof to discharge the burden under Section 8 led the Tribunal to sustain the forfeiture.Forfeiture upheld; appeal dismissed in respect of this property.Forfeiture of property - Illegally acquired property - Whether Gausia House, Narayan Dhuru Street (Tabrez Mohd. Dossa & Ors.) was rightly forfeited - HELD THAT: - Although appellants asserted acquisition by conveyance and gifts and claimed shares reflected in income tax returns, they failed to produce corroborative documents (conveyance proof, gift deeds) to substantiate the asserted sources or title. The Tribunal found the material inadequate to rebut that the property was an illegally acquired property traceable to the detenu.Forfeiture upheld; appeal dismissed in respect of this property.Forfeiture of property - Tenancy rights and effect of forfeiture - Illegally acquired property - Whether Rooms No.1-4, Machiswala Building (Shahnawaz M. Dossa & Ors.) were rightly forfeited - HELD THAT: - Appellants contended the trust ownership and payment of compensation to Municipal Corporation leading to tenancy rights, and relied on bank statements and tax returns to show loans and sources. However, bank statements lacked identification of loan sources and loan agreements were not produced; appellants primarily claimed tenancy without establishing how they were adversely affected by forfeiture. The evidence was insufficient to discharge the burden under the Act.Forfeiture upheld; appeal dismissed in respect of these properties.Final Conclusion: The Tribunal rejected the challenges to the competency of SAFEMA proceedings, held that no pre-issuance nexus requirement exists between detenu's income and the property, and found no breach of natural justice. On facts, the forfeiture of Flat No. 604 (Abida Mohd. Dossa) was set aside, while the forfeiture orders as to the other properties contested in the batch of appeals were upheld and those appeals dismissed.

2024 (8) TMI 666 - APPELLATE TRIBUNAL UNDER SAFEMA ; AT NEW DELHI FEMA

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Issues: (i) Whether the pendency or outcome of proceedings relating to the same properties under TADA affected forfeiture proceedings under SAFEMA. (ii) Whether a notice under Section 6 of SAFEMA was invalid for want of prior proof of nexus between the detenue's income and the properties proceeded against. (iii) Whether the forfeiture order was vitiated for breach of natural justice.

Issue (i): Whether the pendency or outcome of proceedings relating to the same properties under TADA affected forfeiture proceedings under SAFEMA.

Analysis: The two enactments operate on different statutory schemes. SAFEMA proceeds on notice, explanation, and burden of proof under Sections 6 to 8, whereas TADA Section 8 deals with forfeiture or attachment in the context of criminal prosecution and proclamation proceedings. The ruling under TADA concerning attachment or release of property, or the pendency of related writ proceedings, did not control the independent statutory inquiry under SAFEMA.

Conclusion: The SAFEMA proceedings were not displaced or nullified by the TADA-related proceedings, and this objection failed.

Issue (ii): Whether a notice under Section 6 of SAFEMA was invalid for want of prior proof of nexus between the detenue's income and the properties proceeded against.

Analysis: Section 6 requires the competent authority to have reason to believe, recorded in writing, that the properties are illegally acquired. Section 8 places the burden on the person affected to prove that the property is not illegally acquired. The statutory scheme does not require the authority, before issuing notice, to establish a prior nexus in the manner suggested. Reading such a requirement into the provision would dilute the burden-shifting design of the Act.

Conclusion: The notice under Section 6 was not invalid for absence of prior proof of nexus, and this challenge failed.

Issue (iii): Whether the forfeiture order was vitiated for breach of natural justice.

Analysis: The record showed that the matter was heard by the authority that passed the order, and the grievance rested mainly on the brevity of the hearing and the change of officers during the pendency. That did not establish a denial of a reasonable opportunity or any procedural unfairness sufficient to invalidate the order.

Conclusion: No breach of natural justice was made out.

Final Conclusion: The forfeiture under SAFEMA was upheld, and the challenge to the order failed on all substantive grounds.

Ratio Decidendi: Under SAFEMA, the competent authority need only form a recorded reason to believe that the property is illegally acquired, while the burden lies on the person affected to disprove illegality; a prior showing of nexus between the detenue's income and the property is not a statutory precondition to notice or forfeiture.

SAFEMA forfeiture notice upheld where prior nexus proof was not required and parallel TADA proceedings did not bar action.
Under SAFEMA, proceedings for forfeiture were independent of any parallel TADA proceedings concerning the same properties, so those proceedings did not bar or nullify the SAFEMA inquiry. The competent authority was required only to record a reason to believe that the property was illegally acquired; it was not required, before issuing notice under Section 6, to first prove a nexus between the detenue's income and the properties. The burden then shifted to the person affected to disprove illegality, and no breach of natural justice was established on the facts, so the forfeiture was upheld.

Forfeiture of illegally acquired properties - Burden of proof under SAFEMA - Requirement of nexus or link for issuance of Section 6 notice - Distinction between SAFEMA and TADA - Principles of natural justice in adjudicatory proceedingsDistinction between SAFEMA and TADA - Forfeiture of illegally acquired properties - Applicability of decisions under the TADA regime to proceedings under SAFEMA and effect of prior TADA orders on SAFEMA forfeiture proceedings - HELD THAT: - The Tribunal held that the judgment relied upon under the TADA Act (Amina Ahmed Dossa) concerned different statutory provisions and procedural scheme and therefore cannot be imported into SAFEMA proceedings. The provisions governing attachment and forfeiture under TADA (including the special applicability of certain Code of Criminal Procedure sections and the six month return provision) are materially different from SAFEMA's scheme. Consequently, orders or proceedings under TADA do not automatically preclude or negate independent proceedings under SAFEMA, and declaratory or civil proceedings pending under other forums do not alter the Competent Authority's power under SAFEMA.The contention that prior TADA proceedings or orders precluded forfeiture under SAFEMA was rejected.Burden of proof under SAFEMA - Requirement of nexus or link for issuance of Section 6 notice - Forfeiture of illegally acquired properties - Whether the Competent Authority must, before issuing a Section 6 notice, establish a nexus between the detenue's income and the properties sought to be forfeited - HELD THAT: - Relying upon binding precedent interpreting SAFEMA, the Tribunal held that Section 6 requires the Competent Authority to have a reason to believe, to be recorded in writing, that the properties are illegally acquired; it does not mandate that the Authority establish a direct link or nexus to the detenue's income before issuing the notice. The statutory scheme places the burden of proof on the person served with the notice to demonstrate that the property is not illegally acquired. Imposing an additional requirement of proving nexus at the notice stage would render Section 8 (which casts the burden on the person affected) otiose and frustrate the legislative purpose of reaching properties traceable to the detenu or convict.The argument that a prior nexus must be shown by the Competent Authority before issuing a Section 6 notice was rejected; the burden lies on the person served with the notice to disprove illegality.Principles of natural justice in adjudicatory proceedings - Allegation of breach of natural justice because the matter was heard and disposed of by an Authority different from officers previously handling proceedings - HELD THAT: - The Tribunal found that hearings before the Competent Authority may be conducted by the Authority posted at the time and that the decisive requirement is that the Authority which passes the final order must have heard the case. The appellants' contention that a brief hearing on the final date violated natural justice was unsupported by material; the record showed that the same Competent Authority passed the order after hearing. Therefore no substantial breach of natural justice was established.The challenge based on violation of principles of natural justice was dismissed.Final Conclusion: The appeal is dismissed; the Tribunal affirmed that SAFEMA proceedings are governed by their own statutory scheme distinct from TADA, the issuance of a Section 6 notice does not require pre establishment of a nexus by the Authority and the burden to prove lawful acquisition rests on the person served, and no breach of natural justice was made out.

2024 (8) TMI 665 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether documents obtained from Income-tax proceedings were admissible in adjudication under the Foreign Exchange Regulation Act, 1973 and whether denial of cross-examination vitiated the order; (ii) Whether receipt of US $ 5 lakhs from a foreign citizen was an investment or a temporary loan amounting to contravention of Section 9(1)(c) of the Foreign Exchange Regulation Act, 1973 and liability of the company and its directors under Section 68(1); (iii) Whether receipt of US $ 1 lakh from a non-existent foreign source warranted a finding of contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether documents obtained from Income-tax proceedings were admissible in adjudication under the Foreign Exchange Regulation Act, 1973 and whether denial of cross-examination vitiated the order.

Analysis: Section 72 of the Foreign Exchange Regulation Act, 1973 permits reliance on documents seized or produced under the Act or under any other law, and the provision authorises presumptions regarding their authenticity and contents. The adjudication was based on civil liability, where the applicable standard is preponderance of probability, and the adjudicatory proceedings remain independent of prosecution. Denial of cross-examination, by itself, did not invalidate the impugned order in the facts of the case.

Conclusion: The objection to admissibility failed and the plea based on denial of cross-examination was rejected.

Issue (ii): Whether receipt of US $ 5 lakhs from a foreign citizen was an investment or a temporary loan amounting to contravention of Section 9(1)(c) of the Foreign Exchange Regulation Act, 1973 and liability of the company and its directors under Section 68(1).

Analysis: The remittance was received from a US citizen resident abroad, the memorandum of understanding stood frustrated within a short time, no formal agreement materialised, and the funds were quickly transferred onward on the remitter's instructions. The materials did not establish a valid investment route or RBI permission, and the claimed share issuance did not displace the conclusion that the money was in the nature of a temporary loan or acknowledged debt from abroad. On the evidence, the company's receipt and handling of the funds amounted to acceptance of foreign exchange in a prohibited manner, and the directors connected with the transaction were liable.

Conclusion: Contravention of Section 9(1)(c) of the Foreign Exchange Regulation Act, 1973 was proved against the company, and liability of the concerned directors under Section 68(1) was upheld.

Issue (iii): Whether receipt of US $ 1 lakh from a non-existent foreign source warranted a finding of contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.

Analysis: Overseas enquiry showed that the alleged remitter's business premises and identity could not be verified, and no material was produced to dislodge the inference that the remittance was arranged by the concerned appellant himself. The unexplained foreign receipt was therefore treated as a transaction in foreign exchange falling within the mischief of Section 8(1). The connected confiscation under Section 63 also stood on the same footing.

Conclusion: Contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973 was proved against the concerned appellant.

Final Conclusion: The impugned adjudication order was sustained in full and the penalties and connected consequences remained undisturbed.

Ratio Decidendi: In adjudication under the Foreign Exchange Regulation Act, 1973, documents obtained under another law are admissible under Section 72, the standard of proof is preponderance of probability, and foreign remittances unsupported by lawful authorisation or credible explanation may be treated as prohibited foreign exchange transactions.

Foreign exchange adjudication: third-party documents were admissible, and unexplained remittances could be treated as prohibited transactions.
In adjudication under the Foreign Exchange Regulation Act, 1973, documents obtained under Income-tax proceedings were treated as admissible under Section 72, with authenticity and contents capable of presumptive reliance; the proceedings were civil in nature and governed by preponderance of probability, so denial of cross-examination did not, by itself, vitiate the order. The tribunal also treated an inward remittance of foreign currency, unsupported by a valid investment route, RBI permission, or credible documentation, as a prohibited transaction and upheld director liability where the company received and handled the funds. An unexplained foreign receipt from a non-existent source was likewise treated as contravention of Section 8(1), with connected confiscation sustaining on the same basis.

Admissibility of documents seized under other statutes - Presumption under Section 72 of FERA - Distinction between adjudication and prosecution proceedings - Nature of foreign remittance as investment or temporary loan - Contravention of Section 9(1)(c) of FERA - Liability of directors under Section 68(1) - Contravention of Section 8(1) of FERA and confiscation under Section 63Admissibility of documents seized under other statutes - Presumption under Section 72 of FERA - Admissibility of documents and statements originating from Income Tax proceedings in adjudication under FERA - HELD THAT: - The Tribunal accepted that documents recovered during Income Tax proceedings were lawfully referred to the Enforcement Directorate and are utilisable in adjudication under FERA by virtue of Section 72. The Court distinguished the limited holding in KTMS Mohd., observing that KTMS addressed use of FERA statements in Income Tax proceedings and did not preclude the reciprocal use sanctioned by Section 72. In consequence, the objection to use of material seized under the Income Tax Act was rejected and the material was held admissible in the present adjudication. [Paras 12]Documents seized under other laws and referred to the Directorate are admissible in FERA adjudication under Section 72; the objection is rejected.Distinction between adjudication and prosecution proceedings - Whether discharge in criminal/prosecution proceedings precludes adjudication liability under FERA - HELD THAT: - Relying on precedents, the Tribunal reaffirmed that adjudication for civil liability under FERA and criminal prosecution are distinct and independent processes. The standard of proof in adjudication is preponderance of probabilities, different from proof beyond reasonable doubt in prosecution. Consequently, the earlier discharge by the criminal court does not bind the adjudicating authority nor require annulment of adjudication findings. [Paras 13]Outcome of prosecution proceedings does not preclude separate adjudication under FERA; the discharge in prosecution is not binding on adjudication.Nature of foreign remittance as investment or temporary loan - Contravention of Section 9(1)(c) of FERA - Characterisation of US $5 lakh remittance from J. L. Kothari and imposition of contravention under Section 9(1)(c) of FERA - HELD THAT: - The Tribunal examined the MoU, the letter of instruction effecting transfer to another company within ten days, and the absence of a formal agreement or continued funding under the MoU. The claimed issuance of shares by M/s Neptune Estate Pvt. Ltd. did not, on the record, substitute for issuance of shares by the appellant company and was not supported by contemporaneous disclosure. The rapid onward transfer on the remitter's instruction and lack of any RBI permission or proper share-issuance evidence indicated the receipt was only a temporary placement of funds (a loan) controlled by the remitter, not bona fide foreign investment. On that basis the receipt was held to contravene Section 9(1)(c). [Paras 14, 15, 16]The US $5 lakh remittance was a temporary loan/parking of funds and the appellant company contravened Section 9(1)(c) of FERA.Liability of directors under Section 68(1) - Contravention of Section 9(1)(c) of FERA - Liability of the individual appellants (directors) for contraventions in respect of the US $5 lakh remittance - HELD THAT: - The Tribunal found from the record and statements that the two individual appellants had knowledge of and were involved in the receipt and onward transfer of the US $5 lakh. R. C. Jain, as a director who signed the MoU, and Vikram Singh, who knew the remitter and facilitated the transactions, could not deny their roles. Consequently, the contraventions under Section 9(1)(c) read with Section 68(1) as against the individual appellants were held proved. [Paras 17]Contraventions of Section 9(1)(c) read with Section 68(1) are established against the individual appellants.Contravention of Section 8(1) of FERA and confiscation under Section 63 - Characterisation of US $1 lakh remittance from Rakesh Saxena and liability of Shri Vikram Singh under Section 8(1) with confiscation under Section 63 - HELD THAT: - Overseas enquiries failed to establish the existence of the purported remitter or the Hong Kong company and indicated that the named remitter did not appear to exist at the stated premises. On that basis the adjudicating authority reasonably inferred that the remittance was arranged by the appellant himself and was unexplained. The Tribunal found no material on record to rebut the overseas enquiry findings and upheld the adjudicator's conclusion that the receipt contravened Section 8(1). Because the amount remained unexplained and tainted, confiscation under Section 63 was also sustained. [Paras 18]The US $1 lakh receipt contravened Section 8(1) by Shri Vikram Singh and the amount was rightly confiscated under Section 63.Final Conclusion: The Tribunal dismissed the appeals. The use of documents seized under Income Tax proceedings was held admissible under Section 72 of FERA; adjudication proceedings were held independent of criminal prosecution; the receipt of US $5 lakhs was characterised as a temporary loan leading to contravention of Section 9(1)(c) by the company and corresponding liability of the directors under Section 68(1); and the US $1 lakh remittance was held to contravene Section 8(1) with confiscation under Section 63. Appeals are dismissed.

2024 (9) TMI 559 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Section 37A FEMA allows asset seizure on mere suspicion, discharge from tax prosecution doesn't invalidate proceedings
The Appellate Tribunal under SAFEMA dismissed an appeal challenging seizure of assets under Section 37A of FEMA, 1999. The appellant argued the provision was inapplicable and only authorized seizure, not confiscation, and that discharge in an I-T prosecution case invalidated FEMA proceedings. The Tribunal held that Section 37A has a low threshold requiring only suspicion of contraventions, not proof beyond reasonable doubt. The Tribunal found seizure was proper as it involved transferring dematerialized bonds to the Directorate's account, not confiscation. Information sharing under India-France DTAA was deemed valid. The continuing offense doctrine applied as the property was allegedly held in contravention after the 2015 amendment took effect, making retrospectivity irrelevant.

Seizure under Section 37A of FEMA - Continuing contravention - Retrospective application of penal or in-rem provisions - Threshold for action under Section 37A - "reason to believe"/"suspected" - Scope of appellate jurisdiction under Section 37A(5) - Seizure versus confiscation; transfer of dematerialised securities to take possession - Proviso to Section 37A(4) - disclosure and restorationSeizure under Section 37A of FEMA - Threshold for action under Section 37A - "reason to believe"/"suspected" - Validity of the seizure confirmed by the Competent Authority under Section 37A in view of the appellant's discharge in connected criminal/tax proceedings - HELD THAT: - The Tribunal held that Section 37A(1) requires only that the authorised officer have "reason to believe" that foreign exchange or foreign security is "suspected" to have been held in contravention of Section 4. That statutory threshold is a low one and is markedly distinct from the standard required for framing criminal charges (which the ACMM found was not met). Consequently, the fact that the appellant was discharged in the Income Tax prosecution does not, by itself, nullify or vitiate initiation and continuation of action under Section 37A. Given that the date of closure of the alleged foreign account and repatriation (if any) were not proved by the appellant, and the source of funds was not satisfactorily established, the Tribunal found the exercise of power under Section 37A justified at the interim stage pending adjudication.The confirmation of seizure under Section 37A was not set aside on the ground of the appellant's discharge in the tax prosecution.Continuing contravention - Retrospective application of penal or in-rem provisions - Whether Section 37A (inserted w.e.f. 09.09.2015) could be applied to alleged transactions predating the amendment by treating the contravention as continuing - HELD THAT: - The Tribunal examined competing contentions on retrospectivity. The respondent relied on the proposition that the alleged foreign exchange had not been repatriated and therefore the contravention continued after insertion of Section 37A, so retrospectivity is not in issue. The appellant contended that the amendment could not be applied to past transactions. The Tribunal accepted that where the relevant property/holding is still "held" after the amendment, application is not retrospective. Because the appellant did not prove closure or repatriation of the account or when (or whether) repatriation occurred, and the facts necessary to show cessation of contravention were within appellant's knowledge, the Tribunal concluded that Section 37A could validly be invoked on the basis of a continuing contravention and refused to quash the seizure on retrospectivity grounds.Section 37A was applicable on the facts because the contravention was treated as continuing; the seizure was not vitiated by alleged retrospective operation of the provision.Scope of appellate jurisdiction under Section 37A(5) - Proviso to Section 37A(4) - disclosure and restoration - Whether this Appellate Tribunal, on an appeal under Section 37A(5), may take into account subsequent developments occurring after the Competent Authority's order (including discharge in criminal/tax proceedings) - HELD THAT: - Two earlier Single Member Bench decisions were cited for the proposition that the Tribunal's jurisdiction on an appeal under Section 37A(5) is limited to the issues dealt with by the Competent Authority and that the confirmed seizure continues till adjudication under Section 37A(4), with the Competent or Adjudicating Authority empowered under the proviso to set aside seizure upon disclosure and repatriation. Notwithstanding those precedents, the Tribunal emphasised that where the statutory language is clear, the Appellate Tribunal may adjudicate the appeal on the material before it and, in the interest of justice, may take relevant subsequent judicial developments on record. However, the Tribunal observed that the statutory scheme anticipates adjudication by the Adjudicating Authority thereafter and that the proviso to Section 37A(4) provides the specific route for setting aside seizure upon repatriation and disclosure.The Tribunal accepted the discharge order on record for consideration but held that it does not, per se, require setting aside the Competent Authority's confirmed seizure; the statutory scheme contemplates adjudication and specific remedy under the proviso to Section 37A(4).Seizure versus confiscation; transfer of dematerialised securities to take possession - Legality of transferring the dematerialised government bonds to the Directorate's demat account and whether that amounted to unauthorised confiscation - HELD THAT: - The Tribunal noted that Section 37A empowers seizure of equivalent value situated within India. "Seize" in ordinary parlance means taking possession. For dematerialised securities, taking possession necessarily involves transfer into the seizing authority's demat account. The Directorate's transfer of the bonds to its demat account was therefore characterised as taking possession in the exercise of seizure powers; confiscation is a distinct consequence which, under the statutory scheme, can follow only after adjudication. On the facts, the Tribunal accepted the respondent's explanation that the bonds were seized (by transfer) and not confiscated, and that interest/earnings on seized instruments may be subject to the statutory process.The transfer of dematerialised bonds to the respondent's demat account constituted lawful seizure (possession) and did not amount to final confiscation in the absence of adjudication.Final Conclusion: The appeal was dismissed. The Tribunal held that (i) the low statutory threshold in Section 37A for seizure was satisfied on the material before the Authority and the appellant's discharge in connected prosecution did not mandate setting aside the confirmed seizure; (ii) Section 37A could be applied where the contravention is continuing, and on the record the appellant had not proved repatriation or account closure; (iii) transfer of dematerialised bonds to the Directorate's demat account amounted to lawful seizure (possession) and not confiscation; and (iv) adjudication proceedings remain the appropriate forum for final determination and for any order under the proviso to Section 37A(4). No order as to costs.

2024 (9) TMI 558 - APPELLATE TRIBUNAL UNDER SAFEMA; AT NEW DELHI FEMA

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Issues:
1. Penalty imposed for contravention of Foreign Exchange Management Act, 1999.
2. Interpretation of Section 13(1) of FEMA regarding penalties.
3. Discretion of Adjudicating Authority in imposing penalties for contraventions.
4. Technical contravention vs. substantive contravention in export proceeds realization.

Detailed Analysis:
1. The judgment deals with an appeal filed by the Union of India against an order imposing a penalty on two respondents for contravening section 7(3) of the Foreign Exchange Management Act, 1999, related to delay in realizing export proceeds. The penalties were imposed based on the delay in realization of export proceeds amounting to US$ 9,93,652. The appellant sought an increase in the penalty amount, citing the contravention of FEMA affecting the country's financial systems.

2. The appellant argued that the Adjudicating Authority failed to consider the objective of FEMA, emphasizing the provisions of section 13(1) of FEMA regarding penalties for contraventions. The appellant contended that penalties should be imposed up to thrice the sum involved in the contravention, as per the provisions of FEMA. The respondent, on the other hand, claimed that only technical contravention occurred due to a delay in realization, not non-realization, and that all export proceeds were eventually realized, leading to no financial loss of foreign exchange.

3. The Tribunal analyzed the provisions of Section 13(1) of FEMA, emphasizing that the amount of penalty to be imposed is at the discretion of the Adjudicating Authority. Referring to a Supreme Court case, it highlighted that the statute provides for penalties up to thrice the sum involved in contravention, allowing the Authority to exercise discretion judiciously. The Tribunal agreed with the Adjudicating Authority's decision to impose a lenient penalty due to the technical nature of the contraventions in realizing export proceeds.

4. The Tribunal concluded that the delay in realizing export proceeds constituted a technical contravention and not a substantive one, as the export proceeds were eventually realized, albeit with delays. Citing a Supreme Court judgment, it emphasized that penalties should be imposed judiciously, especially in cases of technical or venial breaches. The Tribunal upheld the Adjudicating Authority's decision to impose a penalty of Rs. 2 lakhs each on the respondents for the delay in compliance with remittances against exports, considering the circumstances and nature of the contraventions.

In summary, the Tribunal dismissed the appeal, upholding the penalties imposed by the Adjudicating Authority, considering the technical nature of the contraventions and the eventual realization of export proceeds despite delays.

Two parties face Rs. 2 lakh penalty each for delayed export proceeds realization under Section 13(1) FEMA
The Appellate Tribunal under SAFEMA upheld the Adjudicating Authority's decision imposing Rs. 2 lakh penalty each on two parties for delayed realization of export proceeds. The Tribunal held that under Section 13(1) FEMA, penalty imposition is discretionary and must be exercised judiciously. Since export proceeds were eventually realized despite delays of 2-3 years, the contraventions were deemed technical rather than substantive. The Tribunal agreed the penalties were appropriate as there was no intention to violate substantive provisions, and the imposed amounts met the ends of justice for technical contraventions.

Discretion in imposition of penalty under section 13(1) of FEMA - penalty up to thrice the sum involved under section 13(1) of FEMA - technical contravention versus substantive contravention - realization of export proceeds and non-quantifiability of contravention - proportionality and judicial exercise of discretion in imposing penaltiesDiscretion in imposition of penalty under section 13(1) of FEMA - technical contravention versus substantive contravention - realization of export proceeds and non-quantifiability of contravention - proportionality and judicial exercise of discretion in imposing penalties - Validity of the Adjudicating Authority's imposition of penalty of Rs. Two Lakh each and whether the penalty ought to be enhanced to thrice the sum involved. - HELD THAT: - The Appellate Tribunal examined Section 13(1) of FEMA and held that the provision prescribes a maximum limit but does not mandate a fixed or minimum penalty; hence the Adjudicating Authority has discretion to impose penalty, to be exercised judiciously in view of facts and evidence. Applying settled principles that judicial authorities may refrain from imposing maximum penalties for venial or technical breaches, the Tribunal agreed with the Adjudicating Authority's finding that the contraventions were technical in nature because the export proceeds were ultimately realized albeit with delay. Consequently, the delay in realization did not render the contravention quantifiable as equivalent to the export proceeds for purposes of imposing the maximum monetary penalty. Reliance was placed on precedents establishing that penalty imposition is discretionary and that technical breaches arising from bona fide conduct or resulting in no loss may justify lenient treatment. Having regard to the nature of the breach, the fact of eventual realization of proceeds, and the Adjudicating Authority's reasons, the Tribunal found no reason to interfere with the exercise of discretion and the quantum of penalty imposed. [Paras 5, 6]The Adjudicating Authority's imposition of Rs. Two Lakh penalty on each noticee is upheld; the enhancement sought by the appellant is rejected.Final Conclusion: The appeal is dismissed and the Adjudicating Authority's order imposing penalty of Rs. Two Lakh each on the respondents is affirmed.

2024 (9) TMI 557 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the seizure of Indian currency and the explanation offered by the noticee displaced the finding of contravention of section 3(a) and section 3(c) of the Foreign Exchange Management Act, 1999. (ii) Whether the foreign currencies seized from the residence were satisfactorily explained and whether contravention of section 8 of the Foreign Exchange Management Act, 1999 read with Regulation No. 6A of the Foreign Exchange Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000 was established. (iii) Whether the penalties imposed and confiscation ordered under section 13 of the Foreign Exchange Management Act, 1999 were liable to be interfered with.

Issue (i): Whether the seizure of Indian currency and the explanation offered by the noticee displaced the finding of contravention of section 3(a) and section 3(c) of the Foreign Exchange Management Act, 1999.

Analysis: The explanation initially given by the noticee was that part of the cash belonged to a person resident in Hong Kong and the balance was business cash. The later explanation based on sale agreements and alleged advances was found inconsistent and unsupported by reliable evidence. The materials relied upon did not satisfactorily account for the seized cash, and the tribunal found the revised version to be an afterthought. On the noticee's own initial statement and the surrounding circumstances, the receipt of money on behalf of a person resident outside India without RBI permission was accepted as established on the standard of preponderance of probability.

Conclusion: The contravention of section 3(a) and section 3(c) of the Foreign Exchange Management Act, 1999 was held established against the noticee.

Issue (ii): Whether the foreign currencies seized from the residence were satisfactorily explained and whether contravention of section 8 of the Foreign Exchange Management Act, 1999 read with Regulation No. 6A of the Foreign Exchange Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000 was established.

Analysis: The noticee's explanation regarding foreign exchange shifted from unspent balances from overseas travel to prize money allegedly won in casinos and then to documents said to show lawful purchases from money changers. The tribunal found that the documentary material did not correlate with the seized amounts and that no credible proof supported the later explanation. The failure to surrender the foreign exchange within the prescribed period was treated as a further established breach, and the explanation regarding US dollars seized was also not accepted.

Conclusion: The contravention of section 8 of the Foreign Exchange Management Act, 1999 read with Regulation No. 6A of the Foreign Exchange Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000 was held established against the noticee.

Issue (iii): Whether the penalties imposed and confiscation ordered under section 13 of the Foreign Exchange Management Act, 1999 were liable to be interfered with.

Analysis: The tribunal found that the adjudicating authority had considered the record, the explanations and the objections to the corrigendum, and that no infirmity was shown in the adjudication process. In view of the established contraventions and the unsatisfactory nature of the explanations, the penalties and confiscation were affirmed.

Conclusion: The penalties and confiscation order were upheld.

Final Conclusion: The appeal failed on merits and the adjudication under FEMA was sustained in full, leaving the monetary penalties and confiscation intact.

Ratio Decidendi: In adjudication under FEMA, contraventions may be established on the basis of the overall evidence and probabilities where the noticee's explanations are inconsistent, unsupported and unworthy of credence.

FEMA contraventions upheld where shifting explanations for seized currency failed to displace confiscation and penalties.
Contraventions under FEMA were upheld where the noticee's shifting explanations for seized Indian and foreign currency were inconsistent and unsupported by reliable evidence. The tribunal accepted, on a preponderance of probability, that receipt of money on behalf of a person resident outside India without RBI permission established breach of section 3(a) and section 3(c). It also found the foreign exchange was not credibly explained and was not surrendered within the prescribed period, establishing breach of section 8 read with Regulation 6A. The penalties and confiscation were sustained because no infirmity was shown in the adjudication process.

Contravention of foreign exchange regulations - hawala/underground remittance - possession and surrender of unspent foreign exchange - evidentiary weight of initial statement and after thought documents - penalty under section 13(1) FEMA - confiscation under section 13(2) FEMAContravention of foreign exchange regulations - hawala/underground remittance - penalty under section 13(1) FEMA - confiscation under section 13(2) FEMA - Whether the appellant committed contravention of FEMA by receiving Indian currency from a person resident outside India and whether the penalty and confiscation imposed in respect of the seized Indian currency are sustainable. - HELD THAT: - The Tribunal examined the search, the appellant's initial statement of 29.01.2011 admitting receipt of Rs.30,00,000 on instructions of a person resident in Hong Kong, and the subsequent explanations and documents produced by the appellant. The authority below found the original statement corroborative of clandestine receipt and treated later documents and agreements as after thoughts replete with contradictions and not credibly proved. The Tribunal accepted the appraisal of evidence by the Adjudicating Authority, noting that the search outcomes prima facie corroborated the information that prompted action and that the appellant failed to satisfactorily account for the seized Indian currency. On that basis the Tribunal held that the finding of contravention (to the extent adjudicated) was supported by the material and confirmed the penalty and the order of confiscation of the Indian currency. [Paras 25, 26, 28, 30, 32]Findings of contravention in relation to the seized Indian currency were upheld; the penalties and confiscation imposed by the Adjudicating Authority are confirmed.Contravention of foreign exchange regulations - possession and surrender of unspent foreign exchange - penalty under section 13(1) FEMA - Whether the appellant unlawfully dealt in foreign exchange (purchase from persons other than authorised dealers) and whether the penalty in respect of the seized US$ 6200 and other foreign currencies is sustainable. - HELD THAT: - The Tribunal noted the appellant's explanations that the foreign currency represented unspent balances from multiple foreign trips and later claims of prize money from casinos, but observed discrepancies between the seized currencies and the documentary evidence produced. The Adjudicating Authority's reasoning that the appellant failed to satisfactorily explain the source of US$ 6200 and that the unsubstantiated, inconsistent documents did not reliably support the claim was accepted. The Tribunal also noted the authority's reliance on applicable possession and surrender rules and found no reason to disturb the conclusion that contraventions occurred and penalties were warranted. [Paras 27, 31, 32]Findings of contravention in respect of the seized foreign currency (including US$ 6200 and other currencies) were upheld and the penalties confirmed.Evidentiary weight of initial statement and after thought documents - Whether the appellant's initial statement was involuntary or otherwise inadmissible and whether later retractions or documents required the authority to disbelieve the initial admissions. - HELD THAT: - The Tribunal considered the appellant's contention that the initial statement was recorded under coercion and that subsequent documents should exonerate him. It endorsed the Adjudicating Authority's finding that nothing on record established coercion in recording the statement and that mere retraction did not absolve the appellant where other material corroborated the initial account. The Tribunal agreed that the documents produced subsequently suffered contradictions and were plausibly after thoughts, thus carrying insufficient weight to overturn the findings based on the initial statement and other material. [Paras 25, 29, 30, 32]The initial statement was accepted as admissible and credible; subsequent retractions and documents did not displace the findings based on that statement.Possession and surrender of unspent foreign exchange - Whether enquiries with alleged authorized dealers (money changers) were necessary for the Department to establish the charge regarding foreign exchange seized from the appellant. - HELD THAT: - The Adjudicating Authority concluded that where documents produced by the appellant failed to correlate with the seized currencies, there was no compulsion on the Department to make further enquiries with the authorised dealers. The Tribunal accepted this reasoning, observing that the appellant attempted to correlate disparate sets of documents with seized notes and that discrepancies and lack of corroboration justified the authority's conclusion without requiring the Department to conduct further inquiries in every instance. [Paras 16, 31, 32]No deficiency found in the authority's approach; lack of correlation in documents absolved the Department from a duty to make further enquiries with money changers in the circumstances.Final Conclusion: The Appellate Tribunal found the Adjudicating Authority's findings on contraventions of FEMA (including dealings in foreign exchange, failure to surrender unspent foreign currency, and clandestine receipt of Indian currency on instructions of a person abroad) to be supported by the material on record; accordingly the penalties and the order of confiscation were confirmed and the appeal was dismissed.

2024 (7) TMI 1801 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Pre-deposit waiver in foreign-exchange penalty appeal required secured fixed-deposit protection instead of complete waiver pending merits review.
Pre-deposit waiver pending appeal against penalties for alleged foreign-exchange contraventions was not granted completely. Considering the nature of the alleged contraventions and the appellant's financial capacity, a secured pre-deposit was required without examining the merits. The appellant was required to create a fixed deposit with a lien in favour of the Directorate within eight weeks, after which pleadings were to be completed and the appeal listed for further hearing.

2024 (9) TMI 556 - APPELLATE TRIBUNAL UNDER SAFEMA ; AT NEW DELHI FEMA

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Appellate Tribunal upholds denial of cross-examination in FEMA proceedings citing substantial documentary evidence under Section 37
The Appellate Tribunal under SAFEMA dismissed an appeal challenging the denial of cross-examination of witnesses in FEMA proceedings. The appellant was accused of bogus exports to Russia with inflated invoices to obtain export benefits under DEPB and Duty Drawback Schemes. The Tribunal held that cross-examination was not required as the case was supported by substantial documentary evidence corroborating witness statements recorded under Section 37 of FEMA. The Tribunal noted that quasi-judicial bodies follow summary procedures and are not bound by Civil Procedure Code requirements. The appellant's request for cross-examination without filing a reply to the show cause notice was deemed an attempt to delay proceedings. The Tribunal directed the Adjudicating Authority to conclude proceedings as per law.

Right to cross-examination - principles of natural justice - powers of Adjudicating Authority analogous to a Civil Court - admissibility of statements recorded under Section 37 of FEMA - relevance of documentary corroboration to deny cross-examination - summary procedure of tribunalsRight to cross-examination - admissibility of statements recorded under Section 37 of FEMA - relevance of documentary corroboration to deny cross-examination - summary procedure of tribunals - Whether the Adjudicating Authority erred in refusing appellant's request to summon and permit cross-examination of witnesses whose statements recorded under Section 37 of FEMA were relied upon in the Show Cause Notice. - HELD THAT: - The Tribunal acknowledged that an Adjudicating Authority under FEMA possesses the powers analogous to a Civil Court for purposes of proceedings, as reflected in Section 16(5) read with Section 28(2). Nevertheless, it held that the grant of cross-examination is not an absolute right in adjudication under FEMA and may be refused where the case is supported by substantial documentary and other material evidence corroborating the recorded statements. Reliance was placed on the principle that tribunals adopt summary procedures and are not bound by Civil Procedure Code formalities; refusal to permit cross-examination is permissible where statements recorded under Section 37 are corroborated by documents and other material so that permitting cross-examination would not be material to demolition of the case. The Tribunal further noted procedural unfairness where a party seeks cross-examination without having filed a substantive reply to the Show Cause Notice and observed that such requests may be used to delay proceedings. The Telstar Travels precedent was applied to the effect that disclosure of documents and opportunity to explain them can constitute substantial compliance with natural justice and justify refusal to summon witnesses for cross-examination if no prejudice is shown. On the facts, substantial documentary evidence (bank records, bank letters, DRI/embassy reports, CDF enquiries and related materials) corroborated the investigative statements relied upon, and the Adjudicating Authority did not err in declining the summons for cross-examination at that stage; the Adjudicating Authority, however, retains power to summon and examine witnesses on oath if required in the interest of justice. [Paras 5, 6]Refusal to permit cross examination was upheld; the Adjudicating Authority did not err in declining the request at that stage given documentary corroboration and the circumstances, subject to its discretion to summon witnesses later if necessary.Final Conclusion: Appeal dismissed. Adjudicating Authority directed to proceed with and conclude adjudication in accordance with law (subject to any stay), appellant free to file substantive reply; nothing herein affects rights of parties and the Adjudicating Authority may examine or cross examine witnesses on oath if required in the interest of justice.

2024 (9) TMI 509 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the penalty order suffered from procedural unfairness for want of effective service and opportunity of hearing; (ii) whether the appellant established import of goods against a substantial part of the foreign exchange remittances, so that the penalty required reduction.

Issue (i): Whether the penalty order suffered from procedural unfairness for want of effective service and opportunity of hearing.

Analysis: The notice and hearing material did not clearly show effective service, and the proceedings were proceeded with ex parte without adequate verification of the company's status and current address. The record also indicated haste in completing the adjudication, and the remand was not considered necessary in view of the age of the matter.

Conclusion: The procedural challenge warranted relief to the extent that the penalty could not be sustained in the original quantum.

Issue (ii): Whether the appellant established import of goods against a substantial part of the foreign exchange remittances, so that the penalty required reduction.

Analysis: On the material produced, import proof was found for some remittances, while only two remittances remained unsupported. The alleged total contravention was therefore materially overstated in the impugned order, and the breach was treated as limited in extent and essentially procedural in character. In those circumstances, a drastic penalty was considered disproportionate.

Conclusion: The penalty was reduced to Rs. 2.5 lakhs and the impugned order was modified accordingly.

Final Conclusion: The appeal succeeded only to the extent of substantial reduction in the penalty, while the finding of contravention was not wholly set aside.

Ratio Decidendi: Where the evidence shows that only a limited part of the alleged foreign exchange remittance remains unsupported by import proof, and the adjudication is ex parte with inadequate procedural fairness, the penalty may be reduced on proportionality rather than remanded after long delay.

Procedural unfairness and proportionality in foreign exchange penalty matters can justify substantial reduction where import proof is partly established.
In adjudication under SAFEMA, inadequate proof of effective service and a hearing conducted ex parte without proper verification of the company's current address were treated as procedural unfairness affecting the penalty order. The record also showed that import proof was available for a substantial part of the foreign exchange remittances, leaving only limited remittances unsupported. On that basis, the alleged contravention was considered overstated and the penalty was reduced as disproportionate rather than maintained in its original quantum. The matter illustrates that where the evidentiary breach is limited and procedural fairness is deficient, penalty relief may be granted on proportionality grounds.

Penalty under Section 50 of FERA - contravention of Section 8(3) and Section 8(4) of FERA - vicarious liability of officers under Section 68 of FERA - requirement to furnish Exchange Control Copy of Bill of Entry - service of show cause notice and principles of natural justice - reduction of penalty in the interest of justice for procedural lapseContravention of Section 8(3) and Section 8(4) of FERA - requirement to furnish Exchange Control Copy of Bill of Entry - Whether the alleged contravention for non-submission of Exchange Control Copy of Bill of Entry was established in respect of the remittances listed in the show cause notice. - HELD THAT: - The Tribunal examined the annexed import documents and invoices produced with the appeal. It found that for three remittances (NLG 39021.75, NLG 26658.75 and FRF 420750.00) supporting Bills of Entry and invoices, or invoice evidence, were on record showing that goods had been imported. No proof was furnished in the appeal for two remittances (NLG 31764.12 and NLG 45149.15). The Tribunal identified an apparent clerical/inadvertent error in the show cause annexure where one remittance was recorded as NLG 4,207,750.00 instead of FRF 420,750.00. Applying the statutory test, the Tribunal held that the proven contravention related only to the two remittances for which no Exchange Control Copy/import proof was produced, and not to the entire aggregate amount alleged in the impugned order.Contravention established only in respect of two remittances for which import proof was not produced; other remittances were proved to relate to actual imports.Service of show cause notice and principles of natural justice - penalty under Section 50 of FERA - Whether the ex parte adjudication was vitiated by defective service of the show cause memorandum or other breach of natural justice requiring remand. - HELD THAT: - The Tribunal noted absence of record showing effective service of the memorandum dated 31.05.2002 and that the memorandum itself was silent about a subsequent hearing date. The show cause and hearing notices were returned with remark 'No Such Person' but there were no documented efforts by the Adjudicating Authority to ascertain the company's changed status or address before proceeding ex parte. The Tribunal observed that proceedings had been conducted hastily and that the adjudication relied on erroneous aggregate figures. Nonetheless, taking into account the long passage of time and difficulty of reconstructing records, the Tribunal chose not to remit the matter; instead it dealt with consequences of the procedural deficiencies by adjusting relief.Ex parte proceedings reflected defects in service and procedural haste, but matter not remanded; Tribunal addressed procedural lapse by reducing the penalty.Reduction of penalty in the interest of justice for procedural lapse - penalty under Section 50 of FERA - Whether the penalty imposed by the Adjudicating Authority should be modified in view of findings on proved contraventions and procedural deficiencies. - HELD THAT: - Having concluded that only a small portion of the alleged contravention remained unproven and noting the age of the proceedings and difficulty in reconstructing records, the Tribunal exercised its remedial discretion to reduce the quantum of penalty rather than remanding for fresh adjudication. The Tribunal quantified the limited contravention and, in the interest of justice, significantly reduced the penalty imposed on the erstwhile company (now the appellant). This modification was effected as a final adjudicatory step instead of sending the matter back to the Adjudicating Authority.Penalty reduced and impugned adjudication order modified; appeal partly allowed.Final Conclusion: The Tribunal held that import documents proved actual imports in respect of three remittances and that contravention stood established only for two remittances for which no Exchange Control Copy/import proof was produced; procedural defects in service and an apparent clerical error in the show cause annexure were noted. In the interest of justice and given the long delay, the Tribunal reduced the penalty imposed by the Adjudicating Authority and modified the impugned order, allowing the appeal partly.

2024 (9) TMI 1034 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues:
Challenge to order under Section 19(1) of FEMA imposing penalty for contravention of Section 42(1) of FEMA.

Analysis:
The appeal was filed challenging the order imposing a penalty of rupees five lacs on the Appellant for contravention of Section 42(1) of FEMA. The Appellant, a Managing Director of a company, was alleged to have contravened FEMA provisions. The Adjudicating Authority found against the Appellant without considering the facts and provisions of law. The Appellant argued that he was not directly responsible for compliances as it was the Principal Compliance Officer's role. Reference was made to the Apex Court judgment in Salendra Swaroop Vs. Deputy Director to support the argument.

The Adjudicating Authority's order was challenged on the grounds that the Appellant was not directly responsible for the contravention under Section 42(1) of FEMA. The Appellant argued that the Adjudicating Authority did not consider his defenses and failed to establish his knowledge or lack of due diligence in preventing the contravention. The Appellant also pointed out that the Principal Compliance Officer took responsibility, and the penalty was imposed on him as well.

The Tribunal considered the arguments of both parties and examined the materials on record. It noted that the Company had contravened FEMA provisions, but the main issue was the Appellant's responsibility under Section 42(1) of FEMA. The Tribunal analyzed Section 42 of FEMA, emphasizing that liability under the section applies to those in charge of the company's business conduct, subject to the Proviso excluding liability if the contravention occurred without their knowledge and due diligence was exercised to prevent it. The Appellant argued that he was not directly in charge of compliances and had taken due diligence measures.

The Tribunal found that the Adjudicating Authority's order lacked consideration of the Appellant's defenses regarding knowledge and due diligence. It concluded that the Appellant had proven that the contravention was not within his knowledge, and he had exercised due diligence to prevent it. Therefore, the Tribunal set aside the impugned order and allowed the appeal in favor of the Appellant.

Company Director Escapes FEMA Section 19(1) Penalty After Proving Due Diligence Defense
The Appellate Tribunal under SAFEMA set aside a penalty order imposed under Section 19(1) of FEMA for contraventions of Section 42(1). The appellant, who was deemed in-charge of company business, successfully argued that the contraventions occurred without his knowledge and that he had exercised due diligence to prevent violations by implementing comprehensive compliance policies and safeguards. The Tribunal found that the Adjudicating Authority failed to address these arguments in its order and ruled in favor of the appellant, allowing the appeal and setting aside the penalty.

Deemed liability of persons in charge of a company for contraventions under Section 42(1) of FEMA - proviso to Section 42(1) - knowledge and due diligence defence - application of Section 42(1) to a managing director - obligation of adjudicating authority to record findings on knowledge and due diligenceDeemed liability of persons in charge of a company for contraventions under Section 42(1) of FEMA - proviso to Section 42(1) - knowledge and due diligence defence - application of Section 42(1) to a managing director - obligation of adjudicating authority to record findings on knowledge and due diligence - Whether the Managing Director could be held liable under Section 42(1) of FEMA notwithstanding his plea that the contravention was without his knowledge and that he had exercised due diligence to prevent it, and whether the Adjudicating Authority erred in not dealing with that plea. - HELD THAT: - Section 42(1) of FEMA creates a deeming provision making every person who, at the time of contravention, was in charge of and responsible to the company for the conduct of its business liable for the contravention; the proviso, however, exempts such person if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent it. The Appellant, who had been the Managing Director, specifically pleaded that compliance responsibility rested with the Principal Compliance Officer and that safeguards, policies and audits were in place evidencing due diligence. The Adjudicating Authority's order is silent and cryptic on these specific pleas and does not record any finding either rejecting the Appellant's contention of lack of knowledge or negativing his asserted exercise of due diligence. Where the statutory proviso is invoked, the adjudicatory body must examine and record reasons on whether the exemption is established; mere imposition of penalty without addressing the defence available under the proviso is impermissible. Having found that the Adjudicating Authority did not consider or decide the defence of absence of knowledge and due diligence, and that the material supports the Appellant's plea that compliance was entrusted to another and safeguards existed, the Tribunal concluded that the penalty could not stand. [Paras 12, 13, 14]Impugned order imposing penalty set aside; Appeal allowed for failure of the Adjudicating Authority to consider and record findings on the Appellant's defence under the proviso to Section 42(1) of FEMA.Final Conclusion: The Tribunal allowed the appeal, quashed the penalty imposed under Section 42(1) of FEMA, and set aside the Adjudicating Authority's order for having failed to consider and record findings on the Appellant's defence that the contravention occurred without his knowledge and that he exercised due diligence to prevent it.

2024 (9) TMI 1033 - APPELLATE TRIBUNAL UNDER SAFEMA; AT NEW DELHI FEMA

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Forex company wins appeal, gets seized Rs 11 lakh released; individual guilty of dollar premium sales
The Appellate Tribunal under SAFEMA allowed the appeal by the forex company and dismissed the individual appellant's appeal regarding FEMA violations. The company successfully demonstrated that seized Indian currency of Rs. 11 lakhs was properly accounted for through bank records, and foreign currency holdings were adequately documented. The Tribunal found no contraventions by the company and ordered release of all seized currency. However, the individual appellant was found guilty of selling US dollars at premium rates to Nigerian HC officials. The Rs. 5 lakh penalty already deposited by the individual was deemed sufficient with no additional payment required.

Confiscation for contravention of conditions of licence issued by Reserve Bank of India - FFMC licence conditions and liability of company and director - admissibility and accounting explanation for seized cash - reliability of statement recorded under Section 37 of FEMA - imposition and payment of penalty under FEMAFFMC licence conditions and liability of company and director - confiscation for contravention of conditions of licence issued by Reserve Bank of India - admissibility and accounting explanation for seized cash - Whether M/s Duggal Forex Pvt. Ltd. committed contravention warranting confiscation of Indian and foreign currency and imposition of penalty - HELD THAT: - The Appellate Tribunal examined the records produced by M/s Duggal Forex Pvt. Ltd. showing withdrawals and supporting bills for foreign currency transactions and found that the Adjudicating Authority had not considered those records and was silent on the explanations tendered. On the material placed before the Tribunal the company's accounts did not disclose irregularity or non compliance warranting confiscation. The Tribunal therefore concluded that the company had not committed the contravention alleged and that the seized Indian and foreign currency recovered from the company's premises had been wrongly confiscated. [Paras 5, 6]Appeal of M/s Duggal Forex Pvt. Ltd. allowed; Indian and foreign currency seized from its premises directed to be released.Reliability of statement recorded under Section 37 of FEMA - FFMC licence conditions and liability of company and director - imposition and payment of penalty under FEMA - Whether Shri Sumesh Duggal committed contraventions justifying confiscation and penalty and whether any additional penalty is payable - HELD THAT: - The Tribunal found that the evidence on record showed that Shri Sumesh Duggal personally engaged in sale of US dollars at premium to officials of the Nigerian High Commission and that his statements and corroborative material established his involvement in illegal dealings in foreign exchange. Having so found, the Tribunal dismissed his appeal. It also noted that Shri Sumesh Duggal had deposited the penalty of Rs.5,00,000 as pre deposit and therefore no further amount was payable by him. [Paras 5, 6]Appeal of Shri Sumesh Duggal dismissed; no additional penalty payable in view of pre deposit.Final Conclusion: The appeal of M/s Duggal Forex Pvt. Ltd. is allowed and the Indian and foreign currency seized from its premises is directed to be released. The appeal of Shri Sumesh Duggal is dismissed; his pre deposit of penalty discharges any further liability.

2024 (9) TMI 938 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Natural justice requires a clear personal hearing before final adjudication when a case is separately considered.
An adjudication order was held unsustainable where the appellant, whose case had been separated for independent consideration, was not given a clear further personal hearing before finalisation. The record showed that a separate hearing had been contemplated and that the appellant was distinguished from the other noticees, but the final record did not establish that the required subsequent hearing occurred. On that basis, the adjudication process was found to be vitiated by breach of fair procedure and natural justice, and the matter was remanded for fresh hearing before the appropriate authority.

Denial of opportunity of hearing - principles of natural justice - remand for fresh hearing - quashing of ex parte adjudication - authority competent to adjudicate post-repealDenial of opportunity of hearing - principles of natural justice - Appeal by Mrs. A.A. Parekh against imposition of penalty under FERA, 1947 - HELD THAT: - The Adjudicating Officer had imposed a penalty of Rs.900/- on Mrs. A.A. Parekh for contravention of Section 4(1) of FERA, 1947. Having regard to the small amount of penalty and the age of the proceedings, the appellant did not press the appeal. The Tribunal accepted the concession and dismissed the appeal, while expressly observing that the impugned order would not be taken adversely against her for any other purpose. No determination was required on merits or on any alleged breach of natural justice in respect of her case. [Paras 1]Appeal dismissed; impugned order shall not be taken adverse to Mrs. A.A. Parekh for any other purpose.Denial of opportunity of hearing - remand for fresh hearing - quashing of ex parte adjudication - authority competent to adjudicate post-repeal - Whether A.P. Parekh was denied opportunity of personal hearing and the consequent remedial course - HELD THAT: - The record shows that a personal hearing was granted to A.P. Parekh on 08.04.1986 and the order records acceptance of his request for separate hearing. The impugned adjudication dated 20.09.2000, however, appears to have been passed later without any subsequent hearing of the appellant, indicating that he was effectively not afforded a hearing before the Adjudicating Officer who passed the order. Given this deprivation of hearing and the passage of time, the Tribunal found the appellant's plea partly corroborated by the impugned order and concluded that the adjudication in his case must be quashed and remitted. The Tribunal further clarified that since FERA 1947 and FERA 1973 have been repealed by FEMA 1999, the Department must place the appellant's matter before the appropriate authority of equivalent rank under FERA or FEMA so that the appellant may be afforded a fresh opportunity of hearing (which may include the Adjudicating Authority under FEMA as notified). [Paras 9, 10, 11]Impugned order dated 20.09.2000 quashed insofar as it relates to A.P. Parekh; matter remanded for fresh hearing before the appropriate authority of equivalent rank under FERA/FEMA.Final Conclusion: The appeal of Mrs. A.A. Parekh is dismissed by consent with a protective observation; the appeal of A.P. Parekh is allowed in part - the adjudication dated 20.09.2000 is quashed as regards him and the matter is remitted for fresh hearing before the appropriate authority under FERA/FEMA.

2024 (8) TMI 664 - APPELLATE TRIBUNAL UNDER SAFEMA ; AT NEW DELHI. FEMA

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Two employees fined Rs. 50,000 each under FEMA Section 5 for carrying unauthorized US$ 50,000 traveler's cheques
The Appellate Tribunal under SAFEMA dismissed appeals by two employees charged under FEMA Section 5 for carrying US$ 50,000 in traveler's cheques to Sri Lanka without RBI permission. The Export Executive appellant claimed ignorance of the violation, while the Finance Manager appellant denied involvement in procuring additional foreign exchange. The Tribunal held both liable - the Export Executive for failing to verify RBI permission despite ignorance of law being no excuse, and the Finance Manager for vicarious liability given his position. However, considering their minor roles as employees compared to company directors, the Tribunal reduced their penalties from Rs. 1,00,000 to Rs. 50,000 each, partially allowing the appeals.

Prohibition on drawal of foreign exchange without prior RBI permission - contravention of Foreign Exchange Management provisions by possession of excess foreign exchange - vicarious liability of employees for corporate contraventions under FEMA - ignorance of law not a defence to statutory FEMA obligations - requirement to remit through banking channels rather than personal carriage for certain foreign exchange drawals - judicial reduction of penalty in view of minor role and mitigationProhibition on drawal of foreign exchange without prior RBI permission - contravention of Foreign Exchange Management provisions by possession of excess foreign exchange - Liability of the appellants for drawal/possession of US$50,000 (in traveller's cheques) without prior RBI permission in contravention of FEMA and the Current Account Transactions Rules. - HELD THAT: - The Tribunal found as an admitted fact that traveller's cheques totalling US$50,000 were drawn from two authorised dealers in two separate applications on the company's pad in favour of the employee-appellant and were issued to him in his name. The bench held that absence of an RBI permit at the time of travel made the possession and carriage of the additional US$25,000 (over the US$25,000 threshold) a contravention of the statutory prohibition on drawal/possession without prior RBI permission. The Tribunal rejected the contention that non-involvement in the application process absolved the appellants: the employee-appellant was not carrying any RBI permission and therefore could not claim immunity; similarly the Finance Manager, by virtue of his role, could not be presumed unaware and is vicariously liable. Ignorance of the factual or legal position did not relieve them of statutory liability for carrying excess foreign exchange without permission. [Paras 5]Both appellants held liable for contravention of the FEMA/Current Account Transactions rules in respect of carrying the excess foreign exchange without RBI permission.Vicarious liability of employees for corporate contraventions under FEMA - ignorance of law not a defence to statutory FEMA obligations - Whether the appellants, as employees (Export Executive and Finance Manager), could be absolved of personal liability on the basis that they did not sign applications or effect payment for the traveller's cheques. - HELD THAT: - The Tribunal analysed the roles of the appellants and concluded that non-signature of the application or non-payment did not immunize them. The Export Executive was in possession of the traveller's cheques without RBI permission and thus bore liability despite assertions of lack of knowledge; the Finance Manager, given his office, could not be presumed unaware of the additional drawal and is vicariously liable for the contravention. The Tribunal applied the principle that ignorance (of law or of the precise factual irregularity) does not excuse non-compliance with statutory restrictions under FEMA. [Paras 5]Appellants are not absolved by their asserted lack of involvement in applying for or paying for the traveller's cheques; they remain personally liable under FEMA.Judicial reduction of penalty in view of minor role and mitigation - Appropriate quantum of penalty to be imposed on the appellants given their roles and comparative reduction made to the Managing Director's penalty. - HELD THAT: - While upholding liability, the Tribunal exercised its discretionary power to moderate the monetary sanction in light of the appellants' subordinate roles in the company and by reference to the reduction already made to the Managing Director's penalty. Observing that the appellants had minor roles relative to the principal directors, the Tribunal reduced each appellant's penalty from Rs.1,00,000 to Rs.50,000 as a measure of equitable mitigation. It further adjusted the already pre-deposited amounts against the reduced penalties. [Paras 5, 6]Penalty on each appellant reduced to Rs.50,000 and adjusted with the pre-deposit; nothing further payable.Final Conclusion: Appeals partly allowed: liability under FEMA for possessing excess traveller's cheques without RBI permission affirmed against both appellants; penalties reduced to Rs.50,000 each (adjusted against pre-deposits) and otherwise the appeals dismissed.

2024 (9) TMI 1032 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

AI TextQuick Glance (AI)Headnote

Issues: (i) Whether the Foreign Exchange Regulation Act, 1973 applied to the appellant bank and whether the adjudicating authority had jurisdiction over the impugned transactions; (ii) whether the appellant bank and its former chief executive officer were liable for abetment of the contraventions under the Act and whether the evidentiary challenge based on non-supply of documents succeeded; (iii) whether the penalties imposed were excessive and required reduction.

Issue (i): Whether the Foreign Exchange Regulation Act, 1973 applied to the appellant bank and whether the adjudicating authority had jurisdiction over the impugned transactions.

Analysis: The transactions concerned credits into the appellant bank's non-resident convertible rupee accounts maintained with banks in India, which enabled foreign exchange payments outside India and were effected through banking arrangements in India. The statutory scheme, including the territorial reach of the Act and the exchange-control framework, brought such transactions within the regulatory sweep of the Indian law. The fact that the appellant was a foreign bank did not exclude applicability where the impugned acts produced their effect in India and the account operations were carried out through Indian banking channels.

Conclusion: The jurisdiction objection failed and the Act was held applicable against the appellant bank.

Issue (ii): Whether the appellant bank and its former chief executive officer were liable for abetment of the contraventions under the Act and whether the evidentiary challenge based on non-supply of documents succeeded.

Analysis: The adjudicating authority relied on the repeated credits, the appellant bank's own telex instructions, and the surrounding correspondence to infer instigation and intentional facilitation of the unlawful credits. The principle of abetment was taken from the statutory offence provision read with the settled meaning of instigation and intentional aid. The challenge based on natural justice was rejected in substance because the telex originated from the appellant bank, while the meeting minutes and related material were treated as part of the relied-upon record showing the bank's awareness of the transactions. The burden regarding absence of culpable mental state was not discharged.

Conclusion: The finding of abetment was upheld against the appellant bank and the liability of the former chief executive officer was also sustained.

Issue (iii): Whether the penalties imposed were excessive and required reduction.

Analysis: Although the contraventions were sustained, the original penalties were found to be disproportionately high in the circumstances. The Tribunal considered the nature of the charge, the factual matrix, and the ends of justice, and reduced the monetary consequences accordingly.

Conclusion: The penalty on the appellant bank and the former chief executive officer was reduced.

Final Conclusion: The appeal arising from the later order was dismissed, while the appeals challenging the earlier order succeeded only to the extent of reduction of penalty, with the substantive findings on jurisdiction and contravention maintained.

Ratio Decidendi: A foreign bank maintaining and operating non-resident rupee accounts through Indian banking channels can fall within the territorial reach of exchange-control law where its instructions instigate or facilitate contraventions in India, and repeated conduct supported by surrounding correspondence may establish abetment even in the absence of direct physical presence in India.

Territorial reach of exchange-control law upheld for foreign bank accounts routed through Indian channels, with abetment sustained and penalties reduced.
A foreign bank operating non-resident rupee accounts through Indian banking channels fell within the territorial reach of exchange-control law because the impugned credits produced effects in India and were routed through arrangements in India; the jurisdiction objection therefore failed. Repeated credits, the bank's own telex instructions, and surrounding correspondence were sufficient to infer instigation and intentional aid, so abetment was upheld against the bank and its former chief executive officer, and the natural justice challenge based on non-supply of documents was rejected on the record relied upon. The Tribunal found the penalties disproportionate and reduced them accordingly.

Jurisdiction of domestic penal/regulatory law over non-resident banks maintaining correspondent/Vostro accounts - abetment as an independent offence under Section 64(2) of FERA - application of Section 107 IPC (definitions of instigation, conspiracy and aiding) to establish abetment under FERA - admissibility and reliance on out-of-country correspondence and contemporaneous minutes for establishing instigation - presumption of culpable mental state under Section 59 of FERA and shifting burden of proof - vicarious/official liability of managerial officer under Section 68(1) of FERA - judicial moderation of disproportionate penaltiesJurisdiction of domestic penal/regulatory law over non-resident banks maintaining correspondent/Vostro accounts - FERA applies to the appellant bank notwithstanding its non-resident status because it maintained and operated correspondent/Vostro accounts in India and its acts abroad produced effects in India - HELD THAT: - The Tribunal upheld the Adjudicating Authority's conclusion that opening and operating a correspondent account in India by the appellant bank brought it within the territorial ambit of FERA. The Adjudicating Authority had complied with the earlier FERA Board direction and recorded that the appellants admitted the factual matrix; further, acts done abroad which produce effects in India are to be treated as done in India for the purpose of FERA. Given undisputed credits into the appellant's NRE/Vostro accounts in India and telex instructions emanating from the appellant, the Tribunal found it correct to subject the appellant to FERA jurisdiction and to proceed with adjudication. [Paras 16]Jurisdictional objection rejected; FERA applies to the appellant bank in respect of the transactions in question.Abetment as an independent offence under Section 64(2) of FERA - application of Section 107 IPC (definitions of instigation, conspiracy and aiding) to establish abetment under FERA - presumption of culpable mental state under Section 59 of FERA and shifting burden of proof - The charge of abetment under Section 64(2) read with relevant provisions of FERA is established against the appellant bank on the material before the Adjudicating Authority - HELD THAT: - The Tribunal accepted the Adjudicating Authority's application of the concepts in Section 107 IPC to determine abetment under Section 64(2) of FERA because FERA does not define abetment. The record showed repeated, closely timed credits into the appellant's NRE/Vostro accounts and telex communications from the appellant requesting recall and crediting of funds, which the Adjudicating Authority treated as instigation/aid. The Tribunal relied on the principle that acts done outside India whose effect is in India are actionable under FERA and noted Section 59's presumption of culpable mental state applicable to adjudication proceedings; on the totality of facts it held the burden on the appellant to rebut the presumption was not discharged and sustained the finding of abetment. [Paras 18, 20]Abetment charge established against the appellant bank.Admissibility and reliance on out-of-country correspondence and contemporaneous minutes for establishing instigation - The telex emanating from the appellant could be relied upon; the Minutes of the meeting, though admissible as a record forwarded by RBI, cannot stand if its author could not be cross-examined, but the case of abetment remains established on the total evidence even without admitting the Minutes as formal evidence - HELD THAT: - The Tribunal observed that the telex dated 21.06.1991 originated from the appellant and therefore its non production to the appellant at a later stage caused no prejudice. The Minutes of the meeting prepared by ANZ Grindlays' official could not be admitted as evidence to the extent they contained inferences by the author because the author was not available for cross examination; nevertheless, the Adjudicating Authority had identified the telex and other correspondence (Item No.18) as relied upon and the Tribunal examined whether the abetment finding survived without the Minutes. Considering the repeated credits and telex communications, the Tribunal concluded the abetment finding could stand. [Paras 17]Reliance on the telex upheld; Minutes may not be admitted for the author's inferences but are not necessary to sustain the abetment finding.Vicarious/official liability of managerial officer under Section 68(1) of FERA - Liability of the CEO under Section 68(1) of FERA is established because no evidence showed the contraventions occurred without his knowledge or that he exercised due diligence to prevent them - HELD THAT: - The Adjudicating Authority recorded absence of evidence that the contraventions took place without the CEO's knowledge or that he had exercised all due diligence; the CEO had paid a separate small penalty under the other adjudication and did not contest that order. On this basis the Tribunal affirmed the finding of individual liability for the contraventions in respect of the appeal before it. [Paras 21]Charge against the individual appellant (CEO) under Section 68(1) established.Judicial moderation of disproportionate penalties - Penalties imposed under the impugned order dated 09.07.2008 were disproportionate and are reduced to meet the ends of justice - HELD THAT: - While upholding the finding of contravention and abetment, the Tribunal found the quantum of penalties originally imposed to be excessive relative to the culpability found. Exercising its corrective jurisdiction, the Tribunal reduced the bank's penalty to Rs. 1,00,00,000 and the individual appellant's penalty to Rs. 5,00,000, as a proportionate measure which would meet the ends of justice. [Paras 22]Original penalties reduced to a bank penalty of Rs.1,00,00,000 and individual penalty of Rs.5,00,000.The appeal against the impugned order dated 11.02.2010 is dismissed - HELD THAT: - The Tribunal declined to interfere with the Adjudicating Authority's order of 11.02.2010 under which nominal penalties had been imposed; the appeal challenging that order was dismissed and disposed of. [Paras 23]Appeal No. FPA-FE-07/MUM/2013 dismissed.Final Conclusion: The Tribunal dismissed the challenge to the 11.02.2010 order and partly allowed the appeals against the 09.07.2008 order: it affirmed jurisdiction and the findings of abetment and individual liability but reduced the penalties to Rs.1,00,00,000 on the bank and Rs.5,00,000 on the individual and disposed of the appeals accordingly.

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