2009 (7) TMI 766 - HC - Companies Law

High Court Reverses Penalty for Appellant in FERA Case

Prabhat Kumar Srivastava Versus Director of Enforcement

The High Court held that the appellant successfully rebutted the presumption of a culpable mental state under Section 59 of FERA. The Court found that the ... Penalty of ₹ 5.00 lakh imposed for the contravention of provisions of section 8(1) read with section 64(2) of the Foreign Exchange Regulation Act, 1973 Held that:- In the present case, the affidavit and the currency declaration by Dr. N.S. Anand cannot be rejected as has been done by the respondent. If that be so it will be difficult to hold that the petitioner had acquired the foreign exchange in contravention of section 8(1) of Foreign Exchange Regulation Act. Even giving the widest connotation to the term acquisition, it would not include act of the petitioner in the present facts and circumstances and therefore he is entitled to be acquitted of the charge insofar as it relates to the acquisition of foreign currencies recovered from him. The findings of the respondent are based on its own presumptions and assumptions and cannot be termed to be based on legal principles and therefore the Court would be justified in inferring with such perverse findings. The findings have been arrived at without any basis which has been successfully rebutted by the petitioner and in the circumstances it has to be held that adjudication order is not sustainable nor is the order dated 30-9-2005 of the Appellate Board sustaining the same. Consequently the appeal of the appellant is allowed and the order of penalty amount awarded against the petitioner is also quashed. Consequently the petitioner shall be entitled for the refund of foreign currencies and Indian currency seized from him and refund of any amount deposited as penalty. Issues Involved:1. Contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.2. Validity of the appellant's defense based on the affidavit and declaration by Dr. Anand.3. Presumption of culpable mental state under Section 59 of FERA.4. Basis and legality of the findings by the adjudicating authority and Appellate Tribunal.Issue-wise Detailed Analysis:1. Contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973:The appellant was penalized for violating Section 8(1) of the Foreign Exchange Regulation Act, 1973, which restricts dealing in foreign exchange without the Reserve Bank of India's permission. The appellant was found in possession of various foreign currencies, including US$ 64,015, Canadian Dollar 4789, Saudi Riyals 600, Italian Lira 5,00,000, and Indian currency of Rs. 43,800. The authorities alleged that the appellant had 'otherwise acquired foreign exchange' without permission, leading to the confiscation of the currencies and a penalty of Rs. 5.00 lakh.2. Validity of the appellant's defense based on the affidavit and declaration by Dr. Anand:The appellant contended that the foreign currencies belonged to Dr. Anand of Doha, who had given them to him for safekeeping. Dr. Anand provided an affidavit and a currency declaration form supporting this claim. The affidavit stated that Dr. Anand had declared US$ 82,000 at the customs counter in 1991 and had left the money with the appellant for setting up a charitable hospital. The adjudicating authority and the Appellate Tribunal dismissed this defense, doubting the credibility of Dr. Anand's affidavit and the appellant's inability to provide Dr. Anand's address and phone number.3. Presumption of culpable mental state under Section 59 of FERA:Section 59 of FERA presumes a culpable mental state for offenses under the Act, but this presumption is rebuttable. The appellant argued that the authorities failed to prove his culpable mental state beyond a reasonable doubt. The appellant's defense relied on the affidavit and declaration by Dr. Anand, which the authorities dismissed based on assumptions rather than concrete evidence.4. Basis and legality of the findings by the adjudicating authority and Appellate Tribunal:The adjudicating authority and the Appellate Tribunal based their findings on the assumption that the appellant's inability to recall Dr. Anand's address and phone number indicated that the foreign currencies did not belong to Dr. Anand. They also doubted the appellant's claim of safekeeping the money for a charitable hospital due to the lack of concrete plans for the hospital. The High Court found these assumptions insufficient to prove the appellant's culpable mental state. The Court noted that the affidavit and declaration by Dr. Anand were not disproven and that the authorities' findings were based on presumptions without concrete evidence.Conclusion:The High Court concluded that the appellant successfully rebutted the presumption of a culpable mental state. The Court held that the authorities' findings were based on assumptions and lacked legal principles. Consequently, the Court set aside the adjudication order and the Appellate Tribunal's order, quashing the penalty and ordering the return of the seized foreign and Indian currencies to the appellant. The appeal was allowed, and the parties were directed to bear their own costs.