Retracted custodial statements and uncross-examined third-party evidence cannot safely sustain FERA penalty proceedings.

Retractions of custodial statements were treated as weak and unsafe material for penalty proceedings where voluntariness was doubtful and no independent corroboration existed. Third-party statements recorded under Section 40 were also regarded as unreliable when the affected party had no opportunity for cross-examination; once such material was excluded, the remaining evidence was said to be insufficient to sustain the penalty order. The discussion further notes that, in the absence of admissible supporting evidence, the foundation of liability fails and the quantum of penalty need not be separately examined.

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Issues: (i) Whether statements recorded from the appellants while in custody, later retracted, could be relied upon for imposing penalty under the Foreign Exchange Regulation Act, 1973; (ii) Whether statements of third persons recorded under Section 40 of the Foreign Exchange Regulation Act, 1973, without affording cross-examination, could form the basis of the penalty order and whether the impugned order was sustainable on evidence.

Issue (i): Whether statements recorded from the appellants while in custody, later retracted, could be relied upon for imposing penalty under the Foreign Exchange Regulation Act, 1973.

Analysis: The statements were recorded after the appellants had been taken into custody and were subsequently retracted. Such statements, if shown to be involuntary or obtained under coercion, duress or improper custody, cannot be treated as reliable material for penal action. The evidentiary value of a retracted custodial statement is weak and requires caution, particularly where there is no independent corroboration supporting its voluntariness and truth.

Conclusion: The retracted custodial statements could not, by themselves, safely sustain the penalty proceedings against the appellants.

Issue (ii): Whether statements of third persons recorded under Section 40 of the Foreign Exchange Regulation Act, 1973, without affording cross-examination, could form the basis of the penalty order and whether the impugned order was sustainable on evidence.

Analysis: The persons whose statements were relied upon had been examined while the appellants had no opportunity to cross-examine them. Where adjudication is based on such statements, denial of cross-examination undermines fairness and deprives the material of evidentiary reliability. Once those statements are excluded, the remaining material was insufficient to support the findings, and the order could not be sustained as being based on no evidence. The issue of quantum of penalty did not require separate consideration once the foundation of liability failed.

Conclusion: The statements under Section 40, not tested by cross-examination, could not be relied upon, and the penalty order was unsustainable for want of evidence.

Final Conclusion: The penalty orders passed by the enforcement authorities and the appellate tribunal were set aside, and the deposited amount was directed to be refunded to the appellant concerned.

Ratio Decidendi: A penalty under FERA cannot rest on a retracted custodial confession or on third-party statements not subjected to cross-examination, and where such material is excluded, the adjudication fails for want of evidence.

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