Procedural vagueness and untested retracted statements cannot sustain FEMA penalties or confiscation without corroboration and cross-examination.

A FEMA adjudication was held unsustainable where the show cause notice lacked adequate particulars of the alleged contravention and merely enclosing the complaint did not cure the procedural defect. The noticees were not effectively enabled to meet the case against them, and prejudice was not shown to be absent, so the notice and ensuing proceedings were vitiated. Penalties and confiscation were also rejected because the findings rested mainly on co-noticees' retracted statements, without sufficient corroboration or meaningful opportunity for cross-examination. Reliance on untested and promptly retracted statements was treated as a serious breach of fairness and natural justice, and the adjudication order was set aside with consequential refund.

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Issues: (i) whether the show cause notice and the connected adjudication process suffered from vagueness and non-compliance with the mandatory procedural requirements; (ii) whether the penalties and confiscation could be sustained mainly on the basis of retracted statements without adequate corroboration or opportunity of cross-examination.

Issue (i): whether the show cause notice and the connected adjudication process suffered from vagueness and non-compliance with the mandatory procedural requirements

Analysis: The notice did not set out the necessary particulars of the alleged contravention with adequate clarity, and merely enclosing the complaint was held insufficient to satisfy the procedural requirement. The adjudication process was also found to be defective because the noticees were not effectively enabled to challenge the notice and the alleged defect was not shown to have caused no prejudice.

Conclusion: The show cause notice and the ensuing adjudication proceedings were held to be vitiated and unsustainable.

Issue (ii): whether the penalties and confiscation could be sustained mainly on the basis of retracted statements without adequate corroboration or opportunity of cross-examination

Analysis: The adjudication rested substantially on statements of co-noticees who retracted the statements the very next day. The retraction was not independently examined with the caution required, and the findings were not supported by sufficient corroborative material. The absence of cross-examination and the reliance on untested statements were treated as serious violations affecting the fairness of the proceedings.

Conclusion: The penalties and confiscation could not be sustained.

Final Conclusion: The appeals were allowed and the impugned adjudication order was set aside, with consequential refund of the confiscated amount after expiry of the appeal period.

Ratio Decidendi: An adjudication under FEMA cannot be sustained where the show cause notice is procedurally deficient and the findings rest principally on retracted statements that are neither adequately corroborated nor tested through cross-examination, as such defects vitiate fairness and natural justice.

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