2013 (2) TMI 396 - SC - FEMA

Appeals dismissed for FERA violations; evidence shows offshore paper company control and directed payments; Section 51 and Rule 3 complied

M/s Telestar Travels Pvt. Ltd. & Ors. Versus Special Director of Enforcement

SC dismissed the appeals, finding sufficient evidence of FERA violations, including control of an offshore paper company and payments directed by the ... Violation of FERA - Ex parte Adjudication Order and Delay in Pronouncement - compliance with the principles of natural justice - Whether process of purchase of tickets of appellant was a commercial arrangement that was legally permissible? - Appellant carries on a travel agency and specialises in booking of tickets for crew members working on ships - assessee contested for suffering from any illegality or material irregularity causing prejudice - Held that:- No such illegality or irregularity has been demonstrated. That apart delayed pronouncement of the order by the Adjudicating Authority was not urged as a ground of challenge before the Tribunal or the High Court both of whom have remained silent on this aspect. Even on the question of prejudice it is find that the contention of assessee appeleant to be more imaginary than real. The argument regarding prejudice is founded on the plea that the appellants could not place some of the documents which they have now placed before this Court for consideration. It is further admitted that no application for permission to produce these documents was filed by them before the Adjudicating Authority no matter they could have done so if they really indeed needed to place reliance on such documents. The hearing had been concluded by the Adjudicating Authority in keeping with the requirement of Section 51 and Rule 3 of the Adjudication Rules under FERA thus no irregularity causing prejudice proved. Bountiful Ltd. was a paper company and its financial control lay in their hands - clear violation of the provisions of FERA - Held that:- The Adjudicating Authority has noticed and relied upon incriminating circumstances like instructions issued by appellant Telestar to Bountiful to remit an amount of ₹ 4,74,033/- to M/s Aarnav Shipping Company towards repairs of MV Rizcun Trader, a ship owned by one of their principals M/s United Ship Management, Hongkong. Similarly a payment of US$ 12500/- made from Bountiful Account to Mustaq Ali Najumden is also evidenced and was made on the instructions of appellant-Shri Rajesh Desai, which the latter explained to be kickbacks paid to overseas shipping company for giving ticketing business to Telestar. Suffice it to say that there may be sufficient evidence on record for the Adjudicating Authority and the Tribunal to hold that the appellants were indeed guilty of violating the provisions of FERA that called for imposition of suitable penalty against them. It was not the case of the appellants that the findings were unsupported by any evidence nor was it their case that the statements made by the appellants were un-corroborated by any independent evidence documentary or otherwise. In the circumstances, therefore, no reason to interfere with the concurrent findings of fact on the question whether Bountiful was or was not a paper company controlled by the appellants from India. Non granting of opportunity to cross examine the witness - violating the principles of natural justice - Held that:- Adjudicating Authority has mainly relied upon the statements of the appellants and the documents seized in the course of the search of their premises. But, there is no dispute that apart from what was seized from the business premises of the appellants the Adjudicating Authority also placed reliance upon documents produced by Miss Anita Chotrani and Mr. Raut. These documents were, it is admitted disclosed to the appellants who were permitted to inspect the same. The production of the documents duly confronted to the appellants was in the nature of production in terms of Section 139 of the Evidence Act, where the witness producing the documents is not subjected to cross examination. Such being the case, the refusal of the Adjudicating Authority to permit cross examination of the witnesses producing the documents cannot even on the principles of Evidence Act be found fault with. At any rate, the disclosure of the documents to the appellants and the opportunity given to them to rebut and explain the same was a substantial compliance with the principles of natural justice. That being so, there was and could be no prejudice to the appellants nor was any demonstrated by the appellants before us or before the Courts below. The third limb of the case of the appellants also in that view fails and is rejected. The Adjudicating Authority had imposed a higher penalty & the Tribunal has already given relief by reducing the same by 50%. Keeping in view the nature of the violations and the means adopted by the respondent to do that, no room for any further leniency. These appeals fail and are, hereby, dismissed with costs assessed at ₹ 50,000/- in each appeal to be deposited within two months with the SCBA Lawyers’ Welfare Fund. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an adjudication order pronounced after an inordinate delay, following conclusion of hearing, amounts to an ex parte order or violates the audi alteram partem requirement under Section 51 of FERA and the Adjudication Rules. 2. Whether statements recorded from appellants which were subsequently retracted could be treated as voluntary and relied upon by the Adjudicating Authority and the Appellate Tribunal for Foreign Exchange for the purpose of establishing control over an overseas entity. 3. Whether the characterization of an overseas entity as a 'paper company' and the finding of control and operation from India can be interfered with on appeal where the Adjudicating Authority and Tribunal have relied upon documentary material and statements obtained in investigation. 4. Whether reliance upon statements/documents produced by third parties (and not subjected to cross-examination) violated principles of natural justice or the rules of evidence applicable to FERA adjudication proceedings, and whether any such failure caused prejudice warranting interference. 5. Whether the quantum of monetary penalty imposed for contraventions of Sections 8(1) and 14 of FERA was excessive or required further reduction by this Court. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Delay in pronouncement and alleged ex parte adjudication Legal framework: Section 51 of FERA requires an opportunity of being heard for adjudication; Adjudication Rules (Rule 3) contemplate personal hearing but procedural rules of Evidence Act do not strictly apply. Precedent treatment: Court referred to authorities cautioning against inordinate delay but also to Ram Bali v. State of U.P., where delay alone was held insufficient to vitiate an order absent demonstrated prejudice. Interpretation and reasoning: The Court examined whether the authority afforded the hearings required by Section 51 and Rule 3; it found the hearing had been concluded in compliance with statutory requirements and that no application was made earlier by appellants to place additional documents before the Adjudicating Authority. The appellants' claim of prejudice from delayed pronouncement was not substantiated; documents now relied upon were not shown to have been tendered when opportunity existed. Ratio vs. Obiter: Ratio - delay in pronouncement, standing alone, does not render an adjudication order ex parte or void where statutory hearing was afforded and no prejudice is shown; authorities below having been silent on delay does not automatically entitle appellant to relief. Conclusion: The contention based on delayed pronouncement/ex parte decision rejected; no ground to set aside the adjudication on this basis. Issue 2 - Use of retracted statements and voluntariness Legal framework: Statements recorded by enforcement officers may be relied upon if voluntary; mere retraction does not render a statement involuntary. The authority must consider retraction and record reasons for rejecting it before acting on inculpatory statements (principles in K.T.M.S. Mohd.). Precedent treatment: The Court followed and applied K.T.M.S. Mohd. and related decisions that require subjective application of mind to retractions; rejected reliance on cases that would immunize retractions from being considered. Interpretation and reasoning: The Adjudicating Authority and Tribunal examined handwriting, language, inner details corroborated by documents and inter-statements among appellants; they recorded cogent reasons for treating the statements as voluntary and for rejecting retractions as afterthoughts. The Court found the authorities applied the correct legal test and adequately considered voluntariness. Ratio vs. Obiter: Ratio - retracted statements may be acted upon if the authority applies its mind, examines surrounding circumstances and records reasons for treating them as voluntary; retraction alone does not vitiate the statement. Conclusion: Reliance on the appellants' recorded statements was permissible; challenge to voluntariness fails. Issue 3 - Finding that the overseas company was a paper company controlled from India Legal framework: Determination whether an entity is a paper company and whether transfers/receipts of foreign exchange were controlled domestically is essentially a question of fact to be decided on the basis of investigative material, statements and documentary evidence. Precedent treatment: Authorities emphasize that appellate courts will not lightly interfere with concurrent findings of fact where supported by evidence and not vitiated by illegality. Interpretation and reasoning: The Adjudicating Authority and Tribunal relied on seized documents, admitted entries, invoices directing credit to the overseas account, admission of instruction-giving in statements, and records of transfers to establish that the Geneva account was used as a conduit and was operated on instructions from India. The Court noted that appellants did not contend lack of evidence or absence of corroboration for the statements; the findings were supported by the record. Ratio vs. Obiter: Ratio - concurrent findings of fact that an overseas entity was a paper company and controlled from India were adequately supported and therefore not open to interference. Conclusion: Challenge to factual finding that the overseas entity was a paper company controlled from India is rejected. Issue 4 - Reliance upon third-party statements/documents and right to cross-examination Legal framework: Adjudication under FERA is not strictly bound by Evidence Act procedures; Rule 3 indicates limited procedural formalities. Nonetheless, principles of natural justice require opportunity to test evidence; cross-examination may be necessary where its absence would cause prejudice. Precedent treatment: The Court discussed Surjeet Singh Chhabra and Kanungo & Co., recognizing circumstances where cross-examination need not be permitted (for instance where admissions bind the party or where production under Section 139 of Evidence Act occurs and documents are confronted). Interpretation and reasoning: The documents produced by third parties were disclosed and made available for inspection by appellants; production was akin to production under Section 139 (no cross-examination of producing witness). Given the appellants' own admissions and the corpus of seized material, the Court held that refusal to permit cross-examination of the third-party witnesses did not cause demonstrable prejudice. The Court emphasized that whether to allow cross-examination depends on facts and whether cross-examination would materially affect outcome. Ratio vs. Obiter: Ratio - refusal to permit cross-examination of third-party witnesses in FERA adjudication does not vitiate proceedings where documents are disclosed, confronted and the party had opportunity to rebut and no prejudice is shown; cross-examination is not an absolute right in such proceedings. Conclusion: No breach of natural justice in reliance on the disclosed third-party documents; appellants failed to establish prejudice from denial of cross-examination. Issue 5 - Proportionality and quantum of penalty Legal framework: Penalty assessment under FERA is a matter of discretion guided by nature of contravention and established facts; appellate review can interfere if quantum is disproportionate or unreasonable. Precedent treatment: Appellate Tribunal reduced penalties by 50%; Court will not lightly interfere with Tribunal's exercise of discretion where reduction already granted and where violations are established. Interpretation and reasoning: The Tribunal had already moderated the Adjudicating Authority's higher penalties by fifty percent. Given the gravity, means and deliberate nature of contraventions established by the record, the Supreme Court found no compelling reason to further reduce penalties. Ratio vs. Obiter: Ratio - absence of compelling circumstances of disproportionate punishment precludes further interference with penalty already reduced on appeal. Conclusion: Challenge to quantum of penalty dismissed; no further leniency warranted.