Supreme Court Upholds Customs Act Penalties & FERA Violation Ruling

The Supreme Court upheld the confiscation of foreign currency under the Customs Act, 1962, and penalties imposed, emphasizing the significance of findings in Customs proceedings. The Court reinstated the order of the Special Director of Enforcement, confirming the illegal acquisition and transfer of foreign exchange without RBI permission under FERA. Jatin Jhaveri's appeal for release of confiscated currency and interest was dismissed, directing him to refund the amount with interest. The judgment highlights the necessity of obtaining RBI permissions for foreign exchange acquisition under FERA Section 8(1).

---

---

Issues Involved:
1. Legality of the confiscation of foreign currency under the Customs Act, 1962.
2. Contravention of provisions under Section 8(1) of the Foreign Exchange Regulation Act, 1973 (FERA).
3. Entitlement to the release of confiscated currency and interest thereon.

Issue-wise Detailed Analysis:

1. Legality of the Confiscation of Foreign Currency under the Customs Act, 1962:
The case began with the seizure of foreign currency from Ajit Dodia at Mumbai Airport, who was found with US $ 403,550 in his luggage. The Commissioner of Customs concluded that the currency was being taken out of India illegally and imposed penalties on Jatin Jhaveri, Ajit Dodia, and Jitendra Dodia. The Customs Excise and Gold Control Appellate Tribunal (CEGAT) later reduced the penalties but confirmed the confiscation of the currency. The High Court upheld this decision, emphasizing that the findings in the Customs proceedings had a definite bearing on the case, even though they were not binding on FERA proceedings.

2. Contravention of Provisions under Section 8(1) of FERA:
The Directorate of Enforcement issued a Show Cause Notice for contravention of Section 8(1) read with 64(2) of FERA, which culminated in an order by the Special Director of Enforcement. The Special Director found Jatin Jhaveri guilty of illegally acquiring and transferring foreign exchange without the requisite permission from the Reserve Bank of India (RBI). The Appellate Tribunal for Foreign Exchange initially quashed the order of confiscation for US $ 289,250, but the High Court later upheld this decision. However, the Supreme Court found that the absence of any special or general permission from the RBI was critical. The Court emphasized that "acquisition" of foreign exchange must be with the permission of the RBI, which was not established in this case.

3. Entitlement to the Release of Confiscated Currency and Interest Thereon:
Jatin Jhaveri filed a writ petition seeking the release of US $ 289,250 along with interest. The High Court allowed the release of the currency but denied the interest. During the pendency of the appeals, the Customs Department refunded the amount in Indian Rupees, subject to the outcome of the appeals. The Supreme Court set aside the orders of the Appellate Tribunal and the High Court, restoring the order of the Special Director of Enforcement, which included the confiscation of the currency. Consequently, Jatin Jhaveri was directed to return the refunded amount with interest at 10% per annum.

Conclusion:
The Supreme Court allowed the appeals by the Union of India, reinstating the order of the Special Director of Enforcement, which included the confiscation of the foreign currency and penalties under FERA. The appeal by Jatin Jhaveri for the release of the currency and interest was dismissed, and he was directed to refund the amount with interest. The judgment underscores the importance of obtaining requisite permissions from the RBI for the acquisition of foreign exchange under Section 8(1) of FERA.

---