Natural justice and evidence reliability under FEMA led the tribunal to set aside the penalty for alleged foreign exchange contravention.

Unauthorized foreign exchange dealings under FEMA were alleged on the basis of statements, seized documents, and notebook entries, but the tribunal found the evidence insufficiently reliable. It held that unverified diary entries and statements from an absconding witness could not safely support liability, especially where the appellant was denied meaningful cross-examination. The tribunal treated the denial of cross-examination and the resulting breach of natural justice as material defects in the adjudication, and gave the benefit of doubt to the appellant. The impugned penalty order was therefore set aside.

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Issues: Whether the penalty for alleged contravention of Section 3(a) of the Foreign Exchange Management Act, 1999 could be sustained on the basis of statements and seized notebook entries when the principal witness was not produced for cross-examination and there was no clinching evidence of unauthorized foreign exchange dealings.

Analysis: The appeal turned on the evidentiary value of the material relied upon in adjudication. The record showed that the appellant denied any unauthorized foreign exchange transaction and disputed the notebook entries and statements attributed to the main witness. Although cross-examination had been permitted, the witness was not produced, and the appellant was therefore deprived of an effective opportunity to test the adverse material. In these circumstances, the material on record was found insufficient to conclusively establish contravention of the foreign exchange law, and the recovered Indian currency could not by itself justify an inference of illegal foreign exchange dealing.

Conclusion: The penalty order could not be sustained and was set aside in favour of the appellant.

Final Conclusion: The adjudication failed for want of reliable and tested evidence, and the impugned penalty was quashed.

Ratio Decidendi: A penalty for contravention of foreign exchange law cannot rest solely on untested statements and uncorroborated entries where the affected party is denied an effective opportunity to cross-examine the material witness and no clinching evidence proves the alleged violation.

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