2019 (8) TMI 132 - AT - FEMA

Tribunal overturns penalties under Foreign Exchange Regulation Act due to lack of evidence and procedural fairness.

The tribunal set aside the order imposing penalties on the appellant company and its directors under the Foreign Exchange Regulation Act. The Enforcement ... Imposition of penalties - alleged violation of Section 8(1) of FERA - main case of the Appellants is that the respondent has planted the unsigned plain paper purported fax message being Page 31 of File marked – ‘D’ out of 2425 seized documents from the Delhi office of the Appellant No. 1 on March 13, 1995, which was inadmissible in evidence under the law - HELD THAT:- In the impugned judgement dated 20.05.2005 passed by the Special Director of Enforcement, the Special Director erroneously shifted the initial burden of proof from the Directorate to the Appellants under Section 71 of the FERA, 1973 - Further records reveal that the statements of Mr. Rajesh Verma has also been not relied upon in the SCN. As such, the provisions of Sections 71 and 72 of FERA 1973 are not attracted and cannot be invoked. The Special Director had also erroneously presumed the facts without proper authentication and corroboration from independent witnesses under Section 72 of the FERA, 1973, the charges against the Appellant No. 1 have not been proved as the respondent has failed to discharge its burden. The Appellant Nos. 2 to 4, the Directors herein as such are not liable under Section 68 of FERA 1973. The orders and/or directions for production of the said file and inspection of the said original Fax message and the arrest memo of Mr. Rajneesh Verma by the Respondent became final and absolute and non-production thereof by the Respondent led to Adverse Inference being drawn under the Illustration (g) of Section 114 of the Indian Evidence Act, 1872 against the respondent even as per settled law - the impugned order dated 20th May, 2005 passed by the Special Director, Enforcement Directorate, New Delhi is not sustainable - appeal allowed. Issues Involved:1. Alleged violation of Section 8(1) of the Foreign Exchange Regulation Act (FERA), 1973.2. Imposition of penalties on the company and its directors under Section 50 and Section 68(1) of FERA, 1973.3. Admissibility and authenticity of the evidence, specifically an unsigned fax message.4. Allegations of planted evidence by the Enforcement Directorate.5. Compliance with principles of natural justice and procedural fairness.Detailed Analysis:1. Alleged Violation of Section 8(1) of FERA, 1973The Special Director of Enforcement imposed penalties on the appellant company and its directors for allegedly violating Section 8(1) of FERA, 1973. The violation pertained to the unauthorized transfer of USD 450,000 to the account of M/s. CDB-ME-RUBIN in Moscow, purportedly to procure advance export payments.2. Imposition of Penalties under Section 50 and Section 68(1) of FERA, 1973Penalties were imposed on the appellant company and its directors under Section 50 for the company's violation of Section 8(1) and under Section 68(1) for the directors' liability. The directors denied the allegations and contended that they were not responsible for the day-to-day affairs of the company.3. Admissibility and Authenticity of EvidenceThe main evidence against the appellants was an unsigned fax message dated April 3, 1994, allegedly found during the search. The appellants argued that this document was inadmissible as it was neither signed nor authenticated. Both the cross-examined officers admitted that they could not confirm whether the document was original or a photocopy, and it lacked signatures from any seizing officer or witness.4. Allegations of Planted EvidenceThe appellants claimed that the unsigned fax message and other documents were planted by the Enforcement Directorate during the search. They argued that the Enforcement Directorate failed to prove the authenticity of these documents, which were not marked or signed as required by law. The cross-examination revealed inconsistencies and admissions by the officers that they did not personally seize the documents in question.5. Compliance with Principles of Natural JusticeThe appellants contended that the proceedings violated principles of natural justice. They were not allowed to cross-examine all relevant witnesses, and the Enforcement Directorate failed to produce the original documents despite multiple orders from the tribunal. The tribunal noted that the Enforcement Directorate's failure to comply with orders for document production led to adverse inferences against them.Conclusion:The tribunal found that the Enforcement Directorate did not discharge its burden of proving the allegations beyond a reasonable doubt. The unsigned fax message, being the primary evidence, was deemed inadmissible. The tribunal set aside the impugned order dated May 20, 2005, passed by the Special Director of Enforcement, thereby allowing the appeals. No costs were awarded.