FERA penalty cannot rest on a retracted confession alone without strong corroboration or proof of the alleged contravention.

Penalty under FERA was unsustainable where the pre-31.07.1995 regulatory position treated deposits into NRE accounts through mandate or power of attorney holders as permissible, and the record did not establish that the appellant himself made the impugned deposits or otherwise satisfied the ingredients of Sections 8(1), 9(1)(a) and 9(1)(f)(i). A retracted statement under Section 40 could not, without substantial independent and cogent corroboration, be used as the sole basis for penalty. As no adequate corroborative material was shown, the penalty order was set aside and relief was granted on the merits of the alleged contraventions.

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Issues: (i) Whether the penalties imposed for alleged contraventions of Sections 8(1), 9(1)(a) and 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 could be sustained on the basis that foreign exchange was deposited in NRE accounts by the appellant before the clarificatory change in the regulatory position. (ii) Whether the retracted statement recorded under Section 40 of the Foreign Exchange Regulation Act, 1973 could, independent corroboration, form the sole basis for sustaining penalty.

Issue (i): Whether the penalties imposed for alleged contraventions of Sections 8(1), 9(1)(a) and 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 could be sustained on the basis that foreign exchange was deposited in NRE accounts by the appellant before the clarificatory change in the regulatory position.

Analysis: The regulatory position prior to 31.07.1995 was treated as permitting deposits in NRE accounts through mandate holders or power of attorney holders, and the impugned order proceeded on the premise that the appellant himself had made the deposits. The record also showed that the deposits were linked to the NRI account holder's foreign earnings, and the necessary ingredients of the alleged contraventions were not established on that basis.

Conclusion: The alleged contraventions were not made out and the penalties could not be sustained on this ground.

Issue (ii): Whether the retracted statement recorded under Section 40 of the Foreign Exchange Regulation Act, 1973 could, independent corroboration, form the sole basis for sustaining penalty.

Analysis: A retracted confession requires substantial corroboration by independent and cogent evidence before it can be relied upon. The appellant retracted the statement promptly and asserted coercion, while no independent material was shown to corroborate the confession to the degree required for imposition of penalty.

Conclusion: The retracted statement could not be relied upon as the sole basis for penalty.

Final Conclusion: The appellate tribunal set aside the impugned penalty order and granted complete relief to the appellant on the merits of the alleged FERA contraventions.

Ratio Decidendi: A retracted confession cannot, by itself, sustain penalty unless it is substantially corroborated by independent evidence, and where the pre-existing regulatory position does not establish the alleged contravention, penalty is liable to be set aside.

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