Natural justice in FERA adjudication requires cross-examination of witnesses whose statements are used to impose liability.

FERA adjudication treated as quasi-penal proceedings is subject to natural justice, so when the department relies on statements of natural persons and seized third-party documents against a noticee, the makers of those statements must ordinarily be made available for cross-examination. The denial of that opportunity is not cured merely by asserting corroboration from documents, absence of prejudice, or a reverse-burden position, because fairness remains essential where incriminating material is used to impose liability. Unless a legally recognised exception applies, refusal of cross-examination vitiates the adjudication and the matter must be reconsidered in accordance with law.

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Issues: (i) Whether the adjudicating authority could rely upon statements and documents of natural persons without affording the appellants an opportunity to cross-examine them in FERA adjudication proceedings. (ii) Whether the denial of cross-examination could be sustained on the ground that no prejudice was shown or that the burden of proof lay otherwise on the appellants.

Issue (i): Whether the adjudicating authority could rely upon statements and documents of natural persons without affording the appellants an opportunity to cross-examine them in FERA adjudication proceedings.

Analysis: The adjudication under FERA was treated as quasi-criminal and governed by the requirements of natural justice. Where the department introduced statements recorded under the Customs Act and documents seized from third persons as material against the appellants, fairness required that the makers of those statements be made available for cross-examination. The denial could not be justified by merely noting that the statements were corroborated by seized documents or by relying on authorities where cross-examination was either unnecessary on the facts or expressly excluded by statute. The record did not show any statutory impossibility comparable to the conditions recognised for dispensing with cross-examination under Section 138B of the Customs Act, 1962.

Conclusion: The refusal to permit cross-examination vitiated the adjudication, and the finding was in favour of the appellants.

Issue (ii): Whether the denial of cross-examination could be sustained on the ground that no prejudice was shown or that the burden of proof lay otherwise on the appellants.

Analysis: In proceedings where penal consequences follow, prejudice is inherent when a party is deprived of the opportunity to test the truthfulness of evidence that forms the basis of the adverse finding. The reliance on the reverse-burden argument did not assist the department because the relevant burden does not displace the obligation to act fairly when incriminating statements and documents are relied upon. The appellants were prejudiced by being denied the opportunity to challenge the material used to fasten liability under FERA.

Conclusion: The objection based on absence of prejudice and burden of proof failed, and the finding was in favour of the appellants.

Final Conclusion: The impugned adjudication and appellate orders were set aside, and the matters were sent back so that the prosecution evidence could be tested in accordance with law, including cross-examination of the witnesses relied upon.

Ratio Decidendi: When quasi-penal adjudication relies on statements of natural persons and those statements are used against the noticee, the noticee must ordinarily be given a fair opportunity to cross-examine those persons unless a legally recognised exception applies, and denial of that opportunity vitiates the adjudication.

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