2023 (9) TMI 733 - HC - Customs

Principles of natural justice and cross-examination rights must be respected where authorities rely on oral statements, or proceedings are vitiated

Principles of natural justice require that where adjudicatory authorities rely on statements of natural persons, affected parties must be allowed to test ... Principles of natural justice (audi alteram partem) - right to cross-examination of witnesses relied upon in adjudication - use of statements recorded under Section 108 of the Customs Act in adjudication under FERA/FEMA - exception under provisions akin to Section 138B of the Customs Act - quasi criminal character of FERA/FEMA proceedings and burden of proof - confessional statements and requirement of independent corroboration - remedy of setting aside and remanding adjudication for fresh evidence stageRight to cross-examination of witnesses relied upon in adjudication - principles of natural justice (audi alteram partem) - use of statements recorded under Section 108 of the Customs Act in adjudication under FERA/FEMA - Whether denial of opportunity to cross-examine natural persons whose statements under Section 108 Customs were relied upon in FERA adjudication violated principles of natural justice. - HELD THAT: - The Court held that when an adjudicating authority introduces into evidence statements recorded under Section 108 of the Customs Act and relies upon those statements in proceedings under FERA/FEMA which are quasi criminal in character, the person against whom such statements are used is entitled to have the author of the statement made available for cross examination. The audi alteram partem rule requires that a party be informed of the evidence relied upon and given an opportunity to test its veracity. Authorities distinguishing purely preliminary enquiry material from evidence used in adjudication were considered; once the statement is relied upon as evidence in adjudication, natural justice obliges the authority to permit cross examination unless a recognised statutory exception applies. The Court found that the adjudicating and appellate authorities rejected the prayer for cross examination without recording any finding equivalent to the conditions permitting exclusion under provisions akin to Section 138B of the Customs Act, and therefore the denial constituted a breach of natural justice, causing prejudice by denying the appellants opportunity to test the statements and related seized documents. [Paras 51, 52, 56, 58, 59]Denial of opportunity to cross examine the persons whose Section 108 statements were relied upon vitiated the adjudication for breach of the principles of natural justice.Exception under provisions akin to Section 138B of the Customs Act - confessional statements and requirement of independent corroboration - quasi criminal character of FERA/FEMA proceedings and burden of proof - Whether the statements of co accused or confessional statements and documents could be relied upon without cross examination, and whether any statutory exception or reverse burden justified that reliance. - HELD THAT: - The Court analysed authorities on confessional statements, Section 138B (and analogous provisions), and the evidentiary weight of statements of co accused. It reiterated that confessional statements of a co accused are of weak evidentiary value and require independent corroboration before being acted upon as substantive proof against others. The Court observed that no finding was recorded by the authorities that conditions analogous to Section 138B existed (for example that the witness was unavailable despite reasonable effort), and therefore the procedural preconditions to dispense with cross examination were not satisfied. The contention that statements recorded under Section 40 of FERA or confessional statements alone could sustain the penalty was held insufficient unless corroborated by independent documents; further, the question of reverse burden under Section 71 was addressed by reference to precedent (Vinod Solanki), which rejects shifting the burden so as to justify dispensing with adversarial testing of prosecution evidence. [Paras 33, 34, 56, 58, 61]Statements of co accused/confessions cannot be treated as substantive evidence against others without independent corroboration; no statutory exception was shown to justify denying cross examination or treating such statements as conclusive, and reverse burden was not attracted.Remedy of setting aside and remanding adjudication for fresh evidence stage - right to cross-examination of witnesses relied upon in adjudication - What is the appropriate remedy where adjudication proceeded on evidence consisting of relied upon statements without offering cross examination. - HELD THAT: - Given the breach of natural justice in admitting and relying upon statements whose authors were not made available for cross examination, and the absence of any recorded finding justifying that course, the Court concluded that the impugned adjudication orders could not stand. The appropriate remedy adopted was to set aside the orders and permit the authorities to recommence adjudication from the stage of prosecution evidence, with an express direction that all prosecution witnesses be made available for cross examination by the appellants. The Court therefore annulled the previous findings insofar as they depended on untested statements and remitted the matter for fresh consideration in accordance with natural justice. [Paras 54, 60, 62, 63]Impugned orders set aside; adjudication remitted to prosecution evidence stage with direction that all prosecution witnesses be made available for cross examination.Final Conclusion: The High Court held that reliance in FERA adjudication upon statements recorded under Section 108 of the Customs Act without affording the affected parties the opportunity to cross examine the persons who made those statements violated the audi alteram partem principle and vitiated the adjudication; no statutory exception was shown to justify dispensing with cross examination, confessional/co accused statements require independent corroboration, and therefore the impugned orders were set aside and remitted for fresh adjudication from the prosecution evidence stage permitting cross examination of prosecution witnesses. Issues Involved:1. Right to cross-examine witnesses in adjudication proceedings.2. Violation of principles of natural justice.3. Applicability of Section 138B of the Customs Act, 1962 to FERA proceedings.4. Relevance of statements recorded under Section 108 of the Customs Act, 1962 in FERA proceedings.5. Burden of proof under Section 71 of FERA.Summary:1. Right to Cross-Examine Witnesses:The primary issue in all three appeals was whether the adjudicating authority was correct in refusing the opportunity for cross-examination of individuals whose statements were recorded under Section 108 of the Customs Act, 1962 and relied upon in the adjudication order. The High Court emphasized the importance of cross-examination in ensuring the principles of natural justice, referencing multiple judicial precedents that support the right to cross-examine witnesses in quasi-judicial proceedings.2. Violation of Principles of Natural Justice:The Court held that the denial of cross-examination constituted a breach of the principles of natural justice. The adjudicating and appellate authorities failed to provide adequate reasons for denying cross-examination, and the absence of cross-examination of Mr. Nirmal Kumar Karmakar, whose statements were pivotal, vitiated the proceedings. The Court underscored that adherence to natural justice is imperative in adjudicatory processes affecting rights and resulting in consequences for the parties involved.3. Applicability of Section 138B of the Customs Act, 1962:The Court found that the conditions under Section 138B of the Customs Act, 1962, which allow for the admissibility of statements without cross-examination under certain circumstances, were not met. The authorities did not establish that Mr. Nirmal Kumar Karmakar was unavailable or incapable of giving evidence. Therefore, the refusal to allow cross-examination was unjustified.4. Relevance of Statements Recorded under Section 108 of the Customs Act, 1962:It was argued that statements recorded under Section 108 of the Customs Act, 1962, could not be used in FERA proceedings. The Court noted that while such statements could be relevant, their admissibility must be tested through cross-examination to ensure fairness and adherence to natural justice.5. Burden of Proof under Section 71 of FERA:The Court referred to the Vinod Solanki case, which clarified that the burden of proof under Section 71 of FERA does not imply a reverse burden on the accused. The authorities must establish contraventions on a preponderance of probability, if not beyond reasonable doubt, especially given the quasi-criminal nature of the proceedings.Conclusion:The High Court set aside the orders under appeal in all three cases, directing that the adjudication proceedings be recommenced from the stage of evidence, with all prosecution witnesses available for cross-examination by the appellants. This decision reinforces the necessity of adhering to the principles of natural justice in quasi-judicial proceedings under FERA.