FERA penalty requires independent corroboration; adjudication failed where retracted statements and weak documents could not sustain liability.

Penalty under FERA could not be sustained against the partner or the firm because the adjudication record lacked independent corroboration. The partner's liability was based mainly on another partner's statement and an assumption that he controlled firm affairs, but he was abroad during the relevant period and had already been acquitted in the connected criminal case. The firm's liability rested on seized documents and statements later retracted, which did not independently link it to the alleged contravention. In the absence of reliable supporting evidence, the adjudication order was set aside and the deposited amounts were directed to be refunded.

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Issues: (i) Whether the penalty imposed on the partner could be sustained under section 68(1) of the Foreign Exchange Regulation Act, 1973 on the basis of the material on record and the criminal court findings. (ii) Whether the penalty imposed on the firm could be sustained when the seized documents did not independently connect the firm with the alleged contravention and the supporting statements were retracted.

Issue (i): Whether the penalty imposed on the partner could be sustained under section 68(1) of the Foreign Exchange Regulation Act, 1973 on the basis of the material on record and the criminal court findings.

Analysis: Liability under the Act was examined in the light of the adjudication record and the connected criminal proceedings. The material relied upon to fasten responsibility on the partner was the statement of another partner and the assumption that he was in charge of the firm's affairs. The record also showed that the concerned partner was abroad during the relevant period and had already been acquitted in the criminal case on the same basic allegations. The finding against him was treated as unsupported by evidence and inconsistent with the material available.

Conclusion: The penalty against the partner was not sustainable and was set aside.

Issue (ii): Whether the penalty imposed on the firm could be sustained when the seized documents did not independently connect the firm with the alleged contravention and the supporting statements were retracted.

Analysis: The proceedings against the firm rested mainly on search material and statements later withdrawn as involuntary. The seized documents were found not to establish an independent nexus between the firm and the alleged unlawful transactions. The court observations in the criminal case were also taken into account, especially the absence of independent evidence against the firm. In the absence of corroboration, the adjudication order could not stand.

Conclusion: The penalty against the firm was not sustainable and was set aside.

Final Conclusion: The impugned adjudication order was quashed insofar as it affected the firm and the surviving partner, and the amounts deposited were directed to be refunded; the third appeal had already abated on the death of the appellant.

Ratio Decidendi: In adjudication under the Foreign Exchange Regulation Act, a penalty cannot be sustained where the finding of contravention lacks independent evidence and corroboration, especially when the material against the person concerned is weakened by retraction and by acquittal on the same factual foundation.

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