2001 (7) TMI 1336 - AT - FEMA

Tribunal Overturns Order: Insufficient Evidence Leads to Return of Seized Currency and Penalties Under FEMA 1973.

The Tribunal set aside the impugned order, allowing the appeals and directing the return of seized foreign currency and penalties deposited by the ... - Issues: (i) Whether the appellants contravened provisions of the Foreign Exchange Regulation Act, 1973 (including sections 6(4), 6(5), 7, 8(1), 49 and 63) and whether the penalties and confiscation imposed on them were legally sustainable; (ii) Whether handing over foreign exchange by a licensed full-fledged money-changer to its employees whose names and specimen signatures were forwarded to the Reserve Bank amounts to a prohibited transfer under section 8(1); (iii) Whether the countersigning of travellers cheques and the absence of certain documents (bulk sales memos, BTQ applications, destruction certificates) constituted sufficient evidence of unauthorised sale or attempted sale to sustain conviction and confiscation.Issue (i): Whether the appellants contravened the provisions alleged and whether the penalties and confiscation imposed on them are sustainable.Analysis: The Tribunal examined the material on record, including seized documents and the adjudication order, and assessed whether the findings of contravention rested on cogent evidence or on surmise. The adjudicating authority's findings that the appellants failed to comply with licence conditions and had engaged in unauthorised transfer or sale were evaluated against the actual documents seized, the pleaded explanations, and relevant instructions to full-fledged money-changers. The Tribunal found that the adjudicating authority did not identify specific licence conditions and did not adequately base its conclusions on evidence; several inferences were drawn from absence of documents and location of interception rather than from direct proof of illegal sale or transfer.Conclusion: The Tribunal set aside the impugned order, held that the penalties and confiscation were not sustainable on the record, and directed return of seized foreign currency and deposited penalty amounts.Issue (ii): Whether entrusting foreign exchange to employees whose names and specimen signatures were forwarded to the RBI constitutes a transfer in contravention of section 8(1).Analysis: The Tribunal analysed the memorandum of instructions to full-fledged money-changers (FLM) requiring forwarding of names and specimen signatures of authorised representatives to the Reserve Bank. It found that where foreign exchange is entrusted to employees who are duly authorised signatories notified to the RBI in terms of the FLM, such handing over is in the course of the money-changer's business and does not amount to an illicit transfer under section 8(1). The Tribunal relied on the distinction between authorised business entrustment and transfer to unauthorised persons, noting absence of evidence that the employees acted outside their authorised capacity.Conclusion: The handing over of foreign exchange to authorised employees does not constitute a prohibited transfer under section 8(1); accordingly confiscation based on such a theory cannot be sustained.Issue (iii): Whether countersigning of travellers cheques and missing supporting documents amount to proof of unauthorised sale or attempt sufficient to convict.Analysis: The Tribunal considered the acquitted parties' explanations regarding countersigning and the practice and guidelines for accepting American Express travellers cheques, which permit re-signature under watch-and-compare procedures. It found the explanation plausible and that countersigning alone did not indicate intention to sell illegally. The Tribunal also held that absence of bulk sales memos, BTQ applications or destruction certificates, and interception at a locality known for illicit dealings, do not, without corroborative evidence, complete the chain of circumstances required to prove an attempt or unauthorised sale beyond reasonable doubt; several inferences in the adjudicating order were regarded as surmise.Conclusion: Countersigning and missing documents, standing alone, did not constitute sufficient evidence of unauthorised sale or attempt; conviction and related confiscation on these bases were unjustified.Final Conclusion: The Tribunal concluded that the adjudicating authority's findings were not supported by adequate, cogent evidence and that legal and factual deficiencies in the impugned order required its setting aside; accordingly, the appeals were allowed and seized property and deposited penalties were directed to be returned to the appellants.Ratio Decidendi: Where a licensed money-changer entrusts foreign exchange to employees who are duly notified to the Reserve Bank as authorised signatories, such entrustment is part of the money-changer's legitimate business and does not amount to an unlawful transfer under section 8(1); regulatory convictions and confiscation require a complete evidential chain and cannot rest on conjecture, absence of documents, or inferences from location alone.