Section 37A FEMA allows asset seizure on mere suspicion, discharge from tax prosecution doesn't invalidate proceedings

The Appellate Tribunal under SAFEMA dismissed an appeal challenging seizure of assets under Section 37A of FEMA, 1999. The appellant argued the provision was inapplicable and only authorized seizure, not confiscation, and that discharge in an I-T prosecution case invalidated FEMA proceedings. The Tribunal held that Section 37A has a low threshold requiring only suspicion of contraventions, not proof beyond reasonable doubt. The Tribunal found seizure was proper as it involved transferring dematerialized bonds to the Directorate's account, not confiscation. Information sharing under India-France DTAA was deemed valid. The continuing offense doctrine applied as the property was allegedly held in contravention after the 2015 amendment took effect, making retrospectivity irrelevant.

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Issues Involved:
1. Legality of proceedings initiated under FEMA, 1999.
2. Applicability of Section 37A of FEMA, 1999.
3. Use of information shared under the India-France Double Taxation Avoidance Agreement (DTAA).
4. Seizure versus confiscation of assets.
5. Continuing offence and retrospective application of law.

Detailed Analysis:

1. Legality of proceedings initiated under FEMA, 1999:
The appellant contended that the proceedings initiated under FEMA, 1999, were illegal as they were based on a tax prosecution case by the Income Tax authorities, where the appellant was discharged. The appellant argued that the prosecution failed to establish a prima facie case, and the Income Tax authorities could not identify a specific bank account or link it to the appellant. The respondent countered that the proceedings were initiated based on secret information about black money in Switzerland and that Section 37A of FEMA allows action upon receipt of any information or otherwise. The Tribunal found that the discharge in the tax prosecution case did not invalidate the proceedings under FEMA, as the threshold for action under Section 37A is lower, requiring only a "reason to believe" that foreign exchange is suspected to be held in contravention of Section 4 of FEMA.

2. Applicability of Section 37A of FEMA, 1999:
The appellant argued that Section 37A, introduced in 2015, could not be applied retrospectively to transactions before its enactment. The respondent maintained that the contravention was continuing as the amount was still not repatriated to India. The Tribunal agreed with the respondent, noting that the appellant had not provided evidence of the account's closure or repatriation of funds. The Tribunal held that Section 37A applies to continuing offences, and since the foreign exchange was still held outside India, the provision was applicable.

3. Use of information shared under the India-France Double Taxation Avoidance Agreement (DTAA):
The appellant contended that information shared under the India-France DTAA could not be used for purposes other than tax proceedings. The respondent argued that Section 37A allows action based on any information received, and Article 28 of the DTAA permits disclosure in public court proceedings. The Tribunal found merit in the respondent's argument, stating that the DTAA allows sharing of information in judicial decisions and that the Tribunal was not the appropriate forum to address violations of the DTAA.

4. Seizure versus confiscation of assets:
The appellant argued that Section 37A authorizes only the seizure, not confiscation, of assets. The respondent clarified that the bonds were seized by transferring them to the respondent's demat account and had not been confiscated. The Tribunal agreed with the respondent, noting that the transfer of dematerialized bonds was necessary to take possession and that the bonds remained seized, not confiscated, until adjudication proceedings were concluded.

5. Continuing offence and retrospective application of law:
The appellant argued that the alleged offence was not continuing and that Section 37A could not be applied retrospectively. The Tribunal found that the appellant had not provided evidence of the account's closure or repatriation of funds, and the offer to pay tax on foreign income indicated the account's existence during the relevant period. The Tribunal held that the contravention was continuing, and Section 37A applied to the case. The Tribunal also noted that the appellant's reliance on the Supreme Court decision in Ganapati Dealcom Pvt. Ltd. was misplaced, as the case involved a different context.

Conclusion:
The Tribunal dismissed the appeal and all pending applications, upholding the order of the Competent Authority confirming the seizure of the appellant's assets under Section 37A of FEMA, 1999. The Tribunal found that the proceedings under FEMA were valid, Section 37A was applicable, the use of information under the DTAA was permissible, the assets were seized and not confiscated, and the contravention was a continuing offence.

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