2024 (10) TMI 397 - AT - FEMA

Appellant penalized Rs. 8,50,000 for unauthorized foreign currency trading under Section 3(a) FEMA 1999

Suresh Himmatlal Parmar Versus Special Director, Directorate of Enforcement

AT upheld contravention of Section 3(a) of FEMA, 1999 against appellant for unauthorized foreign currency trading. Appellant acquired and sold foreign ... Contravention of Section 3(a) of FEMA, 1999 - Appellant acquired and sold various foreign currencies to various persons resident in India - validity of the search and seizure conducted by the Respondent Directorate - Reliance on recorded statements with the independent corroborative evidence in the form of seized documents recovered from the residential premises of the Appellant HELD THAT:- The Appellant has not furnished any evidence to the contrary so as to disprove the statements recorded under oath under Section 37 of FEMA, 1999. The recorded statements with the independent corroborative evidence in the form of seized documents recovered from the residential premises of the Appellant make him liable for the contravention of the provision of FEMA, 1999 for operating unauthorised business of selling/buying foreign exchange without the general/special permission of the RBI. The plea taken by the Appellant that cross-examination was denied since Shri Ramchandra Khedekar, the other Panch witness and the handwriting expert were not examined on oath by the Respondent Directorate as material witnesses. However, we note that the plea to conduct the cross-examination is not dependent on examination on oath of witnesses. It is not on record that the Appellant asked for such cross-examination during the course of the adjudication proceedings. In any case, denial of such cross examination does not appear to have caused prejudice to the interest of the Appellant in view of independent corroborative evidence. Thus we agree with the finding that the Appellant acquired and sold various foreign currencies to various persons resident in India during the period from 09.07.2002 to 24.07.2002 in contravention of the provisions of Section 3(a) of FEMA, 1999. The Appellant has taken the plea to reduce the penalty since he made all out efforts to keep the licensed money changer business M/s Griffin Forex Pvt. Ltd. clean of any illegality which is evident from nothing incriminatory having been recovered from the search of his business premises. We therefore reduce the penalty to Rs. 8,50,000/- on the Appellant which will meet the ends of justice. Issues Involved:1. Alleged contravention of Section 3(a) of the Foreign Exchange Management Act, 1999 (FEMA, 1999) by the Appellant.2. Legality and validity of the search and seizure conducted by the Respondent Directorate.3. Reliance on retracted statements and the absence of independent corroborative evidence.4. Denial of cross-examination of key witnesses and its impact on the adjudication process.5. Determination of the appropriate penalty for the alleged contravention.Issue-wise Detailed Analysis:1. Alleged Contravention of Section 3(a) of FEMA, 1999:The Appellant was accused of engaging in the illegal sale and purchase of foreign exchange, despite holding a money changer license. The Respondent Directorate alleged that the Appellant, along with an employee, conducted unauthorized transactions involving foreign currencies amounting to Rs 2,56,50,344/- without the necessary permissions from the Reserve Bank of India, thus violating Section 3(a) of FEMA, 1999. The Tribunal, after reviewing the evidence, including the Appellant's recorded statements and seized documents, concluded that the Appellant indeed contravened FEMA provisions by operating an unauthorized foreign exchange business.2. Legality and Validity of the Search and Seizure:The Appellant challenged the legality of the search conducted at his premises, arguing that it was vitiated due to procedural irregularities, such as the absence of Panch witnesses during the entire search. The Tribunal, however, referenced precedents from the Supreme Court, emphasizing that even if a search is deemed illegal, it does not necessarily invalidate the evidence collected. The Tribunal noted that the adjudicating authority had duly considered the evidence and found no merit in the Appellant's arguments regarding the search's legality.3. Reliance on Retracted Statements and Absence of Independent Corroborative Evidence:The Appellant contended that the adjudicating authority relied on statements obtained under coercion, which were later retracted, without any independent corroborative evidence. The Tribunal observed that the Appellant's statements contained specific details only known to those involved and were corroborated by seized documents. The Tribunal cited Supreme Court judgments, highlighting that retracted statements can be used if supported by independent evidence, which was found to be the case here.4. Denial of Cross-examination of Key Witnesses:The Appellant argued that he was denied the opportunity to cross-examine key witnesses, such as the second Panch witness and the handwriting expert, which prejudiced his defense. The Tribunal noted that the Appellant did not request such cross-examination during the adjudication proceedings. Furthermore, the Tribunal found that the absence of cross-examination did not prejudice the Appellant's case, as the adjudicating authority relied on sufficient independent evidence to support its findings.5. Determination of the Appropriate Penalty:Initially, a penalty of Rs. 85,00,000/- was imposed on the Appellant. However, considering the Appellant's efforts to maintain the legality of his licensed business and the lack of incriminating evidence from his business premises, the Tribunal decided to reduce the penalty to Rs. 8,50,000/-. This reduction was deemed to meet the ends of justice while acknowledging the Appellant's partial compliance with legal requirements.Conclusion:The Tribunal concluded that the Appellant was liable for contravening FEMA, 1999, by engaging in unauthorized foreign exchange transactions. The impugned order was modified to reduce the penalty, and the appeal was partly allowed, reflecting a balanced consideration of the evidence and the Appellant's mitigating circumstances.