2025 (7) TMI 934 - AT - FEMA

SAFEMA Tribunal upholds FERA Section 8(1) conviction for illegal foreign currency transactions but reduces penalty to 25%

Shri Praveen Sharma Versus The Special Director, Directorate of Enforcement, Delhi

Shri Praveen Sharma Versus The Special Director, Directorate of Enforcement, Delhi - TMI The core legal questions considered in this appeal under Section 19 of the Foreign Exchange Management Act, 1999 (FEMA) pertain to the alleged contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973 (FERA) by the appellant. Specifically, the issues include:1. Whether the appellant engaged in illegal purchase and sale of foreign currencies in contravention of Section 8(1) of FERA, 1973.2. Whether the seizure of Rs. 2,60,000/- and incriminating documents from the appellant's premises were lawful and sufficient to establish the contravention.3. Whether the statements recorded under Section 40 of FERA, including those of the appellant and his employee, are admissible and reliable evidence.4. Whether the appellant was provided adequate opportunity and access to the seized documents relied upon by the Enforcement Directorate (ED) during adjudication proceedings.5. The quantum of penalty imposed under the provisions of FERA, considering the appellant's financial and medical condition.Issue-wise Detailed Analysis1. Contravention of Section 8(1) of FERA, 1973The legal framework under Section 8(1) of FERA prohibits unauthorized dealing in foreign exchange or foreign securities. The appellant was charged with purchasing and selling foreign currencies amounting to substantial sums, including US Dollars, UK Pounds, UAE Dirhams, Australian Dollars, Saudi Riyals, and French Francs, without authorization.The Court examined the statements recorded under Section 40 of FERA from the appellant and his employee Surinder Singh, which admitted dealing in foreign currencies and gold transactions with foreign nationals at black market rates. The appellant himself decoded the seized documents, explaining the nature of foreign currency transactions reflected therein.Additional corroboration came from statements of other witnesses and persons connected to the appellant's business, such as Puran Chand, Shane Alam (partner of M/s Lee Design), Maqbool Ahmed, and others, who confirmed the appellant's involvement in illegal foreign exchange dealings and smuggled gold payments.The Court noted that the incriminating documents seized from the appellant's premises included coded records of foreign currency purchases and sales, which the appellant decoded, thereby admitting their contents. Further, the document referencing a transaction involving US$54,740 through Allahabad Bank was verified by the bank, confirming the export proceeds and the appellant's role in arranging the remittance.The Court applied the law to the facts by concluding that the appellant's activities constituted a clear contravention of Section 8(1) of FERA, 1973, as he engaged in unauthorized dealing in foreign exchange on a large scale.Competing arguments by the appellant challenged the authenticity and authorship of the seized documents and contended that no foreign currency was physically recovered from his premises. However, the Court found these arguments unpersuasive because the appellant did not deny the authorship of the documents and had himself decoded them. The absence of recovered foreign currency did not negate the evidence of illegal dealings established through documents and witness statements.Conclusion: The Court upheld the finding that the appellant contravened Section 8(1) of FERA, 1973 by engaging in unauthorized foreign exchange transactions.2. Lawfulness and Sufficiency of Seizure of Currency and DocumentsThe search conducted on 29.11.1996 at the appellant's premises resulted in seizure of Rs. 2,60,000/- and numerous incriminating documents. The appellant challenged the seizure on grounds that the copies of the seized documents were not supplied to him during adjudication, thus violating principles of natural justice.The Court examined the record and found that copies of the relied-upon documents were supplied to the appellant on multiple occasions (13.03.2007, 17.03.2008, and 20.03.2008). The appellant failed to specify which documents were not received or how the alleged non-supply prejudiced his defense. The Court held that vague and baseless claims without specific particulars cannot be entertained.Regarding the seized currency, the appellant claimed the amount was accounted for, but the Court found the seized cash was not accounted as claimed. The seizure was thus lawful and formed part of the evidence supporting the contravention.Conclusion: The seizure of currency and documents was lawful and sufficient to establish the contravention, and the appellant's claim of non-supply of documents was rejected for lack of specificity.3. Admissibility and Reliability of Statements under Section 40 of FERAThe appellant contended that his statement recorded under Section 40 of FERA was obtained under duress and that his employee Surinder Singh was not his employee and had retracted his statement by affidavit. The appellant also retracted his own statement before the Magistrate and during proceedings.The Court noted that the appellant's retraction was an afterthought and did not discredit the original statements, which were corroborated by independent witnesses and documentary evidence. The statements of Surinder Singh, though retracted by affidavit, were supported by other evidence including telephone records and third-party testimonies.The Court also rejected the appellant's reliance on judgments relating to the evidentiary value of loose slips and statements obtained under duress, holding that the appellant himself decoded the documents and admitted their contents, thus strengthening their evidentiary value.Conclusion: The statements recorded under Section 40 of FERA were admissible, reliable, and corroborated by other evidence, thereby supporting the findings of contravention.4. Adequacy of Opportunity and Access to Documents During AdjudicationThe appellant argued that he was denied copies of incriminating documents during adjudication, which prejudiced his defense. The Court scrutinized the record and found that multiple opportunities were provided to the appellant to obtain copies of the documents, which were duly supplied by the Enforcement Directorate. The appellant did not raise this issue during the adjudication proceedings in a timely or specific manner.The Court held that the appellant's belated and vague claim of non-supply of documents was not a valid ground for relief, especially after the lapse of over two decades and the appellant's failure to identify any particular document withheld.Conclusion: The appellant was afforded adequate opportunity and access to documents, and the claim of denial was rejected.5. Quantum of Penalty and Consideration of Mitigating FactorsThe Adjudicating Authority imposed a penalty of Rs. 1 crore on the appellant for contravention of Section 8(1) of FERA, 1973, and ordered confiscation of the seized currency. The appellant challenged the quantum of penalty citing his poor financial condition and medical treatment for cancer.The Court acknowledged the appellant's medical and financial hardships and exercised judicial discretion to reduce the penalty to 25% of the original amount. The appellant was directed to pay the reduced penalty within three months after the expiry of the limitation period.Conclusion: The penalty was upheld in principle but reduced on humanitarian grounds.Significant Holdings'The appellant himself decoded the said documents qua the facts mentioned therein. The said recovered documents coupled with the statement of appellant and the other persons including his employee Surender Singh prove the fact regarding the charges levelled against him for contravention of Section 8(1) of FERA, 1973.''The appellant has not specified which particular document was not received by him or alternatively what documents in fact were received by him. Accordingly, appellant is not entitled to raise this vague and baseless ground, in absence of specific submission in this regard pertaining to the particular documents.''The contention that the loose slips have not evidentiary value in view of judgment of Hon'ble Supreme Court of India in writ Petition Civil No. 505/2015 dated 11.01.2017 is devoid of any merits as the appellant himself explained the contents of the said slips, which are also corroborated by his self-statement, statement of his employee Surender Singh and other persons.''The present appeal is hereby dismissed being devoid of any merits, however, taking a lenient view on medical and financial conditions of the appellant, the appellant is hereby directed to tender only 25% of the penalty amount.'Core principles established include the admissibility and evidentiary value of documents decoded and explained by the accused, the sufficiency of corroborated statements recorded under Section 40 of FERA, and the necessity for specificity in claims of non-supply of documents during adjudication. The judgment also underscores the Court's discretion to mitigate penalties on humanitarian grounds without undermining enforcement of foreign exchange laws.