2025 (9) TMI 1221 - AT - FEMA

Statements under Section 37 admissible despite no cross-examination; contravention of Section 3(c) proven; penalty reduced to ?8,00,000

Shri Mool Chand Jain Versus The Special Director, Directorate of Enforcement, Hyderabad

AT held that statements of co-noticees recorded under Section 37 are admissible and could be relied on despite lack of cross-examination, and found ... Imposition of the penalty - hawala payments to persons in India - contravention of Section 3(c) - seizure of Indian currency and fax messages apart from the cell phones - confession- cum-seizure panchnama - admissibility of the statement of co-noticees recorded under Section 37 of the Act of 1999 in adjudication proceeding - No opportunity of cross- examination - Violation of principles of natural justice - HELD THAT: - It is stated that appellant was not given an opportunity of cross-examination while the statement of co-noticees were relied by the Special Director. The issue aforesaid has been dealt by the Special Director being the common issue raised by all the noticees. An order was passed on 09.04.2010. However, when a request was made again at the time of hearing of the case, the issue was again dealt with by the Special Director. The Counsel for the appellant failed to refer any rule applicable to the proceedings under the Act of 1999 to press upon an opportunity of cross-examination and also circumstances. Thus, I don’t find any substance in the first argument. It is stated that the statement of 4 noticees could not have been relied to draw conclusion against the appellant. The issue aforesaid has been dealt with by the Special Director and I do not find any illegality in the findings recorded by the authority below. An interference in the order should not be made by the Appellate Tribunal as a course, rather, it can be when an illegality or error has been shown in the order passed by the authority below. The statements recorded under Section 37 of the Act of 1999 are, otherwise, admissible in evidence and can be relied upon and therefore the second argument is not made out. As per the 13 fax messages recovered from the noticees, they received in all Rs. 2,17,69,300/- and out of which a sum of Rs. 15,00,000/- was received from the noticee no. 3 on the instructions of Munaf of UAE and Hashim of Saudi Arabia. The noticee Mohd. Khaja Moinuddin in his statement dated 04.07.2008 named the appellant for receipt of Rs. 15,00,000/- for distribution in India. It was with the further statement that the amount was received by Shri Mool Chand Jain on the instructions of Munaf of UAE, though, the appellant denied receipt of Rs. 15,00,000/- on the instructions of any person resident outside India. I, however, do not find any reason to disbelieve the statement of co-noticees dated 04.07.2008 as otherwise they were not having any enmity with the appellant to disclose his name and therefore I find contravention of Section 3(c) of the Act of 1999 by the appellant. Penalty imposed upon the appellant to be excessive and disproportionate to the allegation. While deciding the application for pre-deposit, the appellant was directed to deposit a sum of Rs. 8,00,000/- keeping in view of his financial status and the said amount has been deposited by the appellant. I find it appropriate to reduce the penalty from Rs. 30,00,000/- to Rs. 8,00,000/- to make it proportionate to the allegation and accordingly cause interference in the impugned order only to the extent of the penalty imposed on the appellant and reduce it to from Rs. 30,00,000/- to Rs. 8,00,000/-. With the aforesaid, the appeal is disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether reliance upon statements of co-noticees recorded under Section 37 of the Foreign Exchange Management Act, 1999, without affording the appellant an opportunity of cross-examination, violates the principles of natural justice. 2. Whether statements recorded while noticees were in police custody (confession-cum-seizure panchnama and subsequent statements) are admissible and can be relied upon in adjudication under the Act of 1999. 3. Whether available material, including co-noticees' statements and seized documents/fax messages, is sufficient to establish contravention of Section 3(c) of the Act of 1999 by the appellant. 4. Whether the penalty of Rs. 30,00,000/- imposed for contravention of Section 3(c) is excessive or disproportionate and requires reduction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Natural justice: cross-examination on co-noticees' statements Legal framework: Adjudicatory proceedings under the Act of 1999 and the principles of natural justice govern whether a person whose liability is determined must be permitted to cross-examine persons whose statements are relied upon. Precedent Treatment: The Tribunal relied on authoritative precedent that in similar regulatory/adjudicatory contexts the principles of natural justice do not invariably require production of informants or witnesses for cross-examination (reference made to a Supreme Court decision dealing with Customs adjudication and a Madras High Court decision treating identical adjudication rules). Interpretation and reasoning: The Tribunal found the show-cause notice and material on record adequately disclosed the case against the appellant and that the request for cross-examination had been considered and dealt with by the authority below. The Tribunal treated the precedent as applicable analogously to proceedings under the Act of 1999 and observed that no specific rule under the Act mandates confrontation/cross-examination of co-noticees in such adjudicatory proceedings. Ratio vs. Obiter: Ratio - In adjudication under the Act of 1999, reliance on statements of others does not automatically require furnishing an opportunity to cross-examine those declarants; absence of cross-examination, per se, is not a breach of natural justice where material and show-cause particulars are furnished. Obiter - Observations on discretionary policy considerations in dealing with requests for cross-examination. Conclusion: No breach of principles of natural justice in relying upon co-noticees' statements without affording cross-examination in the facts of this case; the contention fails. Issue 2 - Admissibility of statements recorded in police custody Legal framework: Admissibility of statements recorded under Section 37 of the Act of 1999 in adjudication proceedings; recognition that statements recorded by enforcement authorities are relevant evidence. Precedent Treatment: The Tribunal accepted the authority below's view that statements under Section 37 are admissible and can be relied upon in adjudication. Interpretation and reasoning: The Tribunal noted that the statements were recorded on 04.07.2008 and formed part of the material, and no specific illegality or error was shown in relying upon them. The mere fact that statements were recorded while persons were in police custody was not held to render them inadmissible absent evidence of coercion or other infirmity; no such illegality was demonstrated. Ratio vs. Obiter: Ratio - Statements under Section 37 are admissible and may be relied upon in adjudication under the Act of 1999, subject to challenge on specific grounds of involuntariness or illegality. Obiter - None material beyond the stated ratio. Conclusion: The statements recorded on 04.07.2008 were admissible and could be relied upon; the objection to their admissibility is rejected. Issue 3 - Sufficiency of evidence to establish contravention of Section 3(c) Legal framework: Elements of contravention under Section 3(c) of the Act of 1999 (unauthorised receipt/transfer of foreign remittance or dealing in foreign exchange in contravention of the Act) require proof of receipt of money in India on instructions of persons resident outside India for distribution within India. Precedent Treatment: The Tribunal relied on findings of the authority below and on contemporaneous seized material (fax messages, panchnama, seizure of currency, confessional statements) as forming a coherent evidentiary matrix. Interpretation and reasoning: Multiple co-noticees independently stated involvement in unauthorised receipt and distribution on instructions from abroad; 13 fax messages and seized currency were consistent with the transactions alleged; one co-noticee specifically named the appellant as having received Rs. 15,00,000/- on instructions of foreign residents. The Tribunal found no reason to disbelieve co-noticees, noting absence of demonstrated enmity or motive to falsely implicate the appellant, and thus accepted the authority's conclusion of contravention by the appellant. Ratio vs. Obiter: Ratio - Independent consistent statements of co-participants corroborated by documentary/seizure material can constitute sufficient evidence of contravention of Section 3(c). Obiter - Considerations on credibility where enmity or motive to fabricate is absent. Conclusion: The material on record, including co-noticees' statements and seized fax messages/currency, sufficed to establish contravention of Section 3(c) by the appellant. Issue 4 - Proportionality and quantum of penalty Legal framework: Penalty imposition under the Act of 1999 must be proportionate to the contravention and amenable to appellate mitigation where excessive relative to the allegation and respondent's financial status; appellate discretion to remit/reduce penalty. Precedent Treatment: The Tribunal applied appellate supervisory principles to examine excessiveness and proportionality of the penalty imposed by the authority below. Interpretation and reasoning: The Tribunal accepted the finding of contravention but found the imposed penalty of Rs. 30,00,000/- excessive in relation to the established receipt of Rs. 15,00,000/-. The Tribunal considered the appellant's financial status and prior direction for pre-deposit of Rs. 8,00,000/-, which had been paid, as a relevant mitigating factor. Ratio vs. Obiter: Ratio - Appellate authority may reduce an excessive or disproportionate penalty to align sanction with the nature and extent of contravention and the appellant's circumstances. Obiter - No formulaic reduction prescribed; factual balancing is required. Conclusion: The Tribunal reduced the penalty from Rs. 30,00,000/- to Rs. 8,00,000/-, interfering only with quantum and not with the finding of contravention.