2025 (9) TMI 1540 - AT - FEMA

Department failed to prove Section 3(a) FEMA 1999 contravention for foreign exchange remittance; penalties set aside, appeals allowed

AT held that the Department failed to prove any contravention of Section 3(a) of FEMA 1999 for remittance of foreign exchange; evidence of actual ... Remittance of foreign exchange without compliance of the provisions or through the authorized dealer - No evidence on record show any remittance - Imposition of penalty - contravention of Section 3(a) of Foreign Exchange Management Act, 1999 - HELD THAT:- It may at the best show the preparation of the Appellant to make an application to obtain foreign citizenship. We are not going on the police verification which is shown to be for Visa, however, even if it is taken for pursuing the application to obtain citizenship, the basic element of foreign remittance is missing, which could not be proved by the Department. It could have been taking the back statement or other material to corroborate the evidence otherwise collected in the form of the citizenship application and notarization but there seems to be no effort of the Respondent to collect corroborating evidence. It could have been in the form of the bank statement and similar other evidences. The allegation cannot rest on hypothesis, on presumption. The order shows it to be based on the presumption otherwise reference of the evidence to prove the allegation would have been produced and proved. The second part of the allegation to deal with EURO 700,000 in Singapore in reference to a trust established by one of the Appellant, Rohan Satish Timblo. The Counsel for the Respondent made a reference of two letters dated 12.11.2012 and 21.12.2012, where he had indicated his intention to deal in EURO 100,000 at first instance and on the second instance, EURO 600,000. Though, the Counsel for the Appellant has denied those letters and even the signature on it. It was with the specific statement that the signature on the letter is not belonging to Rohan Satish Timblo. We do not want to go into that controversy because the crux of the issue is to be remittance of foreign exchange in contravention of Section 3(a) of the Act of 1999 which is missing. Accordingly, we cause interference in the impugned order while allowing the appeals preferred by three individuals. The impugned order is set aside and their appeals are allowed and as a consequence, there remains no substance in the appeal preferred by the Department to seek enhancement of the penalty amount. ISSUES PRESENTED AND CONSIDERED 1. Whether the material on record was sufficient to establish contravention of Section 3(a) of the Foreign Exchange Management Act, 1999 (prohibition on dealing in or transfer of foreign exchange to persons not being authorised persons) by the noticees. 2. Whether notarized applications for foreign citizenship and police verification evidence can, without corroborative remittance records, constitute proof of dealing in foreign exchange in contravention of Section 3(a). 3. Whether correspondence (letters) purportedly evidencing transfers to an overseas trust (Euro 100,000 and Euro 600,000) sufficed, absent corroborative bank remittance or transfer evidence, to establish contravention of Section 3(a). 4. Whether the Adjudicating Authority's penalty findings and quantum could be sustained where the foundational element of actual foreign remittance/transfer was not proved. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sufficiency of material to establish contravention of Section 3(a) Legal framework: Section 3(a) prohibits dealing in or transfer of foreign exchange or foreign security except as permitted; establishment of contravention requires proof that a person dealt in or transferred foreign exchange to a person not being an authorised person. Precedent treatment: The Tribunal relied on statutory requirement that substantive evidence of remittance/transfer is necessary; no reliance on any contrary binding precedents was invoked or accepted in the reasons. Interpretation and reasoning: The Court emphasized that the essential element is actual dealing/transfer of foreign exchange. Merely preparatory acts or documentary steps toward seeking foreign citizenship do not ipso facto prove a remittance or transfer. The record lacked direct evidence of fund movement (e.g., bank statements, transfer receipts, SWIFT messages). The Adjudicating Authority's conclusion rested on inferences from applications and ancillary documents rather than on primary evidence of transfer. Ratio vs. Obiter: Ratio - proof of contravention under Section 3(a) requires evidence of actual remittance/dealing; mere preparatory documentation is insufficient. Obiter - observations that police verification for visa is usually not required (used in assessing probative value of police verification) are ancillary. Conclusions: The material on record was insufficient to establish contravention of Section 3(a) against the noticees; the Adjudicating Authority's finding on contravention cannot be sustained absent proof of remittance/transfer. Issue 2 - Admissibility and evidential weight of notarized citizenship applications and police verification Legal framework: Documentary evidence must be assessed for its probative value in proving elements of an offence/contravention; corroboration is required where documents are circumstantial and do not directly establish essential elements. Precedent treatment: The Court treated notarized applications and police verification as circumstantial evidence that may indicate intent or steps taken but not conclusive proof of foreign exchange dealing without corroboration. Interpretation and reasoning: Notarization of application and existence of police verification were accepted as establishing that an application process was undertaken; however, such documents do not demonstrate that funds were remitted. The Tribunal noted that police verification relied upon by the Adjudicating Authority was arguably for visa purposes, weakening its probative value for citizenship-linked remittance. The Respondent did not produce bank or transfer records to corroborate the inference that funds were actually transmitted abroad. Ratio vs. Obiter: Ratio - notarized administrative applications and police verifications cannot substitute for direct proof of foreign remittance required to establish contravention under Section 3(a). Obiter - commentary on typical uses of police verification (visa vs. citizenship) is explanatory. Conclusions: The notarized citizenship applications and police verification, standing alone, lacked sufficient probative force to prove remittance/dealing in foreign exchange; they at best indicate preparatory conduct and cannot sustain a Section 3(a) finding without corroborative transfer evidence. Issue 3 - Evidentiary value of letters purporting to record intended transfers to an overseas trust Legal framework: Documents asserting intent to transfer or claiming past transfers are evidentiary but require corroboration - especially where authenticity or signature is disputed - and do not replace objective transactional records in proving actual remittance. Precedent treatment: The Tribunal treated such letters as admissions/indications only if authenticated and supported by objective remittance evidence; absent such support, letters are insufficient. Interpretation and reasoning: The letters referring to Euro 100,000 and Euro 600,000 were relied upon by the Respondent, yet originals were not produced at hearing and signatures were denied. More importantly, there were no bank statements, foreign exchange remittance proofs, or intermediary payment records to show transfer of funds to the overseas trust. The Court declined to enter into a signature-authenticity battle because the dispositive defect was absence of proof of remittance itself. The Tribunal found that reliance on uncorroborated letters leads to conjecture rather than proof of contravention. Ratio vs. Obiter: Ratio - correspondence alleging transfers, when unauthenticated and uncorroborated by transactional evidence, cannot establish contravention under Section 3(a). Obiter - refusal to resolve signature disputes where primary evidentiary deficiency exists. Conclusions: The letters, uncorroborated and disputed as to authenticity, did not suffice to prove remittance of Euro 700,000; therefore they could not sustain a finding of dealing in foreign exchange under Section 3(a). Issue 4 - Validity of penalty findings and relief Legal framework: Penalty under the Act attaches only when contravention is established; where the essential element of contravention is not proved, penalty cannot stand. Precedent treatment: The Tribunal applied the principle that an adjudicatory penalty must be predicated on proven violation and cannot be based on presumptions or surmises. Interpretation and reasoning: Given the Tribunal's conclusion that the Department did not prove remittance/dealing in foreign exchange, the foundational basis for penalty imposition collapsed. The Adjudicating Authority's order was characterized as being based on presumption and conjecture in the absence of corroborative evidence (bank records, transfer proofs). Consequently, the appeals by the individuals were allowed and the departmental appeal for enhancement of penalty was dismissed as devoid of substance. Ratio vs. Obiter: Ratio - penalties predicated on Section 3(a) cannot be sustained where essential elements (actual remittance/dealing) are unproved; such findings must be supported by concrete transfer evidence, not merely preparatory documents or uncorroborated correspondence. Obiter - observations regarding the Department's lack of effort to collect corroborative bank evidence. Conclusions: The penalties imposed by the Adjudicating Authority were set aside for the individual noticees for lack of proof of contravention; the Department's appeal for enhancement of penalties was dismissed for lack of merit.