2025 (10) TMI 71 - AT - FEMA

Violations of Section 9(1)(b) and 9(1)(d) upheld; voluntary confession relied on, penalty cut to Rs5L, Rs21.8L confiscated

Laxmi Narayan Ray Versus Directorate of Enforcement, Kolkata

AT upheld findings that the appellant violated Section 9(1)(b) and 9(1)(d) of the 1973 Act, concluding the confessional statement recorded after summons ... Validity of Confessional statement recorded in the custody of the Enforcement Directorate - basis for conviction - Hawala transaction - violation of Section 9(1)(b) and 9(1)(d) - imposition of penalty - prove its case beyond doubt - engaged in receiving payments locally in India and making payments to various persons under the instructions and order of three Bangladeshi Nationals - HELD THAT:- In the instant case the reference of the retraction of the statement has been given without showing the reason and even to prove as to when the appellant retracted from his statement. The statements were not recorded during the custody of the appellant with the respondents, rather it was recorded after issuance of summons thus was made with freewill and without duress and coercion. The fact further remains that during the course of recording the statement, the appellant read the documents collected from him with the information of three Bangladeshi nationals and other four persons for commission of crime. The documents were containing the name of four persons along with telephone numbers and accordingly notices were issued to them. The statements of co-noticees have been relied to establish the case for commission of contravention of Section 9(1)(b) and 9(1)(d) of the Act of 1973. In view of the law propounded by the Apex Court Central Bureau of Investigation and Ors. Vs. Mohd. Parvez Abdul Kayuum & Ors. [2019 (7) TMI 2070 - SUPREME COURT] we are unable to frame our order in reference to the judgement of the Calcutta High Court upholding the acquittal of the appellant for the reason that confessional statement was retracted and it was not corroborated by the other evidence while according to the law laid down by the Apex Court, confessional statement recorded with freewill needs no corroboration and can be taken basis for conviction. At this stage we may clarify that in the criminal case, the prosecution is required to prove its case beyond doubt while in the civil litigation, the standard of proof is different and is not required to be proved beyond doubt. We are dealing civil litigation against the appellant. The appellant has not referred to his business activities of construction while it was referred in the trial. In absence of any material to show his involvement in business activities of construction, we are unable to accept the argument beyond the pleadings and proof in this case. Thus, we do not find any error in the impugned order holding involvement of the appellant for contravention of Section 9(1)(b) and 9(1)(d) of the Act of 1973. The order passed by the authority below is upheld to that extent. Quantum of penalty - The authority below has imposed penalty of Rs. 20 lakhs for contravention of Section 9(1)(b) and 9(1)(d) of the Act of 1973. The appellant is now at the age of 80 years as informed and otherwise deposited a sum of Rs. 5 lakhs to satisfy the condition of pre-deposit. Accordingly, we cause interference in the impugned order in regard to the imposition of the penalty and is substituted by Rs. 5 Lakhs. So far as confiscation of the amount of Rs. 21.80 lakhs is concerned, we do not find any ground to cause interference in the impugned order and accordingly with substitution of the penalty, this appeal is disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the confessional statement recorded under the predecessor foreign exchange law can be relied upon by the Adjudicating Authority as the basis for establishing contravention of Section 9(1)(b) and 9(1)(d) of the Foreign Exchange Regulation Act, 1973 in adjudication proceedings under the Act of 1973? 2. Whether a retracted confessional statement loses its evidentiary value in adjudicatory proceedings and, if retraction is pleaded, whether corroboration by independent evidence is mandatorily required before acting on the confession? 3. Whether the material seized at search (currency and documents) together with co-noticees' statements constituted sufficient corroboration of the confessional statement to sustain findings of Hawala transactions and contraventions of Section 9(1)(b) and 9(1)(d) of the Act of 1973? 4. Whether the quantum of penalty imposed (Rs. 20 lakhs) was excessive in the facts of the case and whether reduction to the amount already pre-deposited is permissible in exercise of appellate/adjudicatory discretion. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Reliance on confessional statement in adjudication under the Act of 1973 Legal framework: Adjudication under the Act of 1973 proceeds on civil standard in relation to imposition of monetary penalty; statements recorded under the predecessor law and material seized under search provisions (Section 37) form part of the record considered by the Adjudicating Authority. Principles governing admissibility and probative value of confessional statements are derived from judicial pronouncements on voluntariness and truthfulness of confession. Precedent treatment: The Tribunal applied higher-court precedents holding that a voluntary confessional statement may form the sole basis for conviction/adverse adjudicatory finding if found to be voluntary and truthful; retraction does not ipso facto destroy evidentiary value. Interpretation and reasoning: The Tribunal examined record-origin circumstances (summons issued, statement recorded under statutory provision, no record of coercion or documented retraction before the Authority) and concluded the statement was made voluntarily and after service of summons. The Tribunal emphasized that in civil/adjudicatory proceedings the standard differs from criminal proof beyond reasonable doubt and that a voluntary confession need not be excluded merely because later retracted. Ratio vs. Obiter: Ratio - A voluntarily recorded confessional statement, even if retracted later, may be relied upon by an adjudicatory body in proceedings under the Act of 1973 if voluntariness and truthfulness are established from the record; corroboration is a matter of prudence, not an absolute legal prerequisite. Obiter - Observations on distinctions between criminal and civil/adjudicatory standards and on practice of recording statements after summons. Conclusion: The Tribunal held that the confessional statement could properly be relied upon as a basis for finding contravention, subject to scrutiny of voluntariness and attendant circumstances. Issue 2 - Effect of retraction of confession and necessity of corroboration Legal framework: Law recognizes that retraction of confession invites scrutiny as to voluntariness and truth; courts exercise prudence in seeking corroboration but there is no absolute rule requiring independent corroboration for every detail of a confession. Precedent treatment: The Tribunal followed binding principles from apex-court authority that (a) retracted confessions must be tested for voluntariness and truthfulness; (b) retraction may be an afterthought and does not automatically destroy evidentiary value; and (c) while corroboration is desirable in practice, a voluntary confession can suffice. Interpretation and reasoning: The Tribunal noted absence of contemporaneous proof of coercion or a timely formal retraction before the Investigating Authority; it observed that allegations of duress were not pleaded before the Adjudicating Authority and that earlier judicial scrutiny did not record cognizance of alleged assault/retraction. On those facts the retraction (as asserted later in separate criminal proceedings) did not negate the probative force of the original statement in adjudication. Ratio vs. Obiter: Ratio - Retraction without substantiation of coercion or a reasonable explanation does not automatically negate probative value of a prior confession in adjudicatory proceedings. Obiter - Comments on the utility of timing of retraction (reasonableness) and differences in consequence between criminal conviction and civil/adjudicatory penalty. Conclusion: Retraction, unsupported by evidence of coercion or timely formal notice, did not preclude reliance on the confessional statement; corroboration was considered desirable but not legally indispensable where voluntariness and supporting circumstances exist. Issue 3 - Sufficiency of seized material and co-noticees' statements as corroboration for findings of Hawala transactions and contraventions of Section 9(1)(b) & 9(1)(d) Legal framework: Establishing contraventions under Section 9(1)(b) and 9(1)(d) requires proof of prohibited foreign exchange/transfer-like activities (here described as Hawala transactions) and absence of legal source or authorisation; documentary evidence, entries in seized papers, and third-party statements may corroborate an implicated actor's role. Precedent treatment: The Tribunal applied the approach that the confessional statement's inculpatory content may be supported by seized documents and witness statements so as to satisfy the standard applicable to adjudication. Interpretation and reasoning: The Tribunal reviewed search results (cash of Rs.21.80 lakhs, documents in code words, entries in accused's handwriting, telephone numbers and named foreign correspondents) and statements of several co-noticees who admitted receipts/payments routed through the appellant. The Adjudicating Authority's detailed findings that the seized documents matched the appellant's explanations and that third-party admissions corroborated transactions were affirmed as meticulous consideration of evidence rather than speculation. The absence of contemporaneous books of accounts and belated tax filings undermined the appellant's asserted legitimate source. Ratio vs. Obiter: Ratio - Seizure of incriminating currency and coded documents in an accused's handwriting, when supported by admissions of co-noticees and absence of credible legitimate-source evidence, can constitute sufficient corroboration of a confession and justify findings of Hawala-type contraventions under the Act of 1973. Obiter - Observations on old-style accounting entries being used to conceal cross-border transfers. Conclusion: The Tribunal found sufficient corroboration in the seized material and co-noticees' statements to uphold the Adjudicating Authority's conclusion that contraventions of Section 9(1)(b) and 9(1)(d) were established. Issue 4 - Appropriateness of quantum of penalty and appellate reduction Legal framework: Appellate/adjudicatory bodies possess discretion to re-fix penalty amount in light of mitigating factors, age of litigant, long pendency, partial pre-deposit and facts of the case; confiscation orders and penalty imposition are distinct remedial consequences. Precedent treatment: The Tribunal exercised appellate discretion consistent with principles of proportionality and the equity considerations that inform reduction of monetary penalties in administrative adjudication. Interpretation and reasoning: Considering the appellant's advanced age (around 80 years), the exceptional delay (litigation initiated in 1996 and disposed in 2025), and that a pre-deposit of Rs.5 lakhs had already been made, the Tribunal found it appropriate to reduce the penalty from Rs.20 lakhs to Rs.5 lakhs. The Tribunal, however, refrained from altering the confiscation of the seized amount (Rs.21.80 lakhs) as the factual basis for seizure remained unimpugned. Ratio vs. Obiter: Ratio - In administrative/adjudicatory review, penalty may be reduced on equitable and pragmatic grounds without disturbing substantive findings; confiscation supported by evidence need not be disturbed merely because penalty is moderated. Obiter - Comments on lengthy pendency as a factor warranting leniency. Conclusion: The Tribunal upheld the finding of contravention but reduced the penalty to Rs.5 lakhs (matching the pre-deposit), leaving the confiscation of Rs.21.80 lakhs intact; the appeal was otherwise dismissed.