FEMA adjudication on electronic records and corroboration sustained contravention, while uninvolved appellants escaped penalty.

In FEMA adjudication, statements recorded under FEMA and PMLA, electronic records recovered from the noticee's custody, bank account analysis, and other corroborative material were treated as sufficient to sustain contravention on a preponderance of probabilities; retraction, absence of a separate FEMA investigation, and objections to admissibility were rejected. The finding of contravention under Section 3(b) was upheld, but the penalties were reduced in light of the surrounding circumstances. As to the women appellants, the record did not show participation in hawala operations or remittance handling, so the alleged contravention under Section 42 was not established and the penalties against them were set aside.

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Issues: (i) Whether the penalties imposed for contravention of Section 3(b) of the Foreign Exchange Management Act, 1999 on the basis of statements and electronic records recovered in the investigation were sustainable, and whether the quantum of penalty required interference; (ii) Whether the penalties imposed on the two women appellants for alleged contravention of Section 42 of the Foreign Exchange Management Act, 1999 were sustainable.

Issue (i): Whether the penalties imposed for contravention of Section 3(b) of the Foreign Exchange Management Act, 1999 on the basis of statements and electronic records recovered in the investigation were sustainable, and whether the quantum of penalty required interference.

Analysis: The record showed that the proceedings under FEMA were supported by statements recorded under FEMA and PMLA, recovery of documents from electronic devices in the appellant's custody, bank account analysis, and other corroborative material. The objections based on retraction, lack of independent FEMA investigation, and alleged non-compliance with Customs evidence provisions were rejected because the documentary material seized from the appellant's custody was admissible in FEMA proceedings and the evidence had substantial corroboration. The finding of contravention was therefore sustained, but the Tribunal considered the circumstances relevant to quantum, including the penalties already imposed and the financial position of the entities.

Conclusion: The finding of contravention under Section 3(b) of the Foreign Exchange Management Act, 1999 was upheld, but the penalties were reduced to Rs. 20,00,000/- on Dr. C. Manoharan and Rs. 15,00,000/- on M/s Nitish Tools Pvt. Ltd.; the issue is partly in favour of the appellants.

Issue (ii): Whether the penalties imposed on the two women appellants for alleged contravention of Section 42 of the Foreign Exchange Management Act, 1999 were sustainable.

Analysis: The materials on record did not establish that either of them had participated in the hawala operations or handled the remittance arrangements. Their statements consistently indicated that the affairs of the company and the fund transfers were handled by Dr. C. Manoharan, and there was no contrary material showing active involvement or liability for the alleged contravention.

Conclusion: The penalties against Smt. M. Thenmozhi and Smt. C. Lakshmi were set aside; the issue is in favour of these appellants.

Final Conclusion: The adjudication was sustained only to the extent of a reduced penalty against Dr. C. Manoharan and M/s Nitish Tools Pvt. Ltd., while the liability of the other two appellants was negatived.

Ratio Decidendi: In FEMA adjudication, documentary and electronic material seized from the noticee's custody, when corroborated by statements and surrounding circumstances, may sustain a finding of contravention on the basis of preponderance of probabilities, and retraction does not displace such evidence absent credible proof of coercion or unreliability.

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