2025 (12) TMI 457 - AT - FEMA

FERA appeal partly allowed: contravention of Sections 8, 9(1)(f)(i), 14 upheld; penalty reduced to ?9 lakh

Shri Ishwar Gidwani Versus The Deputy Director, Directorate of Enforcement, Mumbai

The AT upheld the finding of contravention of Sections 8(1), 8(2), 9(1)(f)(i) and 14 of FERA by the appellant, holding that statements recorded under ... Involuntary nature of the statements/ retracted statements u/s 40 of FERA - scope of of independent and cogent evidence to corroborate the statements - contravention of Sections 8(1), 8(2), 9(1)(f)(i) and 14 of FERA - Imposition of penalty - whether the statements made by the Appellant and those by other persons against him can be admitted as evidence in the face of the retractions made by them subsequently - HELD THAT:- In K. T. M. S. Mohamed vs. Union of India [1992 (4) TMI 6 - SUPREME COURT] the Hon’ble Supreme Court held that merely because statement is retracted, it cannot be regarded as involuntary or unlawfully obtained. We do find that there are independent and cogent evidence to corroborate the statements made by the Appellant. There has been recovery of documents from the premises of the Appellant. The statements made by the Appellant have been in the nature of explanation to the documents recovered, cash seized and the statements of other persons. The investigation has revealed that the Appellant funded the travel expenses of Smt. Gopi T. Hirdaramani to Singapore. The fact that Smt. Gopi T. Hirdaramani was intercepted at the Airport at Mumbai while on her journey to Singapore carrying US $ 17000 cannot be ignored. We also note that the Adjudicating Authority has duly considered the retractions and has fairly rejected with reasons, the said retraction made denying the statements tendered earlier to the Respondent Directorate under Section 40 of FERA. It is observed that the statements tendered under Section 40 of FERA 1973 are admissible as evidence unless contrary is proved as to its voluntariness. Nothing has been produced by the Appellant before us, other than referring to retractions, as to disallow the admissibility of the statements. Appellant has pleaded that being 82 years old, a lenient view may be taken for the imposition of penalty - It has been recorded in the Order dated 14.03.2024 of this Tribunal while disposing of the Application for waiver of pre-deposit of penalty amount that the Appellant has deposited Rs. 5,10,000/- vide draft dated 07.11.2005 in accordance with the Order dated 30.07.2005 of this Tribunal which disposed of the application for waiver of the pre-deposit of the penalty amount during the course of admitting the previous Appeal made before this Tribunal. Keeping in view these circumstances, the ends of justice will be met by reducing the penalty to Rs. 9,00,000/- on the Appellant. The amount of Rs. 3,90,000/- having already been released through the Impugned Order and the amount of Rs. 5,10,000/- having been deposited in 2005 shall be adjusted towards the reduced penalty. Appeal is partly allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether statements recorded under Section 40 of the Foreign Exchange Regulation Act, 1973 (FERA), which were subsequently retracted, could be treated as voluntary and admissible evidence in adjudication proceedings. 1.2 Whether there existed independent and cogent corroborative evidence to sustain findings of contravention of Sections 8(1), 8(2), 9(1)(f)(i) and 14 of FERA against the appellant. 1.3 Whether the remanded adjudication proceedings complied with the requirement of affording an effective opportunity of hearing and defence to the noticee. 1.4 Whether the penalties imposed under FERA warranted interference on grounds of quantum, including age of the appellant and amounts already seized and/or deposited, and how such sums should be adjusted. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility and effect of retracted statements under Section 40 of FERA Legal framework 2.1 The Court referred to the principles laid down by the Supreme Court that: (a) a retracted confession or inculpatory statement can be relied upon if found to be voluntary and true; (b) as a rule of prudence, courts ordinarily seek corroboration in material particulars; and (c) mere retraction does not by itself render a statement involuntary or unlawfully obtained. It further noted that voluntariness of a statement before officers under FERA is a sine qua non for acting on it and that the maker who alleges inducement, threat or coercion must establish such improper means. The adjudicating authority must consider the retraction and record reasons if it rejects it. Interpretation and reasoning 2.2 The adjudicating authority had examined the written retractions filed by the appellant and by the co-noticee and found: (a) The appellant's retraction before the Chief Metropolitan Magistrate and through letters was more in the nature of allegations against officers without specifying which portions of his statement were alleged to be forced or what precise admissions were claimed to be involuntary. (b) The co-noticee's two retraction letters were internally inconsistent: in one, it was admitted that she 'acted as a carrier...for or on behalf of' the appellant, was repentant, and sought mercy; in a subsequent letter it was claimed that she was compelled to admit being a carrier, that the seized foreign currency belonged to her, and that it was not given by the appellant. The authority treated this contradiction as indicative of a retraction made on legal advice after deliberation, diminishing its probative value. 2.3 The adjudicating authority noted that all statements of the appellant and the co-noticee were in their own handwriting, that they were warned the statements could be used in evidence, and that the appellant had concluded that his statement was given without force, threat or coercion. 2.4 The appellant and co-noticee were confronted with each other's statements: the co-noticee identified the appellant and his role; the appellant admitted having given US $ 17,000 to the co-noticee through his worker for the relevant trip. These mutual confirmations were treated as reinforcing voluntariness and reliability. 2.5 It was found that the appellant produced no independent evidence to substantiate allegations of inducement, threat or coercion; apart from his own assertions there was nothing to support the claim of involuntariness. Cross-examination of the investigating officer revealed a categorical denial of any misconduct, and no contrary material emerged. 2.6 The Tribunal noted that statements recorded under Section 40 of FERA are admissible as evidence, and that nothing beyond the bare retractions was placed to rebut their voluntariness. It endorsed the adjudicating authority's exercise of mind in considering and rejecting the retractions with recorded reasons. Conclusions 2.7 The statements recorded under Section 40 of FERA were held to be voluntary and admissible; the subsequent retractions did not vitiate them. The retractions were rightly rejected after due consideration, and the original inculpatory statements could be relied upon, particularly when corroborated by independent evidence. Issue 2 - Sufficiency of corroborative evidence and establishment of contraventions under Sections 8(1), 8(2), 9(1)(f)(i) and 14 of FERA Interpretation and reasoning 2.8 Applying the requirement that a retracted inculpatory statement should be supported by independent and cogent corroborative evidence, the Tribunal examined the material relied upon in the impugned order. 2.9 The evidence considered included: (a) Recovery of documents from the appellant's residential premises, including 'Bunch G', containing details of foreign exchange transactions with a large number of persons, which the adjudicating authority treated as proving involvement in a foreign exchange racket. (b) Seizure of Rs. 3,90,000/- from the appellant's premises, and Rs. 42,000/- and a receipt evidencing foreign currency transactions from the premises of an associate, along with the appellant's own explanation linking these amounts to foreign currency dealings. (c) The appellant's admissions in his statements that he dealt in foreign goods, purchased foreign currency at black market rates, had previously smuggled foreign currency, and had purchased foreign currency equivalent to Rs. 40,36,842/-, and that he arranged transfers of funds abroad, including to a person in Singapore, and maintained US $ 200 in a Post Office Savings Bank in Singapore. (d) The co-noticee's detailed statement that she worked as a carrier for the appellant for a consideration per trip to Singapore, had carried foreign exchange in the past, and on the relevant occasion was carrying US $ 17,000 belonging to the appellant when intercepted at Mumbai Airport; her description of the modus operandi for smuggling and hawala transfers and the business relationship between the appellant and an overseas associate. (e) Statements of other persons, including one who confirmed using the appellant as a conduit for hawala transactions and another who confirmed that the appellant bore the air travel costs of the co-noticee for trips to Singapore, evidencing the appellant's financing of the carrier's travel. 2.10 The Tribunal held that: (a) The interception of the co-noticee at Mumbai Airport with US $ 17,000 on a trip to Singapore, coupled with her earlier confession and the appellant's corroborative statement, constituted strong circumstantial and direct evidence of the appellant's involvement in illegal acquisition and transfer of foreign exchange. (b) The documentary material and consistent statements collectively corroborated the appellant's own admissions regarding purchasing foreign exchange at illegal rates, transferring funds abroad, receiving funds in India against foreign currency payments outside India, and retaining foreign exchange abroad without surrender. (c) The appellant's arguments that the seized documents were merely xerox copies, not in his handwriting, and did not mention foreign currency, and that previous alleged transactions were uncorroborated, were rejected in light of the broader body of corroborative evidence and the explanatory nature of the appellant's own statement linking himself to the recovered material. 2.11 The Tribunal noted that the adjudicating authority had, on appreciation of the above evidence, found contraventions of Sections 8(1) and 8(2) (acquisition at illegal rates and transfer of foreign exchange outside India), Section 9(1)(f)(i) (receiving payment in India in consideration of foreign exchange paid outside India), and Section 14 (failure to surrender foreign exchange held abroad). Conclusions 2.12 There existed independent, cogent, and mutually corroborative evidence-documentary, circumstantial, and testimonial-supporting the appellant's inculpatory statements. The findings of contravention of Sections 8(1), 8(2), 9(1)(f)(i), and 14 of FERA were upheld. Issue 3 - Compliance with principles of natural justice and opportunity after remand Interpretation and reasoning 2.13 The High Court had earlier set aside the prior adjudication order for failure to give the noticee an effective opportunity of meeting the case against him and remanded the matter. 2.14 In the impugned order, the adjudicating authority recorded that, after remand, several opportunities were granted; personal hearings were effectively conducted on various dates; the noticee's advocate actively participated; and the noticee's attorney (his wife holding a general power of attorney) also appeared. The authority concluded that all possible opportunities had been provided to produce evidence to rebut the allegations. 2.15 The Tribunal specifically noted these findings and recorded that no pleading to the contrary was made before it by the appellant. Conclusions 2.16 The remanded adjudication proceedings were held to have complied with the requirement of affording an effective opportunity of hearing and defence. No violation of principles of natural justice was established. Issue 4 - Quantum of penalty and adjustment of seized/deposited sums Interpretation and reasoning 2.17 The appellant sought leniency in penalty on the ground of advanced age (82 years) and the prior seizure and deposit of substantial amounts. 2.18 It was noted that: (a) Rs. 3,90,000/- had been seized from the appellant's premises on 03.09.1994; the impugned order itself recorded a clear finding that this amount was not involved in any contravention and ordered that it be adjusted against the penalties imposed, rather than returned. (b) The appellant had previously deposited Rs. 5,10,000/- in 2005 pursuant to an earlier order of the Tribunal relating to waiver of pre-deposit in a prior appeal. (c) In the order dated 14.03.2024, the Tribunal, while waiving further pre-deposit in the present appeal, had already taken note of the said seizure and deposit. 2.19 Taking into account the appellant's age, the prior seizure and deposit, and the interests of justice, the Tribunal considered it appropriate to reduce the total penalty to Rs. 9,00,000/-. It directed that the amount of Rs. 3,90,000/- (already ordered to be adjusted in the impugned order) and the amount of Rs. 5,10,000/- deposited in 2005 be adjusted towards the reduced penalty. Conclusions 2.20 While affirming the findings of contravention under FERA, the Tribunal partly allowed the appeal by reducing the overall penalty to Rs. 9,00,000/-, with full adjustment of the amounts of Rs. 3,90,000/- and Rs. 5,10,000/- already seized/deposited against the reduced penalty.