2026 (2) TMI 1344 - AT - FEMA

Contravention under FEMA sustained on documentary nexus, penalties reduced and confiscation of un-surrendered foreign currency upheld.

Contraventions of the Foreign Exchange Management Act were sustained where documentary remittance references and matching bank credits created a reliable ... Contravention of Section 3(d) of FEMA (unauthorised/false inward remittances and related financial transactions) - contravention of Section 7(1)(a) of FEMA (duties of authorised persons/companies) - standard of proof in adjudication - preponderance of probabilities - corroboration by bank credit entries and TT references - confiscation of seized foreign currency for failure to surrender within prescribed period - adjustment of seized cash towards penalty - independence of FEMA proceedings from Customs Act investigations - HELD THAT:- It is pertinent to appreciate that the present proceedings being of quasi-judicial nature are governed by the standard of proof in accordance with the principles of pre-ponderance of probabilities. We are convinced that the charge of contravention of Section 3(d) of FEMA is established against the Appellants. Corollary to our finding for the aforementioned charge is the inference that the contravention of Section 7(1)(a) of FEMA is also established against the Appellants. Both the charges are established to the extent of Rs. 4,43,96,119/- since besides the aforementioned 7 TTs, there were two other TTs transferred from Goel Foreign Exchange in Canada and no explanation with respect to these two credit entries has been provided by the Appellants. The pleadings have been made in the Appeals, that nothing has been produced by the Respondent as to show that the contraventions of the Customs Act 1962 have occurred. We observe that the proceedings under the Customs Act and those under the FEMA are independent of each other. Even if for argument sake, it is taken that no proceeding under the Customs Act 1962 could be initiated that does not vitiate the detection and the investigation brought out in the proceedings under FEMA. Confiscation of seized foreign currency - HELD THAT:- It is undisputed that the Foreign Currency of value Rs. 1,70,880/- was seized and recovered from the premises of the individual Appellant Shri Sanjeev Kumar Gupta. Since, the seizure at his residence was effected on 15.10.2014, there is nothing produced by the individual Appellant as to show that the said Foreign Currency was not lying with him for less then 180 days. We therefore agree with the findings made in the Impugned Order and with the Order of confiscation of the said Foreign Currency. Adjustment of seized cash towards penalty - HELD THAT:- We find that the Order relating to adjustment towards penalty from the amounts of the Appellant Company only, as reasonable and not unlawful. This Tribunal vide Order dated 24.05.2018 had waived off the pre-deposit of the penalty amounts of Rs. 11,874/- and Rs. 25,000/-. We therefore reduce the total cumulative penalty on the Appellant Company to Rs.11,98,894/- for the aforementioned contraventions of Section 3(d) and Section 7(1)(a) of the Foreign Exchange Management Act, 1999 (FEMA). We also reduce the total cumulative penalty on the individual Appellant to Rs. 15,89,232/- for the aforementioned contraventions of Section 3(d) and Section 7(1)(a) of FEMA in terms of Section 42 of FEMA and of Section 10(6) of FEMA read with Regulation 6 (A) of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 to the tune of Rs. 1,70,880/-. We also uphold the confiscation of Foreign Currency of value Rs. 1,70,880/- under Section 13(2) of FEMA. Issues: (i) Whether contraventions of Section 3(d) and Section 7(1)(a) of the Foreign Exchange Management Act, 1999 are established to the extent of Rs. 4,43,96,119/-; (ii) Whether foreign currency of value Rs. 1,70,880/- seized from the individual's premises is liable to confiscation; (iii) Whether adjustment of seized Indian currency (cash in hand Rs. 27,88,125.98) towards the cumulative penalty is permissible; (iv) Whether the penalty amounts require modification.Issue (i): Whether contraventions of Section 3(d) and Section 7(1)(a) of the Foreign Exchange Management Act, 1999 are established to the extent of Rs. 4,43,96,119/-.Analysis: The decision applies the adjudicatory standard of proof on a preponderance of probabilities. Documentary references to multiple telegraphic transfers (TTs) recovered from an entity engaged in arranging foreign remittances, together with undisputed bank credit entries corresponding to those TTs in the concerned account, form corroborative evidence. The absence of a direct cash-transfer admission does not negate the probative value of the documentary nexus and corroborated remittance records. Proceedings under the Customs Act are treated as independent and their non-initiation does not vitiate FEMA adjudication.Conclusion: The contraventions of Section 3(d) and Section 7(1)(a) of the Foreign Exchange Management Act, 1999 are established to the extent of Rs. 4,43,96,119/-.Issue (ii): Whether foreign currency of value Rs. 1,70,880/- seized from the individual's premises is liable to confiscation.Analysis: The seizure date and the absence of evidence showing lawful possession within the 180-day surrender period were considered. The regulatory provisions concerning surrender and repatriation under FEMA and the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 were applied to the facts.Conclusion: The foreign currency of value Rs. 1,70,880/- is liable to confiscation under Section 13(2) of the Foreign Exchange Management Act, 1999.Issue (iii): Whether adjustment of seized Indian currency (cash in hand Rs. 27,88,125.98) towards the cumulative penalty is permissible.Analysis: The adjudicating authority allocated cash attributable to the concerned company (excluding amounts attributable to unrelated third-party proprietorship) and adjusted the available cash against penalties imposed on the company and on its director under Section 42 of the Foreign Exchange Management Act, 1999. The adjustment was assessed for reasonableness against the factual determinations about source and ownership of the seized amounts.Conclusion: The adjustment of the seized Indian currency amount of Rs. 27,88,125.98 towards the cumulative penalty is upheld as reasonable.Issue (iv): Whether the penalty amounts require modification.Analysis: Having upheld the primary findings of contravention and confiscation, the tribunal reviewed the monetary computation and prior procedural waiver of pre-deposit, and recalculated the net payable penalties after permitting adjustments from seized cash and considering amounts already addressed.Conclusion: The cumulative penalty on the company is reduced to Rs. 11,98,894/- and the cumulative penalty on the individual is reduced to Rs. 15,89,232/-, and the confiscation of foreign currency of Rs. 1,70,880/- is upheld.Final Conclusion: The appeals are partly allowed insofar as penalties are reduced as specified while the findings of contravention and confiscation are upheld; ancillary applications, if any, are disposed of accordingly.Ratio Decidendi: Where documentary evidence establishes a clear nexus between recovered remittance references and bank credit entries, an adjudicatory finding of contravention under the Foreign Exchange Management Act, 1999 may be sustained on the preponderance of probabilities; seized foreign currency not shown to have been lawfully retained within the statutory surrender period may be confiscated, and available seized cash attributable to the respondent may be adjusted against penalties.