Preponderance of probabilities: contemporaneous records and admissions suffice to establish foreign-directed payments; penalties must be proportionate.

Adjudicatory findings that the corporate respondent contravened prohibitions on payments for or on behalf of persons resident outside India and that its director bore liability were affirmed on the basis that contemporaneous business records, electronic communications and admissions (recorded under Section 37) corroborated cash payments and unaccounted sales; the applicable standard was preponderance of probabilities. The tribunal held that penalties require a reasoned, proportionate quantification tied to proved contraventions and accordingly moderated the corporate and director penalties while setting aside the remainder of the imposed fines.

---

---

Issues: (i) Whether M/s Zaveri Exports Pvt. Ltd. and its director contravened Sections 3(a), 3(b) and 42(1) of the Foreign Exchange Management Act, 1999; (ii) Whether the penalties imposed under Section 13(1) of the Foreign Exchange Management Act, 1999 required reduction.

Issue (i): Whether M/s Zaveri Exports Pvt. Ltd. and its director contravened Sections 3(a), 3(b) and 42(1) of the Foreign Exchange Management Act, 1999.

Analysis: The decision examines contemporaneous entries in a seized spiral pad, WhatsApp chats, and voluntary statements recorded under Section 37 of the Foreign Exchange Management Act, 1999. The entries in the company records are corroborated by admissions that payments were made in cash to agents on instructions of Dubai-based dealers and by electronic contemporaneous material identifying a specific payment. The standard of proof applicable to adjudicatory proceedings under the Foreign Exchange Management Act, 1999 is preponderance of probabilities. The phraseology of Section 3(b) of the Foreign Exchange Management Act, 1999 covers payments made in India to agents acting on behalf of persons resident outside India, and such payments fall within the prohibition unless routed through an authorised person. Evidence of unaccounted sales and unexplained excess stock buttress the inference that the transactions were not conducted through authorised import channels. The director's position as promoter, major shareholder, and person in charge, together with his admissions, establishes knowledge and involvement relevant to liability under Section 42(1) of the Foreign Exchange Management Act, 1999.

Conclusion: The contraventions of Sections 3(a) and 3(b) of the Foreign Exchange Management Act, 1999 by M/s Zaveri Exports Pvt. Ltd. and the imposition of liability on Shri Sunil Kumar Tayal under Section 42(1) of the Foreign Exchange Management Act, 1999 are upheld.

Issue (ii): Whether the penalties imposed under Section 13(1) of the Foreign Exchange Management Act, 1999 require reduction.

Analysis: While the adjudicatory finding of contravention is maintained, the record does not contain an adequate, reasoned quantification explaining exercise of discretion to impose maximum penalties. Principles of proportionality andreasoned exercise of discretion in penalty imposition require that the quantum be related to the amount of contravention, nature of the contravention, and admissions on record. Having regard to established contraventions quantified from the material on record, a reduction of penalty to an amount equivalent to the proved contravention on the corporate respondent and a proportionate reduction for the director is warranted.

Conclusion: The penalty on M/s Zaveri Exports Pvt. Ltd. is reduced to Rs. 13,00,00,000 and the penalty on Shri Sunil Kumar Tayal is reduced to Rs. 3,00,00,000; the remainder of the penalties as originally imposed are set aside.

Final Conclusion: The adjudicatory findings of contravention under the Foreign Exchange Management Act, 1999 are affirmed while the penalties are moderated on grounds of proportionality and inadequate quantification by the Adjudicating Authority; the appeals are disposed of accordingly.

Ratio Decidendi: Admissions recorded under Section 37 of the Foreign Exchange Management Act, 1999 together with contemporaneous business records and electronic communications can constitute sufficient corroborative evidence under the preponderance of probabilities to establish payments made for or on behalf of persons resident outside India, and penalties under Section 13(1) of the Foreign Exchange Management Act, 1999 must be quantified by a reasoned exercise of discretion proportionate to the established contravention.

---