Retracted statements and corroborating material can sustain FEMA contravention; separate customs settlement does not bar distinct foreign exchange action.

Recorded statements and surrounding material were treated as sufficient to establish contravention of FEMA where the managing director's statements were confirmed before the enforcement authority and supported by invoice and payment evidence showing differential value remittances through agents. The standard applied in adjudication was preponderance of probabilities, not criminal proof, so clandestine foreign exchange violations could be proved on that basis. Earlier customs settlement proceedings did not bar FEMA action because they addressed a different wrong, and the retraction was rejected for want of cogent proof of coercion and because the statements were independently corroborated. The penalties were reduced on proportionality grounds, while the finding of contravention was upheld.

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Issues: (i) Whether the contravention of Section 3(b) of the Foreign Exchange Management Act, 1999 was established on the basis of the recorded statements and surrounding material; (ii) whether the earlier customs settlement proceedings and the retraction of statements barred or displaced the FEMA proceedings; (iii) whether the penalties required reduction on a proportional basis.

Issue (i): Whether the contravention of Section 3(b) of the Foreign Exchange Management Act, 1999 was established on the basis of the recorded statements and surrounding material.

Analysis: The recorded statements of the managing director were treated as admissible and reliable because they were confirmed before the enforcement authority and were supported by the surrounding material. The reasoning accepted that the import invoices reflected declared values, while the differential value was paid through agents in India to overseas suppliers. The Court also applied the principle that in adjudication proceedings, clandestine violations may be proved on a preponderance of probabilities and need not satisfy the standard of criminal proof.

Conclusion: The contravention was held to be established against the appellants.

Issue (ii): Whether the earlier customs settlement proceedings and the retraction of statements barred or displaced the FEMA proceedings.

Analysis: The customs settlement and the FEMA action were treated as concerning different legal wrongs. The customs settlement dealt with duty-related consequences, whereas the FEMA proceedings arose from compensatory payments made for under-invoiced imports. The retraction was not accepted because the statements had been reiterated before the enforcement authority and no cogent evidence of coercion or duress was produced. Reliance was placed on the principle that a retracted statement may still be acted upon if it is substantially corroborated by independent material.

Conclusion: The FEMA proceedings were held to be maintainable, and the retraction did not discredit the adjudication.

Issue (iii): Whether the penalties required reduction on a proportional basis.

Analysis: Although the contravention was sustained, the Court considered the appellants' plea for proportionality in view of the stated hardship and the impact on the business entities. The original penalties were therefore reassessed in a reduced form.

Conclusion: The penalties were reduced to the extent indicated in the order.

Final Conclusion: The appeals succeeded only to the limited extent of reduction of penalty, while the finding of contravention under FEMA was upheld.

Ratio Decidendi: A retracted statement may be relied upon in adjudication when it is voluntarily recorded or reiterated and is corroborated by independent material, and customs settlement proceedings do not bar FEMA action where the latter concerns a distinct foreign exchange contravention.

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