TaxTMI 
TaxTMI 
2025 (2) TMI 1493
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....n Brief 2. The relevant facts briefly are that acting on information that one Shri Ratan Das M. of M/s. Light N Sound Forex Pvt. Ltd., Banashankari-I Stage, Bangalore, was indulging in large scale hawala transactions between India and Singapore, Dubai, UK, Australia, Hong Kong, etc., and distributing compensatory payments in Kerala, Karnataka, Mumbai, Chennai and Delhi, the officers of the Directorate of Enforcement, Bangalore, carried out searches on the aforesaid business premises of M/s. Light N Sound Forex Pvt. Ltd on 17.12.2007/18.12.2007 under the provisions of FEMA, 1999. As a result of the search, Indian currency amounting to Rs. 1,09 75,000/- and foreign currencies amounting to US $ 3181, Can $ 2,800, Bah. Dinar 110, Euro 3,760, UAE Dhms 9,985, Thai Bhat 34,420, Yuan 411, Sing $ 153, Saudi Riyals 38, Aust. $.2,605, Sri Lankan Rs. 50, Hongkong $.20, Taiwan $.1,000 and Swiss Francs 7,000 were seized from the office premises of M/s Light N Sound Forex Pvt. Ltd, in addition to incriminating documents, one laptop (Compaq Presario B300), one pen drive (San Disk Cruzar) and three SIM cards. 3. On 18.12.2007, the residential premises of Shri Ratan Das at No. 7, 2 Cross, 10 M....
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....ection 42 of FEMA, 1999). The Noticees were further required to show cause as to why the seized Indian currency of Rs. 1,09,75,000/- and foreign currencies of US $.3181, Can $ 2,800, Bah. Dinar 110, Euro 3,760, UAE Dhms 9,985, Thai Baht 34,420, Yuan 411, Sing. $ 153, Saudi Riyals 38, Aust $ 2,605, Sri Lankan Rs. 50, Hongkong $ 20, Taiwan $ 1,000 and Swiss Francs 7,000 which were seized from the business premises of Noticee No. 1 should not be ordered to be confiscated under the provisions of section 13(2) of FEMA, 1999. 7. The said Show Cause Notice was disposed of by the Ld. Special Director of Enforcement, New Delhi vide his order dated 28.10.2010 which has been impugned before this Appellate Tribunal in the instant appeals. Having taken into account all the material placed before him and the submissions made by the Noticees, both written and oral, and the legal precedent cited by them in defence, the Ld. Special Director was of the view that from the facts discussed in detail in the order, the modus operandi adopted by the Noticee No. 1 and the role of Noticees No. 2 and 3, both for unauthorized transfer of foreign exchange outside India as well as the receipt of funds in una....
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....indulgence by the Noticees No.2 and 3 in the contravention of the various provisions of FEMA, 1999 by the Noticee No. 1. As such he held that the case laws cited by the Noticees did not advance their argument and rather only support the case made by the complainant in so far as the culpability of Noticee Nos 2 and 3 is concerned. 9. With regard to the proposal for confiscation of Indian currency of Rs. 1,09,75,000/- which was seized from the business premises of Noticee No.1 on 17.12.2007, he noted that Noticee No.2, in his statement dated 17.12.2007, had deposed that an amount of Rs. 1.07 crores was received by him from one Shri Bajrang in Bangalore on 15.12.2007 on behalf of one Shri Samar @ Rajesh of Singapore having telephone number 00659730629 and that he had arranged receipt of equivalent amount of foreign currency by Rajesh in Singapore through one of the foreign currency dealers, namely, Shri Mustafa of Singapore having telephone number 00656249008. The balance amount of Rs. 2.75 lakhs was claimed to have been withdrawn through Bank/ATM. However, no documentary evidence of withdrawal of the amount of Rs. 2.75 lakhs from the Bank/ATM was ever furnished by the Noticees at ....
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..... Light N Sound Forex Pvt. Ltd., Bangalore for the contravention of the provisions of section 3(d); (v) A penalty of Rs. 20,00,00,000 on Shri Ratan Das M., Managing Director of M/s. Light Light N Sound Forex Pvt. Ltd. Bangalore for the contravention of the provisions of sections 10(4), 10(5) and 11(1) of the said Act, 1999 all read with section 42; (vi) A penalty of Rs 20,00,00,000 on Shri Ratan Das M., Managing Director of Mis. Light N Sound Forex Pvt Ltd., Bangalore for the contravention of the provisions of section 3(b) of the said Act read with section 42; (vii) A penalty of Rs. 25,00,00,000 on Shri Ratan Das M., Managing Director of M/s. Light N Sound Forex Pvt Ltd., Bangalore for the contravention of the provisions of section 3(c) read with section 42; (viii) A penalty of Rs 20,00,00,000 on Shri Ratan Das M., Managing Director of M/s. Light N Sound Forex Pvt. Ltd., Bangalore for the contravention of the provisions of section 3(d) of the said Act read with section 42; (ix) A penalty of Rs. 10,00,00,000 on Shri Srinivas M. Director of M/s. Light N Sound Forex Pvt. Ltd., Bangalore for the contravention of the provisions of sections 3(....
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.... the allegations are all against Sh. Ratan Das. At para 50, the unauthorised transactions are also alleged to be of Sh. Ratan Das. Statement of Sh. Ratan Das is also there that he had been carrying on the transactions right from 1977. The decision of the Hon'ble Karnataka High Court in Panduranga Singh and Others v. State of Karnataka [2020 SCC OnLine Kar 3765] wherein it was held that where the allegations levelled in the charge sheet do not disclose the ingredients of any offence so far as the petitioners are concerned, the case against the petitioners could not be sustained. Appellant relies on the said judgment in support of their contentions. Reference in this context is also made to the judgment of the Hon'ble Delhi High Court in Brij Trading Company v. Enforcement Directorate CRL. A. No. 91 of 2008 (judgment dated 31.01.2014). In short, the submission of the appellant is that Sh. Ratan Das did not do anything on behalf of the company but in his individual capacity and the company cannot be penalized for the acts of the individual which were not undertaken by him on its behalf. Yet, proceedings were initiated against the company and no case was initiated against Sh. Ratan Das....
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....y of these sub-sections of section 3 are applicable to the present case but huge penalties amounting to Rs. 65, 68, 68 and 68 crores respectively have been levied under the said provisions. The person who made the transactions were not proceeded against and instead the company which did not make the payments has been proceeded against. Insofar as section 3(d) is concerned, it relates to financial transactions and is not at all applicable. No asset outside the country was involved. None of the provisions of any of the sub-sections can apply to the appellant company. The provisions can only apply if the other side of the transaction is also verified and confirmed. 18. It is also contended that the opportunity of cross-examination of the I.O. was denied even though the law mandates the same. The decision of the Hon'ble Supreme Court in Telestar Travels Pvt. Ltd. & Ors. v. Director of Enforcement [2013-TIOL-17-SC-FEMA] is relied upon. It is stated that the finding of the learned adjudicating authority in Para 5.3.1 is contrary to the said judgment of the Apex Court. 19. It is further submitted that the RBI was auditing the account of the company every month. It is pointed out tha....
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....d that the seizure of electronic records and retrieval of information were done in accordance with the requisite protocol and the same are clearly reflected in the Panchanama and Mahazar. The information was retrieved in the presence of Sh. Ratan Das as well as Sh. Srinivas at various points of time during the investigation. Therefore, the question of tampering does not arise. The Panchnama/Mahazar dated 17.12.2007 drawn at the business premises of the appellant company clearly describes the sealing of the laptop and seizure of the pen drives and SIM cards which was witnessed by Sh. Ratan Das and two independent witnesses. The passwords for the same were provided by Sh. Ratan Das and Sh. Srinivas at the time of retrieval of the information when the printouts were taken in their presence. Neither of them disputed the contents of the data retrieved from these electronic media at that time, nor later when they were confronted with the same in the course of investigation. 23. Insofar as the issue of cross-examination is concerned, it is submitted that denial of cross-examination in the adjudicatory process does not violate principles of natural justice, especially where the appellan....
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....ned order. The contents of the said para are as follows: 5.4.3 Before giving a finding on these charges, it is necessary for me to deal with the objection of the Noticees that the contraventions alleged to have been committed by the Noticee No. 1 (which is a company) cannot be fastened on the Noticee Nos.2 and 3 (who are Managing Director and Director respectively of the company, Noticee No.1) The Noticees have contested the charge on the grounds that the same cannot be fastened on all the three Noticees. In this regard, it needs to be appreciated that Noticee No.1, an FFMC, is a juristic person whose day to day affairs were being carried out by the Noticee Nos 2 and 3 as Managing Director and Director respectively. Both the Noticee Nos. 2 and 3 have given statements being responsible for the conduct of the business of Noticee No. 1. These statements will be dealt by me in the subsequent paras. It would be prudent to note the provisions of section 42 of FEMA, 1999. As per section 42, in case of contravention of the provisions of FEMA by a company, every person who was in charge of the conduct of the business of the company at the material time shall be deemed to be guilty ....
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....s the activity of trading in forex is concerned, Sh. Ratan Das, who was the founder and the Managing Director of M/s Light N Sound, has not made any distinction between his individual activity and that of the company. It is quite evident that after the setting up the company, all his actions insofar as the foreign exchange trading were concerned were clearly on behalf of the company. 29. Further, in his statement recorded on 09.01.2008, He inter alia stated as below: "Today, you have shown me printouts marked PD-1 from pages marked 1-60 which were printouts taken out of the data stored in the pen drive seized on 17.12.07 and downloaded as in my earlier statement and marked as PD-1. I had gone through the same consisting of 60 pages. I had already affixed my dated signature on all the pages for having seen them. All the printouts are extract of the transaction carried out by us from the period 2005 till 17.12.07 on account of transfers and tts (telegraphic transfers) and receipts being sent from abroad and being received by us. As regards the accounting of Prashanth's account, the same format mentioned by my son Srinivas .M is maintained here. As told in Srinivas'....
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....n and it is not clear which part of the said judgement the Appellant specifically seeks to rely upon. Accordingly, having carefully considered the submissions from the appellant's side, the first issue raised by the appellants, namely, that contravention was that of Shri Ratan Das alone and the company cannot be held accountable for the same, is not tenable and is hereby rejected. 33. The next contention put forward on behalf of the appellants is the all the alleged illegal transactions were on the pen-drive and the said evidence is inadmissible in light of the requirements of section 65B of the Indian Evidence Act. The decisions of the Hon'ble Supreme Court, in the cases, Arjun Panditrao Khotkar Vs. Kailash Kushanrao Gorantyal and Ors. and Anvar P.V. v. P.K. Basheer are relied upon. Special emphasis is sought to be laid on the requirement of a 'certificate' signed by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activities as per the provisions of Section 65B of the Indian Evidence Act, 1872, which was underscored in the above judgments of the Hon'ble Supreme Court. 34. In the above co....
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....case, it is not in dispute that the pen-drive in question was itself seized by the appellant's premises. In view of the same, the said pen- drive constituted 'primary evidence' within the meaning of the Evidence Act, 1872. With regard to such primary evidence, the Hon'ble Supreme Court, in the aforementioned case of Anvar P.V. vs. P.K. Basheer, has held as below: "4. The situation would have been different had the Appellant adduced primary evidence, by making available in evidence, the CDs used for announcement and songs. Had those CDs used for objectionable songs or announcements been duly got seized through the police or Election Commission and had the same been used as primary evidence, the High Court could have played the same in court to see whether the allegations were true. That is not the situation in this case. The speeches, songs and announcements were recorded using other instruments and by feeding them into a computer, CDs were made therefrom which were produced in court, without due certification. Those CDs cannot be admitted in evidence since the mandatory requirements of Section 65B of the Evidence Act are not satisfied. It is clarified that notwithstanding ....
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....-drive. The pen-drive was never sealed. It was always kept open and they used to feed new data on the same pen-drive. On the other hand, the respondent has inter alia contended that the seizure of electronic records and retrieval of information were done in accordance with the requisite protocol prevailing at that time. The Panchnama/Mahazar dated 17.12.2007 drawn at the business premises of the appellant company clearly describes the sealing of the laptop and seizure of the pen drives and SIM cards, which was witnessed by Sh. Ratan Das and two independent witnesses. The due procedure followed is clearly reflected in the Panchanama and Mahazar. The information from the pen-drive was retrieved in the presence of Sh. Ratan Das as well as Sh. Srinivas at various points of time during the investigation. Therefore, the question of tampering does not arise. Even passwords for the retrieval of electronic data were provided by Sh. Ratan Das and Sh. Srinivas at the time of retrieval of the information when the printouts were taken in their presence. Neither of them disputed the contents of the data retrieved from these electronic media at that time, nor later when they were confronted with ....
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....uivalent foreign exchange was received in India through normal banking channels; receiving approximately Rs. 1,07,00,000/-, which was seized from his business premises, from one Bhajrang by order of Shri Rajesh @ Samar of Singapore for transferring equivalent foreign exchange in US dollars to the said Shri Samar @ Rajesh to Singapore through unauthorized channel through contacts abroad such as Manohar Rao, Ashraf, Amir, all in Dubai, Mustafa @ Selvam. Muniraju and Prasad in Singapore, Shri. Kashinath in Hongkong, Shri. Benny @ Benny Mathews at Australia and Sandeep in U.K.; purchase of foreign currencies of US $ 4681, Can $ 2800, Bah. Din 110, Euro 3760, UAE Dir. 9985, Thai Baht 34420, Yuan 411, Sing. $ 133, Saudi Riyal 38, Aus $ 2605, Sri Lankan Rs. 50, Hong Kong $ 20, Taiwan $ 1000 and Swiss Franc 7000, which were seized from his business premises, without bringing the same into the company's statutory books of account; purchase and sale of large quantities of foreign currencies in unauthorized manner from/to different persons, whose details were found available in the three note books seized from his premises. 41. The evidence relied upon includes, statements of Sh. Ratan....
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....behalf of his clients, which further corroborated the entries available in electronic form in the pen-drive seized from him. The note books marked as F and G that were seized from his business premises on 17.12.2007 and one note book seized from his residence on 18.12.2007 contained the details of unauthorized purchase and sale of foreign currencies. These also independently corroborated the version of Sh. Ratan Das. The data downloaded from the SIM cards seized from the premises of M/s Light N Sound Forex Pvt Ltd on 17.12.2007, during the course of the statement of Shri. Ratan Das given before the Asst. Director on 28.12.07 further establishes his connection with Mustafa Selvam in Singapore and Manohar Rao in Dubai. The said downloaded messages from his SIM cards contain one message from Shri. Gafoor, another FFMC dealer, regarding unauthorized transfer of Thai Baht to one Ms. Bulapoorn Srinapa to her bank account with the Bank abroad. Follow up action was initiated against the said Shri. Gafoor and in his statement dated 18.03.08, he admitted to having undertaking the said unauthorized transfer through Shri. Ratan Das on behalf of one of his clients. As could be seen from the sta....
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.... order. Accordingly, we find it appropriate to delete penalties to the tune of Rs. 65,00,00,000/-, 20,00,00,000/- and 10,00,00,000/- imposed on M/s Light N Sound, Shri Ratan Das and Sh. Srinivas M. respectively. 45. It is next contended that the opportunity of cross-examination of the I.O. was denied even though the law mandates the same. The decision of the Hon'ble Supreme Court in Telestar Travels Pvt. Ltd. & Ors. v. Director of Enforcement is relied upon. Having perused the said judgment of the Apex Court, We find the issue therein was of cross-examination of witnesses who had testified that a particular company by the name 'Bountiful Ltd.', was a paper Company and was being controlled and operated from India by the Appellants. The Adjudicating Authority had relied upon the statements of two individuals and a communication received from the Indian High Commission in London. It was argued on behalf of the appellants that the same were inadmissible in evidence as the Appellant's request for an opportunity to cross examine these witnesses had been unfairly declined. The Hon'ble Supreme Court in that case observed that such refusal may amount to violation of the rule of a fai....