1999 (8) TMI 998 - Board - FEMA

Summary

Issues Involved:
1. Contravention of Section 7(1) and (2) of the Foreign Exchange Regulation Act, 1973.
2. Contravention of Section 8(1) and (2) of the Foreign Exchange Regulation Act, 1973.
3. Validity and admissibility of evidence, including statements and Panchnama.
4. Burden of proof regarding lawful possession of foreign exchange.
5. Investigation adequacy concerning the origin and handling of travelers cheques.
6. Exoneration of co-accused and its impact on the appellant's case.
7. Penalty and confiscation orders.

Issue-wise Detailed Analysis:

1. Contravention of Section 7(1) and (2):
The appellant was penalized for accepting drafts not expressly covered under the money changer's license. However, the judgment noted that the appellant received the drafts through banking channels, which did not constitute a violation of the Act. It was emphasized that the appellant was entitled to receive payments from non-residents if they accrued through banking channels. The drafts, credited to his account, resulted in acquiring Indian currency, not foreign exchange. Thus, the alleged contravention of Section 7(1) and (2) was not sustained, and the penalty imposed was deemed unjust.

2. Contravention of Section 8(1) and (2):
The appellant was accused of purchasing and selling foreign exchange totaling US $13,500. The charge was based on the evidence of Panchnama and statements recorded during the search. However, the judgment highlighted discrepancies in the allegations and noted that the sole evidence was a retracted confession, which could not conclusively establish guilt. Additionally, the exoneration of Tahil Mirchandani, whose case was based on the same evidence, further weakened the department's case against the appellant. Consequently, the findings of contravention of Section 8(1) and (2) were set aside.

3. Validity and Admissibility of Evidence:
The judgment questioned the admissibility of the Panchnama and statements recorded during the search, as the witnesses were not produced for cross-examination. The recovery of foreign exchange from the bank manager's cabin, not the appellant's premises, lacked corroborative evidence against the appellant. The retracted statements of Tahil Mirchandani and the appellant could not be relied upon to sustain the charges.

4. Burden of Proof:
Under Section 71(3), the burden was on the bank manager, Kumar Nachnani, to prove lawful possession of the foreign exchange. The judgment noted that the department failed to shift this burden back to Nachnani after Tahil Mirchandani retracted his admission. Thus, the possession of foreign exchange by Nachnani remained unproven.

5. Investigation Adequacy:
The judgment criticized the lack of investigation into the origin and handling of travelers cheques. It was noted that travelers cheques could only be encashed by the person whose signature appeared on them. The investigation did not ascertain how the cheques were with the bank manager for a long time or how FDRs were issued in the name of Murli of Singapore. The investigator's reliance on statements without verifying bank records was deemed inadequate.

6. Exoneration of Co-accused:
The exoneration of Tahil Mirchandani, whose case was based on the same evidence, had a significant impact on the appellant's case. The judgment emphasized that since Mirchandani's role was not proven, the foreign exchange could not be linked to the appellant. The findings in Mirchandani's case, based on sound legal principles, led to the collapse of the charges against the appellant.

7. Penalty and Confiscation Orders:
The judgment concluded that there was no evidence to sustain the charges against the appellant. The penalties imposed for contraventions of Sections 7(1), 7(2), 8(1), and 8(2) were set aside. Additionally, the order of confiscation of Rs. 45,354.78, being the proceeds of the drafts, was also set aside. The respondents were directed to refund the amount of Rs. 45,354.78 and the penalty of Rs. 55,000, if deposited by the appellant, within 45 days.

Conclusion:
The appeal was allowed, and the impugned order was set aside. The judgment emphasized the lack of adequate evidence, discrepancies in the charges, and the failure to prove the lawful possession of foreign exchange. The penalties and confiscation orders were deemed unjust and were overturned.