2025 (5) TMI 1143 - AT - FEMA

Penalties and confiscation u/s 3(c) and 3(d) - appellant had received a sum in India on the instructions of person resident outside India - HELD THAT - Tribunal would not be justified to cause interference in the order for the sake of it unless an error or the illegality in the order is shown. It is otherwise not a case to place the reliance on the statements of Shri Ratan Das M and Shri Srinivas alone but the statements were corroborated by the documents and hence we find a case for contravention of Section 3(c) and Section 3(d) of the Act of 1999 where the appellant had received a sum in India on the instructions of person resident outside India in an unauthorized manner and further he entered into a financial transaction in India for creation of right to equivalent foreign exchange of persons outside India. Forfeiture of the amount seized by the respondent at the time of search and seizure - Elaborate argument in reference to it has been given. The cash-book and other documents have been produced to indicate no justification for forfeiture of the cash recovered at the time of search. The cash-book shows Rs. 40, 99, 431.49 in the hands of the Firm while recovery was only of Rs. 30 lakhs from the business premises and at the same time out of the recovery of Rs. 80, 95, 000/- the appellant submitted that a sum of Rs. 69, 95, 000/- was belonging to appellant s father in the Almirah maintained by him leaving a sum of Rs. 11 lakhs. It is apart from the fact that total sum in the books of accounts was showing cash in hand to be more than Rs. 1 crore. It is not properly considered by the Adjudicating Authority. We find admission of the appellant about the cash recovered from him to be part of transaction through Shri Ratan Das M. The Adjudicating Authority has recorded finding taking aforesaid into consideration and the documents produced and relied upon. Penalty amount - Tasking overall facts into consideration and also that the matter is now old by 14 years the penalty imposed for contravention of Section 3(c) of the Act is substituted to Rs. 2, 75, 00, 000/- against the penalty of Rs. 9, 00, 00, 000/- and for contravention of Section 3(d) of the Act of 1999 the penalty of Rs. 1, 00, 00, 000/- is substituted to Rs. 25, 00, 000/- . The appellant has already deposited Rs. 90 lakhs towards the satisfaction of the condition of High Court of Delhi and otherwise Bank Guarantee of Rs. 1, 10, 00, 000/- was given which can be encashed by the respondent and apart from that we direct the respondent to adjust the amount of Rs. 1, 00, 00, 000/- out of Rs. 1, 10, 95, 000/- confiscated by them with direction to the respondent to return the excess amount after adjusting an amount to make good of the penalty and remaining amount would be refunded to the appellant. The adjustment of the confiscated amount has been allowed looking to availability of cash in hand in cash-books of the Firm and in the hands of the appellant s father.

Summary

Issues Presented and Considered

The core legal questions considered were:

1. Whether the impugned order imposing penalties and confiscation under Sections 3(c) and 3(d) of the Foreign Exchange Management Act, 1999 ("the Act of 1999") was passed in violation of the principles of natural justice, specifically regarding the denial of an opportunity for cross-examination of witnesses whose statements were relied upon.

2. Whether the appellant was afforded a proper opportunity of personal hearing before the final order was passed.

3. Whether the confiscation of cash amounts seized from the appellant's business and residential premises was justified, considering the appellant's claim of legitimate cash holdings and independent ownership of part of the seized amount.

4. Whether the statements of Shri Ratan Das M and his son, which formed the basis of the allegations, could be relied upon without corroboration and without allowing cross-examination.

5. Whether the penalty amount imposed was proportionate and justified in light of the contraventions found.

Issue-wise Detailed Analysis

1. Violation of Principles of Natural Justice and Denial of Cross-Examination

The appellant contended that the order was passed without allowing cross-examination of key witnesses, namely Shri Ratan Das M and others, whose statements were heavily relied upon. The appellant argued that this denial violated the principles of natural justice and cited precedents requiring cross-examination of co-noticees' statements before reliance.

The Tribunal examined the procedural history and found that the appellant's counsel had requested cross-examination and was asked to provide reasons. After consideration, the Adjudicating Authority rejected the prayer for cross-examination by order dated 24.09.2010. Crucially, this order was not challenged by the appellant in the appeal before the Tribunal.

The Tribunal held that since the order rejecting cross-examination was unchallenged, the appellant could not raise denial of cross-examination as a ground for setting aside the final order. The Tribunal further noted that it does not possess the extraordinary writ jurisdiction of a High Court and is confined to the relief prayed in the appeal. Hence, the first issue was rejected on procedural grounds.

2. Opportunity of Personal Hearing

The appellant alleged that no opportunity of personal hearing was given before the final order. The Tribunal reviewed the record and found that the appellant's representatives had appeared on multiple occasions, including on 18.08.2010, initially for hearing on the cross-examination issue. The appellant filed written submissions and was granted repeated opportunities to file further submissions but failed to do so.

Although a typographical error was noted in the impugned order regarding the date of personal hearing, the Tribunal found that a proper opportunity of hearing was indeed provided. The appellant participated and submitted written responses. Thus, this ground was rejected as well.

3. Justification for Confiscation of Seized Cash

The appellant challenged confiscation of Rs. 30,00,000/- from business premises and Rs. 80,95,000/- from residence, arguing that the cash-book showed legitimate cash balances exceeding the seized amounts and that a significant portion of the cash found at residence belonged to the appellant's father, who had an independent source of funds.

The Tribunal noted the appellant's admission that the seized cash was related to transactions facilitated through Shri Ratan Das M. Although the appellant produced cash-books and bank statements to justify the cash holdings, the Adjudicating Authority had considered these documents but found the cash to be part of unauthorized transactions.

The Tribunal upheld the confiscation, observing that the seized cash corroborated the appellant's involvement in receipt of Indian currency through unauthorized channels in violation of the Act. However, the Tribunal allowed partial adjustment of confiscated amounts against the penalty, considering the available cash-book records and ownership claims.

4. Reliance on Statements of Shri Ratan Das M and Corroboration

The appellant contended that the statements of Shri Ratan Das M, a non-co-noticee, were relied upon without corroboration and without allowing cross-examination, rendering them inadmissible.

The Tribunal referred to Section 39 of the Act of 1999, which creates a presumption as to the genuineness and truth of documents seized or produced during investigations. The seized laptop and pen drive containing transaction data were admitted in evidence, corroborating the statements of Shri Ratan Das M and his son Shri Srinivas.

The Tribunal found that the appellant himself admitted the transactions facilitated by Shri Ratan Das M, and the incriminating documents and electronic evidence supported the findings. The retraction of statements by the appellant was held not to diminish evidentiary value where corroborated by independent material.

Therefore, reliance on these statements was held to be legally valid.

5. Proportionality and Quantum of Penalty

The appellant argued that the penalty imposed-Rs. 9 crores for contravention of Section 3(c) and Rs. 1 crore for contravention of Section 3(d)-was disproportionate to the amount involved and the nature of violation.

The Tribunal took note of the total amount involved in unauthorized receipt and transfer of funds exceeding Rs. 12 crores. However, considering the age of the matter (over 14 years) and the circumstances, the Tribunal exercised its discretion to reduce the penalty substantially.

The penalty under Section 3(c) was reduced from Rs. 9 crores to Rs. 2.75 crores, and under Section 3(d) from Rs. 1 crore to Rs. 25 lakhs, making a total penalty of Rs. 3 crores. The Tribunal also directed adjustment of Rs. 1 crore from confiscated amounts towards penalty satisfaction and refund of excess amounts to the appellant.

Significant Holdings

On denial of cross-examination:

"In the absence to the challenge to the order dated 24.09.2010, the arguments in reference to denial of an opportunity of cross-examination would not be tenable... This Tribunal does not exercise extraordinary jurisdiction as available to the High Court under Article 226 & 227 of the Constitution to grant any appropriate relief."

On opportunity of hearing:

"It is not true that the appellant was not given an opportunity of hearing... the appellant filed written submission vide letter dated 23.12.2010... which itself reflects proper opportunity of hearing."

On reliance on statements and documents:

"It is a settled law that retracted statement would not lose its evidentiary value if the same is corroborated with other independent material particulars... The seizure of cash amounting to Rs. 30,00,000/- from the business premises of the Noticee and Rs. 80,95,000/- from the residence of the Noticee further corroborates the fact that the Noticee had been receiving monies in India through Shri Ratan Das M. outside the banking channels."

On penalty quantum:

"...the penalty imposed for contravention of Section 3(c) of the Act is substituted to Rs. 2,75,00,000/- (Rupees Two Crores Seventy Five Lakhs only) against the penalty of Rs. 9,00,00,000/- and for contravention of Section 3(d) of the Act of 1999, the penalty of Rs. 1,00,00,000/- is substituted to Rs. 25,00,000/- (Rupees Twenty Five Lakhs only) making total penalty of Rs. 3,00,00,000/- (Rupees Three Crores only)."

On confiscation and adjustment:

"...we direct the respondent to adjust the amount of Rs. 1,00,00,000/- out of Rs. 1,10,95,000/- confiscated by them with direction to the respondent to return the excess amount after adjusting an amount of Rs. 1,00,00,000/- (Rupees One Crore only) to make good of the penalty and remaining amount would be refunded to the appellant."