2014 (9) TMI 1085 - HC - FEMA

Guilty of the offence under Sections 6(4), 6(5) 8(1), 9(1)(a) and 9(1)(f)(i) of Foreign Exchange Regulation Act, 1973 - fine imposed - Held that - In the first place, it is not clear why, after recording the statements under Section 40 of FERA of the appellant and Mr. Mendiratta in May 1995, the ED waited till the last date of the sunset period, i.e., 30th May, 2002 for issuing the Memorandum. The second feature is that the only relied upon documents in the Memorandum are the statements made by the appellant and Mr. Mendiratta, the letter dated 7th August, 1995 of Mr. Sethi and the statement of account provided by the AMEX Bank. In other words, the ED does not appear to have undertaken any further investigation in the seven years since it recorded the statements. In particular, there was no attempt made to undertake investigation outside India to find out the names of the persons who had made remittances into the NRE Account of Mr. Sethi. The Court is of the view that the AO dated 24th March, 2004, and the impugned order of the AT to the extent they hold the appellant liable for contravention of Section 8(1) of FERA, cannot be sustained in law. As regards contravention of Section 9(1)(a) and Section 9(1)(f)(i), the Court is unable to appreciate how the said provisions are at all attracted in the facts and circumstances of the case. The said provisions require a person resident in India having to make any payment for the credit of any person outside India. The beneficiary under both the provisions is a person resident outside India. The allegations in the Memorandum do not make out any such case even prima facie. It is not the case of the ED that Mr. Sethi, who in the facts and circumstances was the only person resident outside India, was the beneficiary of any of the transactions in his NRE account. Consequently, the impugned order cannot be sustained even as regards the question of contravention of Section 9(1) of FERA. Thus AO dated 24th March, 2004 and the impugned order dated 24th December, 2010 of the AT are hereby set aside. Any amount deposited by the appellant pursuant to the AO shall be refunded to him in accordance with law within a period of eight weeks from today

Issues Involved:
1. Delay in issuing the Memorandum by the Enforcement Directorate (ED).
2. Reliance on exculpatory statements and unauthenticated documents.
3. Scope of the proceedings concerning cash deposits in the NRE account.
4. Contravention of Section 8(1) of the Foreign Exchange Regulation Act (FERA).
5. Contravention of Section 9(1)(a) and Section 9(1)(f)(i) of FERA.

Detailed Analysis:

1. Delay in Issuing the Memorandum by the Enforcement Directorate (ED):
The court noted that the ED waited until the last date of the sunset period, i.e., 30th May 2002, to issue the Memorandum, despite having recorded the statements of the appellant and Mr. Mendiratta in May 1995. The court found it unclear why the ED did not undertake any further investigation in the seven years following the initial statements, particularly concerning the identities of the persons who made remittances into Mr. Sethi's NRE account.

2. Reliance on Exculpatory Statements and Unauthenticated Documents:
The court observed that the ED relied heavily on the exculpatory statement of Mr. Mendiratta, which did not implicate the appellant in the inward remittances. The court cited the Supreme Court's ruling in Union of India v. Bal Mukund, emphasizing that a co-accused's statement cannot be considered substantive evidence without corroborating independent evidence. Additionally, the court found that Mr. Sethi's letter dated 7th August 1995 was not authenticated under Section 72 of FERA, rendering it inadmissible as evidence in adjudication proceedings.

3. Scope of the Proceedings Concerning Cash Deposits in the NRE Account:
The court highlighted that the cash deposits in the NRE account were not the subject matter of the Memorandum. The adjudication order (AO) and the Appellate Tribunal (AT) erred in considering these deposits to find contraventions of Section 8(1) of FERA. The court noted that the Memorandum specifically alleged that the appellant arranged for foreign exchange outside India, not cash deposits within India.

4. Contravention of Section 8(1) of FERA:
The court found that the ED failed to substantiate the charge under Section 8(1) of FERA. The ED's reliance on Mr. Mendiratta's exculpatory statement and unauthenticated documents did not provide substantive evidence to prove that the appellant arranged for foreign exchange outside India. The court concluded that there was no investigation or evidence to support the allegation that the appellant arranged inward remittances into Mr. Sethi's NRE account without the RBI's permission.

5. Contravention of Section 9(1)(a) and Section 9(1)(f)(i) of FERA:
The court held that the provisions of Section 9(1)(a) and Section 9(1)(f)(i) of FERA were not applicable in this case. These provisions pertain to making payments for the credit of a person outside India. The court found that the allegations in the Memorandum did not establish that Mr. Sethi, the only person resident outside India, was the beneficiary of any transactions in his NRE account. Therefore, the impugned order could not be sustained regarding the contravention of Section 9(1) of FERA.

Conclusion:
The court set aside the AO dated 24th March 2004 and the AT's impugned order dated 24th December 2010. The court directed that any amount deposited by the appellant pursuant to the AO be refunded within eight weeks. The appeal was allowed in these terms.

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