2014 (2) TMI 865 - HC - FEMA

Recovery of Foreign Exchange from Lockers - Acquisition and sale of foreign exchange to the extent of US 72,800 without any previous general or special permission of the RBI - Proceedings under FERA / FEMA - opportunity of cross-examining the witnesses - Held that - Neither the AO nor the impugned order of the AT, have dwelt on the recovery of the foreign exchange from the guest lockers, and connected those recoveries with the Appellants. The specific case of Rakesh Kapoor was that he did not have in his possession the keys of Guest Locker No. 55 and the duplicate key was provided by the hotel management though the locker was not found to be allotted to any person. It is only from the statements of the co-accused which were in any event retracted, that the connection between Rakesh Kapoor and Locker No. 55 was sought to be made. Therefore, the evidence in this regard was weak and not corroborated by other independent witnesses. Moreover, it is not as if all the lockers were checked by the ED to determine which of the guest lockers were in fact being used by the Appellants, if at all. The statements by Rajeev Wadhwa and Arun Sharma have been retracted. Consequently the ED cannot take advantage of Section 72 FERA as regards presumption of the correctness of those documents. The presumption was a rebuttable one and in the present case must be held to have stood rebutted on account of the statements of the co-accused being retracted. There appears to be no reliable and independent evidence to show that Arun Sharma acquired foreign exchange worth ₹ 6 lakhs and sold foreign exchange of that value to Rakesh Kapoor or that Rajeev Wadhwa acquired foreign exchange of US 72,800 and sold them to Rakesh Kapoor or that Rakesh Kapoor acquired foreign exchange of the above worth from Arun Sharma and Rajeev Wadhwa. The orders against the appellant are not sustainable and accordingly set aside.

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 8(1) and 8(2) of the Foreign Exchange Regulations Act, 1973 (FERA).
2. Admissibility and reliability of retracted confessional statements.
3. Compliance with principles of natural justice, particularly cross-examination of witnesses.
4. Inordinate delay in the adjudication process.
5. Validity of evidence and procedural irregularities.

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 8(1) and 8(2) of FERA:
The appeals challenge the common order dated 12th December 2007 by the Appellate Tribunal for Foreign Exchange (AT), which affirmed the Adjudication Order (AO) dated 17th February 2004. The AO imposed a penalty of Rs. 5 lakhs on each appellant for contravening Sections 8(1) and 8(2) of FERA. The Enforcement Directorate (ED) alleged that the appellants, authorized signatories of Oberoi Hotel, failed to issue encashment certificates for foreign currency tendered and engaged in unauthorized transactions without RBI permission.

2. Admissibility and Reliability of Retracted Confessional Statements:
The ED relied heavily on the confessional statements of the appellants, particularly Rajeev Wadhwa, who admitted to unauthorized transactions. However, these statements were retracted, with claims of coercion and duress. The court emphasized that retracted confessions require corroboration by independent evidence to be admissible. Citing precedents like Vinod Solanki v. Union of India and Mohtesham Mohd. Ismail v. Spl. Director, Enforcement Directorate, the court noted that the ED failed to provide such corroboration.

3. Compliance with Principles of Natural Justice:
The appellants argued that they were denied a reasonable opportunity to cross-examine witnesses, a fundamental aspect of natural justice as enshrined in Section 51 of FERA. Despite multiple requests for cross-examination, the Special Director (SD) and later the Deputy Director (DD) did not grant this opportunity. The court found this to be a significant procedural lapse, violating the statutory requirement for a fair hearing.

4. Inordinate Delay in the Adjudication Process:
The court noted the excessive delay in the adjudication process, with hearings spanning over a decade and significant gaps between sessions. This delay was seen as prejudicial to the appellants' right to a timely and fair trial. The court highlighted that such delays could undermine the integrity of the adjudication process.

5. Validity of Evidence and Procedural Irregularities:
The court scrutinized the evidence presented by the ED, including the recovery of foreign exchange and gold from guest lockers. It found inconsistencies and lack of independent corroboration connecting the appellants to the recovered items. The court also noted procedural irregularities, such as the incorrect naming of Rakesh Kapoor as 'Kailash Kapoor' in official documents, indicating non-application of mind by the ED.

Conclusion:
The court concluded that the AO dated 17th February 2004 and the AT's order dated 12th December 2007 were unsustainable in law. It set aside both orders, allowing the appeals. The amounts deposited by the appellants during the proceedings were ordered to be refunded within eight weeks, along with any accrued interest.