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2014 (6) TMI 577 - HC - FEMAHawala transactions - Partial explanation of payment made through hawala channels - During investigation appellant invoked right against self incrimination under Article 20(3) - Imposition of penalty - Held that - Impugned AO of the SD, ED and the impugned order of the AT proceeded on the basis that the Appellant could not have validly invoked the right against self-incrimination under Article 20 (3) of the Constitution since he was not accused in any criminal proceeding initiated under FERA at the time his statement was recorded under Section 40 FERA. Both orders further proceeded to draw an adverse inference as regards his refusal to explain the entries found with the seized diaries - It is seen that the FIR of the CBI dated 4th March 1995 mentioned the provisions of both the PCA as well as FERA. At that stage the proceedings under FERA were yet to commence. It was noted in the FIR that the Superintendent of Police had sent to the ED a report for filing a statutory complaint under FERA. It is, therefore, clear that at the time when the statements of Mr. S.K. Jain and Mr. J.K. Jain were initially recorded, i.e., in April 1995 no proceedings under FERA had commenced. The second factor to be noted is that it is only at the stage of filing of the charge sheets by CBI on 16th and 23rd January 1996 that it became clear that the cases filed by the CBI did not govern the violations of FERA. Therefore, till that date the two noticees, Mr. J.K. Jain and Mr. S.K. Jain were justifiably advised that they could invoke their right under Article 20 (3) of the Constitution so as to not incriminate themselves while making their statements under Section 40 FERA. For the purpose of FERA, the noticee can, to the extent that he is required by the ED officers to give answers that might tend to incriminate him in the criminal proceedings under FERA, decline to do so. The resultant position as far as the present case is concerned is that on the dates of their examination in April 1995 the Appellant and Mr. J.K. Jain were accused in terms of the FIR registered by the CBI and this continued till the filing of chargesheets by the CBI in January 1996. Therefore, the two noticees were entitled to invoke their right against self-incrimination under the Article 20 (3) of the Constitution. No adverse inference could be drawn against them for having exercised that right. Even thereafter, since admittedly criminal proceedings were also launched against the noticees under Section 56 FERA, they continued to be accused . Their refusal to explain the entries could not lead to an adverse inference being drawn against them. This is not a case where a confession was initially made under Section 40 FERA which thereafter was retracted. Here the noticee either declined to answer or gave an answer which did not help the ED since he claimed that had no knowledge of the entries in the diaries. Mr. Panda sought to contend that the said answers should be construed as either false or misleading or both. The Appellant said that he was unable to explain the entries because they were not written by him. The latter part of the answer was a fact since the entries were admittedly made by Mr. J.K. Jain. While Mr. J.K. Jain claimed that he did so on the instructions of Mr. S.K. Jain, the AO itself noted that there was no evidence whatsoever to show involvement of Mr. J.K. Jain in the transactions of foreign exchange. The Supreme Court has in the V.C. Shukla case held that the so- called admissions in relation to the entries by Mr. J.K. Jain in his statement under Section 40 FERA cannot be used against Mr. L.K. Advani or Mr. V.C. Shukla. It was, however, clarified that they could be proved against the Jains as admissions under Section 18 read with Section 21 IEA provided they relate to any fact in issue or relevant fact. The initial burden of proving that the entries related to any fact in issue or relevant fact was on the ED. - The penalty amount deposited by the Appellant pursuant to the impugned orders of the SD and AT will be refunded to him in accordance with law within a period of eight weeks - order set aside - Decided in favour of appellant.
Issues Involved:
1. Validity of invoking protection against self-incrimination under Article 20(3) of the Constitution. 2. Whether adverse inference can be drawn against the appellant for not explaining entries in the diaries. 3. The probative value of entries in the diaries as evidence of foreign exchange violations. 4. The scope of the appeal under Section 35 of FEMA. Issue-wise Detailed Analysis: 1. Validity of invoking protection against self-incrimination under Article 20(3) of the Constitution: The appellant invoked the protection against self-incrimination under Article 20(3) of the Constitution while refusing to answer questions regarding diary entries before the charge sheet was filed by the CBI. The court noted that the FIR mentioned provisions of both the PCA and FERA, and at that stage, FERA proceedings had not commenced. The Supreme Court in Ramanlal Bhogilal Shah v. D.K. Guha held that a person served with summons under FERA is an accused within the meaning of Article 20(3). Therefore, the appellant was justified in invoking Article 20(3) during the initial examination in April 1995, and no adverse inference could be drawn against him for exercising this right. 2. Whether adverse inference can be drawn against the appellant for not explaining entries in the diaries: The court held that the appellant's refusal to explain the entries due to invoking Article 20(3) could not lead to an adverse inference. The adjudicating order (AO) and the Appellate Tribunal (AT) erred in drawing adverse inferences against the appellant for not explaining the entries. The AO and AT's reliance on Section 106 of the Indian Evidence Act (IEA) to shift the burden of proof to the appellant was not permissible, as the Enforcement Directorate (ED) failed to produce credible evidence to prima facie show contravention of Section 8(1) of FERA. 3. The probative value of entries in the diaries as evidence of foreign exchange violations: The court examined the entries in the mother diary and noted that none of the entries were prefixed by any foreign currency symbol. The Supreme Court in V.C. Shukla case held that entries in the diaries could be corroborative but not substantive evidence. The ED did not produce independent evidence to substantiate the allegations. The court found that the entries by themselves were insufficient to prove the allegations against the appellant. The AO's conclusion that the appellant acquired foreign exchange at Dubai in violation of FERA was not supported by credible evidence. 4. The scope of the appeal under Section 35 of FEMA: The court referred to Union of India v. Prem Khanna, which explained that a perverse finding could give rise to a question of law under Section 35 of FEMA. The court concluded that the impugned AO and the AT's order were not supported by the evidence on record and were based on an improper appreciation of the legal principles. Therefore, the appeal was allowed, and the impugned orders were set aside. Conclusion: The court set aside the impugned order dated 7th November 2001 of the Special Director, ED, and the impugned order dated 3rd January 2008 of the Appellate Tribunal. The appeal was allowed, and the penalty amount deposited by the appellant was ordered to be refunded within eight weeks.
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