2009 (9) TMI 1090 - AT - FEMA

Summary

Issues Involved:
1. Contravention of Section 9(1)(a) read with Section 64(2) of the Foreign Exchange Regulation Act, 1973.
2. Validity and voluntariness of confessional statements.
3. Right to cross-examine witnesses.
4. Genuineness of gift transactions.

Issue-wise Detailed Analysis:

1. Contravention of Section 9(1)(a) read with Section 64(2) of the Foreign Exchange Regulation Act, 1973:
The appellant, S.K. Mittal, was penalized for abetting the co-noticees in making payments to or for the credit of NRIs from NRE accounts without the general or special exemption of the Reserve Bank of India, thus violating Section 9(1)(a) of the FERA, 1973. The adjudicating orders imposed penalties for payments made against receipts from NRE accounts of NRIs Subhas Sethi, Narendra Nath Gupta, and Sudesh Kumar. The Tribunal found that the NRE accounts were fraudulently maintained and largely funded by foreign exchange locally, with crores of rupees distributed from these accounts under the guise of gifts.

2. Validity and Voluntariness of Confessional Statements:
The appellant argued that his confessional statements were not voluntary and were obtained under coercion and threat. However, the burden of proving coercion was on the appellant, which he failed to discharge. The Tribunal referred to the Supreme Court's observation in KTMS Mohd. v. UOI, stating that the maker of the statement must establish inducement, threat, or promise. The Tribunal found the statements of the appellant and his employee, Umesh Mendiratta, to be corroborated by other evidence and circumstantial details, thus rejecting the appellant's claim of coercion.

3. Right to Cross-examine Witnesses:
The appellant contended that he was not allowed to cross-examine third-party recipients of the NRE accounts. The Tribunal noted that cross-examination cannot be claimed as a matter of right, citing the Supreme Court's ruling in Surjit Singh Chhabra v. UOI. The Tribunal found no justifiable ground for the appellant's request for cross-examination and upheld the rejection of this request.

4. Genuineness of Gift Transactions:
The appellant claimed that the transactions were genuine gifts made out of love and affection by the NRIs to various recipients. However, the Tribunal found this contention unconvincing, noting that the transactions involved payments at a premium, indicating commercial transactions rather than genuine gifts. The Tribunal emphasized that a gift cannot involve consideration from the donee to the donor, as it would then be a commercial transaction. The statements of the appellant, Mendiratta, and other recipients raised significant questions that the appellant failed to answer, leading to the conclusion that the transactions were not genuine gifts.

Conclusion:
The Tribunal concluded that the appellant, S.K. Mittal, was guilty of abetting the recipients of the amounts from the NRE accounts in contravention of Section 9(1)(a) of the FERA, 1973. However, considering the appellant's role as an intermediary and the actual beneficiaries being the co-noticees, the Tribunal found the penalty amount excessive. The penalty was reduced to the amount already pre-deposited by the appellant in the three appeals. The appeals were partly allowed, and the pre-deposited amount was appropriated towards the penalty.