1999 (8) TMI 1028 - AT - FEMA

Summary

Issues Involved:
1. Contravention of Section 7(1) and (2) of the Foreign Exchange Regulation Act, 1973.
2. Contravention of Section 8(1) and (2) of the Foreign Exchange Regulation Act, 1973.
3. Admissibility and reliability of evidence, including retracted confessions and Panchnama.
4. Lawful possession and burden of proof under Section 71(3) of the Act.
5. Investigation adequacy regarding the foreign exchange in the form of travelers cheques.
6. Crediting of foreign exchange drafts to the appellant's account and its legal implications.

Issue-wise Detailed Analysis:

1. Contravention of Section 7(1) and (2) of the Foreign Exchange Regulation Act, 1973:
The adjudicating authority imposed a penalty of Rs. 20,000 for violating Section 7(1) and (2). However, it was noted that the acceptance of drafts is not expressly covered under the terms of the appellant's money changer's licence. The appellant received drafts credited to his account, which were endorsed in his name, and thus, the transaction amounted to remittance of foreign exchange through banking channels, not a violation of the Act. The appellant's act did not constitute a contravention of the Act, and it was unjust to hold him guilty. Consequently, the penalty was set aside.

2. Contravention of Section 8(1) and (2) of the Foreign Exchange Regulation Act, 1973:
The appellant was penalized Rs. 35,000 for contravening Section 8(1) and (2). The charge was based on the appellant's retracted confession and statements from other individuals. However, the evidence was found insufficient as the sole material was the appellant's retracted confession, which could not be the basis of a conclusive finding of guilt. Additionally, the related case of Tahil Mirchandani, who was acquitted due to lack of corroborative evidence, further weakened the charge against the appellant. The findings of contravention were set aside.

3. Admissibility and Reliability of Evidence, Including Retracted Confessions and Panchnama:
The Panchnama dated 26-10-1988 and the statements recorded during the search were critical pieces of evidence. However, the Panchnama witnesses were not produced for cross-examination, and the Panchnama was not proved against the appellant. The appellant's retracted confession, recorded under questionable circumstances, could not be considered reliable evidence. The lack of corroborative evidence further discredited the charge.

4. Lawful Possession and Burden of Proof Under Section 71(3) of the Act:
The foreign exchange of US $3,500 was recovered from the possession of Kumar Nachnani, the Bank Manager. Under Section 71(3), the burden was on Nachnani to prove lawful possession. Since Tahil Mirchandani retracted his admission of giving the foreign exchange to Nachnani, it was incumbent on the department to prove Nachnani's lawful possession, which was not done. This failure further weakened the case against the appellant.

5. Investigation Adequacy Regarding the Foreign Exchange in the Form of Travelers Cheques:
The investigation into how the travelers cheques were handled was found lacking. The cheques could only be tendered or credited by the person whose signature appeared on them. No investigation was made into how the cheques were lying with the bank manager or how the FDRs were issued. The investigator's reliance on statements rather than bank records was criticized.

6. Crediting of Foreign Exchange Drafts to the Appellant's Account and Its Legal Implications:
The appellant received drafts credited to his account, which were endorsed in his name. The remittance through banking channels did not violate any provisions of the Act. The appellant's act of crediting the drafts to his account was not a contravention of the Act. The adjudicating officer's failure to appreciate the appellant's bona fides and the purpose of the Act led to an unjust penalty, which was set aside.

Conclusion:
The appeal was allowed, and the impugned order was set aside. The order of confiscation of Rs. 45,354.78 was also set aside, and the respondents were directed to refund the amount of Rs. 45,354.78 and the penalty of Rs. 55,000 within 45 days.