2008 (6) TMI 649 - AT - FEMA

Issues Involved:
1. Validity of the appointment of the adjudication officer after the repeal of the Foreign Exchange Regulation Act, 1973.
2. Legality of the investigation conducted after the repeal of the Foreign Exchange Regulation Act, 1973.
3. Alleged contravention of sections 6(4), 6(5), 7, 8(1), 49, 73(3), and 68 of the Foreign Exchange Regulation Act, 1973.
4. Presumption of correctness of documents under section 72 of the Foreign Exchange Regulation Act, 1973.
5. Compliance with procedural rules during adjudication.
6. Liability of company officials for contraventions.

Issue-wise Detailed Analysis:

1. Validity of the Appointment of the Adjudication Officer:
The appellants argued that the adjudication officer was appointed after the repeal of the Foreign Exchange Regulation Act, 1973 (FERA), thus questioning the validity of the adjudication process. The Tribunal clarified that the appeal arose from an adjudication order passed under section 51 of FERA, which was repealed and replaced by the Foreign Exchange Management Act, 1999 (FEMA). However, section 49 of FEMA allows for the continuation of proceedings under the repealed Act, preserving the rights and liabilities as if the Act had not been repealed. The Tribunal emphasized that the appeal should be decided under the provisions of FERA, and the appointment of the adjudication officer was deemed valid under the saving provisions of FEMA. The Tribunal cited various legal precedents to support this interpretation, including the judgment in Mohd. Mustafa Ahmed Alvi v. Union of India, which upheld the appointment of adjudicating officers under the provisions of FERA.

2. Legality of the Investigation:
The appellants contended that the investigation initiated by the Enforcement Directorate was invalid as it commenced after the repeal of FERA. The Tribunal rejected this argument, stating that section 49(4) of FEMA explicitly provides that offences committed under the repealed Act continue to be governed by its provisions. The Tribunal further noted that even if the investigation was deemed wrongful, the evidence gathered could still be used to establish guilt, referencing case law that supports the admissibility of evidence obtained through illegal searches, such as Puran Mal v. Director of Inspection (Inv.).

3. Alleged Contravention of FERA Provisions:
The appellants were penalized for contravening various sections of FERA, including sections 6(4), 6(5), 7, 8(1), 49, 73(3), and 68. The Tribunal highlighted that as full-fledged money changers (FLM), the appellants were required to act with due care and caution, as stipulated in their RBI license. The Tribunal emphasized that the appellants failed to demonstrate good faith in their transactions, as they sold foreign currency to non-existent firms and individuals, thereby violating the statutory obligations. The Tribunal also clarified that the presence of mens rea (intent) is not necessary for regulatory offences under FERA, as established in State of Maharashtra v. Mayor Hans George.

4. Presumption of Correctness of Documents:
The appellants argued that the presumption of correctness of documents under section 72 of FERA was not applicable due to the absence of a joint trial with the person from whom the documents were recovered. The Tribunal dismissed this argument, stating that the presumption affects the credibility of evidence but does not render it inadmissible. The Tribunal found sufficient evidence to hold the appellants guilty of contravention, irrespective of the presumption under section 72.

5. Compliance with Procedural Rules:
The appellants claimed that the adjudication officer failed to conduct the inquiry as required under rule 3(3) of the Adjudication Proceedings and Appeal Rules, 1973. The Tribunal found no merit in this argument, noting that the adjudication officer provided a full opportunity for the appellants to be heard and that the impugned order was passed following due process.

6. Liability of Company Officials:
The appellants, including the Managing Director, Director, Manager, and Branch Manager, argued that they should not be held liable as they did not physically handle the transactions. The Tribunal rejected this argument, stating that these officials were responsible for supervising the sale of foreign currency and ensuring compliance with statutory obligations. The Tribunal held them liable under section 68 of FERA for failing to prevent the contraventions.

Conclusion:
The Tribunal dismissed the appeal, upholding the penalties imposed on the appellants for contravening the provisions of FERA. The Tribunal found no error in the adjudication process and emphasized the appellants' failure to act with due care and caution in their transactions. The appellants were directed to deposit the penalties within seven days, failing which recovery proceedings could be initiated.

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