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2024 (8) TMI 665 - AT - FEMAValidity of document received from Income Tax Department as evidence for the proceedings under FERA - determine the nature of the two receipts from abroad as to whether the receipts are in contravention of the provisions of FERA - HELD THAT - In view of the statutory provision for allowing the use of the documents recovered during the proceedings under any other law, the objection against the use of the documents in the present case since these were recovered during the proceedings under the Income Tax Act, cannot be accepted. In this regard, the Hon ble Supreme Court in the case of KTMS Mohd. Anr. v/s Union of India 1992 (4) TMI 6 - SUPREME COURT held that the statements recorded under FERA could not be used for the proceedings under the Income Tax Act and not the other way round as is provided u/s 72 of FERA. The focus of the Hon ble Supreme Court in the case supra was on the necessity to examine the statements so as to determine whether it was tendered voluntarily or not. In the present case, the Respondent Directorate has undertaken investigations under FERA, after the initial reference from the Income Tax Department. Also decided in Standard Chartered Bank Ors. 2006 (2) TMI 272 - SUPREME COURT the two proceedings are independent of each other and the finding on the adjudication is not conclusive on the prosecution under the Act. Thus, we are unable to persuade ourselves that the outcome of the prosecution proceedings should have a binding effect in the present proceedings. Contravention of Section 9(1)(c) of FERA - Nature of the transfer of amount US 5 Lakhs from Shri J L Kothari to the Appellant Company - The nationality of Shri J. L. Kothari as US citizen has not been challenged by the Appellants. We also fail to appreciate that how issuance of shares, if any, by M/s Neptune Estate Pvt. Ltd. can fulfill and substitute the obligation of the Appellant Company to issue shares against the receipt of funds from Shri J L Kothari. While the aforementioned Form 2 claims to have issued shares on 27.06.1996 by M/s Neptune Estate Pvt. Ltd. of which Shri Vikram Singh was a Director yet in his statement recorded subsequently on 18.02.1997 there is not even a whisper about the claimed issuance of shares. Therefore, we cannot agree with the contention that the said remittance of US 5 Lakhs was an investment into the Appellant Company. The receipt of US 5 Lakhs into the accounts of the Appellant Company for a few days could only have been a temporary loan and that too from a US citizen, resident in Bangkok. The Appellant Company transferred the funds to another company within a short period on the instructions of the person who remitted the funds from abroad. Such transfer jeopardized the MoU dated 05.12.1995, yet it was made which corroborates the absolute control on the funds by its remitter. It is therefore implied that the remitted funds could have only been in the nature of temporary loan to the Appellant Company by a foreign citizen resident abroad, without any general or special exemption of the RBI. The company to which the funds were moved was wherein Shri Vikram Singh was a Director. Thus, the Appellant Company became a temporary parking place for the remitted funds. An arrangement which was willingly entered into and therefore indulged in accepting and acknowledging a debt. We therefore find that the Appellant Company has indulged in the contravention of Section 9(1)(c) of FERA, for an amount of US 5 lakhs. Shri R C Jain was the Director of the Appellant Company at the relevant time and was responsible for the conduct of its affairs as is obvious from his signature on the said MoU. From the statement of Shri Vikram Singh recorded u/s 40 of FERA, it is obvious that Shri Vikram Singh was the person who knew Shri J L Kothari since 1993. He was also aware of remittance of US 5 lakh and of US 1 lakh received by the Appellant Company. In view of remittance of funds to the Appellant Company and thereafter to M/s Neptune Estate Pvt. Ltd., his role in the transactions cannot be denied. Therefore, the contraventions of Section 9(1)(c) read with Section 68(1) of FERA against the two individual Appellants stand proved. Contravention of Section 8(1) of FERA by Shri Vikram Singh - Shri Vikram Singh has also been charged for the contravention of Section 8(1) as US 1 lakh was said to have been remitted by Shri Rakesh Saxena of M/s Real Fact Enterprises, Hong Kong. During the course of overseas enquiries, the Counsel General of India, Hong Kong informed that at the given address of M/s Real Fact Enterprises at 901-903, K.Centre, 88, Queens Road, Central Hong Kong, no such company was functioning and the premises was occupied by M/s Yuen Chow Group of Companies and there was no person by name Shri Rakesh Saxena in the said company/ premises. In view of the aforementioned findings, the Ld. Adjudicating Authority has inferred that the remittance was arranged by Shri Vikram Singh himself. While dropping the charge of Section 9(1)(c) of FERA against the Appellant Company for the said remittance of US 1 lakh, the Ld. Adjudicating Authority has held the charge of contravention of Section 8(1) of FERA proved against the individual Appellant, Shri Vikram Singh. We have not found anything contrary produced by the Appellant to refute the findings made in the overseas enquiry. Hence, we hold contravention of Section 8(1) by the individual Appellant Shri Vikram Singh. The Ld. Adjudicating Authority has also confiscated US 1 lakh under Section 63 of FERA since the amount remained unexplained and tainted.
Issues Involved:
1. Admissibility of documents received from the Income Tax Department. 2. Nature of the transfer of US $ 5 lakhs from Shri J L Kothari to the Appellant Company. 3. Contravention of Section 9(1)(c) of FERA by the Appellant Company and individuals. 4. Contravention of Section 8(1) of FERA by Shri Vikram Singh. 5. Impact of the discharge by the Additional Chief Metropolitan Magistrate on the current proceedings. Detailed Analysis: 1. Admissibility of Documents: The appellants argued that documents received from the Income Tax Department are not admissible as evidence in FERA proceedings. They cited the Supreme Court judgment in KTMS Mohammad, which held that evidence obtained under the Income Tax Act cannot be used in FERA proceedings. However, the respondent countered by invoking Section 72 of FERA, which allows documents seized under any other law to be admissible in FERA proceedings. The Tribunal upheld the admissibility of these documents, referencing the Supreme Court's interpretation in KTMS Mohammad and Section 72 of FERA. 2. Nature of the Transfer of US $ 5 Lakhs: The appellants claimed that the transfer of US $ 5 lakhs from Shri J L Kothari was an investment in the equity capital of the Appellant Company, supported by a MoU and RBI guidelines. However, the Tribunal found that Shri J L Kothari was a US citizen, not an NRI, making the cited RBI guidelines inapplicable. The Tribunal noted that the funds were transferred to another company, M/s Neptune Estate Pvt. Ltd., shortly after receipt, rendering the MoU irrelevant. The Tribunal concluded that the transfer was a temporary loan, not an investment, violating Section 9(1)(c) of FERA. 3. Contravention of Section 9(1)(c) of FERA: The Tribunal determined that the Appellant Company contravened Section 9(1)(c) of FERA by accepting a temporary loan from a foreign citizen without RBI permission. Shri R C Jain, as the Director, and Shri Vikram Singh, who knew Shri J L Kothari and was involved in the transactions, were also held responsible under Section 9(1)(c) read with Section 68(1) of FERA. 4. Contravention of Section 8(1) of FERA by Shri Vikram Singh: The Tribunal found that US $ 1 lakh received from Shri Rakesh Saxena, a non-existent person, was arranged by Shri Vikram Singh himself. The Tribunal upheld the contravention of Section 8(1) of FERA against Shri Vikram Singh, noting that the overseas enquiry confirmed the non-existence of M/s Real Fact Enterprises and Shri Rakesh Saxena. The Tribunal also upheld the confiscation of US $ 1 lakh under Section 63 of FERA. 5. Impact of Discharge by ACMM: The appellants argued that the ACMM's discharge of the prosecution complaint should influence the current proceedings. However, the Tribunal, referencing Supreme Court judgments in Standard Chartered Bank and Radheshyam Kejriwal, held that adjudication and prosecution under FERA are independent. The Tribunal concluded that the outcome of the prosecution proceedings does not bind the adjudication proceedings. Conclusion: The Tribunal dismissed the appeals, upholding the penalties imposed by the Special Director, Enforcement Directorate, New Delhi. The Tribunal found the appellants guilty of contravening Sections 9(1)(c) and 8(1) of FERA, with the evidence and circumstances supporting the findings of the adjudicating authority.
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