2025 (1) TMI 742 - AT - FEMA

Offence u/s 8(1) and 8(2) of FERA - dealing in foreign exchange without the necessary permissions from the Reserve Bank of India (RBI) - recovery of the currency - appellant's penalized by imposing heavy penalty of Rs. 80 lakhs though the worth of the foreign currency as on the date of the recovery was not more than 8 lakhs - as argued foreign currency said to have been recovered from their sister's house HELD THAT - We find no such argument by the appellant before the Special Director, Enforcement rather in the statements made by the appellants, they literally admitted possession of the foreign currency. It was later on qualified to be at the instance of Sudhakar Verma. The careful reading of their statement would however reveal that the foreign currency was recovered from the house in the name of Mrs. Madhu who is none else but the wife of appellant Ashok Kumar. The appellant Manoj Kumar in his statement admitted that seized foreign currency was purchased by them 6 to 7 days prior to the seizure from a person who deals in it. The other appellant Ashok Kumar also admitted that the foreign currency was seized from his own premises, but refused to make further statement. Special Director found violation of section 8(1)and 8 (2) by the appellants and accordingly imposed penalty of Rs. 80 lakhs on each appellant under section 50 of the FERA, 1973. If we go further deep into the matter, the documents seized from the appellants shows their involvement in the sale and purchase of the foreign currency without special or general permission of the RBI. No error in the impugned order for recording contravention of section 8 (1) and 8 (2) of the Act of 1973 at the instance of the appellants. Whether penalty imposed on each appellant said to be excessive? - As we find penalty of Rs. 80 lakhs to be excessive. It is even after taking into consideration the documents recovered from the appellant showing their involvement in dealing with the foreign currency without prior or special permission of the Reserve Bank of India. We are inclined to reduce the amount of penalty from 80 lacs to 8 lakhs on each appellant to rationalize the quantum of penalty.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the appellants contravened Section 8(1) and 8(2) of the Foreign Exchange Regulation Act, 1973 (FERA) by dealing in foreign exchange without the necessary permissions from the Reserve Bank of India (RBI).
• Whether the penalty of Rs. 80 lakhs imposed on each appellant under Section 50 of the FERA is justified and proportionate to the alleged contravention.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Contravention of Section 8(1) and 8(2) of FERA

• Relevant legal framework and precedents: Section 8(1) and 8(2) of FERA pertain to restrictions on dealing in foreign exchange without the general or special permission of the RBI. Section 50 provides for penalties for contravention of the Act.
• Court's interpretation and reasoning: The court examined the statements of the appellants, who admitted possession of foreign currency. The currency was recovered from a house in the name of Ashok Kumar's wife, and the appellants admitted purchasing the foreign currency without RBI permission.
• Key evidence and findings: The appellants were found with various foreign currencies, and documents seized from their premises indicated involvement in foreign exchange transactions without RBI permission. The appellants admitted to these facts in their statements.
• Application of law to facts: Based on the admissions and evidence, the court concluded that the appellants contravened Section 8(1) and 8(2) of FERA.
• Treatment of competing arguments: The appellants argued that the currency was recovered from their sister's house, but the court found this unpersuasive as the house was in the name of Ashok Kumar's wife. The appellants' claim of acting at the instance of a third party (Sudhakar Verma) was also not substantiated.
• Conclusions: The court upheld the finding of contravention of Section 8(1) and 8(2) by the appellants.

Issue 2: Proportionality of the Penalty

• Relevant legal framework and precedents: Section 50 of FERA provides for penalties for contraventions, but these must be proportionate to the violation.
• Court's interpretation and reasoning: The court considered the value of the foreign currency at the time of seizure, which was significantly less than the penalty imposed. The court found the penalty disproportionate.
• Key evidence and findings: The value of the foreign currency was approximately Rs. 8 lakhs, whereas the penalty imposed was Rs. 80 lakhs.
• Application of law to facts: The court applied the principle of proportionality, finding that the penalty should reflect the actual value of the contravention.
• Treatment of competing arguments: The appellants argued the penalty was excessive, and the court agreed, noting the discrepancy between the currency's value and the penalty amount.
• Conclusions: The court reduced the penalty from Rs. 80 lakhs to Rs. 8 lakhs for each appellant.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The court noted, "In the light of the aforesaid, we find penalty of Rs. 80 lakhs to be excessive."
• Core principles established: The principle of proportionality in penalties under FERA was reinforced, ensuring penalties reflect the actual value of the contravention.
• Final determinations on each issue: The court upheld the finding of contravention of Section 8(1) and 8(2) of FERA but reduced the penalty to Rs. 8 lakhs for each appellant, reflecting the actual value of the foreign currency involved.