CONTRAVENTION OF SECTION 3(c) OF FOREIGN EXCHANGE MANAGEMENT ACT, 1999

[Mr. M. GOVINDARAJAN]

Section 3(c) of the Foreign Exchange Management Act, 1999 (‘FEMA’ for short) provides that save as otherwise provided in this Act, rules or regulations made there under, or with the general or special permission of the Reserve Bank, no person shall receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner. 

The explanation to this section provides that where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person (including an authorised person) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorised person.

Section 13(1) of FEMA provides for penalty for contravention of the provisions of FEMA.  The said section provides that if any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to Rs. 2 lakhs where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

In D. SELVAKUMAR VERSUS SPECIAL DIRECTOR DIRECTORATE OF ENFORCEMENT - 2024 (10) TMI 394 - APPELLATE TRIBUNAL SAFEMA NEW DELHI, there were allegations against the appellant for the receipt of payment to the tune of Rs.7,46,69,500/- on the instructions of Sri Abdullah of Abu Dhabi during the period from June 2000 to April 2001.The appellant received the said payment without the general or special permission of the Reserve Bank of India.  The Adjudicating Authority issued show cause notice and after hearing the case the Adjudicating Authority imposed a penalty of Rs.7 lakhs on the appellant vide his order dated 23.01.2006. The appellant filed an appeal before the Appellate Authority (Special Director).  The Appellate Authority heard the appeal and reduced the penalty amount from Rs.7 lakhs to Rs. 5 lakhs vide his order dated 24.11.2003.

The appellant filed an appeal before the Tribunal challenging the order of Adjudicating Authority imposing a penalty of Rs.7 lakhs which was reduced to Rs.5 lakhs by the Special Director (Appeals).  The appellants submitted the following before the Tribunal-

• There was no evidence available with the Department to prove receipt of Rs.7,46,69,500/- at the instance of person residing out of India.
• The Adjudicating Authority and the Appellate Authority relied on the statement of the appellant and others recorded under duress thus retracted immediately. 
• In common law the retracted statements shall not be relied on by the Authorities.
• The Authorities failed to prove that the appellant has contravened the provisions of Section 3(c) of FEMA with evidence but only they relied on the retracted statements which is against the law.
• The Authorities failed to show that the receipt of Rs. 7,46,69,500/- by the appellant was on the instruction of Abdulla of Abu Dhabi therefore the impugned order deserves to be set aside.
• At the time of search, a sum of Rs. 4,50,000/- was seized from the business promises of appellant.
• Out of the said amount Rs.4.50 lakhs Rs. 4 lakhs have been confiscated to the Central Government and Rs.50,000/- was remaining.
• The said amount Rs.50,000/- is to be refunded along with the interest.
•  A sum of Rs. 1,00,000/- has been deposited to satisfy the condition of pre deposit and accordingly with confiscation of Rs. 4,00,000/- and deposit of Rs. 1,00,000/- to satisfy the condition of pre deposit, the appellant said to have satisfied the penalty of Rs. 5,00,000/-imposed by the Special Director (Appeals). 

The Department severely contested the case against the appellant and supported the order of Adjudicating Authority followed by the order of Special Director (Appeals).  The respondents contended that the appellant is conducting gold business.  The impugned order is not merely in reference to the statement of appellants and others rather based on the material to corroborate the statements.  The retraction of the statement was not made immediately and it is not that once there is retraction of statement, it cannot be relied.  Therefore, the respondent made a prayer to dismiss the appeal. 

The Tribunal heard the submissions of the parties to the appeal.  The Tribunal observed that originally the Adjudicating Authority imposed the penalty of Rs. 7 lakhs which has been reduced to Rs. 5 lakhs by the Special Director (Appeals). The currency found at business premises for the appellant has been confiscated to the extent of Rs. 4 lakhs out of Rs. 4.50 lakhs.  The Appellate Tribunal accepted the arguments of the appellant that it is now law of the land that if retraction of the statement has been made within reasonable time and for the reasons, the reliance may not be placed on those statements unless it is corroborated by other evidence.  The Appellate Tribunal further observed that the premises of one Subhaskar Reddy was also searched on 27.03.2001 where 5 sheets were recovered and seized. Subhaskar Reddy in his statement on 27.03.2001 admitted that he received Rs. 9.52 lakhs under the instructions of his friends Ashok residing in Los Angles through someone.  The premises of appellant were searched on 02.04.2021 where 22 sheets along with Indian currency of Rs. 4.5 lakhs were seized.

The Appellate Tribunal noted that it was an admitted fact that the appellant made the following payments as per the instructions of Abdullah of Abu Dhabi-

• Arjun Singh – Rs.1.5 lakhs;
• Shrinivas – Rs. 4 lakhs;
• Subhakar Reddy – Rs. 9,52,500/-;
• N.K. – Rs. 27 lakhs;
• M.A. – Rs.28,59,500/-

totalling Rs. 74,69,500/-.  Even though the appellant retracted his statement but his mobile no. 9844017846 proved that he was frequently calling Abdulla.  The Statement of one Mr. Navin confirmed that the appellant was doing gold business and he was receiving payment on the instruction of person residing outside India.  The computerized accounts and printout of the mobile of the appellant which revealed frequent conversation with Abdulla.  Apart from the statements, the respondents could rely on the document to support their case.  The printout of the mobile owned by the appellant was corroborative evidence to show that appellant was not only having relation with Abdulla but was having frequent conversation with him. 

The Appellate Tribunal, on going through the evidence to find that the appellant contravened the provisions of Section 3(c) of FEMA.  The appellant could not prove his gold business and reason to call Abdulla of Abu Dhabi frequently.  The Appellate Authority reduced the penalty amount from Rs.5 lakhs to Rs.1.5 lakhs.  The appellant has already deposited Rs. 1,00,000/- towards pre deposit and Rs. 50,000/- are still lying with the ED after the confiscation of sum Rs. 4,00,000/-out of Rs. 4,50,000/-thus the amount lying with the ED should be taken towards the deposition of penalty amount.  Thus, the Appellate Tribunal partly allowed the appeal.