2016 (5) TMI 740 - SC - FEMA

Confiscation of foreign currency and imposition of penalty - Clauses (d), (e) and (i) of Section 113 of the Customs Act, 1962 - Seizure of US dollars - Import of currency as advance payments towards supply of diamonds - absence of requisite permission of Reserve Bank of India - Held that - the greater significance and important is the absence of any special or general permission as contemplated under Section 8(1) of FERA. No such permission is produced or relied upon. In fact, that is not even the case that Jatin Jhaveri had applied for and got such permission. For the purpose of Section 8(1) of FERA, acquisition of foreign exchange must be with general or special permission of the Reserve Bank of India. Even if the matter of bringing into India of the currency in question, as submitted by Mr. R.P. Bhatt, learned Senior Advocate, is taken to have been established, though that part of the matter itself is not free from doubt, the question regarding acquisition of currency must be independently established in the light of requirements under said Section 8(1). The assessment in that behalf by the Appellate Authority under FERA and the High Court is completely incorrect. Mr. Bhatt, attempted to rely on Notification No.FERA-81/89-RB dated 09.08.1989 as amended upto 09.03.1999, but the said notification is in relation to Section 13 of FERA and not in relation to Section 8(1) thereof. Secondly, this notification was not adverted or referred to at any stage and in any case does not deal with acquisition as contemplated under Section 8(1) of FERA. Therefore, the orders passed by the Appellate Tribunal, FERA and by the High Court while accepting the view taken by the Special Director are set aside. The order of confiscation is upheld. Since the amount of ₹ 1,83,09,525/- was refunded and credited to the account of Jatin Jhaveri during the pendency of the proceedings subject to his undertaking to return the same with interest, he is directed to refund the amount with interest @ 10% per annum within six weeks from the date of this judgment. - Appeals disposed of

Summary

Issues Involved:
1. Legality of the confiscation of foreign currency under the Customs Act, 1962.
2. Contravention of provisions under Section 8(1) of the Foreign Exchange Regulation Act, 1973 (FERA).
3. Entitlement to the release of confiscated currency and interest thereon.

Issue-wise Detailed Analysis:

1. Legality of the Confiscation of Foreign Currency under the Customs Act, 1962:
The case began with the seizure of foreign currency from Ajit Dodia at Mumbai Airport, who was found with US $ 403,550 in his luggage. The Commissioner of Customs concluded that the currency was being taken out of India illegally and imposed penalties on Jatin Jhaveri, Ajit Dodia, and Jitendra Dodia. The Customs Excise and Gold Control Appellate Tribunal (CEGAT) later reduced the penalties but confirmed the confiscation of the currency. The High Court upheld this decision, emphasizing that the findings in the Customs proceedings had a definite bearing on the case, even though they were not binding on FERA proceedings.

2. Contravention of Provisions under Section 8(1) of FERA:
The Directorate of Enforcement issued a Show Cause Notice for contravention of Section 8(1) read with 64(2) of FERA, which culminated in an order by the Special Director of Enforcement. The Special Director found Jatin Jhaveri guilty of illegally acquiring and transferring foreign exchange without the requisite permission from the Reserve Bank of India (RBI). The Appellate Tribunal for Foreign Exchange initially quashed the order of confiscation for US $ 289,250, but the High Court later upheld this decision. However, the Supreme Court found that the absence of any special or general permission from the RBI was critical. The Court emphasized that "acquisition" of foreign exchange must be with the permission of the RBI, which was not established in this case.

3. Entitlement to the Release of Confiscated Currency and Interest Thereon:
Jatin Jhaveri filed a writ petition seeking the release of US $ 289,250 along with interest. The High Court allowed the release of the currency but denied the interest. During the pendency of the appeals, the Customs Department refunded the amount in Indian Rupees, subject to the outcome of the appeals. The Supreme Court set aside the orders of the Appellate Tribunal and the High Court, restoring the order of the Special Director of Enforcement, which included the confiscation of the currency. Consequently, Jatin Jhaveri was directed to return the refunded amount with interest at 10% per annum.

Conclusion:
The Supreme Court allowed the appeals by the Union of India, reinstating the order of the Special Director of Enforcement, which included the confiscation of the foreign currency and penalties under FERA. The appeal by Jatin Jhaveri for the release of the currency and interest was dismissed, and he was directed to refund the amount with interest. The judgment underscores the importance of obtaining requisite permissions from the RBI for the acquisition of foreign exchange under Section 8(1) of FERA.