Introduction
In the case of Vaseem Kapadia v. Special Director Directorate of Enforcement,[i] dated 04.07.2024, the Appellate Tribunal SAFEMA delved into the aspects of cross-examination and corroboration of evidence in cases pertaining to the Foreign Exchange Management Act, 1999 (‘FEMA’). This case involved the seizure of cash and other material from the Appellant during a search conducted by the Directorate of Enforcement (‘ED’).
Brief Facts
The ED conducted a search operation at the Appellant's premises, which resulted in the seizure of foreign currency amounting to Rs. 2.99 lakh and Indian currency worth Rs. 9.29 lakh.
Additionally, a bank passbook from an overseas account was found, showing substantial credits. The Appellant could not provide a satisfactory explanation for the possession of the passbook and the foreign funds.
The Appellant argued violations of natural justice, as cross-examination of departmental officers and witnesses was not permitted. Further, the seized foreign currency was claimed to be legally acquired for travel abroad, supported by receipts from authorised dealers.
However, the adjudicating authority (‘AA’) imposed a penalty of Rs. 46.40 lakh on the Appellant for contraventions of ss. 3(a) and 3(d) of the FEMA. The Appellant appealed against this decision, challenging both the findings and the quantum of the penalty.
Issues before the Tribunal
Whether the seizure and subsequent confiscation of the foreign currency amounting to Rs. 2.99 lakhs and the retention of the Indian currency were justified under the FEM (Possession and Retention of Foreign Currency) Regulations, 2000 (‘FEMA Regulations’)?
Whether the Appellant provided an adequate explanation for the possession of the bank passbook showing credits in foreign currencies?
Whether the penalty imposed by the AA was proportionate to the contravention established?
Decision
The Tribunal partly allowed the appeal. For the first issue, the Tribunal noted that the FEMA Regulations allow the retention of USD 2000 per person who had travelled abroad. Considering that the Appellant and three of his family members had travelled abroad, the charge of s. 3(a) of the FEMA was held to be unsustainable. Thus, the penalty, as well as the confiscation of the foreign currency, were set aside.
For the second issue, the Tribunal agreed with the AA’s finding that the contraventions under ss. 3(a) and 3(d) of the FEMA were established concerning possessing the passbook. The Tribunal held that since the Appellant’s statement under s. 37 of the FEMA was corroborated by independent and cogent evidence obtained during the search, and the absence of cross-examination did not cause any prejudice to the case.
For the final issue, the Tribunal held that the penalties imposed on the Appellant were disproportionately high. Consequently, the penalties were reduced from Rs. 46.40 lakhs to Rs. 15 lakhs and the release of Rs. 2.99 lakhs in confiscated foreign currency and Rs 9.29 lakhs in Indian currency.
Our Analysis
The Tribunal thoroughly analysed the aspects of cross-examination and the retraction of a statement under the FEMA. The Tribunal referred to significant Supreme Court judgments regarding the retraction of statements. In Vinod Solanki v. Union of India[ii], the Court emphasised that a retracted confession must be corroborated by independent and cogent evidence to be relied upon. Similarly, in K.T.M.S. Mohamed v. Union of India[iii], the Supreme Court held that a retracted statement cannot be disregarded merely because it was retracted; the circumstances under which it was made and retracted must be carefully scrutinised. These principles highlight the necessity of corroboration and careful judicial scrutiny in cases involving retracted statements, ensuring that such statements are voluntary and reliable.
The decision to reduce the penalty and overturn the confiscation reflects a balanced approach, recognising both regulatory compliance and the need for proportionality in penalties under the FEMA. Additionally, this case serves as a reminder for individuals and businesses to maintain rigorous compliance with the FEMA regulations. Proper documentation and transparent financial transactions are crucial to avoid severe repercussions.
End Notes
[i] [2024] 164 taxmann.com 450 (SAFEMA - New Delhi).
[ii] [(2008) 16 SCC 537].
[iii] [(1992) 3 SCC 178].
Authored by Sanyam Aggarwal, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions
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