Research › Search › Judgment

Gujarat High Court · body

2018 DIGILAW 322 (GUJ)

UNION OF INDIA v. SUNIL A KAPADIA

2018-01-31

A.Y.KOGJE, AKIL KURESHI

body2018
JUDGMENT : A.Y. KOGJE, J. 1. These group of Appeals are preferred under Section 35 of the Foreign Exchange Management Act against the common order dated 21.07.2003 by the Appellate Tribunal for Foreign Exchange in Appeal Nos. 52 to 58 of 2003. 2. As the appeals are arising out of the same transactions and the show cause notices by the department, all the appeals, with the consent of the respective parties are taken up for hearing jointly and the facts as are appearing in connection with First Appeal No. 254 of 2004 are recorded herein. 3. The facts in brief are as under:- (i) The Enforcement Department, which is in appeal, acting on a letter received from the Anti Terrorist Squad, Gujarat State Police, Ahmedabad dated 14.10.1998 carried out a raid upon the residence and office of one Chimanbhai Harjivandas Kapadia (since deceased) and his family members and recovered foreign currencies of various denominations of various countries, the panchnama were drawn accordingly and the statements were recorded. (ii) Based on such action, show cause notice dated 08.10.1999 were issued upon the family members of said Chimanbhai Harjivandas Kapadia asking the notices to show cause for contravening the provisions of Section 8 (1), 7 read with Section 73(3), 48, 64(2), 68 (1) and (2) of the Provisions of Foreign Exchange Regulation Act. (iii) The show cause notices were based on the several documents which included the summons to the parties, seizure memos, panchnamas drawn during the raid on 14.10.1998 and 15.10.1998 etc. It appears that such documents were also supplied to the notices. (iv) The notices submitted reply to the show cause notice denying the contravention of the provisions of Foreign Exchange Regulation Act and the Adjudicating Authority after due consideration of material on record passed an order on 19.07.2002 holding that the charge of contravening the provisions of Section 8(1) and 7 read with Section 73(3) and 48 Foreign Exchange Regulation Act is proved thereby, imposing the penalties upon the notices under Section 50 of Foreign Exchange Regulation Act, 1973 read with Sub-section 4 of Section 49 of Foreign Exchange Management Act, 1999. The Adjudicating Authority also ordered confiscation of the Foreign Exchange and an amount of Rs.11,00,000/=. Aggrieved by such decision of the Adjudicating Authority, the respondents herein preferred appeal respectively before the Appellate Tribunal of Foreign Exchange. The Adjudicating Authority also ordered confiscation of the Foreign Exchange and an amount of Rs.11,00,000/=. Aggrieved by such decision of the Adjudicating Authority, the respondents herein preferred appeal respectively before the Appellate Tribunal of Foreign Exchange. The Appellate Authority by the impugned order, set aside the order of confiscation as well as the order of penalty allowing the batch of appeals, and the directions were also issued to refund the currencies to the respondents in due course. (v) Aggrieved by such order of the Tribunal, the present Appeals are preferred by the Enforcement Department. (vi) This Court, while admitting the appeal by an order dated 16.04.2004 granted interim relief to the department in terms of Para 4(b) on a condition that the confiscated Indian currency be returned to the respondents herein upon furnishing security to the satisfaction of the Registrar of the Court, whereas the foreign currency concerned, foreign currency confiscated was ordered not to be released. 4. Heard learned Advocates for the respective parties. 5. Learned Advocate for the Department Mr. Devang Vyas with learned Advocate Mr. Niral R. Mehta submitted that when Shri Chimanbhai Harjivandas Kapadia, on the basis of the information received ATS apprehended him and alongwith his nephew and personal search was carried out at that time US$30,000 were recovered from such persons. On the basis of the statement recorded under Section 40 of Foreign Exchange Regulation Act, the business premises and residential premises of Chimanlal (since deceased) led to recovery and seizure of various foreign currencies and also Indian currency of huge quantity. 5.1. It is submitted that the explanation forwarded given by the respondents also proved to be either false or inaccurate and therefore, on no valid explanation coming forth for holding foreign currency to such an extent the contravention of the provisions of Foreign Exchange Regulation Act was established. 5.2. It is submitted that the adjudicating authority has correctly decided upon the issues by taking into consideration all the evidence on record where as the Appellate Tribunal has committed an error in allowing the appeals without taking into consideration the incriminating documents, evidences of seizure of foreign currency etc. from the possession of the notices. 5.3. It is submitted that the Appellate Tribunal ought to have taken into consideration the statements recorded under Section 40 of Foreign Exchange Regulation Act, 1973, which clearly corroborates the charges against the notices. 5.4. from the possession of the notices. 5.3. It is submitted that the Appellate Tribunal ought to have taken into consideration the statements recorded under Section 40 of Foreign Exchange Regulation Act, 1973, which clearly corroborates the charges against the notices. 5.4. It is submitted that the Appellate Tribunal has committed an error in interpreting the application of Section 72 of the Foreign Exchange Regulation Act, 1973. The Tribunal has erroneously observed that the presumption under Section 72 of Foreign Exchange Regulation Act was wrongly invoked in the facts of the present case. 5.5. It is submitted that the Appellate tribunal has wrongly concluded that there is no evidence that the amounts were in any way involved in illegal transactions or was having any nexus with the criminal activities. 6. As against this, learned Senior Advocate Mr. S.H. Sanjanwala with learned Advocate Mr. Dilip L. Kanojiya appearing on behalf of the respondent has supported the order of the Appellate Tribunal. 6.1. It is submitted that the respondent Pvt. Ltd. is an authorized dealer in foreign exchange and are permitted to hold foreign exchange to a limited extent. 6.2. It is submitted that the memorandum of instructions issued by R.B.I. in July 1997 authorizes the money changers to maintain balance of foreign currency at reasonable level and considering the turn over of the respondent Pvt. Company the holding of the foreign currency was permissible. 6.3. It is submitted that even from the evidence on record the foreign currencies were found from the authorized places namely the business premises and/or the resident premises. 6.4. It is submitted that there was no cause of action to invoke Section 71(3). In view of the fact that on the same day and inspection was carried out by the representative of R.B.I. 7. Reliance is placed on the R.B.I. Guidelines for FFMC more particularly, Rule 7 which according to the respondents allow free purchase of foreign currency and traveller cheques from any person whether such person is a traveller or not. 7.1. It is submitted that where the currency value is below US$2500, there is no necessity to fill up the Currency Declaration Form (CDF) on arrival in India and therefore as the transaction in the present case by which the foreign currencies was procured by the respondent company non-maintenance of any record would not amount to contravention of the provisions of Foreign Exchange Regulation Act, 1973. 7.2. It is submitted that the respondents were able to furnish the details which are necessary for the purpose of maintaining the records of transactions of Foreign Exchange. Non furnishing of the details which are even otherwise or not necessary to be furnished to the Department cannot be considered as contraventions. 7.3. It is submitted that the encashment certificate in proper prescribed form have been submitted and it does not require for furnishing of address of the persons with whom Foreign Exchange transaction has taken place and such details are required only while encashment of traveller’s checks. 8. The Court has heard learned Advocates for the parties and has perused the documents on record. It appears that the investigation, in this case was initiated on the basis of the information received by the Enforcement Directorate from, ATS, Gujarat vide letter dated 14.10.1998, intimating that Chimanbhai Harjivandas Kapadia (since deceased) was apprehended by the Officers of ATS on 14.10.1998 outside his residential premises alongwith his nephew and were to subjected to his personal search, wherein cash foreign currencies of US$ 30,000 were recovered and seized from said Chimanbhai (since deceased). A panchnama in detail was drawn by the police on such information and Chimanbhai Harjivandas Kapadia was apprehended by the Enforcement Directorate (Department) on the same date and the statement were recorded under Section 40 of Foreign Exchange Regulation Act, the foreign currency was taken over by from the police and seized under Section 30 of Foreign Exchange Regulation Act by the department. The statement recorded of Chimanbhai (since deceased) and his family members, who were the office bearers of M/s Swami Nana Exchange (Pvt.) Ltd., Nadiad (hereby referred to as respondent-company), after recording the statements, search was carried out at the residential premises of Chimanbhai Harjivandas Kapadia (since deceased) on 14/15.10.1998 under Section 37 of Foreign Exchange Regulation Act, 1973 during which following currencies were recovered and seized, over and above US$30000 :- Indian currency US Dollar U.K. Pound Canadian Dollar Deutsche Mark [DM] Swiss Frank Travellers cheques of [a] UK Pound and [b] US Dollar 11,00,000 [Eleven lacs] 4085 [Four thousand eighty five] 15,025 [Fifteen thousand twenty five] 7 [Seven] 100 [Hundred] 210 [Two hundred ten] [a] 2750 [Two thousand seven hundred fifty] [b] 200 [Two hundred] 9. From the business premises of respondent-company, which was searched on 15.10.1998, Rs.96,962/= was recovered. From the business premises of respondent-company, which was searched on 15.10.1998, Rs.96,962/= was recovered. Over and above the Indian and Foreign Currencies, several incriminating documents were also recovered, the details of which were noted in the panchnama drawn. Amongst the documents seized several encashment certificates were found, such encashment certificates maintained by respondent-company were maintained to evidence the purchase of Foreign currency from an individual. The department during the course of investigation, recorded the statements under Section 40 of Foreign Exchange Regulation Act, 1973 of the individuals whose names were reflected in the encashment certificates and who had purportedly sold the Foreign Exchange Currencies to respondent-company. All these individuals have made statements under Section 40 to the effect that they have never sold any foreign exchange currencies to the respondent-company. In many of the cases where the names of the individuals were reflected in encashment certificates were found to have died much prior to the date of encashment certificates for example the encashment certificates no.1711 dated 13.10.1998 issue against for purchase of US$19.00 in the name of Sanabhai R Patel, investigation revealed that such persons Mr.Sanabhai R Patel had expired on 14.11.1983 and therefore the department also found that many of the names, which were reflected in the encashment certificates were non-existent. The department therefore concluded that the encashment certificates have been issued either in the name of the persons who have died long back or some of them who have never visited India physically or where such individuals have denied having sold any foreign currency to the respondent-company. The Explanations offered by the notices does not appear to properly account for the Foreign exchange seized by the Enforcement Directorate. 10. A perusal of the order in original by the adjudicating authority reveals that the adjudicating authority has taken into consideration all the contentions of the respondent and after appreciating the evidence in this context, has held the issues against the respondent. 11. The adjudicating authority has considered the fact that the investigation by the Department was fair and therefore, for the currency found in the custody of the respondent Company, a reasonable account/explanation was given by the respondent Company. 11. The adjudicating authority has considered the fact that the investigation by the Department was fair and therefore, for the currency found in the custody of the respondent Company, a reasonable account/explanation was given by the respondent Company. Such foreign currency and Indian rupees were forthwith released by the Department and it is only in the communication that the foreign currency and Indian currency to which no accounting was offered or the accounting which was not substantiated by evidence, the Department has ordered confiscation. The contentions regarding role of the office bearers of the respondent Company, the authority has negated such contentions after holding that from the records regarding the company that each of such notices were responsible for the offences of the company. 12. The contentions regarding the company having valid permit from the Reserve Bank of India to hold foreign currency at the residence was negated by the adjudicating authority as the amount of US$ 30000 was completely unexplained and when on facts and evidence, the authority found that procurement of such foreign currency was not established by issuance of necessary encashment certificates and the encashment certificates produced in support were not proved or established during the investigation of the Department as the author of such encashment certificate disowned such encashment certificates. In view of this fact, the Department and the adjudicating authority was justified in holding that the respondent Company has misused the facility of the license issued by the Reserve Bank of India and committed breach of the provisions of FERA. 13. The contentions of the respondent Company is that on the day of the raid itself, a representative of the Reserve Bank of India had inspected the records of the company and no untoward act was reported by the RBI representative. This contention was also negated by holding that the records of the company were updated later in point of time after the apprehension of Late Chimanbhai H. Kapadia and Mr. Sunil A. Kapadia. The adjudicating authority on facts had found that such contentions were an after thought and was not taken up in the first point of time by the respondent. 14. Sunil A. Kapadia. The adjudicating authority on facts had found that such contentions were an after thought and was not taken up in the first point of time by the respondent. 14. This Court also from perusal of the record has found that though the respondent Company was holding license from the Reserve Bank of India to hold foreign currencies, yet the respondent company was required to follow the guidelines and maintain proper records regarding the transactions in foreign currency. The respondent again hid behind the contentions that where transactions in foreign currency is below a particular limit, even maintenance of such record is not necessary as in the present case, it appears to this Court that a huge transaction beyond a specified limit appears to have broken down in many transactions and in support of such broken down transactions, encashment certificates of various persons were produced by the respondent company during the course of investigation. During such investigation itself, it was found that such persons who had issued the encashment certificates have either expired prior to the date of encashment certificates or are non existent or have completely disowned issuance of such certificates. 15. In that view of the matter, the Appellate Tribunal has committed an error in absolving respondent mainly on the ground that the respondent Company had a license and authority to hold the foreign currency. 16. The Court also observed that the adjudicating authority in its order has recorded the procedure followed by the Department during the investigation and has concluded that the procedure as contemplated under the provisions of FERA are properly followed and the principles of natural justice are also followed by furnishing the documents on which reliance is placed by the authority. The adjudicating authority has assigned cogent reasons in support of its conclusion. The Appellate Tribunal therefore without setting aside the conclusion based on evidence and in absence of any procedural error ought not to have set aside the judgment of the adjudicating authority in all aspects. 17. The Court however finds upon perusal of the evidence on record that the amount of Rs.11,00,000/= in Indian currency which was seized during the raid carried out on 15.10.1998 at the residential/official premises of the respondent Company and its office bearers, no nexus has been drawn of such amount with the objectionable transaction in foreign currency trade. 17. The Court however finds upon perusal of the evidence on record that the amount of Rs.11,00,000/= in Indian currency which was seized during the raid carried out on 15.10.1998 at the residential/official premises of the respondent Company and its office bearers, no nexus has been drawn of such amount with the objectionable transaction in foreign currency trade. Therefore, merely because Indian currency of huge quantity was recovered during the raid would not itself be an evidence of such money being involved in breach of provisions of FERA. The Court is therefore, of the view that just as the Department released the foreign currency for which an accounting explanation was offered by the respondent Company, the same approach needed to be adopted in the case of Indian currency of Rs.11,00,000/= thus seized during the raid and ordered to be confiscated. 18. In view of the aforesaid, the order of the Appellate Tribunal dated 21.07.2003 in Appeal No.52 to 58 of 2003 is quashed and set aside. The order of the Tribunal insofar as it applies to the foreign currency is restored. 19. The amount of Rs.11,00,000/= in Indian currency not found involved in contravention is liable to be released from confiscation. The Court notices that by way of an interim order of this Court dated 16.04.2004, this Court has already permitted the release of the confiscated Indian currency to the respondent (Mr. Sunil A. Kapadia) upon furnishing security to the satisfaction of the Registry of this Court. Such security shall now stand discharged. 20. In view of this order, necessary action in this regard to follow. The Appeals stand allowed to the aforesaid extent.