1 FERA Appeal No.64 to 66 of 2006 mmj IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION FERA APPEAL NO.64 OF 2006 Union of India represented by the ) Director of Enforcement, New Delhi, ) having its office also at ) Janmabhoomi Chambers, 1st Floor, Walchand ) Hirachand Marg, Mumbai 400 001 )..Appellant Vs. Jatin C. Jhaveri ) 92, Kamal Building, 69, Walkeshwar Road, ) Mumbai 400 006 )..Respondent WITH FERA APPEAL NO.65 OF 2006 Union of India represented by the ) Director of Enforcement, New Delhi, ) having its office also at ) Janmabhoomi Chambers, 1st Floor, Walchand ) Hirachand Marg, Mumbai 400 001 )..Appellant Vs. Jitendra K. Dodia ) 13/3, Kripa Dham Co-op Society ) Kasturba Cross Road No.2, Borivali (East) ) Mumbai 400 066 )..Respondent WITH FERA APPEAL NO.66 OF 2006 Union of India represented by the ) Director of Enforcement, New Delhi, ) having its office also at ) Janmabhoomi Chambers, 1st Floor, Walchand ) Hirachand Marg, Mumbai 400 001 )..Appellant Vs. 2 FERA Appeal No.64 to 66 of 2006 Ajit K. Dodia ) Kasturba Cross Road No.2, Chandra Sadan ) Borivali (East) Mumbai 400 066 )..Respondent WITH WRIT PETITION NO.2976 OF 2004 Mr. Jatin C. Jhaveri ) of Mumbai Indian Inhabitant ) having his address at 128/129, Panchratna ) Opera House, Mumbai 400 004 )..Petitioner Versus 1) Union of India ) through Jt. Secretary, Ministry of Law and ) Justice, Aayakar Bhavan, M.K.Road, ) Bombay 400 020 ) 2) Deputy Director, Enforcement Directorate ) having his office at Mittal Chambers, ) Nariman Point, Mumbai 400 021 ) 3) Joint Commissioner of Customs ) AIU CSI Air Port, Sahar, Mumbai )..Respondents Mr. Y.S. Bhate for the Appellant in FERA Appeal No.64/06, 65/06 and 66/06 and for Respondent in WP 2976 of 2004 Mrs. Manjula Rao for the Respondents in FERA Appeal No.64/06 and for Petitioner in WP 2976 of 2004 Mr. M. M. Patel for the Respondent in FERA Appeal No.65/06 and 66/06 CORAM :- V.C.DAGA & R.M.SAVANT,JJ. JUDGMENT RESERVED ON: 24th September, 2010 JUDGMENT PRONOUNCED ON: 19th October, 2010 JUDGMENT (Per Shri R.M.Savant, J.) 1 The above FERA Appeals arise out of the common Judgment and 3 FERA Appeal No.64 to 66 of 2006 Order dated 10-3-2004 passed in the Appeals filed by each of the Respondents abovenamed being Appeal Nos.454/99, 462/99 and 463/99. By the said Order, the Appeals filed by the Respondents came to be allowed by the FERA Tribunal and resultantly certain directions came to be issued in the matter of confiscation of Foreign currency and imposition of penalty, in so far as, the Respondents-Jatin C. Jhaveri and Ajit Dodia are concerned. Whereas, the Respondent- Jitendra Dodia was exonerated of all the allegations leveled against him for contravention of the provisions of the Foreign Exchange Regulation Act, 1973 (for short FERA). It would be also be necessary to refer to Civil Application No.24 of 2010. By the said Civil Application, the original Appellant/ Applicant i.e. Directorate of Enforcement sought, to amend the cause title by substituting the Directorate of Enforcement by the Union of India. The said amendment sought, was strongly objected to on behalf of the Respondent by relying upon the authoritative pronouncement of the Apex Court in the case of Mohtesham Mohd. Ismail Vs. Spl. Director, Enforcement Directorate & Anr. reported in 2007 AIR SCW 6348. This Court by order dated 17-6-2010 allowed the said Civil Application in terms of prayer clause (a), thereby permitting the amendment of substituting the Original Appellant/Applicant with the Union of India, however the same was allowed without prejudice to the rights and contentions of the parties in the above Appeals. In terms of the Order of this Court dated 17-6-2010 the Learned Counsel for the respective parties addressed us on the said issue also. 4 FERA Appeal No.64 to 66 of 2006 2 Since the issue regarding the confiscation of the foreign currency in question, is pending since the year 1993, the parties had requested that the Appeals be heard at the admission stage itself. Accepting the request of the Learned Counsel for the respective parties, we proceeded to hear the Appeals finally at the admission stage. In so far as Writ Petition No.2976 of 2004 is concerned, the same is filed by Jatin C. Jhaveri and the relief sought therein is intrinsically connected with the issue in the above Appeals. The said Writ Petition was, therefore, kept along with the above Appeals. 3 The allegations against the Respondents concerned are for violation of the provisions of the FERA. In so far as the Respondents in Appeal No.64 and 66 of 2006 i.e. Jatin C. Jhaveri and Ajit Dodia are concerned, the contravention as alleged is of Section 8(1) of the FERA Act and in so far as the Respondent in Appeal No.65 of 2006 i.e. Jitendra Dodia is concerned, the contravention as alleged is of Section 8(1) read with Section 64(2) of the FERA Act. THE FACTS 4 The facts giving rise to the said allegations can be stated as under: 5 FERA Appeal No.64 to 66 of 2006 The Respondent in Appeal No.66 of 2006 Ajit Dodia was travelling to Hong Kong by Swiss air flight S.R. No.170 on 27/28-9-1993. His two checked in baggages viz one suit case and one brief case came to be randomly checked by the Customs Staff at the departure counter, which led to the recovery of foreign currency worth Rs.1.24 cores. The said currency was in the form of U.S.dollars amounting to 4,03,550. The statement of the said Ajit Dodia was recorded by the customs wherein he inter alia stated that his visit to Hong Kong was planned and financed by one Jatin Jhaveri (Respondent in Appeal No.64 of 2006) who is a diamond dealer having office at Panchratna Building, Opera House, Mumbai and that those two bags were received by him at the office of Jatin Jhaveri where his younger brother Jitendra Dodia was working as an Assorter. The packing of the said bag was done by Jatin Jhaveri assisted by Jitendra Dodia and that Jitendra also instructed him about the said foreign currency, that he should hand over the same to the brother of Jatin i.e. Pankaj Jhaveri in Hong Kong. Pursuant to the said seizure, the residences of both Ajit Dodia and Jitendra Dodia were searched on 28-7-1993 as also the residence of Jatin Jhaveri, but there was nil recovery. Thereafter, the Dodia brothers were produced before the Metropolitan Magistrate. The Learned Metropolitan Magistrate was pleased to free Jitendra Dodia on bail on the same day, but Ajit Dodia was remanded to judicial custody till 17-8-1993. Both the Dodia brothers filed their retracted statements which were replied to by the Assistant Collector Air Intelligence Unit. Whilst the Dodia brothers were arrested. Jatin Jhaveri could not be arrested till much later as he was 6 FERA Appeal No.64 to 66 of 2006 apparently evading arrest. However, on his arrest, he made a statement that part of the foreign currency i.e to the extent of 2,89, 250 U.S.$ belongs to him and the rest of the amount i.e. 1,14,300 U.S.$ did not belong to him. The said Jatin Jhaveri produced copies of currency declaration forms dated 25-6-1993 and 28-6-1993 at the time of bringing / importing the said US$, while returning to India. The said amount according to him was received by him as an advance for business transaction from his business associates in the USA, when he was on a foreign tour to America. He also relied upon the Affidavits of the persons who had purportedly given him the said foreign currency amount of 2,89,250 U.D.$. It is required to be noted that all the three Appellants were issued show cause notices under the Customs Act. In so far as the Appellants excluding Jatin are concerned, their statements were recorded on 28-7-1993 under Section 108 of the Customs Act on 13-9-1996 and under Section 40 of the FERA. In so far as Jatin Jhaveri was concerned, his statements were recorded on 12-10-1993 under Section 108 of the Customs Act and on 13-9-1996, 16-9-1996, 27-9-1996, 4-10-1996 and 7-10-1996 under Section 40 of the FERA. 5 It is required to be noted that the proceedings under the Customs Act were also initiated against the Appellants above named in relation to the said seizure of 403550 US$. The said Appellants were asked to show cause by the Customs Authorities as to why the said seized currency should not be confiscated under the provisions of Section 113(d), (e) and (i) 7 FERA Appeal No.64 to 66 of 2006 of the Customs Act, 1962 read with Section 3(2) of the Imports and Exports Control Act, 1947. The said show cause notice was adjudicated upon by the Commissioner of Customs, Sahar International Air port and by his order dated 30-8-1995 directed absolute confiscation of foreign currency of US$ 4,03,550 equivalent to Rs.1,24,49,517/- under the provisions of Section 113(d), (e) & (i) of the Customs Act, 1962 read with Section 13(2) of the FERA 1973. By the said order penalty of Rs.10 lacs was also imposed on Jatin Jhaveri, penalty of Rs.3 lacs on Ajit Dodia and penalty of Rs.2 lacs on Jitendra Dodia under Section 114 of the Customs Act for their role in the smuggling of foreign currency to the extent of 4,03,550 US$ out of India. 6 Aggrieved by the said order dated 30-8-1995, the Appellants filed an Appeal before the CEGAT. The CEGAT allowed the Appeal filed on behalf of the Appellant Jatin Jhaveri being Appeal No.C-577/95 and partly allowed the Appeals filed by Ajit Dodia and Jitendra Dodia being Appeal Nos. C-537-95 and 576/95. 7 In so far as the amount of 2,89,250 US$ is concerned, to which a claim was laid by Jatin Jhaveri, the CEGAT held that the said amount was legally imported into India since it was declared on arrival to the Customs Department and, therefore, the CEGAT permitted the said amount to be reexported subject to the permission of the RBI or to be disposed of in accordance with banks directions on payment of fine of Rs.9 lacs. 8 FERA Appeal No.64 to 66 of 2006 The CEGAT reduced the penalty amount imposed on Jitendra Dodia from RS.10 lacs to Rs.7 lacs and also reduced the penalty imposed on Ajit Dodia from Rs.2 lacs to Rs.1 lac. 8 We were informed at the bar during the course of the hearing of the above Appeals that the said Order of the CEGAT has become final and binding as the Revenue has not chosen to carry the matter further. It would also be relevant to note that in the proceedings under the Income Tax Act, for the Assessment Year 1994-1995, the Assessing Officer had made an addition of Rs.1,24,49,517/- to the income of Jatin Jhaveri on account of the foreign Currency to the extent of 4,03,550 US$ seized as undisclosed income. Against the order of the assessing officer, the said Jatin Jhaveri carried the matter in Appeal to the Income Tax Appellate Tribunal (ITAT) who set aside the said addition to the extent of US$ 1,14,300 on the ground that the said amount did not belong to Jatin Jhaveri and, therefore, there was no justification for its addition in the hands of Jatin Jhaveri. The ITAT accepted the stand of Jatin Jhaveri that the source of acquisition of the amount of US$ 2,89,250 was the receipt of advance payments against supply of diamonds from two over seas buyers. 9 In so far as the FERA is concerned, the Show Cause Notice came to be issued to the Appellants on 21-11-1007 for contravention of Section 8(1) read with Section 64(2) of the said Act. The foundation of the said show cause 9 FERA Appeal No.64 to 66 of 2006 notice was the seizure of foreign currency amounting to 4,03,550 US$ from Ajit Dodia, as indicated herein above. In so far as, Jatin Jhaveri and Ajit Dodia are concerned, the allegations in the show cause notice was the contravention of Section 8(1) of the said Act. Whereas, in so far as the Jitendra Dodia is concerned, the contravention alleged was of Section 8(1) read with Section 64(2) of the said Act. All the Appellants replied to the said show cause notice. The said show cause notice was adjudicated upon by the Special Director of Enforcement, Sahar International Airport, Mumbai and by his order dated 4-10-1999 the said show cause notice was confirmed and the adjudicating authority was pleased to impose penalty of Rs.30 lacs each on Jatin Jhaveri and Ajit Dodia and Rs.7,50,000/- on Jitendra Dodia. The adjudicating authority relied upon the Panchnama dated 26-7-1993 and the statements of the Appellants – Ajit Dodia and Jitendra Dodia. The adjudicating authority did not accept the case of Jatin Jhaveri as regards his claim to 2,89,250 US$ based on the customs declaration forms, as also his alibi regarding the balance of the amount of 1,14,300 US$, that the said amount belonged to one Chandrasen Jhaveri. According to the adjudicating authority, the claim of the said Jatin Jhaveri in respect of the two amounts was not cogent and credible. The adjudicating authority was of the view that the said case of Jatin Jhaveri could not be countenanced, in view of his original statement dated 12-10-1993. The adjudicating authority was of the view that though the case of the said Jatin Jhaveri in respect of the said amount 2,89,250 US$ was accepted by the Central Excise Gold Appellate Tribunal (CEGAT). The order of the CEGAT 10 FERA Appeal No.64 to 66 of 2006 would not be binding on the authorities under the FERA. 10 Aggrieved by the said order dated 4-10-1999 passed by the adjudicating authority, the Appellants filed Appeals before the Appellate Tribunal for Foreign Exchange. The two Appeals filed by Jatin Jhaveri and Jitendra Dodia being Appeal No.454/99 and Appeal No.462/99 came to be allowed and thereby the penalty imposed upon Jatin Jhaveri and Jitendra Dodia came to be set aside, as also the confiscation of the amount of 2,89,250 US$ was also quashed and set aside. In so far as Ajit Dodia is concerned, his Appeal No.463/99 came to be partly allowed and whereas the finding of guilt was affirmed as also the confiscation of 1,14,300 US$ was confirmed. However, the amount of penalty was reduced from Rs.30 lacs to Rs. 1 lac. The gist of the reasoning of the Tribunal was that Jatin Jhaveri had explained the circumstances on account of which in his first statement dated 12-10-1993, he had not mentioned about his calim of 2,89,250 US$. According to the Tribunal, the adjudicating authority had failed to take into consideration the subsequent statement dated 7-10-1996 of the said Jatin Jhaveri. The Tribunal was of the view that in so far as the amount of 2,89,250 US$ is concerned, there were three factors in favour of the said Jatin Jhaveri namely : (i) Two currency declaration forms whereby the amount of 2,89,250 US$ is covered. The correctness of the said currency declaration forms is neither 11 FERA Appeal No.64 to 66 of 2006 confirmed nor denied by the Customs. (ii) Affidavits of some U.S. residents who have purportedly given the said foreign currency as advance. (iii) The photocopy of the passport of the said Jatin Jhaveri to prove his visit to USA and the Affidavit of one Mr. P.N.Shenoy who was the Bank Manager of ABN Amro Bank. 11 In so far as the order of the CEGAT is concerned, on which reliance was placed by the Appellants though the Tribunal concurred with the view of the adjudicating authority that per-se the order of CEGAT would have no bearing on the proceedings under FERA. The Tribunal embarked upon the exercise of appreciating the findings of the adjudicating authority de hors the order of the CEGAT and on such exercise being carried out, came to a conclusion that the story put forth by the Appellant-Jatin Jhaveri does not appear to be a concocted one, especially having regard to the currency declaration forms which were of earlier dates. The Tribunal was of the view that the denial of having any connection with the seized foreign currency in his initial statement dated 12-10-1993 and the absence of any reference to the currency declaration forms in his said statement as also not claiming the foreign currency before the Customs and DRT officials, according to the Tribunal has been adequately explained by the said Jatin in his statement dated 7-10-1996. The Tribunal was also of the view that the gap between the two currency declaration forms was also adequately explained in view of the fact that the baggage of the Appellant 12 FERA Appeal No.64 to 66 of 2006 Jatin was mis handled by the concerned air line. The tribunal also went into aspect of the efficacy of the confessional statement of the Appellants recorded in the course of investigation and on the touch stone of the law enunciated by this Court, as well as by the Apex Court, was of the view that the said statements required some corroboration so as to bring home the charge against the charged persons. The Tribunal resultantly by its order dated 10-3-2004 allowed the Appeals and has granted the reliefs which have been mentioned herein above. 12 We have heard Shri Y.S. Bhate the Learned Counsel for the Appellants and Smt. Manjula Rao the Learned Counsel for the Respondent in Appeal No.64 of 2006 and Shri Patel the learned Counsel for the Respondents in Appeal Nos.65 and 66 of 2006. The submissions of the respective parties can be culled out as under: SUBMISSIONS ON BEHALF OF THE APPELLANTS (i) That the Appellate Tribunal erred in exonerating the Respondents of the charges on the basis of the order of the CEGAT dated 27-11-1998 as also on the basis of the order of the ITAT. It is submitted that the scope of the proceedings under the Customs Act are entirely different from the proceedings under the FERA Act. (ii)That the genuineness of the currency declaration forms was itself doubtful in view of the inconsistency between the statement of Jatin Jhaveri as made on 12-10-1993 and his statement made on 7-10-1996. 13 FERA Appeal No.64 to 66 of 2006 The case of the Jatin Jhaveri, therefore, that he had declared the foreign currency on arrival, could not be accepted. (iii)That the Tribunal failed to take into consideration that the original pass port was not produced by Jatin Jhaveri for verifying the authenticity of its relevant pages as regard his visit to USA. (iv)That the Tribunal failed to appreciate that there was no RBI permission either general or specific for the transfer of the foreign currency which would exonerate the Respondents of the contravention of Section 8(1) and 64(2) of the FERA. (v) That the Tribunal failed to appreciate that the efficacy of the confessional statement made by the Respondents under Section 108 of the Customs Act, 1962 and Section 40 of the FERA Act of 1973, which statements were given by the said Respondents voluntarily and in terms of the law laid down by the Apex Court can be said to inculpate the persons who have made it against the one against whom it is made. (vi)That the Tribunal failed to appreciate that the Respondents have taken inconsistent stand before the DRI and the Customs officials and that the deposition is full of inconsistency and conjecture. (vii)Lastly, that the Tribunal failed to appreciate that the facts as disclosed clearly make out a contravention of Section 8(1) and 64(2) of the FERA, by the Respondents, as the Respondent Jatin Jhaveri acquired foreign currency to the extent of 4,03,550 US$ from persons other than authorised dealers in foreign exchange in India. 14 FERA Appeal No.64 to 66 of 2006 SUBMISSIONS ON BEHALF OF THE RESPONDENTS (i) That the Appeals as filed are not maintainable as the same have not been filed by the Union of India but by the Director of Enforcement without any authority delegated to him by the Union of India. There is also no authority delegated to file the Civil Applications either for condonation of delay or for substitution of the Appellant on behalf of the Union of India. The Respondents relied upon the Judgment of the Apex Court in Mohte Sham Mohammed Ismail (Supra) (ii)That the Notification dated 6-3-2009 on which reliance is sought to be placed by the Appellant cannot come to the aid of the Appellant as the instant proceedings are filed in the year 2004 and, therefore, no reliance can be placed on the Notification which is dated 6-3-2009. (iii)That there has been inordinate delay in filing the Appeal and the same is filed after more than 6 years and the substitution of the Director of Enforcement by the Union of India also suffers from delay and laches. (iv)That no question of law is involved in the present Appeal and, therefore, in terms of Section 54 of FERA, Appeal is not maintainable. (v) That the CEGAT having recorded a finding that the currency in question to the extent of US$ 2,89,250 has been brought into India legally which finding is recorded on the basis of the same set of facts, would be a determinative piece of evidence, in so far as the acquisition of the said currency is concerned, whilst adjudicating the proceedings under the 15 FERA Appeal No.64 to 66 of 2006 FERA. (vi)That since a finding of fact has been recorded by the CEGAT, it is not open for the Appellant to question the said finding of fact as the said finding has been accepted by the concerned department of the Appellant, since the matter has not been carried further by the said department. (vii)That the provisions of Section 8(1) and 64(2) of FERA are not at all attracted. (viii)That there has been no inconsistency in the statement of the Respondents and that on the basis of the said statement, it cannot be proved that there is any contravention of the provisions of the FERA. (ix)That three authorities have adjudicated upon the matter on the same set of facts and all the authorities after considering the material and documents on record have recorded a finding in favour of the Respondents above named as regards legal importation of the foreign currency. CONSIDERATION 13 Having heard the Learned Counsel for the parties, we have given our anxious consideration to the rival contentions. Since it is the contention of the Learned counsel appearing for the Respondents that in view of the adjudication by the CEGAT wherein the CEGAT has recorded a finding that Appellant-Jatin Jhaveri had legally imported the currency amounting to 2,89,250 US$ by virtue of the two customs declaration forms dated 25-6-1993 16 FERA Appeal No.64 to 66 of 2006 AND 28-6-1993, the said finding would be binding on the authorities under FEMA, we propose to deal with the said submission at the out set. 14 The said submission was also canvassed before the Tribunal by the Respondents. The Tribunal had, whilst agreeing with the view of the adjudication officer that per-se the order of the CEGAT is not binding on the Enforcement Authorities under the FERA; in view of the fact that the proceedings under the Customs Act are different from the proceedings under FERA. Whilst accepting the said view of the adjudication officer, the Tribunal embarked upon an exercise of appreciating the findings of the adjudication officer viz-a-viz the material on record de hors the order of the CEGAT. The Tribunal on such consideration came to a conclusion that the adjudication officer had whilst relying upon the statement of Jatin Jhaveri dated 12-10-1993, wherein, he had not whispered a single word about the seized foreign currency and that the same was brought from USA representing the advance payment for exports and also taking into consideration that he had not claimed foreign currency before the Customs and DRI officials, had erred in not taking into consideration the