1 fema-2-07.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION jmi F.E.M.A APPEAL NO. 2 OF 2007. Rajesh Nuwal, S/o. Madan Lal Nuwal, B-503, Shradha, Asha Nagar, Kandivali (East), Mumbai-400 101. ..Appellant. versus Directorate of Enforcement, Ministry of Finance, Department of Revenue, 1st Floor, Janmabhoomi Chambers, Walchand Hirachand Marg, Mumbai-400 001. ..Respondent. .... Mr. Subodh Dharmadhikari, Senior Counsel, a/w. Mr. Sanjay Jhanwar, Ms. Prachi Shinde, Ms. Aditi Hansaria, i/b. M. Dhruva & Partners, for Appellant. Mr. Y.R. Mishra, a/w. Mr. Rajesh Kumar, for Respondent. .... CORAM : V.C. DAGA & S.J. KATHAWALLA, JJ. DATE : 4th AUGUST 2010. JUDGMENT (Per S.J.Kathawalla, J.) : This Appeal is filed by the Appellant under section 35 of the Foreign Exchange Management Act, 1999, impugning the Order dated 5th July 2006, passed by the Appellate Tribunal for Foreign Exchange (the Tribunal) in so far as it relates to the Appellant. 2 fema-2-07.sxw 2. The above Appeal was admitted by an Order of this Court dated 7th December 2007 on the following substantial questions of law :- (i) Whether the Tribunal was justified in approving the action of the Special Director of Enforcement in levying penalty of Rs.10,00,000/- by stating that charges of contravention of the provisions of the Act against the Appellant are proved beyond reasonable doubt ? (ii) whether the probabilities in a case, however strong can substitute the requirement of substantial evidence ? (iii) Whether it was not incumbent upon the Tribunal to keep in mind the well known rule governing circumstantial evidence, viz. each and every incriminating evidence must be clearly established by reliable evidence and the circumstances proved must form a chain of events from which the only irresistible conclusion about the guilt of the accused can be safely drawn, and no other hypothesis against the guilt is possible ? (iv) Whether the mobile phone messages are sufficient evidence to prove the fact of payment to the Appellant. 3. The premises of one Mr. P.G. Jain was subjected to search and survey operations under section 37 of the Foreign Exchange Management Act, 1999 (“the Act” for short) and the following things were found during these operations :- (i) Indian currency of Rs. 9,60,000/-; (ii) A bunch of loose sheets and telephone index; 3 fema-2-07.sxw (iii) Nokia mobile phone of Mr. P.G. Jain being No. 9820 069211. 4. Admittedly, except for three SMS messages retrieved from the mobile of the said Mr. P.G. Jain, nothing concerning or connecting the Appellant with Mr. P.G. Jain was found or discovered. 5. Three SMS messages concerning the Appellant are reproduced hereunder :- SMS No./ Dated Number of Mobile Handset from which the SMS was sent Mobile Number to which the SMS was sent Text of the Message 2/ 10.03.2003 9821067967 9820069211 “PLS GV EXACT PLANNING ACCORDINGLY 1HV TO GV PLANING RAJESHBHAI” 5/ 10.03.2003 971506538198 9820069211 “Give 25 to rakesh 9821067967 10 69q319318” 8/ 6.03.2003 971507187492 9820069211 “Please give design number 34 to rakesh on 9821067967 against AWB 10.00 47p314095, regards” 6. Admittedly, the Appellant’s mobile no. 9821067967, in so far as SMS no. 2 dated 10th March 2003 is concerned, it was from the mobile of the Appellant to the mobile of Mr. P.G. Jain. 4 fema-2-07.sxw Admittedly, the Respondent did not find anything incriminating with regard to the text of this message and have not relied upon the same for holding that the Appellant has violated the provisions of section 3(c) of the Act. 7. Admittedly therefore, the only material which was considered by the Department of Enforcement under the Act against the Appellant were two messages bearing nos. 5 and 8, the texts of which have been reproduced hereinabove. 8. The Assistant Directorate filed a complaint under section 16(3) of the Act before the Civil Directorate of Enforcement, Mumbai, who is an Adjudicating Authority under section 16 of the Act. The said complaint was filed against 12 persons including the Appellant. 9. A show cause notice was issued to the Appellant (alongwith others) dated 25th February 2005 by the Special Director, Directorate of Enforcement, Mumbai. The Appellant filed his reply dated 15th March 2005 to the said show cause notice and principally his defence was that he did not know Mr. P.G. Jain. Some of his friends were engaged in the textile business and wanted to explore the prospects in textile business in India. It is in this process that they had sent certain samples to some person in 5 fema-2-07.sxw Mumbai, who happened to be Mr. P.G. Jain and the samples were collected by the Appellant for being given to one Mr. Ramesh Jain. 10. The Adjudicating Officer, after hearing the parties, by an Order dated 29th March 2006 held that the Appellant was guilty of violating section 3(c) of the Act. According to the Adjudicating Authority, the text of the message is proof of the fact of receipt of money of Rs.59,00,000/- by the Appellant from Mr. P.G. Jain. The Order of the Adjudicating Authority was challenged by the Appellant by filing an Appeal before the Tribunal under section 19 of the Act, which Appeal was rejected by the Tribunal by its Order dated 5th July 2007. Being aggrieved by the Order of the Tribunal dated 5th July 2007, the Appellant filed the above Appeal which as cited above, was admitted by an Order of this Court dated 7th December 2007 on the questions of law cited in paragraph 2 hereinabove. SUBMISSIONS :- 11. It is pointed out by the Appellant that section 3(c) of the Act reads as under :- “3. Save as otherwise provided in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall - 6 fema-2-07.sxw (a) ----------------- (b) ---------------- (c) Receive otherwise than through an authorized person, any payment by order or on behalf of any person resident outside India in any manner.” It is submitted that the aforestated provision makes it clear that what is prohibited by the said section is the receipt of any payment by or on behalf of any person resident outside India in any manner otherwise through an authorized person. Explanation to section 3(c) of the Act is not relevant for the purpose of the present matter. It is, therefore, clear that for one to be held guilty of violating section 3(c) of the Act, factum of such person having actually received payment otherwise through an authorized person by Order or on behalf of any authorized person resident outside India shall have to be proved as a fact. Absence of proof of actual receipt would make it impossible to come to the conclusion of violation of section 3(c) of the Act. 12. It is submitted that the proceedings under the Indian Jurisprudence may be classified in three categories, i.e. (i) Civil proceedings, (ii) Quasi-criminal proceedings, and (iii) Criminal proceedings. It is firmly established in law that when proceedings lead only to civil consequences, the proceedings are civil in nature. 7 fema-2-07.sxw The criminal proceedings are those which culminate into punishment of a person under the penal statute. Quasi-criminal proceedings are those in which penalties are imposed and pernicious consequences visit a person against whom a finding is recorded. Sub-section (1) of Section 13 of the Act provides for imposition of monetary penalties to the extent of three times the sum involved if the sum ascertainable or upto Rs.2,00,000/-, if it may not be ascertainable. Not only that, but there is also a power of forfeiture which could be exercised by the Adjudicating Authority under sub-section (2) of Section 13 which would be in addition to the penalty imposed under sub-section (1). The person who has violated the provisions of the Act also exposes himself to the danger of being preventively detained under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (“COFEPOSA” for short), as held by the Hon’ble Supreme Court in the case of the Union of India & Anr. vs. Venkateshan S. & Anr., (2002) 5 SCC 285. 13. It is submitted that the proceedings which result in imposition of penalty and expose a person to pernicious consequences are quasi-criminal proceedings and therefore, proof required in such proceedings is the same that is required in a 8 fema-2-07.sxw criminal trial. In support of this submission, the Appellant has relied on the decisions of the Hon’ble Supreme Court in the case of Shantiprasad Jain vs. Director of Enforcement, FERA, reported in AIR 1962 SC 1764; Surinder Singh vs. Hardial Singh & Ors., reported in (1985)1 SCC 91; Union of India & Ors. vs. Gyanchand Chattar, reported in (2009) 12 SCC 78 and Ch. Razik Ram vs. Ch.J.S. Chouhan & Ors., reported in AIR 1975 SC 667. 14. It is submitted that without getting into a debate about the interpretation of section 39, even if the text of the SMS messages are held to be correct, they miserably fall short of the proof of receipt of payment as required under section 3(c) of the Act. It is further submitted that the statement on page 83 in the Appellate Court’s Order reads thus :- “P.G. Jain is professionally a Chartered Accountant well aware with the implication of law where the confessional statements were written by him in his own handwriting in English who explained the modus operandi adopted by him in arranging the RIBs from the NRIs and making payment of Rs. 59,00,000/- to the appellant Rajesh Nuwal on instruction from abroad.” The statement is factually incorrect. It is, therefore, submitted that the Appellate Court has passed the impugned Order on the 9 fema-2-07.sxw basis of a mis-conception that Mr. P.G. Jain has admitted that he has made payment of Rs.59,00,000/- to the Appellant on instructions from abroad. 15. It is, therefore, submitted on behalf of the Appellant that the finding of guilt against the Appellant under section 3(c) of the Act, is perverse. The texts of the two messages can in no case prove the receipt of payment by the Appellant from Mr. P.G. Jain which is an essential ingredient for fastening a finding of violation of section 3(c) of the Act. It is, therefore, submitted that the Appeal be allowed. PER CONTRA :- 16. The learned Advocate appearing for the Respondent has submitted that two SMS messages (Nos. 5 and 8 in the table at paragraph 5 above) constitutes documents. It is submitted that section 39 of the Act presumes that where a document is produced or furnished by any person or seized from the custody of any person under this Act or any other law, it shall be presumed, unless the contrary is proved the truth of the contents of the document. It is submitted that taking into consideration that the contents of SMS messages are held to be true and the interpretation made by the department taking into consideration 10 fema-2-07.sxw the circumstances of Hawala transaction, the search and seizure operation conducted in the premises of Mr. P.G. Jain and the statements of Mr. P.G. Jain was correct, establishes high degree of probability that a prudent man ought to act on the supposition that the Appellant has received money under the Hawala transaction. It is submitted that the Appellant has failed to discharge the onus on him to prove that the message was not of Hawala but it was for the delivery of fancy goods. It is submitted that the Hon’ble Supreme Court in the case of State of Maharashtra vs. Mohd. Yakub & Ors., (1980) 3 SCC 57, held that penal provisions have been enacted under the Customs Act to suppress the evil of smuggling precious metal out of India. Therefore, the provisions should be construed in a manner which would suppress the mischief and promote the object, prevent their subtle evasion and foil their artful circumvention. It is, therefore, submitted on behalf of the Respondent that the above Appeal be dismissed with costs. CONCLUSION :- 17. Admittedly, the Appellant was tried only on the basis of two SMS messages received by Mr. P.G. Jain on his mobile bearing no. 9820 069211 from two different mobile numbers from 11 fema-2-07.sxw Dubai. One SMS directs Mr. Jain to “Give 25 to rakesh 9821067967 10 69q319318” and the other SMS reads, “Please give design number 34 to rakesh on 9821067967 against AWB 10.00 47p314095, regards”. A person can be held guilty under section 3(c) of the Act, if and only if he has received any payment by or on behalf of any person resident outside India in any manner otherwise through an authorized person. In the absence of any proof of actual receipt, an accused cannot be held guilty under section 3(c) of the Act. 18. Sub-section (1) of Section 13 of the Act provides for imposition of monetary penalties to the extent of three times of the sum involved if the sum is ascertainable or upto Rs.2,00,000/- if it may not be ascertainable. In addition to the power of imposition of penalty under sub-section (1), it is also a power of forfeiture which could be exercised by the Adjudicating Authority under sub-section (2) of Section 13 of the Act. As held by the Hon’ble Supreme Court in the case of Union of India & Anr. vs. Venkateshan S. & Anr. (supra), the person who has been held to have violated the provisions of the Act is also exposed to the danger of being preventively detained in COFEPOSA. 19. In the case of Shantiprasad Jain vs. Director of 12 fema-2-07.sxw Enforcement (supra), the Hon’ble Supreme Court whilst holding that the proceedings under section 4 of the Foreign Exchange Regulation Act, 1973 are quasi-criminal in nature, in paragraph 35 of the judgment observed as under :- “We have reached this conclusion on the consideration of the evidence on record, without reference to any abstract doctrine as to burden of proof. But it is only right to observe, that proceedings under the Act are quasi-criminal in character and it is the duty of the respondent as prosecutor to make it beyond all reasonable doubt that there has been a violation of the law.” 20. The Hon’ble Supreme Court has in its decision in Ch.Razik Ram vs. Ch. J.S. Chouhan & Ors.(supra) cautioned that without keeping the principles enumerated in paragraph 15 in mind, if the Court embarks upon appreciation of evidence, it is bound to mistake suspicion for proof and illusion for reality. The Respondent has relied upon the decision of the Hon’ble Supreme Court in the case of State of Maharashtra vs. Mohd. Yakub & Ors. (supra). In that case, at about midnight, a jeep driven by Respondent 1, and a truck stopped near a bridge at a creek and while the accused started removing some bundles from the truck and placing them aside on the ground, the Customs Officers who were following them on the basis of definite information, rushed 13 fema-2-07.sxw to the spot and accosted the persons present there. At the same time, the sound of the engine of a mechanised sea-craft from the side of the creek was heard by the officers. Thereafter, two residents of the area were called for and in their presence silver ingots were recovered from the two vehicles. Some ingots were also found near the footpath leading to the creek. From the personal search of Respondent 1, a pistol, a knife and currency notes were found. On questioning, he gave false name and address. It was found that the accused were not dealers in silver. The Trial Court convicted the accused under Section 135(2) of the Customs Act for attempting to smuggle out of India silver ingots worth about Rs.8 lakhs in violation of the Foreign Exchange Regulation Act, the Imports and Exports (Control) Act and the Customs Act. But the Additional Sessions Judge acquitted them on the ground that the facts proved by the prosecution fell short of establishing that the accused had ‘attempted’ to export silver in contravention of the law. The High Court upheld the acquittal. Allowing the Appeal, the Hon’ble Supreme Court held that what constitutes an attempt is a mixed question of law and fact, depending largely on the circumstances of the particular case. The circumstances in the present case establish such a high degree 14 fema-2-07.sxw of probability that the prudent man ought to act on the supposition that the Respondents were attempting to export silver from India in contravention of law. The circumstances are, therefore, sufficient proof of that fact in issue. 21. The said decision of the Hon’ble Supreme Court relied upon by the Respondent in the present case is not of assistance to them, since in that case, the entire facts set out above were established by the prosecution . In the instant case, there is even today, not an iota of evidence to show that the Appellant has received a single farthing from Mr. P.G. Jain, as alleged by the Respondent. 22. Based on the judgments of the Hon’ble Supreme Court relied upon by the Petitioner, we see no difficulty in accepting that the proceedings under section 13 of the Act are quasi-criminal in nature and the standard of proof required is not that of preponderance of probabilities but proof beyond any shadow of doubt. It is thus, clear that under the Act, the burden to prove the violation of provisions of the Act is on the Authority who is the prosecutor and this burden cannot shift to a person charged. Here, it would not be out of place to point out that the Appellate Tribunal erred in holding that the Appellant could have explained 15 fema-2-07.sxw and substantiated his defence case by producing documents, which the Appellant has not done. It must be borne in mind that in a quasi-criminal trial just as in a criminal trial, the burden is always on the prosecution to prove its case beyond reasonable doubt and this burden does not shift on to the accused. Thus, based on this cardinal principle, the Tribunal ought to have first examined and assessed the evidence led by the Respondent to ascertain whether the burden of proving the ingredients of the offence under section 3(c) of the Act has been discharged by them beyond reasonable doubt, before it turned its attention to and laid emphasis on the Appellant explaining the story put forward by him in his defence. The mere fact that the Appellant has not denied his acquaintance with Mr. P.G. Jain, does not in any way take the prosecution case further, as mere acquaintance of the Petitioner with Mr. P.G. Jain does not by itself lead to a conclusion much less a conclusion beyond reasonable doubt that the Appellant was the recipient of Rs.59 lakhs in breach of the provisions of the Act. Much emphasis is also placed by the Respondent on the case of the co-noticee Laxman Shinde accepting that he received Rs.4 lakhs from Mr. P.G. Jain and thereby accepting his guilt. This again does not by itself mean that 16 fema-2-07.sxw the Respondent can draw a parallel and assert that therefore, the Petitioner too received Rs. 59 lakhs from Mr. P.G. Jain in violation of the Act. The prosecution is required to prove its case against the Appellant independent of the admission of guilt by one of the co-noticees, by leading cogent and convincing evidence against him which supports one hypothesis alone namely that of the guilt of the accused. 23. Even otherwise, we find that the Appellate Tribunal has proceeded to hold the Appellant guilty of violating section 3(c) of the Act, inter-alia on a totally wrong premise, namely that Mr. P.G. Jain has in his confessional statements written in his own handwriting in English and explained the modus operandi adopted by him in arranging the RIBs from the NRIs and making payment of Rs.59,00,000/- on instructions from abroad. It is pertinent to note that in the show cause notice there is no mention that such a statement was made by Mr. P.G. Jain. The Adjudicating Authority also does not say in its Order that Mr. P.G. Jain has made any such statement. The learned Advocate appearing for the Respondent is unable to produce any statement of Mr. P. G. Jain as recorded in the Order of the Tribunal despite this Court having given him an opportunity to do so. 17 fema-2-07.sxw 24. In the above circumstances, we hold that the texts of the two messages do not, in any case, prove the receipt of payment by the Appellant from Mr. P.G. Jain which is an essential ingredient for fastening liability under Section 13 of the Act, attracting the provisions of Section 3(c) of the Act, and consequently, the impugned orders are, therefore, set aside. Appeal is accordingly, allowed with no order as to costs. [ S.J. KATHAWALLA, J. ] [V.C. DAGA, J.]