* THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA SPECIAL APPEAL No.2 of 2011 % 30.12.2011 # Nasir Baloor Mehdiabadi ... Appellant VERSUS $ The Appellate Tribunal for Foreign Exchange, Janpath Bhavan, New Delhi, And others. ...Respondents < GIST: > HEAD NOTE: ! Counsel for Petitioner: Sri Ch.Pushyam Kiran ^Counsel for Respondents: Sri V.Gopala Krishna Gokhaley ? Cases referred 1. (2003) 7 SCC 436 2. (2007) 2 SCC 510 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA SPECIAL APPEAL No.2 OF 2011 30.12.2011 Between: Nasir Baloor Mehdiabadi …. Appellant AND The Appellate Tribunal for Foreign Exchange, Janpath Bhavan, New Delhi. And others. … Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA SPECIAL APPEAL No.2 OF 2011 JUDGMENT (Per Hon’ble Sri Justice V.V.S.Rao) The Special Appeal is filed under Section 35 of the Foreign Exchange Management Act, 1999 (hereafter the FEMA) against the order dated 01.08.2008 in Appeal No.51 of 2006 passed by the Appellate Tribunal for Foreign Exchange, New Delhi. By the said order, the Appellate Tribunal confirmed the order, dated 30.01.2006 of the Special Director (second respondent herein), whereby and whereunder the appeal filed under Section 17 of the FEMA was dismissed confirming the order of confiscation passed by the Deputy Director (third respondent herein). The appellant is Iranian National. The Commissioner of Police, Hyderabad issued a residential permit which now stands extended upto 2012. Since 1994, he is running a restaurant namely “Bawarchi” in Partnership with his brother and brother-in-law. In December, 2007, he went to Iran. On 02.01.2003, the Deputy Director of Income Tax (Investigation) Unit-1(3) conducted search at the house of Khazim Boloor, the brother of the appellant and seized US $ 1,26,130. By a letter dated 06.01.2003, the third respondent informed the Assistant Director, Directorate of Enforcement, Hyderabad, to take necessary action in the matter. After obtaining authorization dated 09.01.2003 issued by the Director of Enforcement; foreign currency was taken over by the authorities under Section 37 of FEMA read with Section 132A of the Income Tax Act. As a part of the investigation under the FEMA, summons were issued to the appellant and Khazim Boloor. The latter appeared and in the statement under oath on 20.05.2003, he admitted that the foreign currency seized from him belongs to his brother, which was given to him while he was leaving for Iran on 26.12.2002. The appellant came back on 03.01.2003 but he did not obey the summons dated 20.05.2003. He sent a communication on 26.05.2003 stating that (i) he is the owner of ancestral landed property admeasuring three shares of plaques in the District 5 Yazd in Iran (approximately 2000 square yards); (ii) he sold the land to Gulam Deljoy, an Iranian, for $ 3,50,000 in 1997 under oral agreement; (iii) the vendee paid $ 72,700 on 26.04.1999 and $ 61,200 on 08.10.1999, which he declared to the Customs Authority at the Airport and encashed the same with Thomas Cook, Hyderabad; (iv) Gulam Deljoy made payments towards balance sale consideration in instalments by sending $ 5,000 each through nineteen Iranians between June, 2002 and December, 2002; (v) in October, 2002, when the appellant, his wife and father visited Iran, the vendee paid $ 5,000 to him and $ 20,000 to his father; (vi) he kept all the amounts received with him to encash after receiving balance amount from the purchaser Gulam Deljoy and that (vii) while leaving for Iran in December, 2002, he kept $ 1,26,130 with his brother Khazim Boloor for safe custody. He enclosed a list of Iranians through whom he received $ 5,000 sent by the purchaser from Iran. He also enclosed a copy of Currency Declaration Form (CDF) dated 11.10.2002 in proof of his father declaring $ 20,000 at Bombay Airport. After completing necessary investigation, the third respondent issued a show cause notice dated 23.08.2003. The appellant was asked to explain as to why adjudication proceedings contemplated under Section 13 of the FEMA should not be held for contravention of the provisions of Section 3(a) and 4 of the FEMA and why the foreign currency should not be confiscated to the Central Government under Section 13(2) of FEMA. The appellant submitted explanation reiterating the same pleas. During the enquiry by the adjudicating authority, the appellant produced the Verdict dated 28.08.2003 of Iranian Court declaring the appellant’s father as the owner of the property. He also produced an affidavit dated 12.06.2003 allegedly signed by the purchaser Gulam Deljoy declaring that he had remitted lot of monies in dollors to the appellant as sale proceeds of the plot of land inherited by his father. The third respondent gave personal hearing to the appellant, his father Masha Alla Ali and his brother and ordered confiscation of foreign currency under Section 13(2) besides levying penalty of Rs.5,00,000/- for contravention of Sections 3 and 4 of the FEMA. In his order, the third respondent observed as under. … A person who has sent such a huge amount will not give any money without entering into any agreement and Shri Nasir Boloor’s failure to submit the said agreement clearly shows that this version has been given by him only to escape from the proceedings under FEMA, 1999. Further he has stated that Sri Deljoy, has sent US$ each through 19 persons who had come to India from Iran. He has produced copies of the passports of the said persons with his letter dated 21.08.2003. But he has not produced any evidence to show that the said 19 persons actually brought the said foreign currencies with them. Further the department also could not contact the said 19 persons and make further investigations, as Sri Mohd.Nasir Boloor, failed to produce the present addresses and whereabouts of the said persons, as undertaken by him during the course of investigation. During the course of personal hearing Shri Nasir, had produced a copy of the affidavit dated 12.06.2003 of Shri Gulam Deljoy, wherein Sri Deljoy, has stated that all the money which has been attached/confiscated by the tax officers of India were sent by him to Shri Nasir Boloor or for purchase of plots. But in the said affidavit he has not stated the exact amount which was sent by him on various occasions towards the purchase of the plots and what was the sales consideration and what was to be totally paid by him. This clearly shows that the said affidavit has been got prepared for the purpose of escaping from the proceedings under FEMA, 1999. These foreign currencies were received as per Shri Nasil Boloor’s statement before the Assistant Director of Enforcement, Hyderabad between June, 2002 and October, 2002 and the said currencies were seized by the Income Tax Authorities during June, 2003. No prudent man will keep such a huge amount of foreign currencies with him at his residence for so many months. Hence, this version of Shri Nasir that he was keeping the said foreign currencies with him from the period when Shri Gulam Deljoy started sending the same is also not believable. Hence, it is evidence that the said foreign currencies have been unauthorisedly acquired by Shri Mohd. Nasir Boloor, without the general or special permission of the Reserve Bank of India. Further, as per Reserve Bank of India Regulation No.33 of Foreign Exchange Management (Possession and Retention of Foreign Exchange Regulations 2000) dated 3.5.2000 and any person is permitted to possess foreign exchange upto US$ 2000 if it is legally acquired. Otherwise no person resident in India is permitted to possess or retain any foreign exchange with him. Shri Mohd.Nasir Boloor, though an Iranian Passport holder is residing in India for a long period and is doing business in India. Hence he is a person residing in India. In terms of Section 4 of FEMA 1999 he cannot hold or possess the said foreign currencies with him. I, therefore, hold him guilty of contravening the provisions of Section 3(c) and 4 of FEMA 1999 read with the aforesaid regulations and pursuant to powers conferred upon me under Section 13(1) of FEMA 1999 I impose a penalty of Rs.5,00,000/- (Rupees five lakhs only) on Shri Mohd.Nasir Boloor Mehdi Abadi, for contravening the provisions of Section 3(a) and 4 of FEMA 1999 read with the aforesaid notifications. Since the above said seized foreign currencies of US$ 1,26,130 have been unauthorisedly acquired and possessed by Shri Nasir Boloor Mehdi Abadi, and involved in the said violation, in addition to penalty imposed above, I order that the said foreign currencies of US$ 1,26,130 be confiscated to Central Government pursuant to powers conferred upon me u/s 13(2) of FEMA 1999. The appellant, his father and his wife preferred appeals under Section 17(2) of the FEMA. By order dated 30.01.2006, the second respondent confirmed the confiscation order passed by the adjudicating authority but reduced penalty amount as noticed supra. The appellant then preferred appeal under Section 19 of the FEMA. The learned appellate Tribunal dismissed the appeals filed by the appellant, his father and wife. Submissions of the counsel The senior counsel for the appellant would submit that the adjudicating authority (third respondent), the appellate authority and the appellate Tribunal ignored Regulation 6 of the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 (hereafter, Export Regulations) and Regulation 3 of the Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000 (hereafter Possession Regulations). According to him, Export Regulations do not prohibit bringing of foreign currency not exceeding $ 5,000 or its equivalent and there is no necessity to make a declaration in CDF. He would also submit that as per Regulation 6A of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (Repatriation Regulations), a person can retain foreign currency with him for a period of 180 days from the date of receipt/ realisation/purchase, as the case may be. It is pointed out that a part of sale proceeds from the sale of the land in Iran, being $ 72,700 and $ 61,200, were already declared in CDF on 26.04.1999 and 08.10.1999. Money sent to the appellant sent through other Iranians being less than $ 5,000, there was no requirement of making a declaration and the appellant intended to encash the foreign currency as per the Repatriation Regulations as there was permissible time of six months to encash the same. Lastly, he contends that there was no intention on the part of the appellant to contravene any of the regulations; the acquisition of foreign currency cannot be called unauthorized; and no such presumption can be drawn. He would also emphasise that the affidavit filed by Iranian buyer was not considered by the authorities. Reliance is placed on Fatima Mohd.Amin v Union of India[1] and P.P.Abdulla v Competent Authority[2]. The senior standing counsel for Central Excise and Customs Department reiterated the respondents’ position as brought out in the counter affidavit of the third respondent. He would also further submit that Regulation 6A of the Repatriation Regulations was inserted by an Amendment vide G.S.R.715(E), dated 23.10.2007 with effect from 18.05.2007. The said Regulation enables the person to retain and keep the foreign currency for a period of 180 days before the surrender or encash, which does not apply to the facts of the case. According to him, Regulation 5 of the Repatriation Regulations as it stood in 2003, obliges every person to sell the realized foreign currency within seven days from the date of receipt and when once such requirement is violated, Sections 3 and 4 are attracted. He would also contend that the third respondent has given valid and acceptable reasons with regard to the improbabilities for not accepting the case of the appellant. The case of the appellant is improbable; and that no documents were produced in support of his claim that the land was sold to Iranian and that the money the appellant got is towards sale consideration. The applicable Principles of Law The FEMA is a consolidating and amending law relating to foreign exchange. Besides, facilitating external trade and payments and promoting orderly development and maintenance of foreign exchange market in India, it also regulates and provides for managing foreign exchange transactions. Sections 3 and 4 are relevant and read. 3. Dealing in foreign exchange, etc.- 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- (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorized person; (b) make any payment to or for the credit of any person resident outside India in any manner; (c) receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. Explanation.- For the purpose of this clause, where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person (including an authorized person) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorized person; (d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person. Explanation.- For the purpose of this clause, “financial transaction” means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt. 4. Holding of foreign exchange, etc.- Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. (emphasis supplied) Dealing in foreign exchange or foreign security or transferring these to any person not being an authorized person de hors the Rules, the Regulations and the provisions of the FEMA is prohibited. Similarly, if a person makes any payment to the credit of any person residing outside India or receives otherwise than through an authorized person, any payments by order on behalf of any person resident outside India in any manner or enter any financial transaction in India as consideration for acquisition or creation or transfer of right to acquire any asset outside India by any person is an offence. All such transactions can only be in accordance with the Rules and Regulations made under the FEMA. The term ‘authorised person’ is defined in Section 2(c). It means an authorized dealer, money changer, off-shore banking unit or any other person authorized under Section 10(1) to deal in foreign exchange and foreign securities. ‘A person resident outside India’ means a person who is not resident in India (Section 2(w)). As per Section 4, except as provided by FEMA, no person resident in India shall acquire, hold, own or possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. Further the acquisition of immovable property or transfer of immovable property situated outside India ignoring the provisions of the Rules and Regulations made under or in contravention of the FEMA would attract penalties under Section 13 which include imprisonment in civil prison. The attention of this Court has been drawn to Regulation 6 of the Export Regulations, which reads. 6. Import of foreign exchange into India.- A person may- (a) send into India without limit foreign exchange in any form other than currency notes, bank notes and travelers cheques; (b) bring into India from any place outside India without limit foreign exchange (other than unissued notes): Provided that bringing of foreign exchange into India under clause (b) shall be subject to the condition that such person makes, on arrival in India, a declaration to the customs authorities in Currency Declaration Form (CDF) annexed to these Regulations: Provided further that it shall not be necessary to make such declaration where the aggregate value of the foreign exchange in the form of currency notes, bank notes, or traveller’s cheques brought in by such person at any one time does not exceed US $ 10,000 (US Dollars ten thousands) or its equivalent and/or the aggregate value of foreign currency notes brought in by such person at any time does not exceed US $ 5,000 (US Dollars five thousands) or its equivalent. We may also quote Regulation 3 of Possession Regulations. 3. Limits for possession and retention of foreign currency or foreign coins.- For the purpose of clause (a) and clause (e) of Section 9 of the Act, the Reserve Bank specified the following limits for possession or retention of foreign currency or foreign coins, namely:- (i) possession with limit of foreign currency and coins by an authorized person within the scope of his authority; (ii) possession without limit of foreign coins by any person; (iii) retention by a person resident in India of foreign currency notes, bank notes and foreign currency travellers’ cheques not exceeding US $ 2000 or its equivalent in aggregate, provided that such foreign exchange in the form of currency notes, bank notes and travelers cheques- (a) was acquired by him while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or (b) was acquired by him, from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation; or (c) was acquired by him by way of honorarium or gift while on a visit to any place outside India; or (d) represents unspent amount of foreign exchange acquired by him from an authorized person for travel abroad. The Regulation 5 of Repatriation Regulations reads as under. 5. Period for surrender of realized foreign exchange.- A person not being an individual resident in India shall sell the realized foreign exchange to an authorized person under clause (a) of sub- regulation (1) of regulation 4, within the period specified below: (i) foreign exchange due or accrued as remuneration for services rendered, whether in or outside India, or in settlement of any lawful obligation, or an income on assets held outside India, or as inheritance, settlement or gift, within seven days from the date of its receipt; (ii) in all other cases within a period of ninety days from the date of its receipt. (emphasis supplied) By G.S.R.No.715(E), dated 23.10.2007, Regulation 5 of Repatriation Regulations was substituted and Regulation 6A was inserted, which reads as under. 6A. Period for surrender of received/realized/ unspent/unused foreign exchange by Resident individual.- A person being an individual resident in India shall surrender the received/realized/unspent/unused foreign exchange whether in the form of currency notes, coins and travelers cheques, etc. to an authorized person within a period of 180 days from the date of such receipt/realization/ purchase/acquisition or date of his return to India, as the case may be. The FEMA is a comprehensive legislation dealing with foreign exchange, inter alia regulating the dealings and transfers of foreign exchange, transactions in India involving foreign exchange in association with acquisition or creation or transfer of assets, export, import and holding of foreign currency, the deposits between the persons resident in India and persons resident outside India and the like. Section 4 prohibits any person from holding, owning, possessing or transferring any foreign exchange or any immovable property situated outside India. Section 3 prohibits any person (a) dealing in or transfer of foreign exchange with any person other than authorized person; (b) making payment to or for the credit of any person outside India in any manner; (c) receiving any payment on behalf of any person resident outside India otherwise than through an authorized person; and (d) entering into financial transaction for acquisition, creation or transfer of right to acquire any asset outside India. The relevant Regulations quoted hereinabove are made by the Reserve Bank of India in exercise of powers under Sections 6, 8, 10 read with Section 47 of FEMA. As per Regulation 3 of the Possession Regulations, no person can retain foreign currency not exceeding $ 2000 or its equivalent in aggregate. As per Regulation 6 of the Export Regulations, a person is prohibited from bringing more than $ 5000 in foreign currency without making CDF annexed to the said Regulations, and as per Regulation 5 of the Repatriation Regulations, a person cannot retain more than $ 2000 for a period of seven days and compulsorily he has to surrender foreign currency to an authorized person under Regulation 4(1)(a). The legal position is not seriously disputed nor denied by the appellant. The point for consideration The appellant’s main contention is that he has not violated Sections 3, 4 and the Possession Regulations or Repatriation Regulations. According to him, he acquired the foreign currency allegedly by selling his property in Iran, gave a declaration in CDF when he brought major chunk of foreign currency in January and October, 1999; his vendor sent the money through nineteen persons each getting $ 5000 which is within the permissible limits as per the Export Regulations, and he has 180 days to keep the money before encashing through an authorized person. These submissions are not properly substantiated with reference to the law as noticed hereinabove. Section 3(c) of the FEMA prohibits any person from receiving foreign currency otherwise than through an authorized person. Admittedly the appellant got the foreign currency towards consideration of sale of his immovable property in Iran. Even if such a transaction is assumed to be true, he could not have got or received the money the way he got. The law requires remittances to be made only through an authorized person as defined in Section 2(c), which means money changer, off-shore banking unit or any person authorized under Section 10(1) to deal in foreign currency or foreign securities. The confiscating authority, the appellate authority as well as the Tribunal recorded a finding against him on the question of sale of property to Iran buyer as no agreement was produced and the affidavit filed by the buyer did not give the details of the amount sent through nineteen (19) persons. The submission that the appellant can retain the amount for a period of 180 days is belied by reference to Regulation 5 of the Repatriation Regulations which obliges any person to sell the realized foreign exchange to an authorized person within seven days from the date of its receipt. The Regulation 6A on which reliance is placed no doubt provides 180 days for selling the foreign exchange but having been inserted by G.S.R.715(E), dated 23.10.2007 with effect from 18.05.2007, it has no application to the case of the applicant. From the findings recorded by the authorities that the appellant unauthorisedly acquired foreign currencies and retained the currency in contravention of relevant Regulations is sound and a question of law would not arise out of the order. All the authorities considered various contentions made by the appellant in proper perspective in the light of the FEMA and various Regulations. We have perused the decisions of the Supreme Court in Fatima Mohd.Amin and P.P.Abdulla. Both these cases arose out of Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. These decisions have no application to the facts of the present case as the appellant herein failed to discharge the burden which lay on him to prove his case that the foreign currency seized from the house of his brother was brought to India in accordance with the provisions of FEMA and Regulations made thereunder. In the result, for the above reasons, the appeal fails and is accordingly dismissed with costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 30.12.2011 Pln Note: LR copy be marked. (By order) pln [1] (2003) 7 SCC 436 [2] (2007)