Adjudication v. Prosecution: FERA Penalty Sustained Despite Acquittal in Customs Prosecution

Introduction

In the case of Bala Shivprasad v. Deputy Director, Directorate of Enforcement[i], the Appellate Tribunal SAFEMA, New Delhi dismissed the appeal filed by  Bala Shivprasad (‘Appellant’) wherein the challenge was to the imposition of significant monetary penalties for alleged violations of the now-repealed Foreign Exchange Regulation Act, 1973 (‘FERA’), particularly ss. 8(1) and 9(1)(a), concerning unauthorized dealings and payments in foreign exchange. The appeal raised fundamental questions on evidentiary standards in adjudication proceedings, the role of retracted confessions, procedural safeguards under FERA, and the legal consequences of acquittal in related criminal prosecutions.

Brief Facts

• A person named Bala Ravi Kishor was apprehended at the Hyderabad Airport on 11.12.1999 for carrying foreign currency worth Rs. 54.20 lakhs without proper authorization from the RBI. Upon interrogation under s. 108 of the Customs Act, 1962 (‘Customs Act’), he admitted that the currency belonged to the Appellant (his brother-in-law), who directed him to deliver it to a person named S. Ramzan in Singapore.

• Further, the statements of Bala Ravi Kishore and all other individuals involved in transporting the currency were recorded under s. 108 of the Customs Act. These statements consistently corroborated the Appellant’s role in orchestrating the transaction. Notably, one of the persons involved expressly stated that the Appellant had previously sent smuggled foreign currency to Singapore, thereby indicating a recurring pattern of unauthorised cross-border currency transfer attributable to the Appellant.

• Based on the seized currency and the corroborative statements, the Respondent issued a show cause notice (‘SCN’) to the Appellant and others under ss. 8(1) and 9(1)(a) of the FERA. .

• The Appellant did not appear for personal hearings, though multiple notices were sent, one of which was received by his wife. A telegram seeking adjournment was also received, which was attributed to the Appellant.

• Thereafter, the impugned order dated 12.12.2008 was passed imposing a penalty of Rs. 40 lakhs under s. 8(1) of the FERA and Rs. 20 lakhs under s. 9(1)(a) of the FERA against the Appellant, prompting the present appeal before the Tribunal.

Held

• The Tribunal dismissed the appeal and upheld the impugned order imposing a penalty against the Appellant.

• The Tribunal rejected the argument that the hearing was conducted without proper notice. It held that the notices were validly served as the same were received by the Appellant’s wife, and the Respondent also received a telegram seeking adjournment.

• On the Validity of Statements under s. 108 of the Customs Act, the Tribunal held that while the statements recorded under s. 108  are primarily for Customs proceedings; they are admissible in adjudication under FERA. It relied on the Bombay High Court’s ruling in Vinod Chitalia v. Union of India[ii], holding that statements made to DRI in judicial proceedings are admissible in FERA adjudications.

• The Tribunal further held that Customs officers are not ‘police officers’ under s. 25 of the Indian Evidence Act, 1872, hence statements made before them are admissible under a. 20(3) of the Constitution of India.

• The Tribunal further rejected the argument that statements under s. 40 of the FERA must be separately recorded. It observed that for adjudication (unlike prosecution), reliance on s. 108 statements suffice if corroborated with other material, such as the seizure of currency.

• The Tribunal observed that the Appellant’s claim of retraction within 12 days was unsupported by any documentary evidence. It held that even if such retraction was made without valid reasons or timely proof, it cannot override the probative value of a voluntary statement. It relied upon K.T.M.S. Mohd. v. UOI[iii] and Bharat v. State of U.P.[iv] to hold that a retracted confession, if originally voluntary, can still be relied upon.

• On the Sunset Clause under s. 49(3) of the Foreign Exchange Management Act, 1999 (FEMA), the Tribunal clarified that issuance of SCN within the two-year period is sufficient for initiating proceedings under the repealed FERA. It held that actual service of notice within the sunset period is not necessary if efforts to serve were made in time.

• On Acquittal in a criminal case under the Customs Act, the Tribunal noted that the acquittal was solely on technical grounds, in the absence of a proper sanction for prosecution, and not on merits. It further held that such acquittal does not preclude the imposition of a penalty in parallel adjudication proceedings.

• Finally, the Tribunal concluded that sufficient material existed to establish contravention of ss. 8(1) and 9(1)(a) of the FERA.

Our Analysis

This decision by the Tribunal stands as a crucial reaffirmation of the distinctive procedural and evidentiary regimes that govern adjudication proceedings under economic legislation like FERA, in contrast to criminal prosecutions. By upholding the validity of statements recorded under s. 108 of the Customs Act in FERA adjudications, the Tribunal has clarified that while such statements may not suffice for criminal conviction, they remain relevant and probative in civil penalty proceedings, especially when corroborated by seized materials and other circumstantial evidence.

Notably, the Tribunal’s reasoning reflects a pragmatic approach to regulatory enforcement. The decision underscores that technical lapses in criminal prosecution, such as failure to obtain a proper sanction, cannot be weaponized to defeat civil adjudication where different standards of proof apply. Moreover, the judgment reinforces the principle that procedural evasions, such as non-appearance despite repeated notices, cannot absolve an appellant from the consequences of established contraventions.

End Notes

[i] 12024 SCC OnLine ATSAFEMA 15 dated 13-08-2024.

[ii] 2012 SCC Online Bombay 476.

[iii] 1992 (2) Crimes 314.

[iv] (1973) 3 SCC 950.

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.