Introduction
The Appellate Tribunal SAFEMA, New Delhi (‘Tribunal’), in a recent ruling in the case of Nirmal Kumar Singhania v. Special Director Directorate of Enforcement[i], upheld the penalties imposed on the Appellant by the Directorate of Enforcement (‘ED’). The Tribunal rejected the Appellant’s defence, characterising it as self-serving and without merit. The Tribunal emphasised that the Appellant failed to adequately explain how they obtained the Indian and foreign currencies seized from their premises, while the actions of the Adjudicating Authority (‘AA’) were found to be well-supported by material evidence.
Brief Facts
A search and seizure operation was conducted at the Appellant’s residence and business premises based on information indicating involvement in unauthorised foreign exchange transactions. Foreign currencies, including 6,800 USD, 15,100 SGD, 500 EUR, 12,100 HKD, 1,000 AUD, and 3,350 AED, along with the Indian currency amounting to Rs. 1.42 crore, were seized from the Appellant’s premises.
The Appellant claimed that a substantial portion of the seized money belonged to Mr. Anil Tody, a resident of Hong Kong, who was supposed to collect the amount as part of a legitimate transaction. However, the money was seized because Mr. Tody failed to attend the meet-up. The Appellant admitted to involvement in hawala transactions without obtaining general or specific permission from the Reserve Bank of India (‘RBI’). The remaining amount was allegedly kept for liquidity in business transactions.
When examined under s. 37(3) of the Foreign Exchange Management Act, 1999 (‘FEMA’), the Appellant claimed that the foreign currencies seized were unspent money from his international trips, which he had failed to return to an authorised dealer (‘AD’) within 180 days of his returns due to ignorance. However, he later retracted this stance, stating that the money was his winnings from casino games played during those trips. Accordingly, the ED filed a complaint under s. 16(3) of FEMA led to the issuing of a show-cause notice (SCN) against the Appellant.
Following proceedings under s. 13 of FEMA, the AA imposed penalties on the Appellant for contravening the provisions of ss. 3(c), 3(a), and 8, read with reg. 6A of the FEM (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000 (‘Regulations’). Additionally, the AA ordered the confiscation of Indian currency worth Rs. 1.42 crores and the various foreign currencies seized from the premises of the Appellant.
Aggrieved by this order, the Appellant filed an appeal, arguing that the order was not based on substantial evidence and that the penalties were imposed on assumptions and presumptions. The Appellant sought to set aside the order and return the confiscated currencies with interest from the date of seizure until realisation.
Held
The Tribunal dismissed the appeal as devoid of merit and upheld the penalties imposed by the AA. The Tribunal noted that the action was initially based on credible information, corroborated by the search and seizure of large amounts of Indian and foreign currencies from the Appellant’s premises.
Critically analysing the Appellant’s arguments, the Tribunal held that the Appellant’s defence was insufficient and unsubstantiated, thereby lacking credibility and failing to explain the possession of the seized currencies. The Tribunal noted discrepancies in the Appellant’s explanations, which raised suspicions of fabrication. In contrast, the AA’s actions were supported by material evidence.
The Tribunal also dismissed the Appellant’s claim that the seized foreign currencies were leftover amounts from his international trips, which he failed to surrender to an AD within 180 days of his return. The Tribunal observed that even if this claim were true, it would still constitute a contravention of s. 8 of FEMA, read with reg. 6A of the Regulations. The Tribunal concluded that the Appellant substantially changed his explanations during the investigation, providing inconsistent and fabricated evidence, including suspicious sale agreements and Chartered Accountant certificates.
Our Analysis
This case underscores the seriousness of unauthorised foreign transactions and strongly reaffirms the stringent statutory stance against such offences. The Tribunal addressed two primary issues: first, whether there was a contravention of ss. 3(a), 3(c), and 8 of FEMA; and second, whether the Appellant’s explanation for the source of the seized currencies had any merit. The Tribunal concluded that the Appellant was involved in hawala transactions, and the defence arguments were clearly an afterthought, not supported by material evidence.
The Tribunal’s observations on the Appellant’s conduct redefines the ambit of ‘beyond all reasonable doubt’ in cases of this nature. This judgment highlights the importance of transparency and accountability in financial transactions and serves as a deterrent against unauthorised dealings in foreign exchange. The Tribunal’s reliance on initial admissions and the requirement for consistent, credible documentation sets a precedent for similar cases, emphasising the need for clear and honest financial practices.
End Note
[i] [2024] 165 taxmann.com 159 (SAFEMA - New Delhi).
Authored by Shivangi Bhardwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions