The Delhi High Court has delivered a significant ruling that narrows the investigative leeway of the Enforcement Directorate , establishing a strict procedural requirement for the agency when prosecuting alleged violations of the Foreign Exchange Regulation Act . In a decision handed down by a Division Bench comprising Justice Navin Chawla and Justice Ravinder Dudeja, the court held that the Department must independently establish a prima facie case—proving that an individual engaged in an act requiring specific authorization—before the burden of proof can shift to the accused party.

This development follows the dismissal of a government appeal against the Foreign Exchange Appellate Tribunal , which had previously vacated an adjudication order against Laxman T. Advani. The case originated from a series of Enforcement Directorate searches conducted on April 23, 1985 , at the residential and business premises of Mr. Advani. During these operations, the agency claimed to have seized ₹1.75 lakh in Indian currency along with several loose sheets of paper. Following initial statements taken over two days, in which the agency claimed Mr. Advani admitted to buying and selling foreign exchange at rates unauthorized by the Reserve Bank of India , the accused formally retracted those statements on April 26, 1985 , citing lack of voluntariness.

Scrutinizing the Recovery Proceedings Central to the High Court’s ruling was the agency’s failure to substantiate the very inception of its recovery operations. Despite issuing summons to the independent witnesses, or "panch" witnesses, associated with the 1985 search, the Enforcement Directorate failed to produce them before the adjudicating authority. The court noted that the official panchnama contained accounts of witnesses attempting to dispose of currency and fleeing the scene, yet none of these individuals were presented to testify or authenticate the recovery process.

"The very inception of the case of the appellant, therefore, has not been proved," the court observed, highlighting the precarious nature of the evidence presented by the Department. Beyond the procedural failures surrounding the search, the court addressed the broader question of whether the mere possession of currency constitutes evidence of illicit foreign exchange dealings. Even if the court were to accept that the ₹1.75 lakh was indeed recovered from the residence, the judges ruled that possession alone does not bridge the gap between liquid assets and illicit foreign exchange sales.

Mr. Advani provided documentation to counter the agency’s claims, including bank statements revealing withdrawals totaling approximately ₹2 lakh in the six-month period preceding the search, along with cash books reflecting ₹1.99 lakh in cash-in-hand. The court found this contemporaneous financial documentation provided a credible, reasonable explanation for the money held, thereby undermining the Department’s speculative assertions that the cash was derived from prohibited transactions.

The Limits of Loose Evidence and Statutory Presumptions The Enforcement Directorate ’s case further faltered on its reliance upon loose sheets of paper recovered during the search, which the agency attempted to use to prove unauthorized dealings. Drawing on established legal precedents, including the Supreme Court ’s interpretation in the case of Central Bureau of Investigation v. V.C. Shukla , the High Court held that such loose sheets do not constitute books of account. Consequently, the entries contained within them are inadmissible as substantive evidence under Section 34 of the Indian Evidence Act, 1872 .

The court specifically rejected the notion that Section 72 of the Foreign Exchange Regulation Act could override the admissibility requirements of the Indian Evidence Act. While Section 72 provides for certain presumptions regarding documents, the High Court clarified that this provision cannot serve as a mechanism to transform otherwise inadmissible entries into valid proof.

Clarifying the Burden of Proof under Section 71 The primary legal controversy addressed by the bench centered on the interpretation of Section 71 of the Foreign Exchange Regulation Act , which defines how the burden of proof shifts in cases involving unauthorized acts. The Department had argued that once an allegation of a contravention is made, the onus lies on the accused to prove they possessed the requisite permissions.

The High Court rejected this expansive interpretation, ruling instead that the statutory shift in burden is conditional rather than absolute. "A reading of the above provision shows that where the Department alleges contravention of any provision of FERA or any rule, direction, or order made thereunder which prohibits any person from doing an act without permission, the burden of proving that he had the requisite permission shall be on such person," the Bench noted, adding the critical qualification: "However, to attract the said provision, the initial burden of proving that such person has committed an act which requires the permission of the Department lies on the Department itself."

Furthermore, the court scrutinized the status of the retracted statements provided by Mr. Advani during the 1985 investigation. Relying on standards set forth in previous Supreme Court rulings, the bench held that adjudicating authorities must satisfy themselves that a statement was made voluntarily before assigning it evidentiary weight. In the absence of corroborative material independent of the statements themselves, the court concluded that the Department could not rely on the retracted admissions to establish a violation.

By upholding the order of the Foreign Exchange Appellate Tribunal , the High Court has reaffirmed that the Enforcement Directorate must satisfy a rigorous evidentiary threshold before demanding that an individual defend their financial activities. The ruling serves as a check on administrative discretion, ensuring that the investigative machinery of the state operates within the established confines of the law of evidence and due process . The appeal filed by the Union government stands dismissed, effectively closing the decades-old dispute.