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2025 Supreme(Online)(ATFP) 13130
APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Balesh Kumar, Member, Rajesh Malhotra, Member
Shri M. V. Swabhanu Proprietor of M/s Mithra Electronics – Appellant
Versus
The Joint Director Directorate of Enforcement Bangalore – Respondent
FPA-FE-64/BNG/2015
For the Appellants/Petitioners: S. Narendra Kumar, Rajani N. Kumar
For the Respondents: Pranav Mishra
Retracted statements corroborated by independent evidence can be relied upon under FEMA; penalty for civil contravention does not require mens rea; digital evidence admissible under FEMA rules despite non-compliance with Evidence Act.
Headnote:(A) Foreign Exchange Management Act, 1999 - Section 3(d) and Section 13(1) - Foreign Exchange Management (Adjudication Proceedings And Appeals) Rules, 2000 - Rule 4(5) - Indian Evidence Act, 1872 - Section 65B - Retracted statement - Admissibility - Corroboration - Mens rea - Civil obligation - Penalty - Under-valuation of imports - Customs proceedings - Independence of FEMA proceedings - Cross-examination - Natural justice - Digital evidence - Presumption under Section 39 of FEMA.
(B) Retracted confession - Reliance - Principles - A retracted statement can be acted upon if it is voluntary and substantially corroborated by independent evidence - The authority must apply its mind to the retraction and reject it in writing - Merely because a statement is retracted, it cannot be regarded as involuntary. (Paras 4, citing Vinod Solanki and K.T.M.S. Mohamed)
(C) Digital evidence - Admissibility - Under Rule 4(5) of FEMA Adjudication Rules, the Adjudicating Authority is not bound by the Indian Evidence Act - Further, Section 39 of FEMA presumes the truth of contents of documents seized from the custody of a person - Hence, non-compliance with Section 65B of Evidence Act does not render such evidence inadmissible. (Paras 5)
(D) Cross-examination - Denial of - Where documents are disclosed to the party and opportunity given to rebut, refusal to permit cross-examination of witnesses producing documents does not violate principles of natural justice unless prejudice is demonstrated. (Para 6, citing Telestar Travels) (E) Penalty for civil obligation - Mens rea not required - Under Section 13(1) of FEMA, penalty is attracted as soon as contravention of statutory obligation is established - Intention of the party is irrelevant - The case of Hindustan Steel Ltd. vs. State of Orissa pertains to criminal/quasi-criminal proceedings and is not applicable to civil penalties under FEMA. (Paras 8, 9, citing SEBI vs. Shriram Mutual Fund and MCTM Corporation) (F) FEMA proceedings independent of Customs - Even if no proceeding under the Customs Act, 1962 is initiated, that does not vitiate proceedings under FEMA - Both are independent and self-contained. (Para 7, citing Natwar Singh)
Facts of the case:
Search of business premises of an individual on 22.01.2010 led to recovery of cash and loose sheets. Subsequently, premises of the appellant were searched on 23.01.2010, recovering documents, loose sheets, and email copies. The appellant in statements admitted to under-valuation of imports and transferring differential value through the said individual. Another individual corroborated the details. Both later retracted. The Adjudicating Authority imposed a penalty of Rs. 1,10,00,000/- for contravention of Section 3(d) FEMA. The appellant challenged the order on grounds of retraction, lack of corroboration, inadmissibility of digital evidence, denial of cross-examination, and absence of Customs proceedings.
Findings of Court:
The Tribunal held that the retracted statements were corroborated by documents and other statements, and the authority had applied its mind to the retraction. Digital evidence was admissible under FEMA provisions. Denial of cross-examination did not cause prejudice. Mens rea is not required for penalty under FEMA. Customs proceedings are independent. However, considering the appellant's economic condition and seizure of cash, the penalty was reduced from Rs. 1,10,00,000/- to Rs. 10,00,000/-, and the seized amount of Rs. 4,00,000/- was ordered to be released.
Issues: (i) Whether the retracted statements of the appellant and another person can be relied upon in the absence of independent corroboration? (ii) Whether digital evidence (emails, computer printouts) is admissible without compliance with Section 65B of the Evidence Act? (iii) Whether denial of cross-examination of officers violated natural justice? (iv) Whether penalty under FEMA requires proof of mens rea? (v) Whether absence of Customs proceedings for under-valuation invalidates FEMA proceedings?
Ratio Decidendi: The court relied on the principle that retracted statements are admissible if corroborated by independent evidence and the authority has considered the retraction. Under FEMA, the adjudicating authority is not bound by the Evidence Act and can admit digital evidence seized from the appellant's custody. Cross-examination is not mandatory if documents are disclosed and no prejudice shown. Penalty for civil contraventions under FEMA does not require mens rea. FEMA proceedings are independent of Customs proceedings.
Result: Appeal partly allowed. Penalty reduced to Rs. 10,00,000/-. Pre-deposit adjusted. Seized amount of Rs. 4,00,000/- to be released to the appellant. (Paras 10, 11)
FINAL ORDER
27.11.2025
This Order disposes of the Appeal No. FPA-FE-64/BNG/2015 filed by Shri M. V. Swabhanu Proprietor of M/s Mithra Electronics against the Order No. JD/01-BZ/2015-16/FEMA/JD(JK)/579 dated 25.06.2015 (Impugned Order), passed by the Joint Director, Enforcement Directorate, Government of India, Bangalore. Penalty of Rs. 1,10,00,000/- was imposed on the Appellant Shri M. V. Swabhanu, vide the Impugned Order for the contravention of Section 3 (d) of the Foreign Exchange Management Act, 1999 (FEMA).
2. Ld. Counsel for the Appellant argued that the Impugned Order has been passed contrary to facts and to evidence. He stated that the allegation relating to the Hawala transfer of funds abroad by the Appellant is based upon the surmise and conjecture of the Respondent Directorate that the Appellant indulged in under valuation of imports. Ld. Counsel stated that no proceeding was initiated by the Customs Department. Moreover, the Appellant has relied upon the evidence of the values of the contempourneous imports in this regard. The Appellant has filed an affidavit dated 14.11.2025 as permitted by the Tribunal, which clearly shows that the imports made by the Appellant were at higher unit price than the unit price of the contemporaneous imports. Ld. Counsel further argued that the statements tendered by the Appellant have been retracted. The grounds for rejection of the retractions in the Impugned Order are incorrect and baseless. The Ld. Adjudicating Authority (AA) has inferred from the statements of the Appellant which were taken under coercion. Moreover, no independent document was produced as evidence to corroborate the statements. Ld. Counsel contended that the reliance upon the E-mail communication between the Appellant and the foreign buyer is incorrect as there is no mention that it relates to imports of goods by the Appellant. Ld. Counsel for the Appellant has further argued that the evidence recovered from the electronic record like computer printout, CDs and pen drive etc. cannot be used since no compliance has been made to the provisions of Section 65 (B) of the Evidence Act 1872. Ld. Counsel for the Appellant stated that the cross examination was sought of certain Officers of the Respondent Directorate. However, no such opportunity was granted. In this regard, he cited the Judgment in the case of M/s Telestar Travels Pvt. Ltd. vs. Special Director of Enforcement [(2013) TOIL-17-SC-FEMA]. Ld. Counsel submitted that no penalty is imposable in view of the Apex Court decision in Hindustan Steel Ltd. vs. State of Orissa [(1978) ELT J159 (SC)]. He pleaded that if in case Appeal is decided against the Appellant the penalty may be reduced, in view of the economic condition of the Appellant. Ld. Counsel for the Appellant therefore pleaded to allow the Appeal.
3. Ld. Counsel for the Respondent stated that on 22.01.2010 the business premises of Shri Ramakrishna Setty viz M/s R. K. Enterprises was searched. Besides recovery of Rs. 20,00,000/-, bunch of loose sheets were also seized. Shri Ramakrishana Setty in his statement admitted that at the instance of one Shri Selvam of Malaysia, he would receive Indian Currency from unknown persons for distribution to certain persons in India. Consequently, residential and business premises of the Appellant were searched on 23.01.2010. During the search certain documents, loose sheets and copy of E-mail were recovered and seized. The Appellant in statement dated 23.01.2010 stated that he resorted to under valuation of goods imported by him as to overcome the competition in the domestic market. He also stated that he transferred funds abroad equivalent to differential value through Shri Ramakrishna Setty. He admitted that he would communicate with Shri Setty on his mobile number. He also admitted that the invoices of the goods imported were made by the Chinese suppliers as per his instructions. Shri Ramakrishna Setty in his statement dated 23.01.2010 explained the details of receipt a
