P. Rosu Reddy Vs Directorate of Enforcement (Appellate Tribunal Under SAFEMA Delhi)
Hawala Import Payments Attract FEMA, But Penalty Must Be Proportionate: SAFEMA Tribunal Slashes ₹23 Cr to ₹7 Cr & Quashes Cash Confiscation
The Appellate Tribunal for SAFEMA, New Delhi in Shri P. Rosu Reddy vs. Directorate of Enforcement, Chennai (FPA-FE-17/CHN/2022, final order dated 10-12-2025) partly allowed the appeal by substantially reducing FEMA penalties and setting aside confiscation of seized cash, while upholding the contraventions on merits.
The Assessee was found to have imported used photocopier machines from the USA by undervaluing invoices, paying only 40% through banking channels and routing the balance 60% via hawala, in clear contravention of section 3(d) of FEMA, 1999. He admitted to such modus operandi in statements recorded u/s 37 of FEMA, involving payments aggregating to about ₹7 crore through non-banking channels. The Adjudicating Authority had imposed a penalty of ₹23 crore for this contravention, along with ₹50 lakh each for violations of sections 3(a) & 4 (dealing in foreign exchange abroad) and section 8 r.w. Regulations 3 & 7 (failure to realise and repatriate foreign exchange), and also confiscated ₹13.50 lakh cash found during search.
The Tribunal held that the contraventions under FEMA were clearly established and were not seriously disputed, but found the penalty of ₹23 crore to be grossly disproportionate to the amount actually involved. Applying the principle of proportionality, the Tribunal reduced the penalty u/s 3(d) from ₹23 crore to ₹7 crore. Similarly, penalties of ₹50 lakh each imposed for violations of sections 3(a) & 4 and section 8 were reduced to ₹25 lakh each, considering that the foreign exchange involved was only 50,000 Singapore Dollars.
On confiscation, the Tribunal accepted the Assessee’s plea that mere possession of ₹13.50 lakh cash, without any nexus to hawala or FEMA contravention, cannot justify confiscation. Since ED failed to establish that the seized cash was involved in or derived from the contravention, the confiscation order was set aside.
Accordingly, the appeal was partly allowed—penalties were scaled down to proportionate levels, confiscation was quashed, and the balance penalties were directed to be adjusted against amounts already deposited
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
