Smt. Raman Bala Vs Joint Director (Appellate Tribunal under SAFEMA, New Delhi)
A Surname on Third-Party Loose Sheets Is Not Enough to Prove FEMA Contravention; Directorship Alone Does Not Establish Liability
Background of the Dispute
M/s. Shukla Forex Pvt. Ltd., an RBI-licensed money-changing company, its Managing Director Mohinder Pal Shukla, and two other directors challenged penalties imposed by the Enforcement Directorate under sections 3(d), 10(4) and 42 of FEMA, 1999.
The proceedings originated from searches conducted at the premises of persons allegedly engaged in hawala transactions. Documents recovered from one such person, Jeevan Kumar alias Happy, contained entries against the name “Shukla”. A subsequent search at the appellants’ premises yielded additional documents and foreign currency.
The allegations comprised transactions of ₹4,08,01,515 based on third-party documents, further transactions of ₹43,45,260 based on documents recovered from the appellants, and foreign-currency purchases of ₹1,53,74,072.10 allegedly made contrary to RBI requirements.
The Tribunal examined these allegations separately and granted substantial, though not complete, relief.
Third-Party Entries Required a Reliable Link to the Appellants
The largest allegation rested on loose sheets seized from Jeevan Kumar’s premises. These recorded figures against the surname “Shukla”, without an address or other identifying particulars.
The appellants disputed the assumption that these entries referred to Mohinder Pal Shukla. They also challenged reliance on his statements without corroborating evidence identifying the underlying transactions and beneficiaries.
The Tribunal examined section 39 of FEMA, concerning presumptions relating to documents tendered in proceedings. It noted that Jeevan Kumar was neither a co-noticee nor shown to have been proceeded against jointly with the appellants.
In those circumstances, the Tribunal held that the third-party sheets could not support the disputed penalty in the manner adopted by the adjudicating authority.
It further held that the surname alone did not identify the appellant, and that his solitary statement, without corroborative evidence, was insufficient to establish the alleged transactions of ₹4,08,01,515. This component of the charge was therefore deleted.
Documents Recovered From the Appellants Produced a Different Result
The Tribunal upheld the separate allegation involving ₹43,45,260, based on documents recovered from the appellants’ own premises. These contained particulars of telegraphic transfers, currencies, amounts, names and mobile numbers.
The appellants contended that they merely referred customers to HDFC Bank and earned commission when transactions materialised.
However, they failed to produce documentary evidence connecting the entries with transactions lawfully processed through the bank. The Tribunal found that a general explanation concerning referrals could not resolve the specific transactions recorded in the seized documents.
Accordingly, the company and its Managing Director were held liable under section 3(d), read with section 42 where applicable.
Unrecorded Foreign-Currency Purchases Upheld
The Tribunal also sustained the finding concerning ₹1,53,74,072.10 of foreign-currency purchases under section 10(4).
The allegation was supported by comparisons between seized transaction records, the prescribed returns and the foreign currency physically recovered. These revealed differences between recorded purchases and stock positions.
The appellants attempted to explain the stock discrepancy by suggesting that purchases had occurred after the search. The Tribunal rejected this explanation, noting that the search concluded at 8:35 p.m., Indian currency of ₹23 lakh had already been seized, and the Managing Director had stated that no foreign currency was purchased thereafter.
No documentary evidence was produced to displace the Enforcement Directorate’s calculations. The Tribunal consequently confirmed the contravention and confiscation of foreign currency equivalent to ₹28,43,322.
Nominal Directors Were Exonerated
The other two appellants, Amit Shukla and Raman Bala, contended that they did not manage the company’s day-to-day affairs.
The Tribunal examined section 42, distinguishing responsibility for conducting the company’s business from liability arising through consent, connivance or neglect.
The Enforcement Directorate had not rebutted their claimed non-involvement or established the circumstances necessary to impose liability under section 42(2). The Tribunal found that the business was actively managed by Mohinder Pal Shukla and that the other directors held their positions nominally.
Both were therefore exonerated of the charges and penalties.
Substantial Reduction in Penalties
For the company, the penalty under section 3(d) was reduced from ₹75 lakh to ₹4.50 lakh, while the section 10(4) penalty was reduced from ₹30 lakh to ₹3 lakh.
For the Managing Director, the corresponding penalties were reduced from ₹45 lakh and ₹20 lakh to ₹1 lakh each.
Thus, the surviving aggregate penalties became ₹9.50 lakh, apart from the confirmed confiscation. The company’s and Managing Director’s appeals were partly allowed; the other directors’ appeals were allowed completely.
Author’s Comments
The order illustrates why each evidentiary component must be tested independently. Failure to establish the largest allegation did not invalidate the transactions supported by separate documents recovered from the appellants themselves.
The section 39 conclusion should also be read in its factual setting. The Tribunal relied on the absence of joint proceedings against the third party, inadequate identification and lack of corroboration. It should not be presented as a universal prohibition against using third-party material.
On directors’ liability, the decisive consideration was actual responsibility or established involvement, rather than designation alone. Educational qualifications and family relationships do not themselves confer immunity.
For practitioners, the practical lesson is equally clear: a bank-referral explanation requires transaction-wise documentary support. A plausible explanation becomes an effective defence only when the records substantiate it.
FULL TEXT OF THE ORDER OF APPELLATE TRIBUNAL UNDER SAFEMA
