ED Must First Prove FERA Violation Before Shifting Burden Of Proof To Accused: Delhi High Court

The Delhi High Court has ruled that the Enforcement Directorate must first establish that a person committed an act requiring permission under the Foreign Exchange Regulation Act (FERA) before the burden shifts to that person to prove they had the requisite permission.

A Division Bench of Justice Navin Chawla and Justice Ravinder Dudeja held that the Department had failed to prove that Laxman T. Advani had dealt in foreign currency.

The court dismissed the Union government's appeal against the Foreign Exchange Appellate Tribunal's order setting aside the adjudication order that imposed penalties on Advani.

Referring to Section 71 of FERA, which deals with the burden of proof in certain cases, the court observed, “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.”

“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,” the court added.

The case arose from searches conducted by the Enforcement Directorate at Advani's residential and business premises on April 23, 1985. The Department alleged that it recovered ₹1.75 lakh in Indian currency and loose sheets of paper from his residence, along with additional loose sheets from his business premises.

Statements recorded on April 23 and 24, 1985, allegedly contained admissions that Advani had bought and sold foreign exchange at rates different from those prescribed by the Reserve Bank of India. He also allegedly admitted that the seized currency represented proceeds from foreign exchange sales. Advani retracted the statements on April 26, 1985.

A show-cause notice issued on June 25, 1986, alleged violations of Sections 8(1) and 8(2) of FERA. Advani denied the allegations in his reply, maintaining that the recovered money was his cash-in-hand. He produced his account books and bank statements in support.

The adjudicating authority rejected his explanation and imposed penalties of ₹10 lakh each for the two alleged violations. It also ordered the confiscation of the ₹1.75 lakh.

The appellate tribunal subsequently set aside the adjudication order, prompting the Union government to approach the High Court.

The court found serious doubts about the alleged recovery. The Department had failed to produce the panch witnesses before the adjudicating authority despite summons being issued.

The panchnama recorded that one panch witness threw the bag containing the currency out of a window and tried to flee with part of the money. Another panch witness also ran away from the scene. Neither was examined to establish the recovery proceedings or the contents of the panchnama.

“The very inception of the case of the appellant, therefore, has not been proved,” the court observed.

Even assuming the currency had been recovered from Advani's residence, the court held that possession of the money alone did not establish that it came from foreign exchange sales.

Advani had produced bank statements showing withdrawals of about ₹2 lakh in the six months preceding the search. His cash book also recorded ₹1.99 lakh as cash-in-hand. The court found that these records provided a reasonable explanation for the money.

The court also rejected the Department's reliance on the loose sheets. Relying on the Supreme Court's ruling in Central Bureau of Investigation v. V.C. Shukla, it held that loose sheets were not books of account and that their entries were inadmissible under Section 34 of the Indian Evidence Act, 1872.

The court further held that Section 72 of FERA, which provides for presumptions concerning certain documents, could not make the loose sheets admissible when their entries were inadmissible under Section 34 of the Evidence Act.

The court also examined Advani's retracted statements. Relying on the Supreme Court's ruling in Telstar Travels Private Limited, it observed that an adjudicating authority or court must consider a retraction and satisfy itself that the statement was made voluntarily before relying on it.

The court added that a retracted statement must also be corroborated. In this case, the tribunal had found no material showing that Advani's statement was voluntary. The High Court also noted that no evidence apart from the statement itself corroborated it.

Holding that the Department had failed to prove the alleged foreign exchange dealings, the Bench ruled that Section 71 of FERA could not be invoked to shift the burden of proof onto Advani. It dismissed the Union government's appeal, upholding the tribunal's order setting aside the adjudication order.

For the Appellant: Annirudh Sharma, Advocate

For the Respondent: .Pavan Narang, Sr. Advocate with Himanshu Sethi, Aishwarya Chhabra & Kamal Nayan