Delhi High Court
S.K. Jain vs Union Of India on 29 May, 2014
Author: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
CRL.A. 340 of 2008
Reserved on: May 21, 2014
Decision on: May 29, 2014
S.K. JAIN ..... Appellant
Through: Mr. H.S. Bhullar, Advocate.
versus
UNION OF INDIA & ANR .... Respondents
Through: Mr. Ashok Panda, Senior Advocate
with Mr. Naveen Kr. Matta, Advocate.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
29.05.2014
1. This appeal under Section 35 of the Foreign Exchange Management
Act 1999 ('FEMA') read with Section 54 of the Foreign Exchange
Regulation Act, 1973 („FERA‟), is an off-shoot of the 'Jain Hawala
Diaries' case which ended in the quashing of the criminal proceedings
as a result of the judgment of the High Court upheld by the Supreme
Court in Central Bureau of Investigation v. V.C. Shukla (1998) 3
SCC 410 [hereinafter referred to the V.C. Shukla case].
2. The present proceedings which emanated under FERA are stated to
stand on a different footing, not affected by the closure of the criminal
proceedings since FERA is a complete code in itself.
The Background
3. The background to the present appeal is that the Central Bureau of
Investigation („CBI‟) searched the residential and office premises of
Mr. J.K. Jain on 3rd and 4th May 1991 under FIR No. RC 5(S)/91-
SIU(V) dated 20th April 1991. Besides, recovery of some Indian and
foreign currencies, some documents were recovered. The documents
included two spiral note books (marked MR 68/91 and MR 71/91),
two small spiral pads (marked MR 69/91 and MR 70/91) and two
files, each containing some loose sheets of papers (marked MR 72/91
and MR 73/91). MR-71/91 was considered to be the main 'mother'
diary as far as the criminal proceedings were concerned. In the FERA
proceedings MR 71/91 was marked as MR 209/93 and MR 77/91 was
marked as MR 207/93.
4. The CBI registered FIR No. RC 1(A)/95 ACU (VI) on 4th March
1995 against Mr. S.K. Jain and Mr. J.K. Jain, the Appellants herein
and certain others for the offence both under the Prevention of
Corruption Act, 1988 („PCA‟) as well as FERA. The FIR stated that
the entries in the diaries revealed that payments to 119 persons
through hawala channels "were partly explained by the accused S.K.
Jain who is the master of the said documents and the employer of the
accused J.K. Jain who had maintained the documents in his own
handwriting in the coded words and figures." The total amount
disbursed was estimated to be about Rs. 65.47 crores during the years
1985 to 1991. It was stated that the major part of the above amount,
i.e., Rs.53.5 crores (approx) had been transferred to a number of
named persons illegally through hawala channels and that this
constituted an offence under Section 56 read with Section 8 (1)
FERA. The FIR further stated that in relation to the alleged payment
through hawala channels "a report of the SP has been sent to the
Directorate of Enforcement who are the competent authority to file the
statutory/complaints under the provisions of FERA 1973. It has been
recommended to the Directorate of Enforcement to launch prosecution
case against 15 persons who were found to have violated the
provisions of FERA 1973." Letters were also stated to have been sent
to the Income Tax and Customs Departments for appropriate legal
action under the concerned statutes.
5. Two of the show cause notices („SCNs‟) issued by the Enforcement
Directorate („ED‟) as a consequence of the above FIR form the subject
matter of the present appeal. The first is SCN No. IX dated 19th
February 1996 which pertained to the mother diary, i.e. M-209 of
1993. Preceding the issuance of the SCNs the statements of both Mr.
J.K. Jain and Mr. S.K. Jain were recorded by the ED under Section 40
of FERA. Mr. S.K. Jain was questioned on 14th, 20th, 25th April
1995 and 4th October 1996 and Mr. J.K. Jain was questioned on 17th,
20th April 1995, 21st November 1995, 8th January 1996, 17th June
1996 and 10th July 1996.
The statement of S.K. Jain
6. As far as Mr. S.K. Jain is concerned, on 14th April 1995 he was
shown a photocopy of the diary marked MP-209/93, i.e., the mother
diary, and asked whether he had made any statement in relation
thereto before the CBI on 11th March 1995. He then gave the
following reply:
"I am accused already. Hence it is incriminating to me. I
further state that I had been interrogated in CBI and
whatever I was knowing about these documents. I have
explained the same in my statements before CBI even
when I was in police remand after 4th March 1995. I
have already been made accused by CBI vide their FIR
dated 4th March 1995 and now have the protection of
Article 20 (3) of the Constitution. I will not make any
statement which incriminates me."
7. Mr. S.K.Jain was then asked a specific question that page 1 in the
reverse side of diary marked M-209/93 seized by the CBI on 3rd May
1991 contained the details regarding conversion of foreign exchange
into Indian rupees at hawala rates. He replied: "I am already an
accused and I have the protection of Article 20 (3). Since this question
incriminates me I will not answer the question."
8. Mr. S.K. Jain stated that Mr. J.K. Jain was still his employee and
that he had never cheated or misappropriated the funds. On 20th and
25th April 1995 Mr. S.K. Jain declined to make any statement
invoking the protection under Article 20 (3) of the Constitution.
9. Chargesheet No. 4 was filed by the CBI in the criminal court on
16th January 1996 and Chargesheet No. 8 on 23rd January 1996. The
subject matter of both chargesheets was the offence under the PCA
and not FERA. Effectively therefore, the FERA proceedings got
separated.
10. Mr. S.K. Jain was again questioned on 4th October 1996. This
time he did not invoke Article 20 (3) of the Constitution. On that date
he was shown the photocopy of the planner diary (Ex.M-207/93)
stated to be containing 20 conversion details. When he was asked to
explain, he stated: "I have no knowledge about these calculations.
These are not written by me." He was then confronted with the
statement made by Mr. J.K. Jain on 10th July 1996 and 5th August
1996 under Section 40 of FERA where he stated that he used to write
many things in the diary as per instructions of Mr. S.K. Jain. He
replied stating "I have knowledge and idea of those calculations which
were written by J.K. Jain." The attention of Mr. S.K.Jain was drawn to
one specific calculation on 9th October in the said seized diary and he
was asked whether it reflected the conversion of rupees into US
dollars. He stated that he had no knowledge about these entries. He
was then asked whether Mr. V.K. Beri whose name was written under
the date 9th October was the landlord of G-36, Saket, New Delhi
which was taken on rent by his company where Mr. J.K. Jain was
residing. He replied:
"I have never met Mr. Beri and I cannot say anything
about this, Companies as routine has taken several houses
on rent for the employees and I do not remember the
names of landlords."
11. The attention of Mr. S.K. Jain was further drawn to the other
entries and he stated that he did not know anything as they were not
written by him.
The statement of J.K. Jain
12. On his part, Mr. J.K. Jain in his statement under Section 40 FERA
made on 17th April 1995 stated that the details in the said diaries and
spiral pads were written from time to time as per the instruction of Mr.
S.K. Jain, his employer. On 17th April 1995 he was shown the mother
diary and the entries therein and asked to explain "the details of
conversion of foreign exchange into Indian Rupees at hawala rates."
He took the plea that he had protection under Article 20 (3) of the
Constitution and stated that he would not reply. When asked to give
details of the amounts received by him under instructions from
abroad, he again invoked the protection under Article 20 (3) of the
Constitution.
13. He maintained the above stand on 20th April 1995 and 21st
November 1995 as well as on 8th January 1996. On 10th July 1996
when he was shown the photocopy of the planner diary and his
attention was drawn to the entry under 9th October and certain
calculations written under the name V.K. Beri, Credit Susse Rue
Versonnex 11 1211 Geneva-3 A/c No. 105116-92-1 and asked to
explain he stated as under:
"I have seen photocopy of the aforesaid page of my diary
of 1989 and have put my dated signatures today on the
same in token of having seen the same. These are written
in my hand. At present I do not recollect in what context
the said calculations were written by me since I used to
write many things in the diary as per instructions of my
employer (Mr. S.K. Jain)."
14. Mr. J.K. Jain stated that he could not confirm whether it was the
same Mr. V.K. Beri whose name appeared allegedly in the diary who
was his landlord but he confirmed that the said house was purchased
by him and his wife from one Mr. V.K. Beri in the year 1992-93.
When asked about the entries thereunder, he stated that he himself
wrote as per the instruction of the employer and also "I do not
recollect the nature of the calculation and why it has been written."
When he was shown another specific entry, he reiterated that "I have
no knowledge of the above calculations and it relates to what I am not
able to recollect. I used to write many things as per instruction of my
employer in the diary. This I might have written as per instruction of
Sh. S.K. Jain."
Show Cause Notice No. IX
15. SCN No. IX dated 14th February 1996 issued by the ED to Mr.
S.K. Jain and Mr. J.K. Jain pertained to one entry on the reverse of
page 1 of the mother diary which reads: „At Dubai 1.90 Jan 89‟. On
the basis of the above entry it was alleged that Mr. S.K. Jain had
otherwise acquired foreign exchange equivalent to Rs.1,90,000 at
Dubai from persons not being authorized dealers in foreign exchange
and that he failed to surrender the said foreign exchange to an
authorized dealer thereby contravening Section 8 (1) and 14 of FERA.
It was further alleged that Mr. J.K. Jain and Mr. S.K. Jain had abetted
the Appellant in the commission of the above contraventions. The
documents relied upon as far SCN IX was concerned included the
statements under Section 40 FERA of Mr. S.K. Jain and Mr. J.K.Jain.
Show Cause Notice No. XVIII
16. As far as SCN No. XVIII dated 6th November 1996 was
concerned, the subject matter was the personal diary of Mr. J.K. Jain
for the calendar year 1989 seized by the CBI from his chamber in
Bhilai Engineering Corporation Limited, New Delhi where he was
employed. A reference was made to the entry under 9th October 1989
which read as under:
"Mr. V.K. Beri
CREDIT - SUISSE
RUE VERSONNEX. 11
1211 GENEVA -3.
A/C No. 105116-92-1
6 Lac @ 20.50 29268.29
[email protected]= 5082.35
Paid in 84
72000/- divided by 11/- (6545)."
17. The specific allegations in the said SCN XVIII were that both
Mr. S.K. Jain and Mr. J.K. Jain otherwise acquired foreign exchange
equivalent to US$ 29,268.29 (equivalent to Rs. 6 lakhs @ Rs. 20.50
per US$), US$ 5082.35 (equivalent to Rs.17 per US$) and US$ 6545
(equivalent to Rs. 11/- per US$) in all totalling to US$ 40,895.64
equivalent to Rs. 7,58,400 during the period 1984 to October 1989,
"from persons not being authorized dealers in foreign exchange and
otherwise transferred the said foreign exchange to wit US$ 40,895.65
to Shri V.K. Beri, a person not being authorized dealer in foreign
exchange." It was further alleged that the transactions involved
conversion of Indian rupees into foreign exchange at rates of
exchange other than the rates for the time being authorized by RBI.
The aforesaid amounts of foreign exchange, to wit US$ 29,268.29 +
5082.35 + 6545 totalling US$ 40,895.64 (equivalent to Rs. 7,58,400)
were paid to Shri V.K. Beri r/o 33 - Chamber Crescent, Harrow
Middlesex, U.K., a person resident outside India.
18. On the basis of the above allegations, it was alleged that both
Mr. J.K. Jain and Mr. S.K. Jain had contravened Section 8 (1), 8 (2)
and 9 (1) (a) of FERA. The relied upon documents included the
statements recorded under Section 40 FERA of both Mr. S.K. Jain and
Mr. J.K. Jain.
The V.C. Shukla Case
19.1 An important development that took place even while the
adjudication on the above SCNs were pending, was that on 8th April
1997 the Delhi High Court reversed the order of the trial Court which
held that a prima facie case had been made against the accused in the
two charge sheets after holding that documents relied upon by the
prosecution were admissible in evidence under Section 34 of the
Indian Evidence Act, 1872 („IEA‟).
19.2 The above order was taken up in appeal by the CBI to the
Supreme Court. In the judgment dated 2nd March 1998 in the V.C.
Shukla case, the order of the High Court was affirmed by the
Supreme Court. It was held that two spiral notebooks Ex. MR 68/91
and MR 71/91 (marked M-209 of 2013 under FERA proceedings) and
two spiral pads Ex.MR-69/91 and Ex.MR 70/91 were „books of
account‟ within the meaning of Section 34 IEA, but not the loose
sheets of papers contained in the two files. It was further held that "the
activities of the Jain brothers, as sought to be projected by the
prosecution now on the basis of the materials collected during
investigation (detailed earlier) would, therefore, be 'business' for they
were being carried on continuously in an organized manner, with a set
purpose (be it illegal) to augment their own resources. MR-71/91 is,
therefore, a book of account kept in the course of business." It was
further held that MR-71/91 had been regularly and systematically
maintained. However, it was added:
"whether the system in which the book has been
maintained guarantees its correctness or trustworthiness
is a question of its probative value and not of its
admissibility as a relevant fact under Section 34. The
other three books, namely MR 68/91, MR69/91 and
MR70/91 would not however come within the purview of
the above section, for, even though some of the monetary
transactions entered therein appear to be related to those
in MR71/91, they (the three books) cannot be said to be
books of account regularly kept. We need not, however,
at this stage consider whether the entries in these three
books will be relevant under any other provisions of
Chapter II of the Act."
19.3. The Supreme Court further held that the statements of the four
witnesses who had admitted receipt of the payments as shown against
them in MR 71/91, could at best be proof of the reliability of the
entries so far as they were concerned and not others. The above
conclusion was based on the principle that even correct and authentic
entries in books of account cannot without independent evidence of
their trustworthiness, fix a liability upon a person. It was held that the
entries in the diaries "as against Jains" "may be proved as admissions
under Section 18 read with Section 21 of the Act (IEA)" provided
they relate to "any fact in issue or relevant fact". Needless to say, what
will be "facts in issue" or "relevant facts" in a criminal trial will
depend upon, and will be delineated by, the nature of accusations
made or charges levelled against the person indicted."
The Adjudication Order
20. By the common adjudication order („AO‟) dated 7th November
2001 the Special Director („SD‟), ED disposed of both SCNs IX and
XVIII. The findings in the AO could be summarized as under:
(a) Diary, M207/93 was maintained by Mr. J.K. Jain as per the
instruction of the employer, Mr. S.K. Jain and therefore, the diary
related to both of them. The entries were not deliberately explained by
Mr. J.K. Jain. If one looked into the diary, "there remains no doubt
that this diary contained details of monetary transactions."
(b) Since neither Mr. J.K. Jain nor Mr. S.K. Jain could be considered
legally as being accused of the offences mentioned in FERA as at the
relevant time the ED had not filed any complaint under Section 56 of
FERA, neither of them were entitled to the protection under Article 20
(3) of the Constitution. The mere erroneous judgment of the CBI in
mentioning the FERA proceedings in the FIR would not entitle Mr.
S.K. Jain and Mr. J.K. Jain to protection under Article 20 (3) of the
Constitution.
(c) Neither noticee cooperated in the investigation and thus it was
open to the "Investigating Officer of the competent agency to make
allegations as per their interpretation of the documents under Section
72 of FERA, 1973".
(d) Although it was not proved that the amount as alleged in the SCN
had been paid to Mr. V.K. Beri, it was clear that Mr. S.K. Jain "had
paid in 1984, 10,000 US$ to somebody". Since no explanation had
been given by him and as he had not produced any general or special
permission of RBI, it was held that S.K. Jain had contravened the
provisions of Section 8 (1) of FERA, 1973 "inasmuch as he illegally
acquired and paid US$ 10,000."
(e) The charges against Mr. J.K. Jain had not been proved and the
mere maintenance of books of accounts or the act of writing a diary
would not constitute a contravention under FERA.
(f) SCN IX relating to mother diary (M-209/93) confirmed that it had
month-wise accounts and details which indicated flow of funds every
month. The logical conclusion as regards entry No. 5 which when read
together with the other entries on the said page lead to the conclusion
that Mr. S.K. Jain at whose behest the diary was maintained, acquired
foreign exchange at Dubai equal to Rs. 1,90,000 in violation of the
provisions of Section 8 (1) of FERA and did not surrender it to an
authorized dealer. However, there was no evidence to show that Mr.
J.K. Jain played any role in the above transaction and therefore, the
charges against him were not proved.
21. Consequently, by the impugned AO, the SD imposed penalty of
Rs. 75,000 each on Mr. S.K. Jain and Mr. J.K. Jain in respect of SCN
Nos. XVIII and IX for contravening provisions of Section 8 (1) of
FERA and the proceedings against Mr. J.K. Jain were dropped.
The order of the Appellate Tribunal
22. Appeal No. 509 of 2001 was filed by Mr. S.K. Jain against the
aforementioned AO before the Appellate Tribunal for Foreign
Exchange („AT‟). By the impugned order dated 3rd January 2008 the
AT dismissed the appeal and held that since Mr. S.K. Jain had
exclusive knowledge of the entries, he was bound on an analogy of
Section 106 of IEA to explain them. His failure to do so would invite
an adverse inference being drawn against him in terms of Section 114
of IEA. As regards entry No. 5 in the mother diary M209/93, the AT
held as under:
"The recovered diary describes the amount of Rs.
1,90,000 with a further figure of foreign currency by
abbreviation when this description is not explained in any
other different manner then this Tribunal is not explained
in any other different manner then this Tribunal does not
feel it otherwise than to accept it as unauthorized
acquisition of foreign currency in lieu of India money."
Submissions of counsel
23. Mr. H.S. Bhullar, learned counsel appearing for the Appellant
submitted that the Appellant had validly invoked the protection
against self -incrimination under Article 20 (3) of the Constitution
while refusing to answer the question put to him regarding the entries
in the diaries on a date when charge sheet had not been filed by the
CBI. Mr. Bhullar pointed out to the SCN in which a specific reference
was made to the FERA provisions in respect of which proceedings
were not started by the ED at the time of registration of the FIR.
24. Mr. Bhullar pointed out that as far as SCN IX was concerned, it
was confined to a single entry in the column of the first page of the
mother dairy. He took the Court through the relevant documents and
the statements under Section 40 FERA and submitted that since the
entries had not been made by Mr. S.K. Jain, he was justified in not
offering any explanation. He submitted that in the circumstances an
adverse inference could not be drawn against Mr. S.K. Jain. He
referred to the criminal proceeding under Section 56 FERA whereby
the Additional Chief Metropolitan Magistrate had discharged Mr. S.K.
Jain in Complaint Case No. 75/1/1996. The said order was upheld by
this Court by its order dated 26th February 2013 in Criminal
Miscellaneous Case No. 2011 of 2007 (M.G. Attri v. S.K. Jain).
25. Apart from relying on several passages of the V.C. Shukla case,
Mr. Bhullar also referred to the decision in Union of India v. Abdul
Mohamed (2000) 10 SCC 169 which held that mere possession of
foreign currency was insufficient to hold that the accused had
"otherwise acquired" it in contravention of FERA. In the present case
no foreign exchange had been recovered from Mr. S.K. Jain. No
attempt had been made by the ED to carry out any investigation in
Dubai or elsewhere to verify if any foreign exchange had been
acquired by the Appellant. Relying on the decision of the Supreme
Court in Ramanlal Bhogilal Shah v. D.K. Guha (1973) 1 SCC 696,
he submitted that even in the proceedings under FERA an accused
could decline to give information regarding matters which tended to
incriminate him. Reliance was also placed on the decision in M.P.
Sharma v. Satish Chandra AIR 1954 SC 300.
26. In reply, Mr. Ashok Panda, learned Senior counsel appearing for
the ED, first submitted that the scope of the proceeding under Section
35 of the FEMA was limited to questions of law as explained by the
Supreme Court in Raj Kumar Shivhare v. Assistant Director,
Directorate of Enforcement (2010) 4 SCC 772. Reliance was also
placed on the decision of Delhi High Court in Union of India v. Prem
Khanna 2005 (85) DRJ 379 to urge that unless the findings of the AO
were found to be perverse this Court could not interfere in appeal.
27. Mr. Panda further submitted that in the present case the SD had,
after analysing the relevant entries in the mother diary, come to the
conclusion that they did pertain to receipt of money transactions and
foreign exchange conversion transactions. Further in the V.C. Shukla
case, the Supreme Court had only dealt with the culpability of
Mr. V.C. Shukla and Mr. L.K. Advani. As far as the Jains were
concerned, the Supreme Court had clearly held that the entries could
be taken to be admissions, provided that they related to any fact in
issue. He further submitted that the entries at Serial No. 5 in the
mother diary should be read along with other entries and in particular
entries on page 9 which even the Supreme Court understood to be one
pertaining to the Jains.
28. Referring to the decision in K.T.M.S. Mohd. v. Union of India
1992 (3) SCC 178, Mr. Panda submitted that FERA was a complete
code in itself. Mr. Panda also referred to the decision of the Supreme
Court in Central Bureau of Investigation v. State of Rajasthan 1996
(9) SCC 735 to emphasize that the CBI had no jurisdiction as far as
FERA was concerned. He submitted that Section 40 read with Section
39 FERA mandated that the noticee spoke the truth. He submitted that
there were several occasions for the noticee to do so. The first was
when statements were recorded under Section 40 FERA. The next was
in reply to the SCN. The third occasion was the adjudication
proceedings in terms of Rule 3 of the Adjudication Proceedings and
Appeal Rules, 1974. Referring to the decision in Directorate of
Enforcement v. Deepak Mahajan AIR 1994 SC 1775 and Poolpandi
v. Superintendent, Central Excise 1992 (3) SCC 259 he submitted
that the noticee under FERA could not be treated as an accused for the
purpose of Article 20 (3) of the Constitution. Since the chargesheets
filed by the CBI made no reference to FERA, there was no occasion
for the Appellant to decline to answer the questions put to him while
recording the statement under Section 40 FERA.
29. Mr. Panda also referred to the decision in Issardas Daulat Ram v.
Union of India 1962 Supp (1) SCR 358 and Shah Guman Mal v.
State of Andhra Pradesh 1980 (2) SCC 262 to urge that in the present
case since the diaries were admittedly maintained by Mr. J.K. Jain on
the instructions of Mr. S.K. Jain, the entries therein were in the
exclusive knowledge of Mr. S.K. Jain. He was obliged on an analogy
of Section 106 IEA to explain those entries. Referring to the decision
in Enforcement Directorate v. M. Samba Siva Rao 2000 (5) SCC
431, Mr. Panda submitted that it was obligatory on Mr. S.K. Jain to
have explained the entries. Reference was made to Section 71 FERA
and the decision in Prem Singh Chawla v. Directorate of
Enforcement ILR (1987) 1 Delhi to urge that the entries in the mother
diary which was a book of account as held in the V.C. Shukla case,
should be taken to prove the unauthorised dealings in foreign
exchange transactions. Mr. Panda repeatedly urged that the entries in
the diaries had to be seen in totality and not in isolation.
Right against self-incrimination
30. In the present case the impugned AO of the SD, ED and the
impugned order of the AT proceeded on the basis that the Appellant
could not have validly invoked the right against self-incrimination
under Article 20 (3) of the Constitution since he was not accused in
any criminal proceeding initiated under FERA at the time his
statement was recorded under Section 40 FERA. Both orders further
proceeded to draw an adverse inference as regards his refusal to
explain the entries found with the seized diaries.
31. It is seen that the FIR of the CBI dated 4th March 1995 mentioned
the provisions of both the PCA as well as FERA. At that stage the
proceedings under FERA were yet to commence. It was noted in the
FIR that the Superintendent of Police had sent to the ED a report for
filing a statutory complaint under FERA. It is, therefore, clear that at
the time when the statements of Mr. S.K. Jain and Mr. J.K. Jain were
initially recorded, i.e., in April 1995 no proceedings under FERA had
commenced.
32. The second factor to be noted is that it is only at the stage of filing
of the charge sheets by CBI on 16th and 23rd January 1996 that it
became clear that the cases filed by the CBI did not govern the
violations of FERA. Therefore, till that date the two noticees, Mr. J.K.
Jain and Mr. S.K. Jain were justifiably advised that they could invoke
their right under Article 20 (3) of the Constitution so as to not
incriminate themselves while making their statements under Section
40 FERA.
33. The situation obviously changed once the chargesheets were filed
by the CBI. After the filing of the chargesheets Mr. J.K. Jain stated
that he was unable to recall what the entries were about. He merely
stated that he had written many entries on the instructions of Mr. S.K.
Jain. As regards Mr. S.K. Jain, he maintained that he would not be
able to explain entries since they were not made by him.
34. There are two strands of litigation that emanate under FERA. One
is the adjudicatory proceedings and the other the criminal proceedings
under Section 56 FERA. In Ramanlal Bhogilal Shah v. D.K. Guha,
the Supreme Court explained that a person served with the summons
under the FERA is an accused within the meaning of Article 20 (3) of
the Constitution. It was held that this did not mean that he need not
give information regarding matters which do not tend to incriminate
him. In other words, it was open to a noticee not to answer such
questions as would tend to incriminate him.
35. It is, therefore, clear that for the purpose of FERA, the noticee can,
to the extent that he is required by the ED officers to give answers that
might tend to incriminate him in the criminal proceedings under
FERA, decline to do so. The resultant position as far as the present
case is concerned is that on the dates of their examination in April
1995 the Appellant and Mr. J.K. Jain were 'accused' in terms of the
FIR registered by the CBI and this continued till the filing of
chargesheets by the CBI in January 1996. Therefore, the two noticees
were entitled to invoke their right against self-incrimination under the
Article 20 (3) of the Constitution. No adverse inference could be
drawn against them for having exercised that right. Even thereafter,
since admittedly criminal proceedings were also launched against the
noticees under Section 56 FERA, they continued to be 'accused'. Their
refusal to explain the entries could not lead to an adverse inference
being drawn against them.
36. At this stage it requires to be noticed that Mr. Panda, learned
Senior counsel for the ED sought to contend that since the ED officers
were not police officers, the statements made to them under Section
40 FERA would be admissible in evidence. According to him, as a
corollary, such a noticee under FERA could not claim to be an
accused.
37. In Directorate of Enforcement v. Deepak Mahajan the Supreme
Court, was dealing with the question "Whether a Magistrate before
whom a person arrested under sub-Section (1) of Section 35 of the
Foreign Exchange Regulation Act of 1973 which is in pari material
with sub-Section (1) of Section 104 of the Customs Act of 1962, is
produced under sub-Section (2) of Section 35 of the Foreign
Exchange Regulation Act, has jurisdiction to authorise detention of
that person under Section 167 (2) of the Code of Criminal Procedure."
The question was answered in para 99 as under:
"99. From the foregoing discussion, it is clear that the word
'accused' or „accused person' is used only in a generic sense in
Section 167(1) and (2) denoting the "person" whose liberty is
actually restrained on his arrest by a competent authority on
well-founded information or formal accusation or indictment.
Therefore, the word 'accused' limited to the scope of Section
167(1) and (2) - particularly in the light of Explanation to
Section 273 of the Code includes 'any person arrested'. The
inevitable consequence that follows is that „any person is
arrested‟ occurring in the first limb of Section 167(1) of the
Code takes within its ambit „every person arrested‟ under
Section 35 of FERA or Section 104 of the Customs Act also as
the case may be and the 'person arrested' can be detained by the
Magistrate in exercise of his power under Section 167(2) of the
Code. In other words, the 'person arrested' under FERA or
Customs Act is assimilated with the characteristics of an
'accused' within the range of Section 167(1) and as such liable
to be detained under Section 167(2) by a Magistrate when
produced before him."
38. While it is true, as explained in Enforcement Directorate v. M.
Samba Siva Rao and K.T.M.S. Mohd. v. Union of India, that FERA
is a complete code in itself and every proceeding under FERA is
deemed to be a judicial proceeding, it does not straightway follow that
a refusal by a noticee to answer a question which would incriminate
him should be taken to be a contravention of FERA.
39. The decisions in Issardas Daulat Ram v. Union of India and M/s.
Kanungo & Company v. Collector of Customs (1973) 2 SCC 438
were given in a context very different from that of the present case. In
each of those cases the imported goods had been seized and therefore,
the burden was on the person who was found in possession to explain
how he came to be in possession of such goods. Merely because
Mr. J.K. Jain was found in the possession of diaries in which he
purportedly made entries at the behest of Mr. S.K. Jain does not ipso
facto shift to Mr. S.K. Jain the burden of showing that they did not
pertain to transactions involving foreign exchange. It was erroneous
on the part of the AT to invoke the analogy of Section 106 of IEA
when in the instant case in respect of both SCN IX and SCN XVIII,
the ED has failed to produce credible evidence to even prima facie
show that the Appellant had contravened Section 8 (1) read with
Section 8 (3) FERA. The question of therefore shifting the burden to
the Appellant to show that he had not contravened the said provisions
was not permissible or justified.
The purport of the entries in the mother diary
40. Since extensive reference was made to the decision in the V.C.
Shukla case relating to the very same entries in the mother diary, the
said entries need to be dealt with at some length. The entries in pages
1 and 2 of the diary of which entry No. 5 forms part, read as under:
1 4 x 16.50 66.00 April
1 x 17.00 17.00
2 1 x 17.00 17.00 June
3 1 x 16.70 33.70 Sept
1 x 17.00
4 1.5 x 18.00 27.00 Nov
5 At Dubai 1.90 Jan 89
5 3 x 17.60 52.80 Feb
6 1 x 19.75 58.75 July 89
2 x 19.50
7 2 x 20.00 40.00 July 89
8 10 x 20.50 205.00 Oct
9 30 x 20 600.00 Nov
10 x 20 200.00
10 x 20 200.00
10 5 x 20.30 101.50 Dec
11 10 x 19.75 197.50 Jan 90
12 4 x 20.15 80.60 Feb 90
13 5 x 20.10 100.50 Feb 90
14 5 x 20.10 100.50 Mar 90
15 3 x 20.10 60.30 April 90
16 10 x 20.15 200.50 May 90
17 15 x 20.85 312.00 June 90
18 5 x 21.40 211.00 Aug 90
5 x 20.80
19 10 x 20.90 209.00 Sept 90
20 5 x 21.00 105.00 Sept/Oct
21 2 x 21.25 42.50 Oct 90
22 5 x 21.50 107.50 Nov 90
23 5 x 21.60 108.00 Jan 91
24 5 x 21.00 322.50 Feb 91
5 x 21.50
5 x 22.00
25 20 x 23 460.00 Mar 91
26 20 x 23.50 470.00 Apr 91
41. As can be seen there are 26 entries and none of them is prefixed
by any foreign currency symbol. The entry at Serial No. 5 is the one in
respect of which SCN No. IX had been issued. At this juncture it also
requires to be noticed that according to ED, there is a corresponding
entry on the reverse of page 4 which simply reads „A 1.90 Dub‟ and is
entered under 'March 1989'. However, this entry does not find
mention in the SCN.
42. In the V.C. Shukla case, the Supreme Court discussed the mother
diary MR 71/91 (M-209/93) in some detail. The said discussion in
para 9 reads as under:
"Since according to the prosecution MR 71/91 is the main
(mother) book we first take the same for scrutiny. Page 1 of the
book begins with the heading "A/C given upto 31st January on
31.1.1998;" and then follows serially numbered entries of
various figures multiplied by `some other figures on the left
hand column and the product thereof on the next column for
each month commencing from January, 1990 to April, 1991.
The overleaf ('o' for short ) of the page contains similar entries
for the period from April, 1988 to December, 1989 and it ends
with the words "2.77' we have to receive". In the subsequent
pages the book records monthly receipts of monies/funds from
inconspicuous persons/entities during the period commencing
from the month of February, 1988 to April 1991 maintained on
'2 columns' basis. The left hand column represents the receipts
and the right hand column disbursements. In the column of
receipts the source is indicated in abbreviated form on the left
of the figure representing the sum received. On the right side of
the said figures a number is mentioned which co-relates with
the serial number of the account of receivers recorded on pages
1 and 1(o) of the diary for the period subsequent to 31.1.1988.
So far as the names of the payees are concerned the same have
also been recorded in abbreviated form, alphabets or words.
The entries, however, do not give any indication of any sale,
purchase or trading and show only receipts of money from a set
of persons and entities on one side and payments to another set
of persons and entities on the other, both reckoned and kept
monthly. As regards the actual amounts received and disbursed
we notice that the figures which have been mentioned briefly
against the respective names are not suffixed with any symbol,
volume or unit so as to specifically indicate whether they are in
lakhs, thousands or any other denomination. It is noticed that in
most of the entries the figures against transactions extend to 2
places after decimal which seem to suggest that the figures in
money column may be in thousands, but then in some of the
months, namely, 11/88, 6/89, 10/90, 2/91, 3/91, 4/91, figures
extend to 5 places after decimal point in money column. This
gives an impression that the figures are in lakhs; and this
impression gains ground from other transactions. For example,
at page 9 of the book in the transactions relating to the month of
September 80, a figure of 32,000 prefixed by (sterling pound
symbol) indicates that it is 32,000 sterling pounds and the same
has been multiplied by Rs. 40/- per pound which was possibly
the conversion rate of pound according to Indian currency at
that time) and the total has been indicated at 12.80 as against
the product of Rs. 12,80,000/-. That necessarily means that the
2 places after decimal denotes that figures are in lakhs. The
book further indicates that it was from time to time shown to
some persons and they put their signatures in token thereof."
(emphasis supplied)
43. Great emphasis was laid by Mr. Panda on the highlighted lines of
the above passage which referred to the entry pertaining to 32,000
Sterling pounds. The said entry is found on page 9 of the diary. It
must be noted that neither SCN IX nor SCN XVIII refers to this entry.
As regards entry No. 5, it does not contain any symbol of any foreign
currency. In the absence of any other evidence to explain what is
exactly meant by the above entries, it is not possible to conclude that
the said entry No. 5 indicates that Mr. S.K. Jain received foreign
exchange worth Rs. 1,90,000 in Dubai from a person other than an
authorised dealer or that he had failed to sell the said foreign exchange
to an authorized dealer in India within three months from the date he
acquired it in Dubai. Likewise it is not possible to draw any such
inference as regards the solitary entry of 32,000 sterling pounds. From
who was such foreign exchange obtained if at all and when? At the
cost of repetition it must be noted that the SCN does not reflect any
credible evidence having been gathered by the ED through
independent investigations at Dubai or any place outside India to
substantiate the allegations in the SCNs. The above entries by
themselves cannot constitute substantive evidence of such allegations.
44. What is significant is that this is not a case where a confession was
initially made under Section 40 FERA which thereafter was retracted.
Here the noticee either declined to answer or gave an answer which
did not help the ED since he claimed that had no knowledge of the
entries in the diaries. Mr. Panda sought to contend that the said
answers should be construed as either false or misleading or both. The
Appellant said that he was unable to explain the entries because they
were not written by him. The latter part of the answer was a fact since
the entries were admittedly made by Mr. J.K. Jain. While Mr. J.K.
Jain claimed that he did so on the instructions of Mr. S.K. Jain, the
AO itself noted that there was no evidence whatsoever to show
involvement of Mr. J.K. Jain in the transactions of foreign exchange.
The Supreme Court has in the V.C. Shukla case held that the so-
called 'admissions' in relation to the entries by Mr. J.K. Jain in his
statement under Section 40 FERA cannot be used against Mr. L.K.
Advani or Mr. V.C. Shukla. It was, however, clarified that they could
be proved against the Jains as admissions under Section 18 read with
Section 21 IEA provided they relate to „any fact in issue or relevant
fact.‟ The initial burden of proving that the entries related to „any fact
in issue or relevant fact‟ was on the ED. This it could have discharged
by placing before the SD credible substantive evidence gathered
through independent investigation conducted abroad and here. The
above entries in the diaries were at best corroborative and not
substantive evidence. By themselves such entries were insufficient to
prove the allegations against Mr. S.K. Jain in SCN No. IX.
45. As regards SCN XVIII the charge against Mr. S.K. Jain was that
he had paid US$ 40,895.65 to Shri V.K. Beri of U.K. outside India
without obtaining permission of the RBI thus contravening the
Sections 8 (1), 8 (2), and 9 (1) (a) FERA. Although the AO found that
there was no material whatsoever to prove that any such payment was
made to Mr. V.K. Beri, Mr. S.K. Jain nevertheless was held to have
paid 10,000 USD to "somebody". That was not the allegation against
Mr. S.K. Jain in SCN XVIII and yet because he did not give an
explanation regarding payment of USD 10,000 to "somebody", he has
been held to have violated Section 8 (1) FERA.
46. When such allegation was not even the subject matter of SCN
XVIII and therefore, not put to Mr. S.K. Jain he could not be held to
have failed to explain such transaction. In Prem Singh Chawla v.
Directorate of Enforcement apart from the books of accounts there
were statements of witnesses who, during the adjudication
proceedings, "admitted the receipt of the amount from the Appellant
and corroborated the entries appearing against their names in the
account books". In the present case there is no statement constituting
'admission' by Mr. S.K. Jain or anyone else to the ED regarding
transaction of foreign exchange involving the Appellant. The entries
in the mother diary, even if it is taken to be a 'book of accounts', at
best constitute a corroborative piece of evidence and not substantive
evidence of violation of Section 8 (1) FERA.
47. In the considered view of this Court, the AO passed by the SD,
ED and the impugned order of the AT are contrary to the settled legal
principles and also based on an improper appreciation of the probative
value of the evidence produced by the ED to support the allegations in
the two SCNs. The said impugned orders are, therefore unsustainable
in law.
Scope of the appeal
48. As regards the submission of Mr. Panda on the scope of Section
35 FEMA, it may be noticed that in Union of India v. Prem Khanna,
it was explained by this Court that a perverse finding could also give
rise to a question of law within the meaning of Section 35 FEMA. In
the present case the Court has, for the reasons explained hereinabove,
come to the conclusion that the impugned AO and the impugned order
of the AT are not supported by the evidence on record and have been
passed without appreciating the correct position in law.
Conclusion
49. For the aforementioned reasons, the Court sets aside the impugned
order dated 7th November 2001 of the SD, ED and the impugned
order dated 3rd January 2008 of the AT.
50. The appeal is accordingly allowed with no order as to costs. The
penalty amount deposited by the Appellant pursuant to the impugned
orders of the SD and AT will be refunded to him in accordance with
law within a period of eight weeks.
S. MURALIDHAR, J.
MAY 29, 2014
Rk
