SPLA/2/2011 of Nasir Baloor Mehdibadi Vs The Appellate Tribunal for Foreign Exchange on 30 December 2011

1. (2003) 7 SCC 4362. (2007) 2 SCC 510

THE HON’BLE SRI JUSTICE V.V.S.RAOAND

THE HON’BLE SRI JUSTICE B.N.RAO NALLA

SPECIAL APPEAL No.2 OF 2011

30.12.2011

Between:

Nasir Baloor Mehdiabadi

AND

…. Appellant

The Appellate Tribunal for Foreign Exchange,Janpath Bhavan, New Delhi.And others.

… Respondents

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA

SPECIAL APPEAL No.2 OF 2011

JUDGMENT(Per Hon’ble Sri Justice V.V.S.Rao)

The Special Appeal is filed under Section 35 of the ForeignExchange Management Act, 1999 (hereafter the FEMA) against theorder dated 01.08.2008 in Appeal No.51 of 2006 passed by theAppellate Tribunal for Foreign Exchange, New Delhi. By the said order,the Appellate Tribunal confirmed the order, dated 30.01.2006 of theSpecial Director (second respondent herein), whereby and whereunderthe appeal filed under Section 17 of the FEMA was dismissedconfirming the order of confiscation passed by the Deputy Director(third respondent herein).

The appellant is Iranian National. The Commissioner of Police,Hyderabad issued a residential permit which now stands extended upto2012. Since 1994, he is running a restaurant namely “Bawarchi” in Partnership with his brother and brother-in-law. In December, 2007, hewent to Iran. On 02.01.2003, the Deputy Director of Income Tax(Investigation) Unit-1(3) conducted search at the house of KhazimBoloor, the brother of the appellant and seized US $ 1,26,130. By aletter dated 06.01.2003, the third respondent informed the AssistantDirector, Directorate of Enforcement, Hyderabad, to take necessaryaction in the matter. After obtaining authorization dated 09.01.2003issued by the Director of Enforcement; foreign currency was taken overby the authorities under Section 37 of FEMA read with Section 132A ofthe Income Tax Act. As a part of the investigation under the FEMA,summons were issued to the appellant and Khazim Boloor. The latterappeared and in the statement under oath on 20.05.2003, he admittedthat the foreign currency seized from him belongs to his brother, whichwas given to him while he was leaving for Iran on 26.12.2002.

The appellant came back on 03.01.2003 but he did not obey thesummons dated 20.05.2003. He sent a communication on 26.05.2003stating that (i) he is the owner of ancestral landed propertyadmeasuring three shares of plaques in the District 5 Yazd in Iran(approximately 2000 square yards); (ii) he sold the land to GulamDeljoy, an Iranian, for $ 3,50,000 in 1997 under oral agreement; (iii) thevendee paid $ 72,700 on 26.04.1999 and $ 61,200 on 08.10.1999, whichhe declared to the Customs Authority at the Airport and encashed thesame with Thomas Cook, Hyderabad; (iv) Gulam Deljoy madepayments towards balance sale consideration in instalments by sending$ 5,000 each through nineteen Iranians between June, 2002 andDecember, 2002; (v) in October, 2002, when the appellant, his wife andfather visited Iran, the vendee paid $ 5,000 to him and $ 20,000 to hisfather; (vi) he kept all the amounts received with him to encash afterreceiving balance amount from the purchaser Gulam Deljoy and that(vii) while leaving for Iran in December, 2002, he kept $ 1,26,130 withhis brother Khazim Boloor for safe custody. He enclosed a list of Iranians through whom he received $ 5,000 sent by the purchaser fromIran. He also enclosed a copy of Currency Declaration Form (CDF)dated 11.10.2002 in proof of his father declaring $ 20,000 at BombayAirport.

After completing necessary investigation, the third respondentissued a show cause notice dated 23.08.2003. The appellant was askedto explain as to why adjudication proceedings contemplated underSection 13 of the FEMA should not be held for contravention of theprovisions of Section 3(a) and 4 of the FEMA and why the foreigncurrency should not be confiscated to the Central Government underSection 13(2) of FEMA. The appellant submitted explanation reiteratingthe same pleas. During the enquiry by the adjudicating authority, theappellant produced the Verdict dated 28.08.2003 of Iranian Courtdeclaring the appellant’s father as the owner of the property. He alsoproduced an affidavit dated 12.06.2003 allegedly signed by thepurchaser Gulam Deljoy declaring that he had remitted lot of monies indollors to the appellant as sale proceeds of the plot of land inherited byhis father. The third respondent gave personal hearing to the appellant,his father Masha Alla Ali and his brother and ordered confiscation offoreign currency under Section 13(2) besides levying penalty ofRs.5,00,000/- for contravention of Sections 3 and 4 of the FEMA. In his order, the third respondent observed as under.

… A person who has sent such a huge amount will not giveany money without entering into any agreement and Shri NasirBoloor’s failure to submit the said agreement clearly shows that thisversion has been given by him only to escape from the proceedingsunder FEMA, 1999. Further he has stated that Sri Deljoy, has sentUS$ each through 19 persons who had come to India from Iran. Hehas produced copies of the passports of the said persons with hisletter dated 21.08.2003. But he has not produced any evidence toshow that the said 19 persons actually brought the said foreigncurrencies with them. Further the department also could not contactthe said 19 persons and make further investigations, as SriMohd.Nasir Boloor, failed to produce the present addresses andwhereabouts of the said persons, as undertaken by him during thecourse of investigation. During the course of personal hearing ShriNasir, had produced a copy of the affidavit dated 12.06.2003 of ShriGulam Deljoy, wherein Sri Deljoy, has stated that all the money

which has been attached/confiscated by the tax officers of Indiawere sent by him to Shri Nasir Boloor or for purchase of plots. Butin the said affidavit he has not stated the exact amount which wassent by him on various occasions towards the purchase of the plotsand what was the sales consideration and what was to be totallypaid by him. This clearly shows that the said affidavit has been gotprepared for the purpose of escaping from the proceedings underFEMA, 1999. These foreign currencies were received as per ShriNasil Boloor’s statement before the Assistant Director ofEnforcement, Hyderabad between June, 2002 and October, 2002and the said currencies were seized by the Income Tax Authoritiesduring June, 2003. No prudent man will keep such a huge amountof foreign currencies with him at his residence for so many months.Hence, this version of Shri Nasir that he was keeping the saidforeign currencies with him from the period when Shri Gulam Deljoystarted sending the same is also not believable. Hence, it isevidence that the said foreign currencies have been unauthorisedlyacquired by Shri Mohd. Nasir Boloor, without the general or specialpermission of the Reserve Bank of India. Further, as per ReserveBank of India Regulation No.33 of Foreign Exchange Management(Possession and Retention of Foreign Exchange Regulations 2000)dated 3.5.2000 and any person is permitted to possess foreignexchange upto US$ 2000 if it is legally acquired. Otherwise noperson resident in India is permitted to possess or retain any foreignexchange with him. Shri Mohd.Nasir Boloor, though an IranianPassport holder is residing in India for a long period and is doingbusiness in India. Hence he is a person residing in India. In terms ofSection 4 of FEMA 1999 he cannot hold or possess the said foreigncurrencies with him. I, therefore, hold him guilty of contravening theprovisions of Section 3(c) and 4 of FEMA 1999 read with theaforesaid regulations and pursuant to powers conferred upon meunder Section 13(1) of FEMA 1999 I impose a penalty ofRs.5,00,000/- (Rupees five lakhs only) on Shri Mohd.Nasir BoloorMehdi Abadi, for contravening the provisions of Section 3(a) and 4of FEMA 1999 read with the aforesaid notifications. Since the abovesaid seized foreign currencies of US$ 1,26,130 have beenunauthorisedly acquired and possessed by Shri Nasir Boloor MehdiAbadi, and involved in the said violation, in addition to penaltyimposed above, I order that the said foreign currencies of US$1,26,130 be confiscated to Central Government pursuant to powersconferred upon me u/s 13(2) of FEMA 1999.

The appellant, his father and his wife preferred appeals underSection 17(2) of the FEMA. By order dated 30.01.2006, the secondrespondent confirmed the confiscation order passed by the adjudicatingauthority but reduced penalty amount as noticed supra. The appellantthen preferred appeal under Section 19 of the FEMA. The learnedappellate Tribunal dismissed the appeals filed by the appellant, his father and wife.

Submissions of the counsel

The senior counsel for the appellant would submit that theadjudicating authority (third respondent), the appellate authority and theappellate Tribunal ignored Regulation 6 of the Foreign ExchangeManagement (Export and Import of Currency) Regulations, 2000(hereafter, Export Regulations) and Regulation 3 of the ForeignExchange Management (Possession and Retention of ForeignCurrency) Regulations, 2000 (hereafter Possession Regulations).According to him, Export Regulations do not prohibit bringing of foreigncurrency not exceeding $ 5,000 or its equivalent and there is no necessity to make adeclaration in CDF. He would also submit that as per Regulation 6A ofForeign Exchange Management (Realisation, Repatriation andSurrender of Foreign Exchange) Regulations, 2000 (RepatriationRegulations), a person can retain foreign currency with him for a periodof 180 days from the date of receipt/ realisation/purchase, as the casemay be. It is pointed out that a part of sale proceeds from the sale ofthe land in Iran, being

$ 72,700 and $ 61,200, were already declared in CDF on 26.04.1999and 08.10.1999. Money sent to the appellant sent through other Iraniansbeing less than $ 5,000, there was no requirement of making adeclaration and the appellant intended to encash the foreign currencyas per the Repatriation Regulations as there was permissible time ofsix months to encash the same. Lastly, he contends that there was nointention on the part of the appellant to contravene any of theregulations; the acquisition of foreign currency cannot be calledunauthorized; and no such presumption can be drawn. He would alsoemphasise that the affidavit filed by Iranian buyer was not consideredby the authorities. Reliance is placed on Fatima Mohd.Amin v Union of India[[1]]and P.P.Abdulla v Competent Authority[[2]].

The senior standing counsel for Central Excise and CustomsDepartment reiterated the respondents’ position as brought out in thecounter affidavit of the third respondent. He would also further submitthat Regulation 6A of the Repatriation Regulations was inserted by anAmendment vide G.S.R.715(E), dated 23.10.2007 with effect from18.05.2007. The said Regulation enables the person to retain and keepthe foreign currency for a period of 180 days before the surrender orencash, which does not apply to the facts of the case. According tohim, Regulation 5 of the Repatriation Regulations as it stood in 2003,obliges every person to sell the realized foreign currency within sevendays from the date of receipt and when once such requirement isviolated, Sections 3 and 4 are attracted. He would also contend that thethird respondent has given valid and acceptable reasons with regard tothe improbabilities for not accepting the case of the appellant. The caseof the appellant is improbable; and that no documents were produced insupport of his claim that the land was sold to Iranian and that themoney the appellant got is towards sale consideration.

The applicable Principles of Law

The FEMA is a consolidating and amending law relating toforeign exchange. Besides, facilitating external trade and payments andpromoting orderly development and maintenance of foreign exchangemarket in India, it also regulates and provides for managing foreign exchange transactions. Sections 3 and 4 are relevant and read.

3. Dealing in foreign exchange, etc.- Save as otherwiseprovided in this Act, rules or regulations made thereunder, or withthe general or special permission of the Reserve Bank, no personshall- (a) deal in or transfer any foreign exchange or foreign securityto any person not being an authorized person;(b) make any payment to or for the credit of any personto any person not being an authorized person;(b) make any payment to or for the credit of any personresident outside India in any manner;

(c) receive otherwise through an authorized person, anypayment by order or on behalf of any person resident outsideIndia in any manner.

Explanation.- For the purpose of this clause, where anyperson in, or resident in, India receives any payment by orderor on behalf of any person resident outside India through anyother person (including an authorized person) without acorresponding inward remittance from any place outside India,then, such person shall be deemed to have received suchpayment otherwise than through an authorized person;

(d) enter into any financial transaction in India asconsideration for or in association with acquisition or creation ortransfer of a right to acquire, any asset outside India by any person.Explanation.- For the purpose of this clause, “financialtransaction” means making any payment to, or for the credit of anyperson, or receiving any payment for, by order or on behalf of anyperson, or drawing, issuing or negotiating any bill of exchange orpromissory note, or transferring any security or acknowledging anydebt.

4. Holding of foreign exchange, etc.- Save as otherwiseprovided in this Act, no person resident in India shall acquire, hold,own, possess or transfer any foreign exchange, foreign security orany immovable property situated outside India.

(emphasis supplied)

Dealing in foreign exchange or foreign security or transferringthese to any person not being an authorized person de hors the Rules,the Regulations and the provisions of the FEMA is prohibited. Similarly,if a person makes any payment to the credit of any person residingoutside India or receives otherwise than through an authorized person,any payments by order on behalf of any person resident outside India inany manner or enter any financial transaction in India as considerationfor acquisition or creation or transfer of right to acquire any assetoutside India by any person is an offence. All such transactions canonly be in accordance with the Rules and Regulations made under theFEMA. The term ‘authorised person’ is defined in Section 2(c). It meansan authorized dealer, money changer, off-shore banking unit or anyother person authorized under Section 10(1) to deal in foreign exchangeand foreign securities. ‘A person resident outside India’ means a personwho is not resident in India (Section 2(w)). As per Section 4, except asprovided by FEMA, no person resident in India shall acquire, hold, own or possess or transfer any foreign exchange, foreign security or anyimmovable property situated outside India. Further the acquisition ofimmovable property or transfer of immovable property situated outsideIndia ignoringthe provisions of the Rules and Regulations made underor in contravention of the FEMA would attract penalties under Section13 which include imprisonment in civil prison.

The attention of this Court has been drawn to Regulation 6 of the Export Regulations, which reads.

6. Import of foreign exchange into India.- A person may- (a) send into India without limit foreign exchange in any formother than currency notes, bank notes and travelers cheques; (b) bring into India from any place outside India without limitforeign exchange (other than unissued notes):

Provided that bringing of foreign exchange into India underclause (b) shall be subject to the condition that such person makes,on arrival in India, a declaration to the customs authorities inCurrency Declaration Form (CDF) annexed to these Regulations: Provided further that it shall not be necessary to make suchdeclaration where the aggregate value of the foreign exchange inthe form of currency notes, bank notes, or traveller’s chequesbrought in by such person at any one time does not exceed US $10,000 (US Dollars ten thousands) or its equivalent and/or theaggregate value of foreign currency notes brought in by suchperson at any time does not exceed US $ 5,000 (US Dollars fivethousands) or its equivalent.

We may also quote Regulation 3 of Possession Regulations.

3. Limits for possession and retention of foreign

currency or foreign coins.- For the purpose of clause (a) andclause (e) of Section 9 of the Act, the Reserve Bank specified thefollowing limits for possession or retention of foreign currency orforeign coins, namely:-

(i) possession with limit of foreign currency and coins by anauthorized person within the scope of his authority;

(ii) possession without limit of foreign coins by any person;

(iii) retention by a person resident in India of foreign currencynotes, bank notes and foreign currency travellers’ cheques notexceeding US $ 2000 or its equivalent in aggregate, provided thatsuch foreign exchange in the form of currency notes, bank notesand travelers cheques- (a)was acquired by him while on a visit to any place outside Indiaby way of payment for services not arising from any businessin or anything done in India; or (b)was acquired by him, from any person not resident in Indiaand who is on a visit to India, as honorarium or gift or forservices rendered or in settlement of any lawful obligation; orand who is on a visit to India, as honorarium or gift or forservices rendered or in settlement of any lawful obligation; or

(c) was acquired by him by way of honorarium or gift while on a visit to any place outside India; or (d)represents unspent amount of foreign exchange acquired byhim from an authorized person for travel abroad.him from an authorized person for travel abroad.

The Regulation 5 of Repatriation Regulations reads as under.

5. Period for surrender of realized foreign exchange.- Aperson not being an individual resident in India shall sell the realizedforeign exchange to an authorized person under clause (a) of sub-regulation (1) of regulation 4, within the period specified below:

(i) foreign exchange due or accrued as remuneration for services rendered, whether in or outside India, or in settlementof any lawful obligation, or an income on assets held outsideIndia, or as inheritance, settlement or gift, within seven daysfrom the date of its receipt;

(ii) in all other cases within a period of ninety days from thedate of its receipt.

(emphasis supplied)

By G.S.R.No.715(E), dated 23.10.2007, Regulation 5 ofRepatriation Regulations was substituted and Regulation 6A wasinserted, which reads as under.

6A. Period for surrender of received/realized/unspent/unused foreign exchange by Resident individual.- Aperson being an individual resident in India shall surrender thereceived/realized/unspent/unused foreign exchange whether in theform of currency notes, coins and travelers cheques, etc. to anauthorized person within a period of 180 days from the date of suchreceipt/realization/ purchase/acquisition or date of his return toIndia, as the case may be.

TheFEMA is a comprehensive legislation dealing with foreignexchange, inter alia regulating the dealings and transfers of foreignexchange, transactions in India involving foreign exchange inassociation with acquisition or creation or transfer of assets, export,import and holding of foreign currency, the deposits between thepersons resident in India and persons resident outside India and thelike. Section 4 prohibits any person from holding, owning, possessingor transferring any foreign exchange or any immovable propertysituated outside India. Section 3 prohibits any person (a) dealing in ortransfer of foreign exchange with any person other than authorizedperson; (b) making payment to or for the credit of any person outside India in any manner; (c) receiving any payment on behalf of any personresident outside India otherwise than through an authorized person; and(d) entering into financial transaction for acquisition, creation or transferof right to acquire any asset outside India.

The relevant Regulations quoted hereinabove are made by theReserve Bank of India in exercise of powers under Sections 6, 8, 10read with Section 47 of FEMA. As per Regulation 3 of the PossessionRegulations, no person can retain foreign currency not exceeding $2000 or its equivalent in aggregate. As per Regulation 6 of the ExportRegulations, a person is prohibited from bringing more than $ 5000 inforeign currency without making CDF annexed to the said Regulations,and as per Regulation 5 of the Repatriation Regulations, a personcannot retain more than $ 2000 for a period of seven days andcompulsorily he has to surrender foreign currency to an authorizedperson under Regulation 4(1)(a). The legal position is not seriouslydisputed nor denied by the appellant.

The point for consideration

The appellant’s main contention is that he has not violatedSections 3, 4 and the Possession Regulations or RepatriationRegulations. According to him, he acquired the foreign currencyallegedly by selling his property in Iran, gave a declaration in CDF whenhe brought major chunk of foreign currency in January and October,1999; his vendor sent the money through nineteen persons each getting$ 5000 which is within the permissible limits as per the ExportRegulations, and he has 180 days to keep the money before encashingthrough an authorized person. These submissions are not properlysubstantiated with reference to the law as noticed hereinabove.

Section 3(c) of the FEMA prohibits any person from receivingforeign currency otherwise than through an authorized person.Admittedly the appellant got the foreign currency towards consideration of sale of his immovable property in Iran. Even if such a transaction isassumed to be true, he could not have got or received the money theway he got. The law requires remittances to be made only through anauthorized person as defined in Section 2(c), which means moneychanger, off-shore banking unit or any person authorized under Section10(1) to deal in foreign currency or foreign securities. The confiscatingauthority, the appellate authority as well as the Tribunal recorded afinding against him on the question of sale of property to Iran buyer asno agreement was produced and the affidavit filed by the buyer did notgive the details of the amount sent through nineteen (19) persons.

The submission that the appellant can retain the amount for aperiod of 180 days is belied by reference to Regulation 5 of theRepatriation Regulations which obliges any person to sell the realizedforeign exchange to an authorized person within seven days from thedate of its receipt. The Regulation 6A on which reliance is placed nodoubt provides 180 days for selling the foreign exchange but havingbeen inserted by G.S.R.715(E), dated 23.10.2007 with effect from18.05.2007, it has no application to the case of the applicant. From thefindings recorded by the authorities that the appellant unauthorisedlyacquired foreign currencies and retained the currency in contraventionof relevant Regulations is sound and a question of law would not ariseout of the order. All the authorities considered various contentionsmade by the appellant in proper perspective in the light of the FEMAand various Regulations.

We have perused the decisions of the Supreme Court in FatimaMohd.Amin and P.P.Abdulla. Both these cases arose out of Smugglersand Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976.These decisions have no application to the facts of the present case asthe appellant herein failed to discharge the burden which lay on him toprove his case that the foreign currency seized from the house of hisbrother was brought to India in accordance with the provisions of FEMA

and Regulations made thereunder.

Conclusion

In the result, for the above reasons, the appeal fails and isaccordingly dismissed with costs.

_______________

(V.V.S.RAO, J)

30.12.2011Pln

____________________

(B.N.RAO NALLA,J)

Note: LR copy be marked. (By order) pln

[1](2003) 7 SCC 436

[2](2007) 2 SCC 510