By TIOL News Service

NEW DELHI, MAY 17, 2016: AJIT Dodia was travelling to Hong Kong by Swiss air flight on 27/28.9.1993. His two checked in baggages viz one suit case and one brief case came to be randomly checked by the Customs Staff at the departure counter, which led to the recovery of foreign currency worth Rs.1.24 cores. The said currency was in the form of U.S.dollars amounting to 4,03,550. The statement of the said Ajit Dodia was recorded by the customs wherein he inter alia stated that his visit to Hong Kong was planned and financed by one Jatin Jhaveri who is a diamond dealer having office at Panchratna Building, Opera House, Mumbai and that those two bags were received by him at the office of Jatin Jhaveri where his younger brother Jitendra Dodia was working as an Assorter . The packing of the said bag was done by Jatin Jhaveri assisted by Jitendra Dodia and that Jitendra also instructed him about the said foreign currency, that he should hand over the same to the brother of Jatin i.e. Pankaj Jhaveri in Hong Kong.

Jatin Jhaveri made a statement that part of the foreign currency i.e to the extent of 2,89, 250 U.S.USD belongs to him and the rest of the amount i.e. 1,14,300 U.S.USD did not belong to him. Jatin Jhaveri produced copies of currency declaration forms dated 25 6 1993 and 28 6 1993 at the time of bringing / importing the said USD , while returning to India. The said amount according to him was received by him as an advance for business transaction from his business associates in the USA, when he was on a foreign tour to America.

Commissioner of Customs, Sahar International Air port and by his order dated 30.8.1995 directed absolute confiscation of foreign currency of USD 4,03,550 equivalent to Rs.1,24,49,517 /under the provisions of Section 113(d), (e) & (i) of the Customs Act, 1962 read with Section 13(2) of the FERA 1973. By the said order penalty of Rs.10 lacs was also imposed on Jatin Jhaveri , penalty of Rs.3 lacs on Ajit Dodia and penalty of Rs.2 lacs on Jitendra Dodia under Section 114 of the Customs Act for their role in the smuggling of foreign currency to the extent of 4,03,550 USD out of India.

The CEGAT allowed the Appeal filed on behalf of the Appellant Jatin Jhaveri and partly allowed the Appeals filed by Ajit Dodia and Jitendra Dodia .

In so far as the amount of 2,89,250 USD is concerned, to which a claim was laid by Jatin Jhaveri , the CEGAT held that the said amount was legally imported into India since it was declared on arrival to the Customs Department and, therefore, the CEGAT permitted the said amount to be reexported subject to the permission of the RBI or to be disposed of in accordance with banks directions on payment of fine of Rs.9 lacs. The CEGAT reduced the penalty amount imposed on Jitendra Dodia from RS.10 lacs to Rs.7 lacs and also reduced the penalty imposed on Ajit Dodia from Rs.2 lacs to Rs.1 lac.

The said Order of the CEGAT is stated to have become final and binding as the Revenue has not chosen to carry the matter further.

In so far as the FERA is concerned, the Show Cause Notice came to be issued on 21 11 2007 for contravention of Section 8(1) read with Section 64(2) of the said Act. The adjudicating authority was of the view that though the case of the said Jatin Jhaveri in respect of the said amount 2,89,250 USD was accepted by the Tribunal ( CEGAT ), the order of the CEGAT would not be binding on the authorities under the FERA . He i mposed penalty of Rs.30 lacs each on Jatin Jhaveri and Ajit Dodia and of Rs.7.5 lacs on Jitendra Dodia . It was held that the currency in question was liable to confiscation under Section 63 of FERA and it was so ordered.

The two Appeals filed by Jatin Jhaveri and Jitendra Dodia came to be allowed by the Appellate Tribunal for Foreign Exchange and thereby the penalty imposed upon Jatin Jhaveri and Jitendra Dodia came to be set aside, as also the confiscation of the amount of 2,89,250 USD was also quashed and set aside. The gist of the reasoning of the Tribunal was that Jatin Jhaveri had explained the circumstances on account of which in his first statement dated 12.10.1993, he had not mentioned about his claim of 2,89,250 USD . According to the Tribunal, the adjudicating authority had failed to take into consideration the subsequent statement dated 7.10.1996 of the said Jatin Jhaveri .

The aforesaid order of the Appellate Tribunal was challenged by Union of India represented by Director of Enforcement in the High Court of Bombay. Writ Petition No.2976 of 2004 was also preferred by Jatin Jhaveri in the High Court contending that he was entitled to the release of USD 289,250 along with interest @ 18%. The High Court affirmed the view taken by the Appellate Tribunal and dismissed FERA Appeal No.64 -66 of 2006 by its judgment and order dated 19.10.2010. It was observed that the order of CEGAT having attained finality, that order had definite bearing on the controversy in question and though the findings recorded in the Customs proceedings may not be binding on FERA proceedings, it was not possible for the High Court to take a different view in the matter. By the same judgment the High Court allowed Writ Petition No.2976 of 2004 holding that Jatin Jhaveri was entitled to the currency amounting to USD 289,250 but would not be entitled to any interest thereon.

The High Court order is challenged in the Supreme Court by both the parties on the issues they are aggrieved with; Jatin Jhaveri , being aggrieved in so far as rejection of prayer for grant of interest was concerned. On the other hand, Union of India is challenging the dismissal of FERA Appeal by the High Court.

The Supreme Court observed,

We have gone though the currency declaration forms in question. It is relevant that in his first statement dated 12.10.1993, Jatin Jhaveri had clearly dissociated himself and disowned the currency in question. This statement itself was more than two months after the seizure. The subsequent reliance on currency declaration forms was, therefore, rightly found suspicious by Special Director in his order dated 04.10.1999. Mr. Bhatt, learned Senior Advocate placed before us letters dated 14.06.1993 and 23.06.1993 in support of the contention that contracts were entered into pursuant to which currency amounting to USD 289,250 was received by Jatin Jhaveri while he was in USA. These letters are bereft of any details and in our view are quite self-serving. At the same time, as found by the Special Director, the original passport of Jatin Jhaveri was never produced from which it could be established that he was in USA on the dates alleged.

However, what is of greater significance and import is the absence of any special or general permission as contemplated under Section 8(1) of FERA . No such permission is produced or relied upon. In fact, that is not even the case that Jatin Jhaveri had applied for and got such permission. For the purpose of Section 8(1) of FERA , "acquisition" of foreign exchange must be with general or special permission of the Reserve Bank of India. Even if the matter of ‘bringing into India' of the currency in question, as submitted by the Senior Advocate, is taken to have been established, though that part of the matter itself is not free from doubt, the question regarding ‘acquisition' of currency must be independently established in the light of requirements under said Section 8(1). The assessment in that behalf by the Appellate Authority under FERA and the High Court is completely incorrect .

The Supreme Court set aside the orders passed by the Appellate Tribunal, FERA and by the High Court while accepting the view taken by the Special Director. Consequently, Civil Appeal preferred by Union of India are allowed and the order dated 04.10.1999 passed by Special Director of Enforcement, Mumbai, stands restored. As the order of confiscation is confirmed, the challenge preferred by Jatin Jhaveri in the form of his writ petition and consequential Civil Appeal must fail and said appeal is dismissed.

Since the amount of Rs.1,83,09,525 /- was refunded and credited to the account of Jatin Jhaveri during the pendency of the proceedings subject to his undertaking to return the same with interest, he is directed to refund the amount with interest @ 10% per annum within six weeks.

(See 2016-TIOL-73-SC-FEMA)