CRL.A./134/2008 of RAKESH KAPOOR Vs UOI &ORS.

IN THE HIGH COURT OF DELHI AT NEW DELHI

Crl.A. No. 134 of 2008

Reserved on: February 6, 2014Decision on: February 19, 2014

CRL. A. Nos. 134, 138 & 188 of 2008

Crl.A. No. 188 of 2008

ARUN SHARMA

..... Appellant

Through:Mr. H.S.Bhullar withMs. Safia Gupta andMs. Rajyashree Banerjee,Advocates.

versus

ATUL VERMA, DEPUTY DIRECTOR,

ENFORCEMENT DIRECTORATE...... RespondentThrough:Mr. Subhash Bansal withMr. Shashwat, Advocates.

CORAM: JUSTICE S. MURALIDHAR

JUDGMENT

19.02.2014

1. These three appeals are directed against the common order dated 12[th]December 2007 passed by the Appellate Tribunal for Foreign Exchange(AT) dismissing the Appeal Nos. 443, 450 and 451 of 2004, therebyaffirmingthe common Adjudication Order (AO) dated 17[th]February2004 passed by the Deputy Director (DD), Enforcement Directorate(ED) imposing the penalty of Rs. 5 lakhs each on each of the Appellantsunder Section 8 (1) and 8 (2) of the Foreign Exchange Regulations Act,1973 (FERA).

2. The background facts are that on 28[th]April 1989, the officers of theED, Delhi Zonal Office conducted number of searches at the OberoiHotel in Delhi resulting in the recovery of foreign exchange, Indian

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currency etc. from the front office as well as the guest lockers in thehotel.Relevant to the present appeals, the ED is stated to haverecovered from guest locker No. 21 maintained by Arun Sharma (theAppellant in Crl. A. No. 188 of 2008), who was the cashier-cum-nightauditor, Indian currency totalling Rs. 49,500 and foreign currency,including US$, UK£, French Francs, Hong Kong Dollars etc., sevengold biscuits, two small gold coins of all foreign origin and one goldpendant. From the other locker No.38 also stated to have been allotted toArun Sharma, file with bunch of 42 pages was recovered. From theperson of Rajeev Wadhwa (the Appellant in Crl. A. No. 138 of 2008),who was cashier-cum-night auditor, ED officials recovered one DinersClub international card, 25 US$, 20 French francs and bunch of 8 loosesheets. From the Employees Locker No. 49 stated to be allotted to andheld by Rajeev Wadhwa, 1 Rouble and Indian currency of Rs.8,000 anda bunch of 10 loose sheets were recovered.

3. As regards Rakesh Kapoor (the Appellant in Crl. A. No. 134 of 2008),the search of guest locker No. 55 stated to be held by him yielded 100Hong Kong Dollars, 57 Singapore Dollars, 1 US$, 50 Deutsche Marksetc. and Indian currency of Rs 8000 apart from bunch of loose sheets.

4. According to the ED, during the course of investigation it was noticedthat as on 28[th]April 1989 Arun Sharma, Rajeev Wadhwa and RakeshKapoor were authorised signatories of the Oberoi Hotel in terms of theReserve Bank of India (RBI) changer licence dated 20[th]November 1986

CRL. A. Nos. 134, 138 & 188 of 2008

valid up to 31[st]December 1989. They were required to issue certificatesof encashment in form ECR and information of the purchase of foreigncurrency towards settlement of bills for services rendered irrespective ofwhether the encashment certificate was asked for. According to the ED,their investigation, however, revealed that these three persons did notissue the requisite certificates against the foreign currency tendered tothem and they instead purchased/acquired other foreign exchangetendered by the public without any previous general or specialpermission of the RBI.

5. According to the ED, the investigations revealed that during 1987 toApril 1989, Arun Sharma had purchased/acquired foreign exchangeworth Rs. 6 lakhs and foreign exchange of various denominations ofUS$, UK£ etc. and that he also sold foreign exchange worth Rs. 6 lakhsto Rakesh Kapoor at rates of exchange other than those authorised by theRBI without any previous general or special permission of the RBI, andthat the seven gold biscuits, two small gold coins had been seized fromthe locker held by Mr. Arun Sharma and the sum of Rs. 29,500 out ofthe seized sum of Rs. 49,500 were towards the proceeds of the foreignexchange sold.

6. The allegation against Rajeev Wadhwa was that during the sameperiod, he acquired foreign exchange to the extent of US$ 72,800 andthat he had sold US$ of that worth to Rakesh Kapoor without anyprevious general or special permission of the RBI.

CRL. A. Nos. 134, 138 & 188 of 2008

7. As regards Rakesh Kapoor, the allegation was that during the sameperiod he purchased/otherwise acquired foreign exchange worth Rs. 6lakhs from Arun Sharma and US$ 72,800 from Rajeev Wadhwa andsold the same to persons other than those authorised dealers in foreignexchange which was recovered from Guest Locker No. 55. The chargeagainst these three persons was that they failed to comply with theconditions of the Money Changers Licence by not issuing encashmentcertificates of the foreign exchange tendered to the Oberoi Hotel.

8. statement was purportedly recorded of Rajeev Wadhwa on 29[th]April 1989 itself.Statements were also recorded on 1[st]May 1989 ofRakesh Kapoor and Arun Sharma. All three of them were arrested andproduced before the learned Additional Chief Metropolitan Magistrate(ACMM), New Delhi on 29[th]April 1989 itself and sent to judicialcustody.In letter dated 3[rd]May 1989 addressed to the learnedACMM, New Delhi, Arun Sharma retracted the statement made by himstating that he had given it under threat of arrest and was told that, if hewrote whatever was dictated, he would be permitted to go. He claimedthat he had nothing to do with the currency or gold recovered from theguest locker. He further stated that “nothing has been recovered from mylocker, I, therefore, want to retract my statement made before theEnforcement Officer”. As regards Rajeev Wadhwa, he too retracted thestatement made by him.

9. On the above basis, almost one year after the alleged search,

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Memorandum/Show Cause Notice (SCN) 26[th]April 1990 was issued tothe three Appellants as well as to M/s Oberoi Hotel, New Delhi andP.R.S. Oberoi who was at that time its Vice Chairman/ManagingDirector. They were alleged to have contravened the provisions ofSection7, 8(1) and 8(2), 49, 73(3) of the FERA read with para 2(i) and2(ii), 9 and 18 of the Memorandum of Instructions applicable to money-changers. The Appellants replied to the Memorandum on 31[st]May 1990denying the allegations and requested for examination of the official andpublic witnesses. In his reply Arun Sharma requested for inspection ofthe relied upon documents.

10. On 17[th]February 1992, hearing was fixed before the SpecialDirector (SD), ED and Arun Sharma on that date requested for issuanceof summons for cross-examination of Sunil Kher, witness.Thisrequested was reiterated on 20[th]May 1992. By letter dated 22[nd]June1992, the SD rejected the request and fixed the hearing on 31[st]August1992. The hearings on 31[st]August 1992; 30[th]April 1993 and 15[th]June1994 were adjourned at the request of the noticees. Thereafter more thanone year and four months, no effective hearing took place. The case waslisted on 19[th]October 1995 and again adjourned. At the next hearing on10[th]January 1996, none appeared. According to the Appellants, nointimation was received of the dates of hearing on 26[th]July 1996, 31[st]July 1996; 6[th]December 1996; 4[th]February 1997; 22[nd]March 2000; 27[th]March 2000; 14[th]August 2002 and 22[nd]December 2013. One of thestriking features of the case is the inordinate delay in disposal of theMemorandum/SCN by the DD.

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11. In the meanwhile, the FERA was repealed by the Foreign ExchangeManagementAct,1999(FEMA).Theproceedingspurportedlycontinued thereafter.

12. According to the Appellants, no intimation was given of the hearingsfixed in March 2000, August 2002 and December 2003. From the AOdated 17[th]February 2004 passed by the ED holding the Appellants guiltyof violating Sections 8(1) and 8(2) FERA, it is seen that the DD receiveda letter dated 2[nd]December 2003 from the Advocate appearing on behalfof M/s Oberoi Hotels and P.R.S.Oberoi and he was permitted to file arejoinder by 26[th]December 2003. It is not clear from the AO whetherthe other noticees were made aware of the said proceedings. As far asRakesh Kapoor and Rajeev Wadhwa are concerned, the AO notes thatthey resubmitted their earlier replies dated 23[rd]December 1996; 29[th]January 1997 and 3[rd]April 2000.

13. One feature of the case which is apparent from the record is thatthere has been an inordinate delay in the passing of the AO dated 17[th]February 2004. If according to the Appellants, no hearing took place atall after 1996, it is possible that the officer holding the post of SD whoconducted the proceedings prior thereto was obviously not the sameofficer who actually issued the AO in 2004. The letter dated 3[rd]April2000 written by counsel for Rakesh Kapoor to the ED states that afterthe previous hearing in 1996 no AO followed and the matter was relistedon 22[nd]March 2000 but no arguments took place. Counsel enclosed with

CRL. A. Nos. 134, 138 & 188 of 2008

the said letter resume of the submissions. Clearly, therefore, no hearingtook place immediately prior to the passing of the AO.

14. The second aspect of the matter concerns the examination ofwitnesses. The letter to the SD dated 23[rd]December, 1996 written bycounsel for Rakesh Kapoor, states that R.K. Handoo was examined as awitness for the ED but his cross-examination by the noticees did not takeplace. It appears that for some reason, the SD decided not to continue therecording of the evidence of the said witnesses. The request of RakeshKapoorforcross-examinationofRajivKaul,AssistantGeneralManager, Oberoi Hotel and the right to cross-examine Arun Sharma andRajeev Wadhwa remained unanswered.

15. The proceedings before the SD and later the DD were quasi-judicialin nature and the legal requirement was that the principles of naturaljustice had to be followed. This was enshrined in Section 51 FERAwhich reads as under:

51. Power to adjudicate. For the purpose of adjudging undersection 50 whether any person has committed contravention ofany of the provisions of this Act (other than those referred to inthat section) or of any rule, direction or order made thereunder,the adjudicating officer shall hold an inquiry in the prescribedmanner after giving that person reasonable opportunity formaking representation in the matter and if, on such inquiry, he issatisfied that the person has committed the contravention, he mayimpose such penalty as he thinks fit in accordance with theprovisions of that section.

CRL. A. Nos. 134, 138 & 188 of 2008

16. In the context of the present case, ‘reasonable opportunity’ to thenoticees included affording them an opportunity of cross-examining thewitnesses of the ED. Placed on record is the letter dated 14[th]January1991 written by Rakesh Kapoor to the ED making specific request forcross-examination. He reiterated this request in the letter dated 23[rd]December 1996. Yet, the record does not show that any such opportunitywas granted. On the other hand, it shows that without assigning anyreasons, it was decided by the SD not to further proceed with theexamination of the witnesses. There is no doubt, therefore, that anadequate opportunity was not granted to any of the Appellants to cross-examine the witnesses for the ED thereby violating the statutoryrequirement in terms of Section 51 FERA.

17. On merits, one of the main pieces of evidence relied upon by the EDwas the confessional statement of Rajeev Wadhwa and in particular thefollowing answers given by him:

“Q.What gain you were deriving from purchase & sale of thesaid foreign exchange.said foreign exchange.

A.Approx. Rs. 2000/- per month.

Q.How much foreign exchange has been purchased and soldby you in this manner during last two years.by you in this manner during last two years.

A.I do not remember exactly but it was on the average approx.US $ 700 per week during my shift. I may also state that Ialong with some of my colleagues working as front officeUS $ 700 per week during my shift. I may also state that Ialong with some of my colleagues working as front office

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cashier used to collect / purchase / F. Exchange collectivelyand used to share the profit earned on the sale of the said F.exchange as stated.

Sd/-29/4/89Rajeev Wadhwa29.4.89”

18. The above statement was, of course, retracted by Mr. Wadhwa. Itcould not have been relied upon except where it was corroborated inmaterial particulars by other reliable evidence. As regards Arun Sharma,as already noticed, although he is purported to have made statementimplicating himself and the co-accused, he retracted the said statement atthe first available opportunity when he was produced before the learnedACMM on 3[rd]May 1989. In subsequent statement recorded on 18[th]February 1992, he stated that his statement:

“.......was taken under duress, stress & emotional blackmailingsaying of torturing my wife and son and that too after keeping mefor more than 25 hours at their office which no ordinary personcan take it. I told them also to write what they want and I’ll sign itbut told me to write it as they say and sign it. Sir, that was allunder threat and stress which on the first chance when I got it Iretracted that statement writing to the Honourable ACMM on 3[rd]May 1989.”

19. The AO, as well as the impugned common order of the AT, proceedson the basis that the confessional statement when voluntary and truthfulis the best evidence and that “......a bald statement alone of the appellants

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alleging threat and coercion against reliance on admissional statement”was not acceptable. For retracted confession to be admissible, it mustbe shown to have been made voluntary and further it should becorroborated in material particulars by other reliable evidence. In VinodSolanki v. Union of India (2008) 16 SCC 537 the Supreme Court held(SCC @ p. 548):

“26......The initial burden to prove that the confession wasvoluntary in nature would be on the Department. The special orpeculiar knowledge of the person proceeded against would notrelieve the prosecution or the Department altogether of the burdenof producing some evidence in respect of that fact in issue. It mayonly alleviate that burden to discharge and very slight evidencemay suffice.”

20. Again in Mohtesham Mohd. Ismail v. Spl. Director, EnforcementDirectorate (2007) 8 SCC 254, it was observed as under (SCC @ p.263):

“20. We may, however, notice that recently in Francis Stanly v.IntelligenceOfficer,NarcoticControlBureau,Thiruvananthapuram(2006)13SCC210,thisCourthasemphasised that confession only if found to be voluntary and freefrom pressure, can be accepted. confession purported to havebeen made before an authority would require closer scrutiny. Itis furthermore now well settled that the court must seekcorroboration of the purported confession from independentsources.”

21. Apart from the above statements of the co-accused which were

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retracted, there was no independent reliable evidence placed on record inthe instant case by the ED to corroborate the said retracted statements inorder to substantiate the charges in the SCN.

22. The facts in Naresh J. Sukhawani v. Union of India 1996 SCC(Cri) 76, relied upon by Mr. Bansal, are distinguishable. There wasnothing in the said case to show that the confessional statement madewas retracted. Again in Telstar Travels Private Ltd. v. EnforcementDirectorate (2013) 9 SCC 549, on the facts of the case it was held thatthe subsequent retraction of the statements validly were mereafterthought. The Court did not in any way dilute the legal requirementas explained in K.T.M.S. Mohd. v. Union of India (1992) 3 SCC 178 inthe following words (@ SCR p. 899):

“We think it is not necessary to recapitulate and recite all thedecisions on this legal aspect. But suffice to say that the core ofall the decisions of this Court is to the effect that the voluntarynatureofanystatementmadeeitherbeforetheCustomAuthorities or the officers of Enforcement under the relevantprovisions of the respective Acts is sine quo non to act on it forany purpose and if the statement appears to have been obtained byany inducement, threat, coercion or by any improper means thatstatement must be rejected brevi manu. At the same time, it is tobe noted that merely because statement is retracted, it cannot berecorded as involuntary or unlawfully obtained. It is only for themaker of the statement who alleges inducement, threat, promiseetc. to establish that such improper means has been adopted.However, even if the maker of the statement fails to establish hisallegations of inducement, threat etc. against the officer whorecorded the statement, the authority while acting on the

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inculpatory statement of the maker is not completely relieved ofhis obligations in at least subjectively applying its mind to thesubsequent retraction to hold that the inculpatory statement wasnot extorted. It thus boils down that the authority or any Courtintending to act upon the inculpatory statement as voluntary oneshould apply its mind to the retraction and reject the same inwriting. It is only on this principle of law, this Court in severaldecisions has ruled that even in passing detention order on thebasis of an inculpatory statement of detenu who has violated theprovisions of the FERA or the Customs Act etc. the detainingauthority should consider the subsequent retraction and record itsopinion before accepting the inculpatory statement lest the orderwill be vitiated.”

23. Neither the AO nor the impugned order of the AT, have dwelt onthe recovery of the foreign exchange from the guest lockers, andconnected those recoveries with the Appellants. The specific case ofRakesh Kapoor was that he did not have in his possession the keys ofGuest Locker No. 55 and the duplicate key was provided by the hotelmanagement though the locker was not found to be allotted to anyperson. It is only from the statements of the co-accused which were inany event retracted, that the connection between Rakesh Kapoor andLocker No. 55 was sought to be made. Therefore, the evidence in thisregard was weak and not corroborated by other independent witnesses.Moreover, it is not as if all the lockers were checked by the ED todetermine which of the guest lockers were in fact being used by theAppellants, if at all.

CRL. A. Nos. 134, 138 & 188 of 2008

24. Mr. Bansal, learned counsel for the ED, referred to Section 72(1) ofthe FERA and to the fact that the slips recovered from the lockers weresufficient to show that the Appellants had acted in contravention ofSection 7, 8(1), 8 (2), 47, 49 and 73(3) of the FERA read with Section68(2) thereof. The proving of the said slips recovered from the lockersalso depended on the statements of the Appellants themselves. Therewas no statement made by Rakesh Kapoor to explain the slips. Thestatements by Rajeev Wadhwa and Arun Sharma have been retracted.Consequently the ED cannot take advantage of Section 72 FERA asregards presumption of the correctness of those documents. Thepresumption was rebuttable one and in the present case must be held tohave stood rebutted on account of the statements of the co-accused beingretracted.

25. It also appears that no valuation was done of the currencies seizedfrom the guest lockers. Learned counsel for the Appellants has shownthat the total value of the currency purportedly seized from the guestlocker of Rajeev Wadhwa was Rs. 11,560 and that from guest LockerNo. 55 of Rakesh Kapoor Rs. 42,679.65. This was different from whatwas alleged in the Memorandum/SCN. In particular, there appears to beno reliable and independent evidence to show that Arun Sharmaacquired foreign exchange worth Rs. 6 lakhs and sold foreign exchangeof that value to Rakesh Kapoor or that Rajeev Wadhwa acquired foreignexchange of US$ 72,800 and sold them to Rakesh Kapoor or that RakeshKapoor acquired foreign exchange of the above worth from ArunSharma and Rajeev Wadhwa.

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26. It was further contended by the learned counsel for Rakesh Kapoorthat his name has been wrongly mentioned as ‘Kailash Kapoor’, in theMemorandum/SCN as well as in the AO and that this showed non-application of mind by the ED. perusal of the AO does bear out theabove submission.

27. For the aforementioned reasons, this Court is of the view that boththe AO dated 17[th]February 2004 and the impugned order dated 12[th]December 2007 of the AT are unsustainable in law and are accordinglyhereby set aside.

28. The appeals are allowed in the above terms.

29. The amounts, if any, respectively deposited by the Appellants duringthe pendency of the proceedings will be refunded to them within eightweeks together with interest, if any, accrued thereon.

FEBRUARY 19, 2014

akg

S. MURALIDHAR, J.

CRL. A. Nos. 134, 138 & 188 of 2008