Court highlights failure of Enforcement Directorate to prove recovery and voluntariness of retracted statement; loose sheets inadmissible as evidence under FERA
In a significant judgment delivered on 14 October 2026, the Delhi High Court dismissed the Union of India's appeal challenging the Appellate Tribunal for Foreign Exchange's decision that set aside penalties imposed under the Foreign Exchange Regulation Act, 1973 (FERA) on Shri Laxman T. Advani. The case arose from searches conducted in 1985 at Advani's residence and business premises, wherein Indian currency totaling Rs.1,75,000 and loose sheets of paper were allegedly recovered. The Enforcement Directorate (ED) accused Advani of contravening Sections 8(1) and 8(2) of FERA by dealing in foreign exchange without permission.
The Adjudicating Authority initially found Advani guilty and imposed penalties of Rs.10,00,000 each under the relevant provisions, along with confiscation of the seized currency. However, Advani appealed, and the Appellate Tribunal set aside the penalties, a decision now upheld by the Delhi High Court.
The Court's judgment emphasized several critical deficiencies in the prosecution's case. Firstly, the recovery of currency and documents was seriously disputed. The search was conducted in the presence of "panch" witnesses, yet none were examined or produced in evidence to verify the seizure. Notably, the panchnama itself recorded that one panch witness threw the briefcase containing currency from the second floor and attempted to flee with part of the money, while another witness absconded from the scene. This conduct raised serious doubts about the reliability and authenticity of the recovery.
Secondly, even assuming the currency was recovered from Advani's premises, the Court agreed with the Tribunal's finding that mere possession of cash did not establish it as proceeds from illegal foreign exchange transactions. Advani satisfactorily explained the source of the currency through bank statements showing withdrawals of about Rs.2,00,000 in the months preceding the search and cash books reflecting cash-in-hand of nearly Rs.1,99,000. This explanation was credible and unrebutted.
Thirdly, regarding the loose sheets of paper seized, the Court ruled that such documents are not "books of account" and therefore are inadmissible under Section 34 of the Indian Evidence Act. While Section 72 of FERA provides presumptions as to documents seized, it applies only if the document is otherwise admissible in evidence. The Court relied on Supreme Court precedent (Central Bureau of Investigation v. V.C. Shukla, 1998) to hold that loose sheets do not qualify and thus could not support the prosecution's case.
Crucially, the prosecution heavily relied on statements recorded from Advani during custody, which he later retracted at the earliest opportunity. The Court reiterated settled law that retracted statements can only be relied upon if proved to be voluntary and corroborated by independent evidence. No evidence of voluntariness was produced, nor was there any independent corroboration, making reliance on the retracted statements untenable.
Further, the Court clarified the burden of proof under Section 71 of FERA. While the accused must prove he had requisite permission to deal in foreign exchange once the Department proves the contravention, the Department's initial burden to prove the foundational fact-i.e., that the accused dealt in foreign exchange-remains paramount. In this case, since the Department failed to prove that Advani engaged in foreign exchange dealings, the burden did not shift to him, and the penalties could not be sustained.
The Court dismissed the appeal, affirming that the Appellate Tribunal rightly set aside the penalty order and confiscation. It underscored the need for strict adherence to evidentiary standards, the requirement of corroboration, and the protection against arbitrary penalties in foreign exchange regulation matters.
This judgment reinforces procedural safeguards in enforcement actions under FERA and highlights the importance of credible, admissible evidence and proper witness examination to uphold penalties for foreign exchange contraventions.
Bottom Line:
FERA - Proceedings for contravention of Sections 8(1) and 8(2) - Retracted statement cannot be relied upon unless shown to be voluntary and corroborated by independent evidence - Loose sheets are not admissible merely by virtue of Section 72 FERA if otherwise inadmissible in evidence - Initial burden to prove foundational facts of foreign exchange dealing lies on Department before burden under Section 71 shifts.
Statutory provision(s):
Foreign Exchange Regulation Act, 1973 Sections 8(1), 8(2), 35, 54, 71, 72; Indian Evidence Act, 1872 Section 34
Union of India v. Shri Laxman T. Advani, (Delhi)(DB) : Law Finder Doc Id # 2997236
