Retracted Confession Plus Seized Documents Enough to Sustain FERA Violation; SAFEMA Tribunal Slashes Penalty from Rs. 1 Crore to Rs. 15 Lakh
1. Overview of the Dispute
The Appellate Tribunal under SAFEMA, New Delhi, delivered its ruling on October 12, 2026, in Praveen Sharma v. Directorate of Enforcement, Appeal No. FPA-FE-3/DLI/2012, presided over by Chairman Justice Munishwar Nath Bhandari. The core question before the Tribunal was whether a contravention under Section 8(1) of the Foreign Exchange Regulation Act, 1973 could be sustained against an assessee who had promptly retracted his statement, and, separately, whether the penalty of Rs. 1 crore imposed by the Special Director, Directorate of Enforcement, vide order dated October 17, 2011, was proportionate to the established facts.
The Tribunal answered the first question in favour of the Enforcement Directorate, confirming the contravention, but answered the second in favour of the assessee, reducing the penalty to Rs. 15 lakh. This outcome rests on two distinct legal conclusions: that corroborated retracted statements are admissible to establish a FERA charge, and that quantification of the contravention amount is a relevant factor in calibrating the penalty quantum.
2. How the Investigation Began
The Directorate of Enforcement received intelligence that Praveen Sharma was operating an unauthorised foreign currency exchange business on a large scale from Flat No. 203-A, LIG Type, Motia Khan, DDA Flats, Paharganj, New Delhi. Acting on this information, ED conducted a search of those premises on November 29, 1996.
The search yielded two categories of material. First, Indian currency amounting to Rs. 2,60,000 was recovered and seized. Second, a set of documents was recovered that, on their face, recorded transactions in foreign currencies. Some of these documents used coded terminology, which the assessee himself subsequently decoded.
Statements were recorded under Section 40 of the Foreign Exchange Regulation Act, 1973 from Praveen Sharma on November 29 and 30, 1996, in which he admitted to buying and selling gold and foreign currencies from and to foreign nationals at black-market rates. On the same date, a statement was also recorded from one Surinder Singh, who identified himself as an employee of the assessee and described the assessee's involvement in purchasing gold from persons arriving from Russia and other countries in exchange for dollars and other foreign currencies. A further statement was recorded from Puran Chand on November 30, 1996, corroborating the assessee's engagement in the exchange of gold for foreign currencies. One of the seized documents referenced M/s Lee Design's account with Allahabad Bank and indicated an amount of USD 54,740 alongside the names of certain foreign banks. Material gathered from the office of M/s Lee Design during the investigation separately pointed to the assessee's involvement.
On the basis of this evidence, the Special Director issued a show-cause notice, and following the adjudication process, imposed a penalty of Rs. 1 crore for contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.
3. Grounds Raised by the Assessee Before the Tribunal
The assessee challenged the adjudication order on multiple grounds. These are examined below along with the Tribunal's findings on each.
(i) No CFSL Report Was Obtained
The assessee contended that despite a specific request in his reply to the show-cause notice, the Special Director did not direct that the seized documents be sent to the Central Forensic Science Laboratory for examination, nor was any formal order passed on that request. He argued that relying on documents without a CFSL report vitiated the adjudication.
(ii) Panch Witnesses Were Not Summoned
Similarly, in his reply dated April 16, 2008, the assessee had asked that the panch witnesses be summoned to establish that the seized documents were not actually recovered from his possession. The Special Director passed no order on this request either, and the assessee contended that proceeding without doing so rendered the entire adjudication procedurally infirm.