The Delhi High Court has held that once a contravention of Section 9(1)(b) and 9(1)(d) of FERA is established, the levy of penalty under Section 50 follows irrespective of any guilty intention or mens rea on the part of the contravener. The fact that the contravener did not receive any monetary benefit or compensation from the transaction cannot, by itself, be a ground to reduce the penalty imposed for breach of a civil obligation under FERA.
Findings of violation of FERA that have attained finality, on account of no challenge being raised by the contravener, cannot be re-opened indirectly by reducing the penalty on grounds that go to the very root of the established, added the Court.
The High Court explained that the doctrine of proportionality permits judicial review of the quantum of penalty, but courts will not interfere with the penalty imposed by the competent authority unless it is so disproportionate that it shocks the conscience of the court. However, for the doctrine of proportionality to apply, the penalty must be shown to be grossly excessive, disproportionately high, or unduly harsh. Mere use of the phrase ‘disproportionate to the contravention involved’ without reasoning is insufficient.
Briefly, the background of the case was that on 12 June 1996, the Enforcement Directorate (ED), Jalandhar received information from the Senior Superintendent of Police, Khanna, that one Girish Roy had been apprehended and Rs. 15 lakhs and Rs. 1.50 lakhs meant for compensatory payments were seized from him. The ED searched the residential premises of Girish Rai and seized foreign exchange instruments worth Rs. 3 lakhs, US $1,000, and Indian currency of Rs. 4.50 lakhs along with some documents.
In his statement under Section 40 of FERA recorded on 13 June 1996, Girish Rai admitted that he was engaged in the business of receiving and making payments in India under the instructions of one Subhash of Philippines for the last four months, having received payments totalling Rs. 28 lakhs and made payments totalling Rs. 8.50 lakhs. He further stated that the foreign exchange instruments seized from him were handed over by his uncle during April 1996, while the Indian currency seized by the police from Shadi Lal was received by him from a person named Vicky at Delhi under the instructions of Subhash of Philippines at the residence of one Yogesh Sohal at Delhi.
The residential premises of Yogesh Sohal were also searched on 31 July 1996, leading to seizure of some documents. In his statements dated 31 July 1996 and 13 September 1996 recorded under Section 40 of FERA, Yogesh Sohal stated that a person had come to his house and disclosed his identity as ‘Vicky Pukhraj’ and delivered Rs. 19.50 lakhs to Girish Rai Dadwal of Jalandhar at his residence. He also identified the photograph of the respondent, Vijay Chand Baid. Accordingly, summons was issued to the respondent and his statement under Section 40 of FERA was recorded, in which he admitted that he had received a payment of Rs. 19.50 lakhs from an unknown person on the instructions of his brother Mulchand Baid, resident of Hongkong, and made the said payment to Girish Rai.
Based on this disclosure, a Show Cause Notice dated 5 December 1996 was issued to the respondent for having received and made payments amounting to Rs. 19.50 lakhs from a person resident in India under instructions of a person residing abroad, thereby violating Section 9(1)(b) and 9(1)(d) of FERA. The Adjudicating Authority found the respondent guilty of having violated the above provisions of FERA and imposed a penalty of Rs. 5 lakhs on him, holding that the respondent had changed his name as ‘Vicky Pukhraj’ and delivered the payment at the residence of Yogesh Sohal to Girish Rai, and that he had played the role of a mediator.
The respondent challenged this order before the Tribunal, which partially allowed the appeal. While upholding the finding of violation of Section 9(1)(b) and 9(1)(d) of FERA, the Tribunal reduced the penalty from Rs. 5 lakhs to Rs. 15,000 on the ground that the penalty was disproportionate to the contravention involved, given the absence of criminal intent or guilty mind, the fact that the respondent was not working on any compensation basis, and his impecunious situation.
The Division Bench comprising Justice Navin Chawla and Justice Arun Bhardwaj framed the question of law as to whether the Tribunal can interfere with the penalty imposed by the Adjudicating Authority merely on the finding that there was no mens rea in the respondent violating the provisions of FERA, and whether the Tribunal erred in reducing the penalty upon finding the same to be disproportionate to the contravention involved. On the law of disproportionality of penalty, the Court observed that while the doctrine of proportionality permits judicial review of the quantum of punishment, courts do not normally interfere with the penalty imposed by the competent authority unless the penalty is so disproportionate that it shocks the conscience of the Court.
Referring to the judgment in Ranjit Thakur v. Union of India [(1987) 4 SCC 611], the Court noted that the sentence should not be vindictive or unduly harsh, and should not be so disproportionate to the offence as to shock the conscience and amount in itself to conclusive evidence of bias. The Court further relied on Coimbatore District Central Cooperative Bank v. Coimbatore District Central Cooperative Bank Employees Association [(2007) 4 SCC 669], where the Supreme Court reiterated that for interfering with the penalty imposed on the basis of the doctrine of proportionality, the penalty has to be shown as ‘grossly excessive, disproportionately high or unduly harsh’.
The Court observed that keeping in view Section 50 of FERA and given the amount of violation involved, the penalty imposed by the Adjudicating Authority was not such as could have shocked the conscience of the Tribunal. The Tribunal, apart from using the phrase ‘disproportionate to the contravention involved’, did not explain how the same could be said to be so outrageous as to defy logic, and the Court did not find any reasons given by the Tribunal which may justify such a finding in law.
The Court noted that the respondent had been found guilty of contravening Section 9(1)(b) and 9(1)(d) of FERA, that there was no challenge by the respondent to these findings, and that the same had attained finality. The contravention amount was Rs. 19.50 lakhs. The Tribunal had reduced the penalty only on the ground that it did not find any criminal intent or guilty mind of the respondent and that he was working without any compensation. The Court also held that mens rea is not an essential element for imposing penalty for breach of civil obligations.
