Foreign Exchange Violation: Supreme Court Ruling on Jatin C. Jhaveri Case
The Supreme Court of India delivered a significant judgment in the case of Jatin C. Jhaveri vs. Union of India, addressing the violation of the Foreign Exchange Regulation Act, 1973 (FERA) concerning an illegal attempt to export foreign currency. The case involved serious allegations of illegal foreign exchange possession and transfer, highlighting the legal framework governing currency transactions and the importance of compliance with FERA provisions.
Background of the Case
The case originated from an incident on the night of July 27-28, 1993, when customs officials at Mumbai Airport intercepted Ajit Dodia, who was attempting to board a flight to Hong Kong. Upon inspection, officials discovered US $403,550 concealed in his baggage:
- US $289,250 in a suitcase
- US $114,300 in a briefcase
Upon questioning, Dodia revealed that he was traveling with Jatin Jhaveri, a diamond trader, and that his brother, Jitendra Dodia, worked with Jhaveri. The trip was allegedly planned and arranged by Jhaveri, who had also driven Ajit Dodia to the airport. Following this revelation, customs authorities initiated legal proceedings under the Customs Act and FERA.
Legal Proceedings
Initial Investigation and Customs Case
During the investigation, Jatin Jhaveri initially denied any connection to the seized currency, stating:
“It does not belong to me.”
However, later, he claimed that he had brought the money legally from the USA as an advance payment for diamond exports. He produced two Currency Declaration Forms:
- Form No. 100250, dated June 25, 1993, for US $254,000
- Form No. 10763, dated June 28, 1993, for US $35,250
According to Jhaveri, his baggage had arrived separately, and the funds were intended for business purposes. However, customs officials found inconsistencies in his claims. The Commissioner of Customs, in his order dated August 30, 1995, ruled that:
“Had these currency declaration forms been with Shri Jatin Jhaveri, they should have been found along with the foreign currency itself. He disowned the currency at the time of seizure, which raises serious doubts about his claims.”
The customs authorities confiscated the entire foreign currency amount and imposed penalties:
- Penalty of Rs.10 lakhs on Jatin Jhaveri
- Penalty of Rs.3 lakhs on Ajit Dodia
- Penalty of Rs.2 lakhs on Jitendra Dodia
FERA Show Cause Notice
Following the customs case, the Directorate of Enforcement issued a Show Cause Notice on November 21, 1997, under Section 8(1) read with Section 64(2) of FERA, accusing Jhaveri of illegally acquiring and transferring foreign currency.
Adjudication by Special Director of Enforcement
The Special Director of Enforcement, Mumbai, issued an order on October 4, 1999, concluding:
“The entire foreign exchange of US $403,550 seized was illegally acquired by Jatin Jhaveri and transferred to Ajit Dodia for onward transfer to Hong Kong. The accused failed to produce any Reserve Bank of India (RBI) permission for acquiring or transferring foreign exchange, as required under Section 8(1) of FERA.”
The Special Director imposed the following penalties:
- Rs.30 lakhs each on Jatin Jhaveri and Ajit Dodia
- Rs.7.5 lakhs on Jitendra Dodia
- Confiscation of US $403,550
Appeals and High Court Decision
Jhaveri challenged the FERA penalties before the Appellate Tribunal for Foreign Exchange, which, on March 10, 2004, ruled in his favor, stating:
“The currency declaration forms prove that the foreign exchange was legally brought into India. The Directorate of Enforcement failed to prove otherwise.”
The Bombay High Court later upheld this ruling, ordering the return of US $289,250 to Jhaveri but denied his claim for interest.
Supreme Court’s Judgment
The Supreme Court, comprising Chief Justice T. S. Thakur and Justice Uday Umesh Lalit, overruled the High Court’s decision, restoring the original ruling of the Special Director of Enforcement.
Key observations:
- Jhaveri’s initial denial of ownership was crucial in assessing his later claims.
- His failure to produce his original passport to verify his travel records weakened his case.
- Most importantly, he failed to obtain prior permission from the Reserve Bank of India (RBI) to legally acquire the foreign currency.
The Court concluded:
“Even if the currency was brought legally into India, its acquisition required RBI permission under Section 8(1) of FERA. In the absence of such permission, the transaction remains illegal.”
Final Verdict
- Jhaveri was directed to return Rs.1,83,09,525 (equivalent to US $289,250) within six weeks, with 10% interest.
- The confiscation order for US $403,550 was reinstated.
- The penalties imposed by the Special Director were upheld.
Implications of the Judgment
This ruling has significant implications for foreign exchange regulations in India:
- Strict Enforcement of FERA: The case reinforces the necessity for obtaining RBI approval for foreign currency transactions.
- Importance of Transparency: Initial denial of ownership can severely impact legal claims in later proceedings.
- Precedent for Future Cases: The judgment sets a benchmark for similar cases involving foreign exchange violations.
Conclusion
The Supreme Court’s decision in this case upholds the integrity of India’s foreign exchange regulations. It underscores the importance of compliance with FERA provisions and serves as a cautionary tale for individuals engaged in international financial transactions.
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Download Judgment: Jatin C. Jhaveri vs Union of India Supreme Court of India Judgment Dated 13-05-2016-1741860861739.pdf
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