2026 Supreme(Online)(ATFP) 232

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Munishwar Nath Bhandari, Chairman, Gopal Chandra Mishra, Member
A.D. E.D. Chennai – Appellant
Versus
Southern Agrifurane Industries Pvt. Ltd – Respondent
FPA-FE-99/CHN/2022

The Union of India can be an 'aggrieved person' under Section 37A(5) FEMA to appeal against an order of the Competent Authority, and Section 37A applies to continuing contraventions of Section 4 even if initiated before its enactment.

Headnote:(A) Foreign Exchange Management Act, 1999 - Sections 37A, 4, 42 - Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 - Regulations 6, 9, 13, 15 - RBI Master Directions on Overseas Direct Investment (ODI) - Seizure of equivalent value assets held in India - Appeal by Union of India through Assistant Director - Maintainability - 'Aggrieved person' under Section 37A(5) includes the State - Definition of 'person' under Section 2(u) is inclusive - Not necessary that seizure be confirmed for party to be aggrieved - Application of Section 37A to continuing contraventions - Contravention continuing after amendment justifies invocation - False declarations in ODI forms - Obligation to disclose pending investigation against promoters/directors - Failure to report step-down subsidiaries - Funds siphoned off with no genuine business activity - No violation of principles of natural justice - Competent Authority's order set aside. (Paras 7, 12-15, 25-29, 31-33, 37-40)

(B) Interpretation of Statutes - Inclusive definition of 'person' - Word 'includes' enlarges meaning - State can be a 'person' unless context otherwise requires - Union of India can be aggrieved by order of Competent Authority. (Paras 13-15)

(C) Overseas Direct Investment - Automatic Route - Conditions - Indian Party must not be under investigation - Declaration in ODI Form - False marking of 'NO' while investigation pending - Post-2016 form deletion of promoter/director clause does not absolve prior false declarations - Obligation under Regulation 6(2)(iii) of 2004 Regulations. (Paras 25-28)

(D) Principles of Natural Justice - Sufficient opportunity given - Replies filed - Additional time granted - No prejudice shown - Hyper-technical objections not sustainable. (Paras 37-40)

Facts of the case:
The Enforcement Directorate seized Indian assets valued at Rs.216.40 crores under Section 37A(1) of FEMA, 1999, alleging that the respondent company had contravened Section 4 of FEMA by remitting funds overseas through ODI using false declarations, that the funds were not used for genuine business but were siphoned off to related parties or kept idle, and that pending investigation against its main promoter was concealed. The Competent Authority under Section 37A(3) denied confirmation of the seizure. The Union of India, through the Assistant Director, appealed.

Findings of Court:
The Tribunal held that the appeal is maintainable as the Union of India is an 'aggrieved person' under Section 37A(5). Section 37A applies to continuing contraventions, even if initiated before the amendment. The respondent made false declarations in ODI forms, failed to report step-down subsidiaries, and did not use funds for bonafide business. No violation of natural justice was established. The Competent Authority's order was perverse and set aside, restoring the seizure.

Issues: The main issues were (i) maintainability of appeal by Union of India through Assistant Director; (ii) applicability of Section 37A to contraventions partly prior to its enactment; (iii) validity of seizure based on alleged false declarations and siphoning of funds; (iv) whether principles of natural justice were violated.

Ratio Decidendi: The Tribunal ruled that the Union of India is a 'person' entitled to appeal under Section 37A(5) as an aggrieved party. Section 37A can be invoked for continuing contraventions that persisted after its enactment. False declarations made in ODI forms regarding pending investigation and non-reporting of step-down subsidiaries constitute contravention of Section 4. The seizure was justified as a protective measure until adjudication. The respondent was given sufficient opportunity, and no breach of natural justice occurred.

Result: Appeal allowed - the order of the Competent Authority dated 25.07.2022 is set aside, and the seizure under Section 37A(1) of FEMA is restored. (Para 41-42)

ORDER

01.04.2026

By this appeal, a challenge has been made to the order dated 25.07.2022 passed by the Competent Authority under Section 37A(3) of the Foreign Exchange Management Act, 1999 (in short “the Act of 1999”) denying confirmation of the Seizure. The case involves chequered history. Thus, before we deal with the preliminary objectio raised by the respondent about the maintainability of the appeal and application of Section 37A of the Act of 1999, on the facts of this, it would be gainful to refer rather to quote the Seizure Order of the Competent Authority under section 37A(3) of the Act of 1999. The Seizure Order, otherwise, gives complete history of the case and the reasons for seizure which is quoted hereunder:-

In exercise of the powers conferred by Section 37A (1) of the Foreign Exchange Management Act, 1999 [FEMA], I, Shubham Agrawal, IRS, Deputy Director, Directorate of Enforcement, Chennai Zonal Office-II, have reason to believe that the following foreign exchange/ foreign securities situated outside India are held in Contravention of Section 4 of FEMA by the Indian Company Southern Agrifurane Industries Private Limited [SAIPL]

TABLE-A

Therefore, as per the powers conferred under section 37A (1] of FEMA, for the reasons as recorded in writing in the ensuing Paras, I, hereby order the seizure of the following assets situated within India of the Indian Company Southern Agrifurane Industries Pvt Limited and its Directors/shareholders Mr. Nesamanimaran Muthu alias Mr. MGM Maran and Mr. MGM Anand, respectively, being value equivalent to Rs 216,40, 19,000/- of such foreign exchange/foreign security acquired/ held/ owned/ possessed in contravention of Section 4 of FEMA

TABLE- B

Therefore, I hereby order the seizure of all the above Indian Assets owned respectively for the company Southern Agrifurane Industries Pvt Ltd, its directors/shareholders Mr. Nesamanimaran Muthu, Mr. MGM Anand, respectively, within the powers conferred under the provisions of Section 37A(l) of FEMA of the equivalent value to the tune of Rs.216.40 crores

A. Reasons to believe recorded under section 37Af of FEMA:

As per Section 37A [1] of FEMA:

"Special provisions relating to assets held outside India in contravention of section 4.

Upon receipt of any Information or otherwise, if the Authorised Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property:

Provided that no such seizure shall be made in case where the aggregate value of such foreign exchange, foreign security or any Immovable property, situated outside India, Is less than the value as may be prescribed".

Therefore, as per Section 37A [1] of FEMA, the twin conditions necessary and sufficient for seizure of equivalent value of assets situated within India are;

1. Reason to believe that such foreign exchange/foreign security, situated outside India, is suspected to have been held in contravention of Section 4.

2. Provided that no such seizure shall he made in a case where the aggregate value of such foreign exchange/security etc, situated outside India, is less than the value as may be prescribed. Vide '•.V G.S.R. 701(E) dated 16.09.2015 issued by the Ministry of Finance (Department of Revenue), Government of India, the value prescribed is Rs 1 crore.

As per Section 4 of FEMA

"Holding of foreign exchange, etc.

4.Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

Therefore, the three conditions necessary and sufficient for contravention of Section 4 of FEMA are:

A. The person is a person 'Resident in India'.

B. Such person acqu

Click Here to Read the rest of this document