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2024 Supreme(Online)(MAD) 21184
HIGH COURT OF MADRAS
S.M. SUBRAMANIAM, J
M/S.ACCORD DISTILLERIES AND BREWERIES PVT. LTD. – Appellant
Versus
THE SPECIAL DIRECTOR – Respondent
The court affirmed that show cause notices under FEMA are subject to adjudication procedures and typically not reviewable unless a jurisdictional flaw is evident.
Headnote:
FEMA - Jurisdiction - Foreign Exchange Management Act, 1999 - Sections 2(a), 2(cc), 4, 16, and 37A - The court reiterated that the Adjudicating Authority's powers under FEMA, especially regarding seizure, are independent and do not hinder ongoing adjudication unless a jurisdictional error is established.
Fact of the Case:
Appellants challenged the validity of a show cause notice and a corrigendum issued during adjudication proceedings under the Foreign Exchange Management Act after raising jurisdictional concerns, leading to the dismissal of their writ petition.
Issues: Whether the issuing of a show cause notice during the adjudication under FEMA can be challenged in a writ petition and whether the authority's jurisdiction was valid.
Ratio Decidendi: The court emphasized that the adjudication under FEMA is distinct from preliminary seizure powers and that a writ against a show cause notice is typically not entertainable unless the authority acted beyond its jurisdiction.
Final Decision: The appeal was dismissed, upholding the writ court's decision.
COMMON JUDGMENT
[Judgment was delivered by S.M.SUBRAMANIAM, J.]
The Letters Patent Appeal on hand has been instituted questioning the validity of the show cause notice dated 22.12.2021 and the corrigendum issued consequently in proceedings dated 13.03.2023 and the writ order dismissing the writ petition.
2. Since the show cause notice is under challenge, it is necessary for this Court to consider the grounds regarding entertainability of the writ petition at the first instance. Normally, High Court would not entertain a writ petition challenging show cause notice. On exceptional circumstances, show cause notice issued by an incompetent authority having no jurisdiction or tainted with the allegation of mala fides are entertained under Article 226 of the Constitution of India.
3. The noticees on receipt of such show cause notice, has to defend their case before the authority competent by availing the opportunities to be afforded under the provisions of Acts, Rules and procedures contemplated therein. In the present case, the appellants raised grounds regarding the jurisdiction and therefore it becomes necessary for this Court to interpret the scope of the provisions of the Foreign Exchange Management Act, 1999 [hereinafter referred as “FEMA”].
4. Section 2(a) defines “Adjudicating Authority” means an officer authorised under Sub-Section (1) of Section 16.
5. Sub Section (1) to Section 16 contemplates “For the purpose of adjudication under Section 13, the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for holding an inquiry in the manner prescribed after giving the person alleged to have committed contravention under Section 13, against whom a complaint has been made under Sub-Section (3), a reasonable opportunity of being heard for the purpose of imposing any penalty”. Therefore, confers power on the Adjudicating Authority to hold an inquiry in the manner prescribed after affording opportunity to the person against whom contravention under Section 13 are noticed.
6. Section 2 (cc) defines “Authorised Officer” means an officer of the Directorate of Enforcement authorised by the Central Government under section 37A.
7. Section 37A was inserted by Act 20 of 2015 with effect from
15.10.2019. In order to make Section 37A effective, consequential definition for “Authorised Officer” was inserted by Act 20 of 2015 with effect from 15.10.2019. In other words, it necessitated the legislators to incorporate the definition for “Authorised Officer” under Section 2(cc), in view of insertion of Section 37A under the Act. Thus, the Authorised Officer as defined under Section 2(cc) is with reference to Section 37A of FEMA.
8. Section 37A provides special provisions relating to assets held outside India in contravention to Section 4.
9. Section 4 denotes “Holding of foreign exchange, etc., no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India”.
If Section 4 is violated, then the special provision under Section 37A may be invoked by the Authorities. Section 37A (1) enumerates “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”.
10. The Scope of Special Provision under Section 37A expressly provides power to the authority to seize the property or value equivalent situated within India. Therefore, Section 4 contemplates no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, for
