Omission of a Statutory Provision is Equivalent to 'Repeal'; Section 6 of General Clauses Act Applies: Madras High Court in Flipkart FEMA Case - 2025-01-29

Madras High Court Dismisses Flipkart Founders' Plea Against ED Notice, Holds 'Omission' of Law Amounts to 'Repeal'

Chennai, India – In a significant ruling with wide-ranging implications for regulatory actions under amended statutes, the Madras High Court has dismissed a batch of writ petitions filed by Flipkart co-founders Sachin Bansal , Binny Bansal , and other associated entities challenging a show-cause notice from the Directorate of Enforcement (ED).

Justice S. Sounthar , in a detailed order, upheld the ED's preliminary objection regarding the maintainability of the writs, directing the petitioners to face the adjudication proceedings for alleged violations of the Foreign Exchange Management Act (FEMA) dating back to 2009-2011.

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Background of the Case

The case stems from a complaint filed by the ED's Deputy Director alleging that Flipkart Online Services Private Limited, co-founded by Sachin and Binny Bansal , contravened FEMA and its associated regulations by receiving Foreign Direct Investment (FDI) between 2009 and 2011 without prior government approval. The ED issued a show-cause notice on July 1, 2021, questioning why adjudication proceedings should not be initiated for these alleged violations.

The petitioners, including the Bansals and foreign investors, challenged this notice before the High Court, arguing it was invalid on several grounds, including unreasonable delay and lack of legal authority.

Petitioners' Key Arguments

The petitioners, represented by a phalanx of senior advocates including Mr. Arvind Datar and Mr. P.S. Raman , raised three primary contentions:

1. Lack of Jurisdiction: The core of their argument was that Section 6(3)(b) of FEMA, the provision under which the violations were alleged, was omitted from the statute book by the Finance Act of 2015. They contended that an "omission" completely obliterates the provision, and unlike a "repeal," it is not saved by Section 6 of the General Clauses Act, 1897. They heavily relied on the Supreme Court's decisions in Rayala Corporation (1969) and Kolhapur Cane Sugar Works (2000) .
2. Unreasonable Delay: The show-cause notice was issued nearly a decade after the alleged contraventions, which they argued was an unreasonable and unjustifiable delay.
3. Apprehension of Bias: The petitioners claimed that the ED had already predetermined the issue, as evidenced by the counter-affidavit filed in court, thereby violating the principles of natural justice and rendering the adjudication process a mere formality.

Enforcement Directorate's Counter

The Additional Solicitor General, Mr. S.V. Raju, appearing for the ED, strongly contested the petitions:

1. Maintainability: He argued that a writ petition against a mere show-cause notice is not maintainable, especially when FEMA provides a robust, multi-tiered alternative remedy, including adjudication, an appeal to the Appellate Tribunal, and a final appeal to the High Court itself.
2. 'Omission' equals 'Repeal': The ASG submitted that the legal distinction between 'omission' and 'repeal' is no longer valid. He cited the landmark Supreme Court judgment in Fibre Boards Private Limited (2015) , which held that the earlier judgments in Rayala and Kolhapur were per incuriam as they failed to consider Section 6-A of the General Clauses Act. The Fibre Boards case clarified that 'repeal' includes repeal by way of 'express omission'.
3. No Bias: The ED asserted that the counter-affidavit was filed by the investigating authority (Deputy Director), not the adjudicating authority (Special Director), and thus could not be construed as evidence of a prejudiced mind.

Court's Analysis and Verdict

Justice S. Sounthar undertook a thorough analysis of the conflicting legal precedents on the 'omission vs. repeal' debate. The Court concluded that the later Supreme Court judgments in Fibre Boards and Shree Bhagwati Steel Rolling Mills had settled the law on the matter.

In a pivotal excerpt, the judgment notes:

"A close scrutiny of the above mentioned judgments would make it clear that there is no real difference between the word 'repeal' and 'omission' especially in the light of Section 6 (A) of General Clauses Act. Therefore, this Court has no difficulty in coming to the conclusion that the word repeal includes the word omission. Therefore, omission of Section 6 (3) of FEMA by Finance Act 20 of 2015 can be treated as a repeal and as a necessary consequence Section 6 of General Clauses Act comes into play."

Based on this reasoning, the Court held that the ED had the authority to issue the notice for contraventions that occurred when the provision was in force.

The Court also dismissed the arguments on bias and delay, stating: - The issue of delay involves factual questions that can be raised before the adjudicating authority. - There was no concrete evidence to suggest the adjudicating authority was biased. - The existence of an effective, statutory appellate remedy, which culminates in an appeal to the High Court, precludes the exercise of extraordinary writ jurisdiction at the show-cause notice stage.

Final Decision and Implications

Dismissing all the writ petitions, the High Court directed the petitioners to submit their explanations and objections to the ED's adjudicating authority within 30 days.

This judgment reinforces the principle that courts should be slow to interfere at the show-cause stage when an effective alternative remedy exists. More importantly, it solidifies the legal position in the Madras High Court that the omission of a statutory provision does not grant immunity for past violations, as the effect is the same as a repeal, thereby saving liabilities incurred during the provision's existence.