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Supreme Court Delivers Knockout Blow to ED: Seizure Refusal Under FEMA Can't Be Ignored in Adjudication
In a landmark ruling on , the , comprising Justices Vikram Nath and Sandeep Mehta , overturned decisions and an adjudication order against J. Sri Nisha, her family members, and The bench held that a 's reasoned refusal to confirm asset seizure under , fundamentally undermines parallel adjudication proceedings—especially when the ED's appeal against that refusal remains pending.
This decision, reported as , revives the proceedings but mandates the to first resolve the ED's challenge to the 's order within two months.
Singapore Shares Spark FEMA Firestorm
The saga began with allegations that J. Sundeep Anand, a director of Indian company , acquired 70 lakh shares in Singapore-based without payment or approval, violating and the . The shares were allegedly transferred to family members—appellants J. Sri Nisha (wife), and children—also sans approval.
On , an Authorised Officer seized equivalent Indian assets under . But on , the (Commissioner of Customs) rejected confirmation under , finding no proof of payment for shares (which were never called upon) or actual holding of valuable foreign securities. The ED appealed this to the (FPA-FE No. 33/CHN/2021), where it lingers.
Parallelly, the issued an SCN on (corrigendum ), leading to a final order on , imposing penalties and confiscation. Appellants challenged the SCN in writs, dismissed by a Single Judge ( ) and Division Bench ( ).
Appellants: 'No Foundation, No SCN'; ED: 'Separate Tracks'
Appellants' Arsenal , led by , argued the 's order obliterated the SCN's basis—no " " under existed, rendering further proceedings . They urged awaiting the ED's appeal outcome and quashing the SCN/corrigendum/adjudication order, citing High Court observations prejudicially overriding the .
ED's Counterpunch , via , portrayed Section 37A as merely "interim/preventive," independent of adjudication under . allegedly insulated proceedings, with appellants accused of suppressing the final adjudication order (a claim the Supreme Court rejected as "misconceived").
Dissecting the Statutory Puzzle: Seizure vs. Adjudication
The Court meticulously parsed Section 37A's three-tier mechanism: tentative seizure on " " (sub-sec 1), scrutiny (sub-secs 2-3), and appeal (sub-sec 5). Justice Mehta emphasized this isn't "empty formality" but a " " of contravention.
Key distinction:
preserves confirmed seizures till adjudication ends—but non-confirmation, as here, erodes the foundation. The
explicitly ruled:
"none of the respondents... were holding any foreign security having a value... suspicion has no foundation."
Drawing from Union of India v. VICCO Laboratories (2007) 13 SCC 270, the bench affirmed writs against SCNs are maintainable in " " like jurisdictional voids or abuse—precisely this case, where High Court remarks "impliedly efface[d]" the 's findings, prejudicing appellants.
The 's final order, heavily quoting the High Court, wrongly "undid" the while its appeal pended—usurping powers.
LiveLaw reports echoed this, noting the ruling clarifies parallel proceedings aren't silos; non-confirmation
"strikes at the very foundation."
Pivotal Quotes from the Bench
"The refusal to confirm the seizure... reflects a considered finding that the foundational requirement of a '' was not satisfied on the material available."(Para 30)
"The exercise undertaken by theis... aof whether the material on record is sufficient to sustain even ainference of contravention."(Para 30)
"Thehas undone the order of theeven while the appeal... is pending... tantamounts to abdicating the powers of the Appellate Authority."(Para 38)
"Interference at the show-cause notice stage... is permissible in, such as where the notice suffers from."(Para 32, citing VICCO)
Reset Button: Appeals Before Adjudication
The Court set aside High Court and adjudication orders as
"arbitrary and contrary to law,"
reviving SCN post-
's two-month resolution of ED's appeal. High Court observations bind no future proceedings.
Ripple Effects : This safeguards against premature adjudication, reinforcing checks under FEMA. Entities facing dual tracks must now prioritize /appeal outcomes, potentially curbing ED overreach in foreign investment probes. A win for due process in forex violations.
