Commencement of adjudication proceedings under foreign exchange law begins with the formal notice, not the preliminary show-cause notice.

For the purpose of retaining seized currency beyond one year under section 41 of the Foreign Exchange Regulation Act, proceedings under section 51 commence only when the formal adjudicatory notice under rule 3(3) is issued. A preliminary show-cause notice under rule 3(1) is only a first-stage notice to consider whether adjudication should be initiated and does not by itself amount to commencement of proceedings. Reading sections 41, 50 and 51 with rule 3 of the 1974 Rules, the HC held that continued retention was unjustified where no rule 3(3) notice had been issued within the one-year period.

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Issues: Whether a notice issued under rule 3(1) of the Foreign Exchange Regulation (Adjudication Proceedings and Appeal) Rules, 1974 commences proceedings under section 51 of the Foreign Exchange Regulation Act, 1973 for the purpose of retaining seized currency beyond one year under section 41.

Analysis: Section 41 permits retention of seized documents, including currency notes, for not more than one year unless proceedings under section 51 are commenced within that period. Rule 3 of the 1974 Rules creates a two-stage process: the first notice under rule 3(1) is only a preliminary show-cause notice to decide whether adjudication should be initiated, while the actual adjudicatory inquiry begins only after the officer, on considering the reply, issues the further notice contemplated by rule 3(3). The scheme of sections 41, 50 and 51, read with rule 3, shows that commencement of proceedings under section 51 cannot be equated with the preliminary notice under rule 3(1).

Conclusion: Proceedings under section 51 commence only with the notice under rule 3(3), not with the preliminary notice under rule 3(1). As no such proceedings had commenced within one year, continued retention of the seized currency was unjustified and the writ petitions were entitled to succeed.

Ratio Decidendi: For the purpose of section 41, adjudication proceedings under section 51 commence only when the formal adjudicatory notice under rule 3(3) is issued after consideration of the preliminary reply; a preliminary show-cause notice under rule 3(1) does not suffice.

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