FERA adjudication notice timing and bank guarantee pre-condition were assessed against statutory procedure and record-based fairness.

Under the FERA adjudication scheme, the initial show-cause notice under rule 3(1) was treated as the taking of notice of contravention for section 49(3) of FEMA, while the later notice fixing hearing under rule 3(3) was only a procedural step. On that basis, the limitation challenge failed and the proceedings were held to have been initiated within the sunset period. The appellate tribunal's insistence on a bank guarantee as a condition for hearing was set aside because the record showed financial incapacity and the condition rested on conjecture rather than the materials before it.

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Issues: (i) Whether adjudication proceedings under the Foreign Exchange Regulation Act, 1973 were initiated after the expiry of the sunset period under section 49(3) of the Foreign Exchange Management Act, 1999, and were therefore without authority of law; (ii) Whether the Appellate Tribunal was justified in insisting on a bank guarantee of Rs. 25 lakhs as a condition for hearing the appeal.

Issue (i): Whether adjudication proceedings under the Foreign Exchange Regulation Act, 1973 were initiated after the expiry of the sunset period under section 49(3) of the Foreign Exchange Management Act, 1999, and were therefore without authority of law.

Analysis: The relevant scheme under section 51 of the Foreign Exchange Regulation Act, 1973 and rule 3 of the Rules of the Adjudication Proceedings and Appeal Rules, 1974 contemplates an initial notice requiring the noticee to show cause why adjudication proceedings should not be held, followed by a later notice fixing the hearing if the adjudicating officer forms the opinion that proceedings should be held. The notices dated 28 February 2000 and 27 March 2001 were held to be notices under rule 3(1), by which the adjudicating officer had already taken notice of the alleged contravention. The communication dated 22 August 2002 merely fixed the hearing under rule 3(3) and did not mark the first taking of notice under section 49(3) of the Foreign Exchange Management Act, 1999. On that basis, the proceedings were found to have been taken notice of within the sunset period.

Conclusion: The challenge on limitation and lack of authority failed and was decided against the petitioner.

Issue (ii): Whether the Appellate Tribunal was justified in insisting on a bank guarantee of Rs. 25 lakhs as a condition for hearing the appeal.

Analysis: The record showed a serious plea of financial incapacity, supported by the financial condition of the companies concerned and the inability to arrange a bank guarantee without substantial margin money or fixed deposits. The Tribunal's observations were found to rest on surmises and conjectures rather than the pleadings and materials placed before it. The pre-condition imposed for hearing the appeal was therefore held to be unjustified in the facts of the case.

Conclusion: The condition requiring a bank guarantee was set aside and the issue was decided in favour of the petitioner.

Final Conclusion: The adjudication proceedings were held to have been validly taken notice of within time, but the appellate pre-condition of furnishing a bank guarantee was quashed, with the appeal directed to be heard on deposit of Rs. 1 lakh within the stipulated time.

Ratio Decidendi: In the adjudication scheme under FERA and the relevant 1974 Rules, the initial show-cause notice under rule 3(1) constitutes the taking of notice of contravention for the purpose of section 49(3) of FEMA, while a later notice fixing the hearing under rule 3(3) is only a subsequent procedural step; an appellate pre-condition must also be supported by the record and cannot rest on conjecture when financial incapacity is established.

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