Transitional limitation under FEMA bars stale contraventions; completed share transfers were not a continuing offence.

Transitional limitation under FEMA barred proceedings for pre-1999 foreign exchange contraventions where notice was not issued within two years of FEMA's commencement. The alleged transfers and bonus share issuances were completed in 1997 and 1999, so the wrongful act was not continuing merely because prior RBI permission had not been obtained. An application for compounding did not extend or save limitation. On that basis, the notice was time-barred and the penalty could not be sustained.

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Issues: Whether the show-cause notice and penalty were barred by limitation under the transitional limitation provision of FEMA, and whether the alleged contravention could be treated as a continuing offence.

Analysis: The alleged transfers and issue of bonus shares occurred in 1997 and 1999, when the foreign exchange law then in force applied. Section 49(3) of the Foreign Exchange Management Act, 1999 required notice of contraventions under the repealed regime to be taken within two years from the commencement of FEMA. The notice was issued only in 2009, far beyond the sunset period. The alleged wrongful act was complete when the shares were transferred and bonus shares were issued, and the non-obtaining of prior RBI permission did not convert it into a continuing offence. The filing of an application for compounding did not extend or save limitation.

Conclusion: The proceedings were time-barred and the penalty could not be sustained.

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