Sunset limitation under FEMA barred retrospective action for pre-commencement export proceeds contravention and invalidated the notice.

Proceedings for a contravention under the repealed foreign exchange regime cannot be initiated after the statutory sunset period in Section 49(3) of FEMA, and a pre-commencement failure to realise export proceeds cannot be retrospectively proceeded against under FEMA once that limitation has expired. The alleged default had already been complete before FEMA came into force, and the notice was issued long after the two-year period preserved by Section 49(4). The Karnataka HC therefore held that the show-cause notice initiating action for the old contravention was without jurisdiction and could not be sustained.

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Issues: Whether the show-cause notice initiating proceedings under the Foreign Exchange Management Act, 1999 was without jurisdiction and barred by Section 49(3) of the Act, where the alleged contravention related to export proceeds not realised during the period when the Foreign Exchange Regulation Act, 1973 was in force.

Analysis: The alleged contravention arose from failure to realise export proceeds within 180 days of export, and that period expired before the Foreign Exchange Management Act, 1999 came into force. Under Section 49(3), no court can take cognizance and no adjudicating officer can take notice of a contravention under the repealed Act after two years from the commencement of the Foreign Exchange Management Act, 1999. Section 49(4) preserves offences committed under the repealed Act only subject to that limitation. The notice was issued long after the sunset period had expired, and the reasoning applicable to delayed initiation of proceedings for pre-commencement contraventions governed the case. The provisions relating to realisation of export proceeds under Section 7 of the Foreign Exchange Management Act, 1999 were also held inapplicable to a contravention already complete before the Act came into force.

Conclusion: The show-cause notice was without jurisdiction and could not be sustained.

Ratio Decidendi: Proceedings for a contravention under the repealed foreign exchange regime cannot be initiated after the statutory sunset period, and a pre-commencement failure to realise export proceeds cannot be retrospectively proceeded against under the Foreign Exchange Management Act, 1999 once the limitation in Section 49(3) has expired.

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