Natural justice limits adjudication beyond the show-cause notice, and disproportionate FEMA penalties may be reduced.

An adjudicating authority cannot sustain a finding by enlarging the charge beyond the show-cause notice, as doing so breaches natural justice. In proceedings concerning alleged non-compliance with FEMA reporting requirements for issue of shares by a person resident outside India, the Tribunal found that the impugned order added a further contravention not specifically alleged in the notice and was therefore unsustainable to that extent. It also held that the penalty was excessive and not commensurate with the alleged technical contravention, so the penalty was reduced and modified under FEMA.

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Issues: Whether the adjudicating authority could sustain findings and penalty on grounds going beyond the show-cause notice, and whether the penalty imposed under FEMA was liable to be interfered with for being excessive and not commensurate with the alleged technical contravention.

Analysis: The proceedings arose from alleged non-compliance with the reporting requirement under Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 read with the FEMA notification governing issue of shares by a person resident outside India. The impugned order, however, was found to have travelled beyond the charge contained in the show-cause notice by adding a further contravention not specifically alleged. Such enlargement of the charge at the stage of adjudication was held to be contrary to the notice and to the principles of natural justice. The Tribunal also found that the penalty imposed was not commensurate with the nature of the alleged contravention and was liable to be modified under Section 13(1) of the Foreign Exchange Management Act, 1999.

Conclusion: The adjudication was held unsustainable to the extent it went beyond the show-cause notice, the penalty was reduced and modified, and the respondent's revision petition was rendered infructuous.

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