2021 (2) TMI 904 - HC - FEMA

High Court clarifies jurisdiction on Foreign Exchange Management Act notice, grants extension for document submission

The Calcutta High Court addressed a jurisdictional challenge to a show cause notice under the Foreign Exchange Management Act, 1999. The court refrained ... Offences under FEMA Act - whether show cause notice has been issued without considering the amendments made in various regulations framed under FEMA Act, 1999? - HELD THAT:- There is no dispute that there are transactions in foreign exchange either as derivatives or in the form of currency futures. The issue in this matter is as to whether the transactions have been made in accordance with Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 or not. The issue can be sorted out only after all the relevant documents are placed before the authorities. Thus, not entering into the merits of the case. Considering the pandemic situation, the authorities are requested to allow the petitioners to submit their record within 8 (eight) weeks from today. The oral submissions of the petitioners be recorded by way of video conference. This exercise should be concluded within a period of 4 (four) months from date and it is expected that the authorities will conclude the proceeding within 6 (six) months. Issues:Jurisdiction challenge regarding show cause notice under FEMA Act, 1999.Analysis:The judgment delivered by the Calcutta High Court revolves around a challenge to a show cause notice dated 17th June, 2020, based on jurisdictional grounds under the Foreign Exchange Management Act, 1999. The petitioner, represented by learned counsel, contends that the notice was issued without considering the amendments in various regulations framed under FEMA Act, 1999, and seeks the quashing of the said notice. On the other hand, the authorities, through their counsel, argue that regulations 3, 4, 8, and 5A of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 explicitly prohibit speculative transactions in foreign exchange, whether as derivatives or currency futures. The petitioners themselves admitted that the transactions were conducted without any underlying contract, raising concerns about compliance with the regulations.The High Court, after hearing all parties, acknowledged the existence of foreign exchange transactions, whether as derivatives or currency futures, but refrained from delving into the merits of the case. The central issue at hand pertains to whether these transactions align with the provisions outlined in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000. The Court emphasized the necessity of presenting all relevant documents before the authorities to address this issue effectively, indicating that a conclusive determination can only be made post such submission.In light of the prevailing pandemic situation, the Court directed the authorities to grant the petitioners an extension of 8 weeks to submit their records, with oral submissions to be recorded via video conference. The Court set a timeline of 4 months for this exercise, expecting the authorities to conclude the proceedings within 6 months. Consequently, the writ petition, numbered W.P.A. No. 6269 of 2020, was disposed of without costs. Notably, since no affidavits were solicited, the allegations raised in the writ petition were deemed denied by the respondents. The parties were instructed to adhere to the directives outlined in the official order available for download from the Court's website.