Court quashes Enforcement Directorate notices, upholds FEMA inheritance transfer, petitioner not liable.

The court quashed the show cause notice and subsequent notices issued by the Enforcement Directorate, citing vagueness and lack of compliance with legal requirements. It was found that the petitioner, acting as power of attorney holder and legal counsel, could not be held liable for the alleged contravention of FEMA regulations. Emphasizing the applicability of Section 6(5) of FEMA, which allows for the transfer of inherited property, the court ruled in favor of the petitioner, disposing of the petition without costs.

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Issues Involved:
1. Alleged contravention of Section 6(3)(i) of FEMA and Regulation 8 of FEMA Regulations.
2. Validity and adequacy of the show cause notice issued by the Enforcement Directorate.
3. Applicability of Section 6(5) of FEMA.

Issue-wise Detailed Analysis:

1. Alleged Contravention of Section 6(3)(i) of FEMA and Regulation 8 of FEMA Regulations:
The Enforcement Directorate (ED) issued a show cause notice to the petitioner, alleging that the petitioner repatriated the sale proceeds of Rs.5,01,47,271/- to the Salvation Army without obtaining prior permission from the Reserve Bank of India (RBI), as required under FEMA and its Regulations. The ED claimed that this action contravened Section 6(3)(i) of FEMA and Regulation 8 of FEMA (Acquisition and Transfer of Immovable Property in India) Regulations 2000. Section 6(3)(i) of FEMA allows RBI to regulate the acquisition or transfer of immovable property in India by a person resident outside India. Regulation 8 prohibits the transfer of immovable property in India by a person resident outside India unless otherwise provided in the Act or regulations.

2. Validity and Adequacy of the Show Cause Notice:
The court emphasized that the issuance of a show cause notice is not an empty formality and must provide a reasonable opportunity for the affected persons to present their case. The notice must inform the recipient about the materials and grounds on which the authority proposes to take action. The court referred to established legal precedents, including Jugal Kishore Jajodia Vs. S. C. Prasad and Om Shri Jigar Association vs. The Union of India, which highlight the necessity of specifying provisional conclusions and grounds in the show cause notice to ensure that the affected persons can effectively respond.

The court found that the show cause notice issued by the ED was vague and did not specify the grounds for the alleged contravention. The notice failed to provide clear allegations or the precise scope of the notice, making it difficult for the petitioner to furnish a statutory explanation. The court noted that the provisions relied upon by the ED in the show cause notice had nothing to do with the repatriation of sale proceeds.

3. Applicability of Section 6(5) of FEMA:
The court observed that the ED did not consider Section 6(5) of FEMA, which permits a person resident outside India to hold, own, transfer, or invest in immovable property in India if such property was inherited from a person who was resident in India. The court emphasized that Mrs. Meerabai Dawson inherited the immovable property in question from her parents, who were residents in India. Therefore, the Executors of her Will were permitted to dispose of the property and repatriate the sale proceeds to the beneficiaries of her Will.

The court concluded that the petitioner, being the power of attorney holder and legal counsel of the Executors of Mrs. Meerabai Dawson's Will, could not be held liable for any alleged contravention. The court quashed and set aside the impugned show cause notice dated 5th October 2017, as well as the subsequent notices dated 27th September 2019 and 17th October 2019.

Conclusion:
The court exercised its jurisdiction under Article 226 of the Constitution of India to quash the impugned show cause notice and subsequent notices, finding them to be vague and not in compliance with the requirements of a valid show cause notice. The court also highlighted the applicability of Section 6(5) of FEMA, which permits the transfer of inherited property by a person resident outside India. The petition was disposed of with no order as to costs.

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