2022 (12) TMI 15 - HC - FEMA

High Court upholds Competent Authority's decision on FEMA Act, directs appeal process

The High Court dismissed the writ petitions challenging the Competent Authority's decision to set aside attachment orders under Section 37A(1) of the FEMA ... Availability of alternative remedy of appeal to Appellate Tribunal under Section 37A(5) of the FEMA Act - doctrine of exhaustion of statutory remedy and writ jurisdiction under Article 226 - attachment of property under Section 37A(1) of the FEMA Act - interim relief pending filing of statutory appeal - hierarchy of forums under the FEMA Act and further appeal to the High Court under Section 35 - court-accepted undertaking as basis for interim protectionAvailability of alternative remedy of appeal to Appellate Tribunal under Section 37A(5) of the FEMA Act - doctrine of exhaustion of statutory remedy and writ jurisdiction under Article 226 - hierarchy of forums under the FEMA Act and further appeal to the High Court under Section 35 - Whether the writ petitions could be entertained instead of availing the statutory appeal to the Appellate Tribunal once the Tribunal became functional - HELD THAT: - The Court found that when the writ petitions were filed the Appellate Tribunal was not functioning, which justified invocation of writ jurisdiction at that time. However, the Tribunal became functional from 26.09.2022 with the appointment and assumption of charge by its Chairman. Given that the FEMA Act provides a statutory appeal to the Tribunal under Section 37A(5) and further appeal to the High Court under Section 35, the Court held that the availability of the effective statutory forum displaces continuation of writ adjudication and the parties should resort to the statutory appeal route. Allowing the writs to proceed would circumvent the statutory hierarchy of forums and result in loss of the appellate forum's opportunity to adjudicate the matter first. [Paras 17, 18, 21, 22, 23]Writ petitions cannot be proceeded with on merits now that the Tribunal is functioning; petitioner must prefer appeal before the Appellate Tribunal under Section 37A(5) of the FEMA Act.Interim relief pending filing of statutory appeal - court-accepted undertaking as basis for interim protection - attachment of property under Section 37A(1) of the FEMA Act - Extent of interim protection and timeline for seeking statutory appeal pending before the Tribunal - HELD THAT: - Recognising that the petitioner filed the writ petitions within the 45-day limitation applicable for appeals and that the petitioner can still file the statutory appeal, the Court granted liberty to prefer an appeal to the Tribunal within 45 days from receipt of the order, with leave to seek interim relief before the Tribunal. Meanwhile, the existing interim protection shall continue but conditioned on the undertaking given on behalf of the alleged contravener that the attached movable and immovable properties will not be encumbered or meddled with. The Court noted it may extend the limitation if the petitioner requires more time to prefer appeals in the prescribed format. [Paras 19, 20, 24, 25, 27]Petitioner granted 45 days from receipt of this order to prefer appeal before the Tribunal; interim protection continued till petitioner approaches the Tribunal, subject to the undertaking given by the alleged contravener.Attachment of property under Section 37A(1) of the FEMA Act - interim relief pending filing of statutory appeal - Permissibility of renewal of existing mortgages and prohibition of fresh encumbrances during interim period - HELD THAT: - The Court clarified that if any immovable properties are already mortgaged for working capital by the alleged contravener, such mortgages may be renewed in view of the time lapse, but no fresh mortgage or encumbrance shall take place during the interim period. This clarification is subject to the attachment orders made by the petitioner department and is aimed at balancing commercial necessity with the protection of attached assets. [Paras 27]Renewal of pre-existing mortgages permitted; no fresh mortgage or encumbrance to be created during the interim period, subject to the existing attachments.Final Conclusion: Both writ petitions are dismissed on the ground that the petitioner should invoke the statutory appeal to the Appellate Tribunal under Section 37A(5) of the FEMA Act within 45 days from receipt of this order (with liberty to seek extension and interim relief before the Tribunal); interim protection is continued till the petitioner approaches the Tribunal on the basis of the undertaking by the alleged contravener, and renewals of existing mortgages are permitted but no fresh encumbrances shall be made. Issues:1. Challenge to attachment orders under Section 37A(1) of the FEMA Act.2. Competent Authority setting aside attachment orders.3. Entertaining writ petitions without exhausting appeal remedy.4. Functioning of the Tribunal and its impact on the case.5. Consideration of principles of natural justice by the Competent Authority.6. Timeliness of filing appeals before the Tribunal.7. Availability of further appeal remedy under Section 35 of the FEMA Act.8. Protection of attached properties during appeal process.Analysis:1. The petitioner, an Assistant Director of the Directorate of Enforcement, challenged attachment orders under Section 37A(1) of the FEMA Act regarding violations by the alleged contravener during specific financial years.2. Competent Authority set aside the attachment orders, prompting the petitioner to file writ petitions challenging these decisions.3. The issue of entertaining writ petitions without exhausting the appeal remedy was raised, with the petitioner invoking extraordinary jurisdiction under Article 226 of the Constitution due to the non-functioning of the Tribunal at the time of filing.4. The functioning of the Tribunal, especially with the appointment of a Chairman, became crucial in determining the course of action for the petitioner, leading to considerations regarding appeal procedures under the FEMA Act.5. Concerns were raised about the Competent Authority not adequately considering the petitioner's pleas, potentially leading to orders passed without following principles of natural justice.6. The timeliness of filing appeals before the Tribunal within the prescribed 45-day limit from the date of receipt of the orders was highlighted to ensure compliance with statutory provisions.7. Emphasis was placed on the availability of a further appeal remedy under Section 35 of the FEMA Act, underscoring the hierarchical forum structure for addressing grievances.8. Measures were taken to protect the attached properties during the appeal process, with undertakings provided by the alleged contravener's counsel to prevent any interference with the subject properties.In conclusion, the High Court dismissed the writ petitions, directing the petitioner to prefer an appeal before the Tribunal within 45 days. The interim protection for the attached properties was maintained until the petitioner approached the Tribunal, ensuring the preservation of assets during the appeal process.