Constitutional challenge to Section 37A of FEMA rejected for not being arbitrary

The Court found the writ petition challenging the constitutional validity of Section 37A of the Foreign Exchange Management Act, 1999 maintainable on grounds of violation of Article 14. However, the challenge was rejected as Section 37A was deemed not manifestly arbitrary. The petitioner was directed to appeal before the Tribunal under Section 37A(5) of FEMA. The writ petition was rejected, allowing the petitioner to pursue the statutory remedy of appeal within 30 days.

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Issues Involved:
1. Maintainability of the writ petition challenging the constitutional validity of Section 37A of the Foreign Exchange Management Act, 1999 (FEMA).
2. Whether Section 37A of FEMA gives uncanalised and unguided power.
3. Whether the order passed by the authorized officer suffers from non-application of mind.

Summary:

Issue No. I: Maintainability of the Writ Petition

The Court first addressed the maintainability of the writ petition challenging the constitutional validity of Section 37A of FEMA. It was argued that since the petitioner is a company incorporated in India but with foreign roots, it cannot challenge Indian laws under the Constitution. However, the Court held that Articles 14 and 21 of the Constitution are person-centric and not citizen-centric, allowing any person, including foreigners, to challenge laws on these grounds. Therefore, the petition challenging the constitutional validity of Section 37A on the ground of manifest arbitrariness and violation of Article 14 is maintainable.

Issue No. II: Whether Section 37A of FEMA Gives Uncanalised and Unguided Power

The Court examined the genesis and provisions of Section 37A of FEMA, which was introduced to curb black money and unauthorized foreign exchange transactions. The provision allows the authorized officer to seize equivalent value assets in India if foreign exchange, foreign security, or immovable property is suspected to be held in contravention of Section 4 of FEMA. The Court noted that several safeguards are embedded in Section 37A, including the requirement for the authorized officer to record reasons in writing, the necessity of placing the seizure order before a Competent Authority within 30 days, and the opportunity for the aggrieved person to be heard. The Court concluded that Section 37A does not suffer from manifest arbitrariness or unreasonableness, as it includes multiple checks and balances at various stages, ensuring that the power is not unbridled or unguided.

Issue No. III: Whether the Order Passed by the Authorized Officer Suffers from Non-application of Mind

The Court considered whether the order confirming the seizure of assets by the authorized officer lacked application of mind. It was observed that the order was detailed and included reasons for the seizure, indicating thorough consideration of the facts and submissions. The Court found no evidence of non-application of mind and held that the order was well-reasoned and justified. Consequently, the petitioner was directed to avail the statutory remedy of filing an appeal before the Appellate Tribunal under Section 37A(5) of FEMA.

Summary:

(i) The challenge to the constitutional validity of Section 37A of the Act by the petitioner is held to be maintainable and entertainable, on the fulcrum of the allegation that it is violative of Article 14 of the Constitution of India, as Article 14 is person-centric, whereas fundamental rights under Articles 15, 16, 19 and 25 are citizen-centric. Wherefore, a non-citizen can challenge certain laws of the nation on the ground that it is violative of Article 14 of the Constitution of India and the challenge would be restrictable only to the tenets of Article 14 of the Constitution of India.

(ii) The challenge to the constitutional validity of Section 37A of the Act is rejected, as Section 37A does not suffer from any manifest arbitrariness on any ground whatsoever.

(iii) The petitioner is at liberty to avail of the statutory remedy of filing an appeal before the Tribunal under sub-section (5) of Section 37A of the FEMA.

ORDER:

(i) The Writ Petition is rejected.

(ii) The rejection of the petition would not come in the way of the petitioner availing of the remedy of appeal under Section 37A(5) of the Act, in accordance with law.

(iii) In the event the petitioner would file an appeal within 30 days from the date of receipt of copy of this order, the same shall be considered by the Appellate Tribunal, in accordance with law.

(iv) All contentions of the parties except the ones answered hereinabove shall remain open. Pending applications, if any, would also stand disposed, as a consequence.

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