2023 (6) TMI 250 - HC - FEMA

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 ... Maintainability of constitutional challenge under Article 14 by a person/non-citizen - Manifest arbitrariness under Article 14 - Reason to believe and power to seize under Section 37A of FEMA - Value-equivalent seizure and procedural safeguards - Availability of statutory remedy and appeal under Section 37A(5) - Application of mind by the Competent AuthorityMaintainability of constitutional challenge under Article 14 by a person/non-citizen - Maintainability of the petition challenging vires of Section 37A of FEMA on the ground of manifest arbitrariness under Article 14. - HELD THAT: - The Court held that Articles 14 and 21 protect 'any person' and are not confined to citizens, whereas Article 19 is citizen centric. Relying on precedent, the Court concluded that a non citizen or an artificial person within India may challenge a statutory provision as manifestly arbitrary under Article 14. Accordingly the writ petition attacking Section 37A on the ground of manifest arbitrariness is maintainable, but limited to the tenets of Article 14. [Paras 19]The petition is maintainable insofar as it challenges Section 37A under Article 14.Manifest arbitrariness under Article 14 - Reason to believe and power to seize under Section 37A of FEMA - Value-equivalent seizure and procedural safeguards - Validity of Section 37A - whether it is uncanalised/unguided and suffers from manifest arbitrariness. - HELD THAT: - After examining the genesis, text and safeguards of Section 37A (including recording of reasons by the Authorised Officer, placement before a Competent Authority (not below Joint Secretary) within 30 days, opportunity of hearing, 180 day disposal mandate, continuation till adjudication and right of appeal under sub section (5)), and having regard to relevant Supreme Court authorities on value equivalent seizures and prophylactic attachments, the Court found that Section 37A incorporates multiple procedural and substantive checks. Seizure may be triggered by suspicion but is provisional and subject to administrative and judicial review. On that basis the Court rejected the contention that Section 37A is manifestly arbitrary or unguided. [Paras 21, 29, 31, 33]Section 37A does not suffer from manifest arbitrariness and is constitutionally valid.Application of mind by the Competent Authority - Availability of statutory remedy and appeal under Section 37A(5) - Whether the Competent Authority's confirmation order suffers from non application of mind and whether the writ should be entertained despite the statutory appellate remedy. - HELD THAT: - The Court observed that the Competent Authority's order is detailed (runs into over 250 pages), addresses the petitioner's submissions and records reasons, thus demonstrating application of mind. Given the existence of a statutory appellate remedy under Section 37A(5), the Court exercised its discretion not to entertain the writ on merits so as not to prejudice the pending statutory remedy. The petitioner was directed to avail itself of the appellate forum; the Court noted that a writ is not barred per se but declined to decide merits which are appropriate for the appellate/statutory forum. [Paras 34, 35]The Competent Authority's order does not suffer from non application of mind; petitioner must pursue the remedy of appeal under Section 37A(5).Final Conclusion: Writ petition dismissed. The Court upheld the maintainability of an Article 14 challenge by a person but rejected the contention that Section 37A is manifestly arbitrary; the Competent Authority's order was held to show application of mind and the petitioner was directed to pursue the statutory appeal under Section 37A(5). 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 PetitionThe 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 PowerThe 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 MindThe 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.