FEMA show cause notices cannot be challenged through writ petitions except for jurisdictional defects or mala fides

The HC dismissed writ petitions challenging FEMA show cause notices, ruling that judicial review of such notices is limited to cases involving jurisdictional defects, incompetent authority, or mala fides. The court rejected the Bombay HC's expanded interpretation of Rule 4(3) requiring communication of adjudicating authority's opinion to respondents, holding this creates additional opportunities not contemplated under the Rules. The court emphasized that Rule 4(3) procedures must be followed as written without judicial expansion, and petitioners must respond to show cause notices through prescribed statutory procedures rather than premature writ challenges.

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Issues Involved:

1. Validity of the notice of hearing.
2. Compliance with Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
3. Adherence to the rules of natural justice.
4. Binding nature of departmental circulars.

Summary:

1. Validity of the notice of hearing:

The writ petitions challenge the validity of the notice of hearing. The petitioners argue that the notice is invalid as it does not comply with Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. They assert that the reasons for proceeding with the action were not communicated, which is essential for defending their case.

2. Compliance with Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000:

The petitioners contend that the spirit of Rule 4(3) has not been adhered to, citing the Bombay High Court's interpretation in Shashank Vyankatesh Monohar Vs. Union of India, confirmed by the Supreme Court, which mandates that reasons for proceeding with an enquiry must be communicated to the noticee. The Madras High Court, however, distinguishes this interpretation, referencing its own Division Bench judgment in India Cements Limited Vs. Union of India, which holds that there is no statutory obligation to communicate the reasons for forming an opinion under Rule 4(3).

3. Adherence to the rules of natural justice:

The petitioners argue that non-compliance with Rule 4(3) violates the rules of natural justice. The Madras High Court clarifies that Rule 4(3) should be read in conjunction with Rule 4(4), which ensures that the person proceeded against is informed of the contraventions and allowed to defend their case. The Court concludes that the procedures under Rule 4 provide a fair opportunity and comply with the rules of natural justice.

4. Binding nature of departmental circulars:

The petitioners rely on departmental circulars issued in line with the Bombay High Court judgment. The Additional Solicitor General argues that departmental circulars are not binding on courts or quasi-judicial authorities, referencing Supreme Court judgments in Commissioner of Central Exercise, Bhopal Vs. Minwool Rock Fibres Limited and Commissioner of Central Excise Vs. Ratan Melting and Wire Industries. The Court agrees, stating that circulars represent the understanding of statutory provisions by the issuing authority and are not binding on the court.

Conclusion:

The Court dismisses the writ petitions, stating that the show cause notice issued u/s 4(1) of the Rules is valid and the petitioners must respond to it. The adjudicating authority will then form an opinion u/s 4(3) to proceed with the enquiry, ensuring compliance with the procedures under Rule 4(4) to 4(12). The Court emphasizes that judicial review u/s 226 of the Constitution is limited to ensuring the process through which a decision is taken, not the decision itself.

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