2024 (8) TMI 793 - HC - FEMA

FEMA Section 16(1) adjudication proceedings can continue despite pending appeal against Section 37A(1) seizure order

M/s. Accord Distilleries & Breweries Pvt. Ltd., Represented by its Director Shri J. Sundeep Aanand, Smt. J. Sri Nisha, Smt. J. Sri Nisha, Shri. S. Jagathrakshakan Versus The Special Director, The Assistant Director, Chennai

Madras HC held that adjudication proceedings under Section 16(1) of FEMA can proceed despite pending appeal against seizure order under Section 37A(1). ... Adjudicating Authority to proceed with the adjudication u/s 16(1) of FEMA during pendency of the appeal against an order passed u/s 37A(1) - Authorised Officer passed the seizer order and sent the same to the competent authority, who in turn rejected the order of the Authorised Officer and Appeal has been preferred by the respondents before the Tribunal, which is pending - HELD THAT:- Special provision under Section 37A is all about an interim seizer value equivalent situated within in India of such foreign exchange, foreign security or immovable property. In the event of seizer during the pendency of the adjudication proceedings, the procedures to be followed by the authority are enumerated under Sub Section (6) of Section 37A of FEMA. Therefore, the very purpose and object of inserting Section 37A is to seize value equivalent situated within India of such foreign exchange, foreign security or immovable property during pendency of the adjudication proceedings and such seizer proceedings initiated under Section 37A, undoubtedly cannot stand as a bar to proceed with the adjudication proceedings under Section 16 of the FEMA by the Adjudicating Authority. As noted under the definition, the functions of the Adjudication Authority, Authorised Officer and Competent Authority are distinguishable and each Authority is conferred with powers under the Act to carry out certain actions. Therefore, the contention on behalf of the appellants that the Authorised Officer is below the Competent Authority has no relevance as far as Section 37A of FEMA is concerned. In fine, we could arrive at an irresistible conclusion that a writ against a show cause notice is not entertainable. The adjudication proceedings have completed and the final order is about to be passed by the Adjudicating Authority. Regarding an interim seizer under Section 37A is concerned, it may not have any implication in respect of the final order to be passed by the Adjudicating Authority and it would be appropriate on his part to deal with the effect of seizer order passed by the Authorised Officer under Section 37A of FEMA, while passing final order under Section 16 of FEMA. The above position has been amply made clear in Sub Section (4) to Section 37A of the Act, wherein, it is contemplated that the Adjudicating Authority shall pass appropriate directions in the adjudication order with regard to further actions as regards to seizer made under Sub Section (1) to Section 37A and in this case, the Adjudicating Authority is directed to take note of said provision and take an appropriate decision with reference to the order passed by the Authorised Officer under Section 37A(1) of the FEMA. Issues Involved:1. Validity of the show cause notice and corrigendum.2. Jurisdiction of the Adjudicating Authority under FEMA.3. Interim seizure under Section 37A of FEMA.4. Entertainability of the writ petition against the show cause notice.Detailed Analysis:1. Validity of the Show Cause Notice and Corrigendum:The appellants challenged the show cause notice dated 22.12.2021 and the corrigendum issued on 13.03.2023. The court noted that normally, a writ petition challenging a show cause notice is not entertained unless it is issued by an incompetent authority or is tainted with mala fides. The appellants argued that the show cause notice and the corrigendum were untenable and without jurisdiction because the competent authority had already rejected the seizure order passed by the Authorized Officer under Section 37A of FEMA. The court, however, found that the issuance of the show cause notice was within the jurisdiction of the Adjudicating Authority and did not find any jurisdictional error.2. Jurisdiction of the Adjudicating Authority under FEMA:The court examined the provisions of FEMA, particularly Sections 4, 16, and 37A. It was clarified that Section 16 confers power on the Adjudicating Authority to hold an inquiry after affording an opportunity to the person against whom contravention under Section 13 is noticed. Section 37A provides special provisions for seizure of assets held outside India in contravention of Section 4. The court found that the Adjudicating Authority has the jurisdiction to proceed with the adjudication under Section 16 of FEMA, independent of the interim seizure proceedings under Section 37A.3. Interim Seizure under Section 37A of FEMA:The court elaborated on the scope of Section 37A, which allows the Authorized Officer to seize the value equivalent of foreign exchange, foreign security, or immovable property situated within India if held in contravention of Section 4. The seizure order is an interim measure that remains valid until the adjudication process is completed. The court noted that the Adjudicating Authority is empowered to pass appropriate orders regarding the interim seizure while disposing of the adjudication proceedings under Section 16 of FEMA.4. Entertainability of the Writ Petition Against the Show Cause Notice:The court referred to several precedents, including the judgments of the Supreme Court in Special Director and Another vs. Mohd. Ghulam Ghose and Another [(2004) 3 SCC 440], Union of India and Another vs. Kunisetty Satyanarayana [(2006) 12 SCC 28], and Raj Kumar Shivhare vs. Assistant Director, Directorate of Enforcement and Another [(2010) 4 SCC 772], which held that writ petitions against show cause notices are generally not entertained unless the notice is wholly without jurisdiction or illegal. The court found that the writ petition was premature and not maintainable, as the appellants had participated in the adjudication proceedings and had not established any jurisdictional error in the issuance of the show cause notice.Conclusion:The court concluded that the writ petition against the show cause notice was not entertainable. The adjudication proceedings were nearing completion, and the Adjudicating Authority was about to pass the final order. The court directed the Adjudicating Authority to take appropriate decisions regarding the interim seizure order passed by the Authorized Officer under Section 37A of FEMA while passing the final order under Section 16 of FEMA. The writ order was confirmed, and the writ appeals were dismissed without costs.