2025 (2) TMI 17 - HC - FEMA

FEMA show cause notices upheld as petitioners must exhaust statutory appeal remedies under Sections 19(1) and 35 first

The HC dismissed writ petitions challenging FEMA show cause notices, holding that alternative appellate remedies under Sections 19(1) and 35 of FEMA ... Maintainability of the writ petition due to the availability of appeal remedy under Section 19 (1) and Section 35 of FEMA - Delay in issuance of SCN - Violation of Foreign Exchange Management Act (FEMA) and Transfer or Issue of Security by a Person Resident Outside India, Regulations 2000 - contravention of provisions of Section 6 (3) (b) r/w Section 47 of the Foreign Exchange Management Act, 1999 r/w Regulations 3, 4 and 5 and para-3 and para 9(1) (B) (i) of Schedule 1 of TISPRO Regulations 2000 and annexure – B to para 2 of schedule – 1 of TISPRO Regulations 2000 r/w consolidated FDI Policies dated 01.04.2010 and 01.10.2010 - violation of principles of natural justice. HELD THAT:- Merely, because a Subordinate Officer of 3rd respondent has sworn affidavit and filed it on behalf of the second respondent also in some of the writ petitions, it cannot be concluded that the second respondent has made up his mind. Further under the scheme of the Act, the order passed by the second respondent is not final and the same is subject to the appeal before the Appellate Tribunal under Section 19(1) and also subject to further appeal before this Court under Section 35 of FEMA. In view of the appellate remedy available before Tribunal as well as before this Court, it cannot be said that relegating the party to submit his explanation before the second respondent would violate natural justice principles. First of all, the second respondent has not signed the counter affidavit and in some of the cases, counter affidavit was filed only for respondents 1 and 3 and no counter affidavit was filed on behalf of the second respondent. In some of the writ petitions, the counter affidavit was sworn by one of the Subordinate Officers in the Cadre of Assistant Director working in the office of the third respondent and the same is not binding on the Superior Officer namely the second respondent. Therefore, the arguments advanced on behalf of the petitioners is not impressive that the second respondent has already made up his mind regarding the delay in issuing show cause notice and the contravention of provisions of FEMA and accordingly, the arguments regarding violation of natural justice principles is also rejected. The impugned show cause notice has been issued to petitioners by directing them to offer an explanation why adjudicatory proceedings shall not be initiated against them. After considering the explanation offered by the petitioner, the second respondent will decide whether to initiate the adjudicatory proceedings under Section 16 or not. In case he decides to go ahead with adjudication process, the petitioner shall be given reasonable opportunity to put forth his case. Any final order passed by the adjudicating authority under Section 16 is liable to be questioned by filing an appeal under Section 19 of FEMA - the petitioners are not only entitled to file one appeal, the petitioners are also entitled to file further appeal or second appeal before this Court under Section 35 of FEMA, if the petitioners are able to make out a question of law out of the order passed by the Appellate Tribunal. The preliminary objection raised by the learned Additional Solicitor General regarding maintainability of the writ petitions upheld. Delay in issuance of SCN - HELD THAT:- The maximum period of five years of limitation for the revisional authority to exercise its jurisdiction was fixed by taking into consideration the scheme of the said Act. Therefore, the maximum period of five years fixed as a reasonable period in the said case law cannot be made applicable as a general rule to all the cases - the reasonable necessary delay in issuing show cause notice depends on facts and circumstances of the case and the said factual aspect can also be raised by the petitioners before the second respondent. Conclusion - i) The omission of Section 6(3)(b) of FEMA does not invalidate the show cause notice, as the omission is considered a repeal, preserving the provision's applicability to past actions. ii) The delay in initiating proceedings is a factual issue to be addressed by the adjudicating authority, not in writ jurisdiction. iii) The writ petitions were dismissed due to the availability of effective alternative remedies, with the Court emphasizing the importance of exhausting statutory appeals. Petition dismissed. The legal judgment from the Madras High Court involves multiple writ petitions challenging a complaint and subsequent show cause notice issued under the Foreign Exchange Management Act (FEMA) and related regulations. The core issues considered by the Court include the alleged contravention of FEMA provisions by the petitioners, the delay in initiating proceedings, the legal standing of the omitted provisions of FEMA, and the maintainability of the writ petitions in light of available alternative remedies.Issues Presented and Considered:The Court examined several key issues:Whether the show cause notice issued for alleged contraventions of FEMA provisions that occurred between 2009-2011 was invalid due to an unreasonable delay.Whether the omission of Section 6(3)(b) of FEMA by the Finance Act of 2015 invalidated the show cause notice issued for alleged violations of that section.Whether the adjudicating authority had pre-determined the case against the petitioners, thus violating principles of natural justice.Whether the writ petitions were maintainable given the existence of alternative remedies under FEMA.Issue-wise Detailed Analysis:Delay in Initiating Proceedings:The petitioners argued that the delay of nearly ten years in issuing the show cause notice was unreasonable, relying on precedents that emphasize timely initiation of proceedings.The Court noted that while FEMA does not prescribe a time limit for initiating action, proceedings should commence within a reasonable time. However, what constitutes a reasonable time is a question of fact to be determined by the adjudicating authority.The Court concluded that the question of delay should be addressed during the adjudicatory process, not in the writ jurisdiction.Omission of Section 6(3)(b) of FEMA:The petitioners contended that the omission of Section 6(3)(b) by the Finance Act of 2015 rendered the show cause notice without legal basis.The Court examined the legal framework, particularly the applicability of Section 6 of the General Clauses Act, which addresses the effect of repeals. The Court referenced the Supreme Court's interpretation that the term 'repeal' includes 'omission,' thus preserving the applicability of the omitted provisions for past actions.The Court rejected the argument that the omission invalidated the show cause notice, citing the saving provisions in the Finance Act of 2015 and the Supreme Court's rulings in Fibre Boards and subsequent cases.Alleged Bias and Violation of Natural Justice:The petitioners argued that the adjudicating authority had already made up its mind, as evidenced by the counter affidavit filed by the respondents, thus violating principles of natural justice.The Court found no evidence of bias, noting that the counter affidavit was not filed by the adjudicating authority and that the adjudication process included opportunities for appeal, ensuring fairness.The Court emphasized that the adjudicating authority's decision is subject to appeal, further safeguarding against bias.Maintainability of Writ Petitions:The Additional Solicitor General argued that the writ petitions were not maintainable due to the availability of alternative remedies under FEMA, including appeals to the Appellate Tribunal and the High Court.The Court acknowledged that while alternative remedies do not bar writ jurisdiction, they should be exhausted unless exceptions apply, such as violation of fundamental rights or lack of jurisdiction.The Court determined that the petitioners did not demonstrate any exception to warrant bypassing the alternative remedies, thus upholding the preliminary objection regarding maintainability.Significant Holdings:The Court made several key determinations:The omission of Section 6(3)(b) of FEMA does not invalidate the show cause notice, as the omission is considered a repeal, preserving the provision's applicability to past actions.The delay in initiating proceedings is a factual issue to be addressed by the adjudicating authority, not in writ jurisdiction.The petitioners' claims of bias and violation of natural justice were not substantiated, given the procedural safeguards and appeal opportunities available under FEMA.The writ petitions were dismissed due to the availability of effective alternative remedies, with the Court emphasizing the importance of exhausting statutory appeals.The Court concluded by dismissing the writ petitions, granting the petitioners the opportunity to file explanations before the adjudicating authority within a specified timeframe, and emphasizing that any decision by the authority is subject to appeal and scrutiny by higher courts.