2025 (11) TMI 1557 - HC - FEMA

Section 63 FERA confiscation is discretionary, requires independent reasoning; automatic seizure of NRE/SB balances invalid

Union of India & Anr. Versus Khubchand Madhavdas.

HC held that under section 63 FERA, the power to order confiscation is discretionary, not mandatory, as indicated by the use of 'may' rather than 'shall.' ... Power to order confiscation - discretionary Or mandatory - whether the Appellate Tribunal for Foreign Exchange was justified in setting aside the order of confiscation of the amounts lying in NRE/SB accounts which accounts are admittedly used for contravention/violation of provisions of FERA, 1973, without considering clause (a) to the Explanation to section 63 of the FERA, 1973 and without appreciating the expression ‘in respect of’ used in said section 63. HELD THAT:- We find that Section 63 employs the word ‘may’ and not the word ‘shall’ when it comes to issuing an order of confiscation. Further, before any confiscation is ordered, the main Section itself requires the authority to apply its mind and have reason to believe that the confiscated amounts relate to the breach alleged or proved. Therefore, a confiscation order cannot be made as a matter of course, nor can the making of the confiscation order be regarded as automatic upon any breach of the provisions of FERA being noticed. In this case, there does not appear to have been any independent application of mind. The Tribunal has also considered the nature of the violation and has ruled that the confiscation, which was made as a matter of course, was not justified. Appeal does not involve any question of law as such and dismiss. 'Under the facts circumstances of the case whether Hon'ble Appellate Tribunal for Foreign Exchange was justified in setting aside the order of confiscation of the amounts lying in NRE/SB accounts which accounts are admittedly used for contravention/violation of provisions of FERA, 1973, without considering clause (a) to the Explanation to section 63 of the FERA, 1973 and without appreciating the expression 'in respect of' used in said section 63.' The Tribunal upheld most of the impugned order but interfered only with the confiscation. It found confiscation to be a discretionary remedy and concluded the authority had 'mechanically exercised' its discretion without an independent application of mind. The court reasoned Section 63 uses the word 'may' (not 'shall'), and the main provision requires the authority to have reason to believe that the amounts 'relate to' the breach before ordering confiscation; therefore confiscation is not automatic upon proof of violation. Given the lack of considered exercise of discretion and the Tribunal's factual appraisal, the appeal raises no sustainable question of law and is dismissed.