2026 (3) TMI 988 - HC - FEMA

Delay in issuance of show cause notices invalidates proceedings where preservation expired and no extension was directed.

Show-cause notices issued in respect of alleged contraventions from 1989-1995 were found unsustainable where statutory preservation rules prescribed ... Validity of time barred show cause notices - Failure to initiate proceedings within a reasonable period - preservation obligations under the Banking Companies (Period of Preservation of Records) Rules, 1985. Failure to initiate proceedings within a reasonable period - preservation obligations under the Banking Companies (Period of Preservation of Records) Rules, 1985 - Validity of Show Cause Notices issued after long delay for alleged FERA contraventions - HELD THAT:- The Court applied the principle that where no statutory limitation is prescribed authorities must initiate proceedings within a reasonable period and accepted the Supreme Court's decision in Citi Bank [2022 (8) TMI 1107 - SUPREME COURT] that reliance on the Banking Companies (Period of Preservation of Records) Rules, 1985 (preservation for five/ eight years unless longer preservation is directed) is relevant to determine reasonableness of delay. The impugned show cause notices issued in 2002 relating to transactions occurring predominantly in the early 1990s were held to be covered by that precedent. The Court further observed that the respondent did not demonstrate any instruction or order directing preservation of records for a period longer than that prescribed, and that there was an additional unexplained delay between the initiation of inquiry and issuance of the notices. [Paras 7, 8, 9] Show Cause Notices and proceedings founded on them were quashed for delay; consequential interim security (bank guarantees) provided by the appellants was ordered to be discharged and released. Final Conclusion: The appeals were allowed by quashing the impugned Show Cause Notices and related proceedings on the ground of unreasonable delay, and the bank guarantees furnished pursuant to interim orders were directed to be released to the appellants. Issues: (i) Whether the show cause notices issued in respect of alleged contraventions dating from 1989-1995 are liable to be quashed on the ground of delay.Analysis: The period of the alleged transactions and the dates of issuance of the show cause notices were compared; several notices were issued in 2002 for transactions occurring predominantly between 1989 and 1994. Reliance was placed on the preservation periods in Rule 2, Rule 3 and Rule 4 of the Banking Companies (Period of Preservation of Records) Rules, 1985 which prescribe preservation for five/ eight years unless extended by written direction. It was noted that no written direction extending preservation obligations for the relevant records was placed on record. The approach in the cited precedent applying the reasonable period test where no statutory limitation is specified and quashing notices issued after an unreasonable delay was applied to the facts.Conclusion: The show cause notices and the proceedings thereunder are quashed on the ground of delay; consequentially the impugned appellate orders are set aside and bank guarantees furnished pursuant to interim orders are discharged and to be released forthwith.