Service of show cause notice governs commencement of proceedings and limits retention of seized currency under foreign exchange law

Proceedings under section 51 of the Foreign Exchange Regulation Act, 1973 commence only on service of the show cause notice, not on mere despatch, because the statutory requirement of a reasonable opportunity is satisfied only by service. Indian currency seized under section 41 may be retained for no more than one year unless proceedings under section 51 are commenced within that period or prosecution under section 56 is instituted before a court. On the stated facts, the notice was served after one year and prosecution began later, so continued retention was unlawful and the currency had to be returned, subject to a limited deferment to complete pending adjudication.

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Issues: Whether proceedings under section 51 of the Foreign Exchange Regulation Act, 1973 commence on mere despatch of the show cause notice or only on its service, and whether Indian currency seized under section 41 of the Act can be retained beyond one year in the absence of commencement of proceedings under sections 51 or 56 within that period.

Analysis: Section 41 permits retention of seized documents, including Indian currency, only up to one year unless proceedings under section 51 are commenced within that period or prosecution under section 56 is commenced before a court. A preliminary notice under rule 3(1) of the Adjudication Proceedings and Appeal Rules, 1974 forms part of the adjudicatory process, but the statutory requirement of affording a reasonable opportunity is satisfied only when the notice is served, not when it is merely despatched. On the admitted facts, the notice reached the petitioner after the expiry of one year, and the prosecution under section 56 also commenced later. The statutory condition for continued retention was therefore not met.

Conclusion: Proceedings under section 51 commenced only upon service of the notice, which occurred after one year, and the seized currency could not lawfully be retained beyond the statutory period. The petitioner was entitled to return of the currency, though actual return was deferred for a limited period to enable completion of pending adjudication proceedings.

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