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TaxTMI 
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2026 (4) TMI 158
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.....M.P. Nos.28745, 28749, 28748, 28750, 28756 of 2023 and 2240 of 2024. 4. The appellants herein had approached the learned Single Judge of the High Court, assailing the order/show cause notice ['SCN'.] dated 22nd December, 2021 issued by the Adjudicating Authority under the provisions of the Foreign Exchange Management Act, 1999 ['FEMA'.], and the consequential corrigendum dated 13th March, 2023. 5. The writ petitions instituted by the appellants assailing the said SCN and corrigendum came to be dismissed by the learned Single Judge vide common final order dated 30th November, 2023. The intra- Court appeals preferred against the said order also stand rejected by the impugned judgment dated 23rd July, 2024. It is in these circumstances that the appellants are before us by way of these appeals with special leave. 6. Since all the appeals involve identical questions of fact and law, they were heard analogously and are being decided by this common judgment. Background:- 7. The appellants herein are the Company named M/s. Accord Distilleries & Breweries Pvt. Ltd. and its Directors. The allegations against the appellants in the questioned SCN emanate from a transaction of a....
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....he said order is presently under challenge at the instance of the Directorate of Enforcement before the Appellate Tribunal under SAFEMA at New Delhi in FPA-FE No. 33/CHN/2021. 11. Parallelly, with the proceedings for seizure and on identical set of allegations, the Authorised Officer, moved the Adjudicating Authority-respondent No. 1 ["Adjudicating Authority".] herein (the Special Director of Enforcement Directorate) under Section 16(3) of FEMA, pursuant whereto an SCN dated 22nd December, 2021 was issued to the appellants alleging violation of the provisions of FEMA along with allied regulations. The appellants appeared before the Adjudicating Authority in response to the SCN and advanced preliminary as well as additional submissions during the course of the proceedings. After the personal hearing was concluded and the matter was reserved for orders by the Adjudicating Authority, a corrigendum dated 13th March, 2023 came to be issued to the SCN. Both the SCN as well as the corrigendum were subjected to challenge in the writ petitions filed by the appellants before the learned Single Judge of the High Court. 12. The foundational challenge to the SCN and the corrigendum was th....
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....d that the findings recorded by the Division Bench of the High Court in para Nos. 32, 33, and 34 of the impugned order, virtually setting at nought the order passed by the Competent Authority under Section 37A of FEMA, have prejudiced the case of the appellants because the Adjudicating Authority has heavily relied upon these very observations while passing the final adjudication order. 17. Learned senior counsel further submitted that it is a fit case in which this Court should feel persuaded to quash the SCN along with the corrigendum and the adjudication order dated 26th August, 2024 as there existed no foundation for the same. 18. Their alternative submission was that the order of adjudication dated 26th August, 2024 deserves to be set aside and the respondents should be directed to await the outcome of the appeal pending under Section 19 of FEMA before the SCN can be adjudicated on merits. They further prayed that the observations and adverse findings recorded by the Division Bench on the order passed by the Competent Authority under Section 37(A)(3) of FEMA should not prejudice the case of the appellants at any stage of the proceedings. Submissions on behalf of the re....
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.... suit the appellants. 25. Now, we shall advert to the merits of the case. For the ease of reference, Section 37A of FEMA on which the fulcrum of the controversy lies, is reproduced herein below:- "37-A. Special provisions relating to assets held outside India in contravention of Section 4.- (1) Upon receipt of any information or otherwise, if the Authorised Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property: Provided that no such seizure shall be made in case where the aggregate value of such foreign exchange, foreign security or any immovable property, situated outside India, is less than the value as may be prescribed. (2) The order of seizure along with relevant material shall be placed before the Competent Authority, appointed by the Central Government, who shall be an officer not below the rank of Joint Secr....
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....ured for future proceedings pursuant to adjudication. 28. Sub-section (4) gives an impression that the order passed by Competent Authority confirming the seizure would remain alive only till the disposal of the adjudication proceedings, and that the Adjudicating Authority would be authorized to proceed with further action, i.e., SCN, etc. without being fazed by the confirmation of the seizure proceedings. 29. The effect of sub-section (4) is evidently to leave the seized assets at the disposal of the Adjudicating Authority for realisation of the adjudicated amount, if any and to prevent frustration of the adjudication order. However, sub-section (4) is restricted to an order of the Competent Authority "confirming seizure of equivalent assets and the continuance thereof till the disposal of the adjudication proceedings". The said provision literally does not deal with a situation where the seizure has not been confirmed. 30. The controversy in the present cases is more appropriately examined within the framework of sub- sections (1) to (3) of Section 37A. A plain reading of Section 37A(1) indicates that the power of seizure is predicated upon the existence of a "reason to b....
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.... S. Jagathrakshakan (R1), Ms. Anusuya Jagathrakshakan (R2), Ms. Sri Nisha (R3) & Mr. Sundeep Aanand (R4). Therefore, the prayer made by the authorised officer vide petition dated 05.10.2020 under Section 37A(2) to confirm the seizure of properties as mentioned in the Annexures A, B, C & D of the Order of Seizure dt.11.09.2020 is rejected and the impugned Order of Seizure is set aside." 32. Thus, a prima facie satisfaction was recorded by the Competent Authority that there was no evidence of the appellants being involved in foreign security transactions having any value. Consequently, it has to be taken that there did not exist the "reasons to believe" referred to in Sub-section (1) of Section 37A. These findings definitely support the cause of the appellants herein. It is not in dispute that the appeal preferred by the Department against the order dated 3rd February, 2021, is still pending consideration. The Division Bench of the High Court, while deciding the writ appeal, observed that the writ petition against the SCN is not entertainable. We feel that the said observation may not be correct in every situation. This Court has consistently held that although ordinarily a writ p....
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....r such authority to deal with the effect and import of the seizure order passed by the Authorised Officer under Section 37A of FEMA while passing the final order under Section 16 of FEMA. Further, in para 34, the High Court again referred to the seizure made under sub-section (1) and directed the Adjudicating Authority to take note of the said provision. For ease of reference, paras 32, 33, and 34 of the impugned order are reproduced hereinbelow:- "32. 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 i....
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....clusions from the adjudication order dated 26th August, 2024 are reproduced herein below for ease of reference:- "..... (iii) The above analysis was strengthened by the Hon'ble High Court of Madras in judicial pronouncement dated 30.11.2023 in the matter of Writ Petitions in WP Nos. 21105/2023, 21359/2023, 21100/2023, 21096/2023 and 21102/2023, filed by the Noticees against the Adjudicating Authority, and as such, the Hon'ble High Court was pleased to dismiss the Writ Petitions (iv) The Noticees preferred Writ Appeal against the order of Hon'ble High Court of Madras in the above WPs. The Division Bench of Hon'ble High Court of Madras vide its order dated 23.07.2024 in the Writ Appeals in WA Nos. 3520 to 3524 of 2023 has observed that: "31. We concur with the learned Additional Solicitor General of India, in view of the fact that the 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 e....
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....ares of a Foreign entity without upfront payment or on deferred payment basis" clarified that "No. The provisions of Notification No. FEMA 120/RB-2004 dated July 7th 2004 as amended from time to time, do not permit acquisition of foreign shares without payment or deferred payment basis." In view of the above, it is obvious that the Noticees have acquired Foreign Shares of M/s. Silver Park International Pte. Ltd. without obtaining prior RBI approval to make Direct investment outside India. From the above, it is obvious that the Noticees have acquired and held foreign shares in violation of Section 4 of FEMA. (viii) However, I find that the Competent Authority, without considering the above statutory stand points, has passed Order setting aside the Seizure Order of the Authorized Officer. Therefore, I do not concur with the order of the Competent Authority. As such, I find that the impugned seized properties are in accordance with the provisions of Section 37A of FEMA." [Emphasis supplied] 38. In effect, the Adjudicating Authority has undone the order of the Competent Authority even while the appeal against the said order is pending. Such a course of action, in t....