2015 (4) TMI 1327 - HC - FEMA

Violation of the provisions of FEMA - penalty u/s 13 (1) of FEMA imposed - freezing the bank account as exercised by Assistant Director under Section 37 (3) of FEMA - HELD THAT - The above provision empowers the Assistant Director to exercise powers under the Income Act 1961. Thus the communication dated 17/11/2014 freezing the petitioners' fixed deposit account in Bank of Baroda is submitted to be in terms of Section 132 (3) of the Income Tax Act 1961. However, in terms of Sections 132 (8) of the Income Tax Act 1961 the life of such a freezing order is only 60 days. Admittedly, the period of 60 days have long expired after the communication dated 17/11/2014. Mr. Vaze, learned counsel for the Enforcement Directorate is not able to show any extension granted or any other communication thereafter freezing the account. Consequently, the communication dated 17/11/2014 is no longer valid in law and the same is quashed and set side. For the purpose of this petition we have not examined the larger issue viz. the scope of Section 37 of FEMA and its applicability even after the show cause notice has been issued by the Adjudicating Authority. We do not interfere with the show cause notice dated 18/12/2014. However, the Adjudicating Authority shall dispose of the show cause noticed dated 18/12/2014 as expeditiously as possible after following the principles of Natural Justice.

Summary

Issues:
1. Quashing of communication to freeze the fixed deposit by the Enforcement Directorate.
2. Validity of the show cause notice issued under FEMA.
3. Jurisdiction of the Assistant Director to freeze the bank account.
4. Compliance with the Income Tax Act regarding the freezing order.

Analysis:

1. The petitioners, British citizens of Indian origin, sought to quash a communication freezing their fixed deposit and a show cause notice alleging FEMA violations. The petitioners purchased a property and later sold it, resulting in a fixed deposit. The Assistant Director froze the deposit without notice, leading to the show cause notice based on a complaint. The petitioners argued against the freezing and notice, claiming they were without legal basis and jurisdiction.

2. The petitioners contended that the show cause notice lacked merit as the property was non-agricultural, exempting them from FEMA regulations. The respondents argued that the Adjudicating Authority should assess the notice's validity, focusing on the property's nature. The Court decided not to interfere with the notice, allowing the petitioners to contest it further before the Authority.

3. Regarding the freezing of the bank account, the respondents claimed authority under Section 37(3) of FEMA, akin to powers under the Income Tax Act. However, the freezing order's validity expired after 60 days, with no extension or subsequent communication. As a result, the Court quashed the communication dated 17/11/2014, finding it no longer legally valid.

4. The Court upheld the show cause notice's validity for further assessment by the Adjudicating Authority, emphasizing expeditious resolution following natural justice principles. The petition was partially allowed, specifically quashing the communication to freeze the fixed deposit. No costs were awarded, concluding the judgment.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Court's decision on each matter, preserving the legal terminology and significant details from the original text.