2010 (12) TMI 18 - HC - FEMA

Illegal seizure seizure of gold and cash period of holding under seizure seizure under FEMA as well as under Income Tax simultaneously - seizure of both the gold and cash took place way back on 11th July 2005 and for over five years now even no show cause notice has been issued to the Petitioner Held that - It is not understood how, despite not issuing any legal justification for detention of the Indian currency amounting to Rs. 1,49,000/- and 6 kgs of gold, it was retained by the ED till 28th August 2009 i.e. for over four years. The affidavit dated 19th November 2009 filed by the ED admitted that 6 kgs of gold as well as the seized Indian currency were handed over to the IT Department only on 28th August 2009. On its part the IT Department admitted to thereafter having received both the gold as well as the Indian currency and admitted having issued the warrant of authorization under Section 132A of the IT Act. - A perusal of Section 37 of the FEMA reveals that it cannot be invoked to seize Indian currency. The ED had itself admitted before this Court that there was no basis for seizure by the ED of the 6 kgs of gold. As far as Section 132A of the IT Act is concerned, it does not permit indefinite detention of the seized items by the IT Department without even issuing show cause notice to explain the legal basis of detention of the seized item direction issued to release of goods

Summary

Issues:
Non-return of seized gold and Indian currency, legality of seizure under FEMA Act, authority to detain seized items, compliance with Income Tax Act, justification for detention, legal basis for detention by IT Department, absence of show cause notice, validity of detention by ED and IT Department.

Analysis:
The petitioner approached the High Court aggrieved by the non-return of 6 kgs of gold and Indian currency seized by the Enforcement Directorate (ED) from the business premises. The petitioner argued that the seizure was illegal under the Foreign Exchange Management Act, 1999 (FEMA Act) as it permits seizure only of foreign exchange, not gold or Indian currency. Despite no show cause notice issued for over four years, the items were not returned, leading to the court intervention under Article 226 of the Constitution.

The court noted that the ED had seized the items without any adjudication proceedings pending under the FEMA Act. The ED admitted that the seized items were not subject to any such proceedings. The Income Tax Department had issued a notice requisitioning the gold bars, but the legal basis for detention was unclear. The IT Department received the seized items after several years but did not provide justification for their continued detention.

The court highlighted the lack of legal justification for the detention of the gold and cash by both the ED and IT Department. Despite the issuance of a warrant by the IT Department, no explanation or orders were presented to justify the detention. The ED admitted that there was no basis for the seizure of gold, and the IT Department failed to show the legal basis for detaining the items.

Considering the absence of valid explanations from the respondents and the legal provisions governing seizure and detention, the court allowed the writ petition. A direction was issued to the IT Department to release the seized gold and Indian currency within eight weeks, quashing the warrant issued by the IT Department. The petition was disposed of accordingly, emphasizing the need for compliance with legal provisions and the issuance of show cause notices in such cases.