ASSETS HELD OUTSIDE INDIA IN CONTRAVENTION OF SECTION 4 OF FOREIGN EXCHANGE MANAGEMENT ACT, 1999

[Mr. M. GOVINDARAJAN]

Holding of foreign exchange

Section 4 of the Foreign Exchange Management Act, 1999 (‘Act’ for short) provides that no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

Section 37A

The Finance Act, 2015 introduced a new section in the Act 37A with effect from 14.05.2015.  Section 37A (1) provides that upon receipt of any information or otherwise, if the Authorized 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.  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.

Section 37A (2) provides that the order of seizure shall place before the Competent Authority within 30 days from the date of seizure.  Section 37A (3) provides that the Competent Authority shall dispose of the petition within a period of 180 days from the date of seizure by either confirming or by setting aside such order, after giving an opportunity of being heard to the representatives of the Directorate of Enforcement and the aggrieved person.  The period of stay granted by court shall be excluded and a further period of at least 30 days shall be granted from the date of communication of vacation of such stay order.

Section 37A (4) provides that the order of the Competent Authority confirming seizure of equivalent asset shall continue till the disposal of adjudication proceedings and thereafter, the Adjudicating Authority shall pass appropriate directions in the adjudication order with regard to further action as regards the seizure made.

If, at any stage of the proceedings under this Act, the aggrieved person discloses the fact of such foreign exchange, foreign security or immovable property and brings back the same into India, then the Competent Authority or the Adjudicating Authority, as the case may be, on receipt of an application in this regard from the aggrieved person, and after affording an opportunity of being heard to the aggrieved person and representatives of the Directorate of Enforcement, shall pass an appropriate order as it deems fit, including setting aside of the seizure made under sub-section (1).

 Any person aggrieved by any order passed by the Competent Authority may prefer an appeal to the Appellate Tribunal.

Case law

In M/S. ACCORD DISTILLERIES & BREWERIES PVT. LTD., REPRESENTED BY ITS DIRECTOR SHRI J. SUNDEEP AANAND, SMT. J. SRI NISHA, SMT. J. SRI NISHA, SHRI. S. JAGATHRAKSHAKAN VERSUS THE SPECIAL DIRECTOR, THE ASSISTANT DIRECTOR, CHENNAI - 2024 (8) TMI 793 - MADRAS HIGH COURT , a seizure order was passed under Section 37(A) of the Act by the Authorized Officer on 03.02.2021.  Thereafter the Authorized Officer filed a complaint under Section 16(3) of the Act on 01.12.2021.  Special Director/Adjudicating Authority issued a show cause notice to the petitioner on 22.12.2021.  The first respondent issued an inquiry notice on 19.07.2022.  A personal hearing was given to the appellant.  The appellant attended the hearing and put forth its arguments before the Adjudicating Officer. 

On 13.03.2023 corrigendum to the show cause notice already issued was given by the Adjudicating Officer.  This time also a personal hearing was given to the appellant.   The appellant filed reply to impugned corrigendum on 01.05.2023. A personal hearing was held on the same day.   A personal hearing was given to the appellant on 17.07.2023.

The writ appellant filed a writ petition before the High Court challenging the show cause notice and corrigendum issued to the same.  The respondents submitted the following before the High Court-

• the writ petitions itself were instituted on the verge of the adjudication proceedings, which is not maintainable; 
• The discretionary power under Article 226 of the Constitution of India need not be exercised in such nature of cases, where the Adjudicating Authority has completed the proceedings and about to pass final orders;
• the Authorized Officer passed the seizer order and sent the same to the competent authority, who in turn rejected the order of the Authorized Officer;
• appeal has been preferred by the respondents before the Tribunal, which is pending;
• during the pendency of the appeal against an order passed under Section 37A(1) is not a bar for the Adjudicating Authority to proceed with the adjudication under Section 16(1) of FEMA and therefore, the grounds raised by the appellants are untenable;
• the pendency of the appeal against an order passed under Section 37A(1) is not a bar for the Adjudicating Authority to proceed with the adjudication under Section 16(1) of FEMA and therefore, the grounds raised by the appellants are untenable.

The High Court observed that in the event of seizer during the pendency of the adjudication proceedings, the procedures to be followed by the authority are enumerated under Sub Section (6) of Section 37A of the Act.  Section 37A of the Act cannot stand as a bar to proceed with the adjudication proceedings under Section 16 of the Act by the Adjudicating Authority. The functions of the Adjudication Authority, Authorized 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 Authorized Officer is below the Competent Authority has no relevance as far as Section 37A of the Act  is concerned.

The High Court held that a writ against a show cause notice is not entertainable. In this case the adjudication proceedings have completed and the final order is about to be passed by the Adjudicating Authority.   An interim seizure under Section 37A is concerned, it may not have any implication in respect of the final order to be passed by the Adjudicating Authority and it would be appropriate on his part to deal with the effect of seizer order passed by the Authorized Officer under Section 37A of Act, while passing final order under Section 16 of Act.

The High Court directed the Adjudicating Authority to pass appropriate directions in the adjudication order with regard to further actions as regards to seizure made under Sub Section (1) to Section 37A and the Adjudicating Authority is to take note of said provision and take an appropriate decision with reference to the order passed by the Authorized Officer under Section 37A (1) of the Act.  The said process shall be done as expeditiously as possible.  The High Court set aside the impugned order.