The Supreme Court has clarified that the non-confirmation of seizure of assets by the Competent Authority under Section 37A of the Foreign Exchange Management Act, 1999 carries significant weight in parallel adjudication proceedings initiated under Section 16 of the Act. A bench comprising Justices Vikram Nath and Sandeep Mehta set aside the common judgment and order dated 23 July 2024 passed by the Division Bench of the Madras High Court, as well as the learned Single Judge’s order dated 30 November 2023, which had dismissed writ petitions filed by the appellants challenging a show-cause notice and corrigendum issued by the Adjudicating Authority.
The Court observed that once the Competent Authority, after independent evaluation of the material, declines to confirm the seizure on the ground that no prima facie contravention of Section 4 of FEMA is established, the Adjudicating Authority cannot proceed with adjudication on the identical set of allegations without awaiting the outcome of the statutory appeal filed against that order. The Division Bench’s observations, which virtually effaced the Competent Authority’s findings while the appeal remained pending, were held unsustainable. The Court further reiterated that although writ petitions against a show-cause notice are ordinarily not entertained, this principle is not absolute. Interference under Article 226 of the Constitution is permissible in exceptional circumstances where the notice suffers from patent lack of jurisdiction, reflects non-application of mind, is issued with a pre-determined approach, amounts to abuse of process of law, or violates principles of natural justice.
The appellants, comprising M/s Accord Distilleries & Breweries Pvt. Ltd. and its directors, were alleged to have acquired and held shares in a Singapore-based company without prior RBI approval, in violation of Section 4 of FEMA read with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. The Authorised Officer had seized equivalent assets under Section 37A(1). However, the Competent Authority refused to confirm the seizure vide order dated 3 February 2021, recording that there was no material to show that any foreign security of value was held. The Directorate’s appeal against that order is still pending before the Appellate Tribunal under SAFEMA. Parallelly, the Adjudicating Authority issued the impugned show-cause notice dated 22 December 2021 and a corrigendum dated 13 March 2023. The High Court had dismissed the writ petitions and intra-court appeals, holding that seizure proceedings are interim in nature and do not bar adjudication.
The Supreme Court rejected the respondents’ plea of suppression of facts, noting that the appellants had clearly disclosed in their pleadings that the show-cause notice had culminated in a final adjudication order against which statutory appeals were preferred. The Court held that the High Court was not justified in rejecting the challenge to the show-cause notice on the ground of maintainability in the peculiar facts of the case. It further found that the Adjudicating Authority had heavily relied upon the High Court’s observations while passing the final adjudication order dated 26 August 2024, which effectively undermined the Competent Authority’s order while its appeal was still pending. Such a course was held to amount to abdication of the powers of the Appellate Authority.
Accordingly, the Court set aside the impugned orders of the High Court as well as the final adjudication order dated 26 August 2024. It directed that the Appellate Authority shall first decide the pending appeal under Section 37A(5) of FEMA after hearing the parties and by passing a reasoned order within two months. Thereafter, the adjudication proceedings pursuant to the show-cause notice may be taken to their logical conclusion without being prejudiced by any observations made in the impugned High Court orders or in the present judgment.
Case Title: J. Sri Nisha v. The Special Director, Adjudicating Authority, Directorate of Enforcement and Anr. (and connected appeals)
Case Nos.: Civil Appeal Nos. __ of 2026 [arising out of SLP(C) Nos. 23415, 34269, 23416 & 23417 of 2025]
Date of Judgment: 01 April 2026
Coram: Hon’ble Mr. Justice Vikram Nath and Hon’ble Mr. Justice Sandeep Mehta
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