J. SRI NISHA v. THE SPECIAL DIRECTOR
Procedural Propriety in FEMA Adjudication: Adjudicating Authority cannot override Competent Authority’s findings while Appeal is pending; Writ Jurisdiction is maintainable against Show Cause Notice in cases of abuse of process.
Court: Supreme Court of India
Citation: 2026 INSC 309
Decision Date: 01-04-2026
List of Laws
Foreign Exchange Management Act, 1999; Constitution of India, Article 226; Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004; Administrative Law - Exercise of Writ Jurisdiction against Show Cause Notice
- Facts: The appellants, M/s. Accord Distilleries & Breweries Pvt. Ltd. and its Directors, were accused of violating the Foreign Exchange Management Act, 1999 (FEMA) by acquiring and transferring shares in a Singapore-based entity without Reserve Bank of India approval. Initially, an Authorised Officer seized their Indian assets under Section 37A(1) of FEMA. However, the Competent Authority, acting under Section 37A(3), refused to confirm this seizure, finding no evidence that any consideration was paid for the shares or that a contravention of Section 4 of FEMA had occurred. Despite this finding, and while an appeal against it was pending before the Appellate Tribunal, the Adjudicating Authority issued a Show Cause Notice (SCN) based on the same allegations. The appellants challenged the SCN and a subsequent corrigendum through writ petitions.
- Procedural Posture: The Single Judge of the Madras High Court dismissed the writ petitions, and a Division Bench subsequently rejected the intra-court appeals, holding that a writ against an SCN is not maintainable. During the pendency of the present Special Leave Petition before the Supreme Court, the Adjudicating Authority passed a final order imposing penalties and confiscation, expressly disagreeing with the Competent Authority’s earlier findings.
- Issue: Whether the Adjudicating Authority could proceed to pass a final order on an SCN while an appeal against the Competent Authority's order (which found no prima facie case for the underlying allegations) was still pending, and whether the High Court erred in refusing to exercise writ jurisdiction against the SCN.
- Holding: Yes, the Adjudicating Authority acted prematurely and arbitrarily. The High Court's refusal to interfere was unjustified under the peculiar facts where the foundational basis of the SCN had been rejected by a statutory Competent Authority.
- Reasoning: The Court reasoned that while writ courts usually abstain from interfering at the SCN stage, they must do so in exceptional cases involving an abuse of the process of law or patent lack of jurisdiction. Section 37A(3) requires a substantive evaluation by the Competent Authority to sustain a "reason to believe" regarding contraventions. Since the Competent Authority found the allegations lacked foundation, the Adjudicating Authority could not "undo" or bypass that order while it was sub-judice before an Appellate Tribunal. By doing so, the Adjudicating Authority effectively abdicated the powers of the Appellate Authority. The Court held that the outcome of the appeal regarding the seizure proceedings must precede the final adjudication of the SCN to prevent manifest injustice.
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