A Division Bench of the Bombay High Court has recently held in favour of First Global Stockbroking Pvt. Ltd. that, Adjudicating Authority ( AA )is not authorized to issue notices under the Foreign Exchange Management Act (FEMA), 1999 for violations of provisions in Foreign Exchange Regulation Act (FERA), 1973.
Having a similar set of facts, the petitions of SET India Pvt Ltd and some Resorts based at Goa were also considered by the High Court Division Bench of Justice Arif S Doctor and Justice K R Shriram.
The petition challenged the issuance of the three show cause notices dated 30th / 31st May 2002 issued by Respondent No.2 under various sections of FERA, the repealed Act. FERA as noted earlier, was repealed on 31st May 2000, a Notification allegedly appointing “the adjudication officer” u/s 50 of FERA and an order dated 25th November 2004 passed by Respondent no.1, the Adjudicating Officer.
According to petitioners, the show cause notices were issued by a person who was not so empowered as per law. It was contended that, as provided in Section 49(3) of the repealing act, Foreign Exchange Management Act, 1999 (FEMA) no adjudication under the repealed act can now start after the expiry of the limitation of two years since the repeal of FERA.
It was further submitted that, During the subsistence of FERA no action had been taken under FERA or even during the sunset period of two years.
Under Section 49(3) of FEMA, the authority cannot consider whether to adjudge that a contravention has taken place under FERA – under Rule 3(1) of the Rules. Under Section 49(3) of FEMA, the authority can only take notice of a contravention which has already taken place or which has already been adjudged to have taken place under Section 51 of FERA.
It was also submitted that there was no authority under FEMA to retrospectively vest power to adjudicate cases of contravention under FERA.
It was conclusively submitted that the power to adjudicate cases for contravention of FERA was given to Adjudicating Officer Mr. A.K. Bal by the impugned notification only on 20th November 2002 with retrospective effect, which is not contemplated under FEMA and in any event is impermissible in law.
On behalf of the department, it was submitted that although the offenses/contraventions under FERA continue to be governed by FERA, the procedure to be followed is governed by FEMA.
The High Court observed that, in view of Sub Section (3) of Section 49 no Adjudicating Officer could take notice of any contravention under section 51 of FERA for a period of two years from the date of the commencement of FEMA. Thus, the Show Cause Notices issued in contravention to the provisions of FEMA were quashed and the refund was consequently directed to be issued.
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