Adjudicating Authority Abdicated Appellate Powers, Supreme Court Sets Aside FEMA Order Passed Pending Appeal

The Supreme Court has set aside a Madras High Court judgment and a final adjudication order under the Foreign Exchange Management Act, holding that the Adjudicating Authority acted improperly by effectively overriding an order refusing to confirm seizure while that order was under appeal.

A Bench of Justices Vikram Nath and Sandeep Mehta observed, “In effect, the Adjudicating Authority has undone the order of the Competent Authority even while the appeal against the said order is pending. Such a course of action, in the opinion of this Court, tantamounts to abdicating the powers of the Appellate Authority, even when the order of the Competent Authority was still under challenge in appeal at the instance of the department"

The court restored the matter to the stage of the show cause notice and directed that the statutory appeal be decided first.

The case began with allegations that J. Sundeep Anand, a director of Accord Distilleries & Breweries Pvt Ltd, acquired shares in a Singapore-based company without approval from the Reserve Bank of India and later transferred them to family members.

Acting on this, the Directorate of Enforcement passed a seizure order on September 11, 2020.

On February 3, 2021, the Competent Authority refused to confirm the seizure, finding no material to establish any violation. It recorded that “suspicion has no foundation” and held that the statutory requirement for seizure was not met.

Following this, the Directorate of Enforcement filed an appeal before the appellate tribunal, where it remains pending. At the same time, it issued a show cause notice on December 22, 2021, followed by a corrigendum on March 13, 2023, and continued adjudication proceedings.

J. Sundeep Anand and the other noticees challenged the show cause notice before the Madras High Court. Their petitions were dismissed, and the dismissal was upheld in appeal on July 23, 2024.

Thereafter, the adjudicating authority passed a final order on August 26, 2024 imposing a penalty and ordering confiscation.

Senior counsel for J. Sundeep Anand and the other noticees argued that once the seizure was not confirmed, the basis of the proceedings itself was undermined. The Directorate of Enforcement argued that adjudication and seizure are independent and could proceed separately.

The court held that the Competent Authority's order was a substantive finding that there was no basis to suspect a violation. It reiterated that while courts ordinarily do not interfere at the stage of a show cause notice, the rule is not absolute.

Quoting its own ruling in Union of India v. VICCO Laboratorie, the court observed, “Where a show-cause notice is issued either without jurisdiction or in an abuse of process of law, certainly in that case, the writ court would not hesitate to interfere even at the stage of issuance of show-cause notice.”

The bench found that the High Court proceeded on an incorrect premise by treating the seizure as if it had been confirmed. It also noted that the adjudicating authority relied on those observations while passing its order.

In these circumstances, the Court held that the adjudication order could not be sustained. It directed that the appellate authority must first decide the pending appeal within two months.

Only thereafter can the show cause proceedings continue, and they must be decided independently without being influenced by earlier observations.