Madras High Court Dismisses Flipkart Founders' Review Plea Against FEMA Proceedings

The Madras High Court has dismissed review petitions filed by Flipkart co-founders Sachin Bansal and Binny Bansal and three investors seeking reconsideration of an earlier order that declined to interfere with Enforcement Directorate proceedings under the Foreign Exchange Management Act (FEMA).

Justice S Sounthar held that the petitioners have an effective statutory remedy under FEMA and that the issues raised by them must first be agitated before the adjudicating authority.

“In view of the effective alternative remedy to the petitioners under FEMA Act by way of appeal to Appellate Tribunal under Section 19 of FEMA Act and further appeal to this Court on question of law under Section 35 of FEMA Act, this Court refrained from adjudicating on the merits of the submission and disposed of the writ petitions on the preliminary issue,” the court held.

The review petitions were filed by Sachin Bansal, Binny Bansal, investor Lee Fixel, Accel India Venture II (Mauritius) Ltd., WS Retail Services Pvt Ltd and others. They sought review of a January 29, 2025 order by which the High Court had dismissed their writ petitions challenging an Enforcement Directorate complaint and show-cause notices issued under FEMA.

The Enforcement Directorate had alleged violations of FEMA and the Transfer or Issue of Security by a Person Resident Outside India Regulations, 2000. Based on the complaint, show-cause notices were issued on July 1, 2021.

When the writ petitions were heard earlier, the High Court declined to examine the merits of the allegations. It accepted the Enforcement Directorate's objection that the petitioners had an alternative statutory remedy under the FEMA framework, including appeals before the Appellate Tribunal and the High Court.

In the review proceedings, the petitioners argued that the show-cause notices were issued after an unreasonable delay. They also relied on judicial precedents dealing with delayed initiation of proceedings.

The High Court observed that the question of whether a notice had been issued within a reasonable period depended on the facts and circumstances of each case. It further noted that the issue had already been considered in the earlier writ order.

Referring to its earlier reasoning, the court observed that the petitioners could raise the delay objection before the adjudicating authority. Any decision on that issue would remain subject to the statutory appellate mechanism.

“Therefore, any arguments on the merit shall be made only before the adjudicating authority and the same cannot be adjudicated upon by this Court, in view of the availability of alternative remedy. This Court in the writ order categorically observed that remedy of appeal before this Court on question of law under Section 35 of FEMA Act cannot be termed as an ineffective remedy to enable the petitioners to approach this Court by invoking Article 226 of Constitution of India,” the court observed.

The petitioners also argued that the alleged violations had taken place before the issuance of the Reserve Bank of India notification under which a 25 percent wholesale restriction was introduced.

They further contended that the consolidated FDI policy was only a government circular and could not be treated as a rule, regulation or notification issued under FEMA.

The High Court declined to examine those submissions. It held that these were matters going to the merits of the allegations and could be raised before the adjudicating authority in response to the show-cause notices.

The court noted that the writ petitions had been disposed of on the preliminary issue of availability of alternative remedies. It therefore found no reason to revisit the merits of the dispute in review jurisdiction.

Some of the petitioners also contended that they had exited the company before the relevant RBI notification came into force.

The court held that whether the applicants were directors of the company at the relevant point of time and whether any violation had occurred were questions of fact that must be decided by the adjudicating authority.

“Whether the applicants were or were not Directors of the company at the relevant point of time and whether there was any violation are all the questions of fact which can be decided by the adjudicatory authority. The petitioners are at liberty to raise all these points in their response to the show cause notice before the adjudicatory authority and the authority can take a call on the merits of the claim made by the applicants,” the court observed.

Another argument raised by the petitioners related to the expression “Group Company”. They contended that the expression was not defined under the FDI policy during the relevant period and was defined only later.

The High Court observed that the absence of a definition and any alleged prejudice arising from it were issues that went to the merits of the matter. Those questions, it held, must first be examined by the adjudicating authority and could thereafter be tested through the appellate process available under FEMA.

Finding no error apparent on the face of the record in the January 2025 order, the court dismissed all the review petitions.