The case of J. Sri Nisha v. The Special Director, Adjudicating Authority, Directorate of Enforcement and Anr. (2026 INSC 309) involves a challenge to adjudication proceedings under the Foreign Exchange Management Act, 1999 (FEMA) while an appeal regarding the seizure of the same assets was still pending,.
Factual Background
- The Allegations: The appellants, including a company (M/s Accord Distilleries & Breweries Pvt. Ltd.) and its directors, were accused of violating FEMA by acquiring 70 lakh shares of a Singapore-based entity without the requisite approval from the Reserve Bank of India,.
- Asset Seizure: On September 11, 2020, an Authorised Officer seized the appellants’ properties under Section 37A(1) of FEMA based on the suspicion that they held foreign security in contravention of the Act.
- Competent Authority’s Refusal: Under Section 37A(3), a Competent Authority examined the seizure and, on February 3, 2021, refused to confirm it. The Authority found no evidence that the appellants had actually paid for the shares, concluding that no contravention of Section 4 of FEMA had been established,.
- Pending Appeal: The Directorate of Enforcement challenged this refusal before the Appellate Tribunal (SAFEMA), an appeal that remained pending during the subsequent proceedings,.
Parallel Adjudication and High Court Intervention
While the seizure appeal was pending, the Adjudicating Authority issued a Show Cause Notice (SCN) in December 2021 based on the same set of allegations,. The appellants challenged this SCN in the Madras High Court, arguing it lacked a foundation because the Competent Authority had already found no basis for a FEMA violation,.
The High Court dismissed these writ petitions, holding that a challenge to an SCN was premature and that seizure proceedings under Section 37A were independent of the adjudication process,. Following this, the Adjudicating Authority passed a final order on August 26, 2024, imposing penalties and ordering the confiscation of the properties.
Supreme Court’s Findings
The Supreme Court set aside the High Court’s judgments and the final penalty order, citing the following reasons:
- Substantive Role of the Competent Authority: The Court emphasized that the Competent Authority’s review of a seizure is not a mere formality but a “substantive evaluation” of whether the material on record justifies a prima facie inference of contravention,.
- Error in High Court Reasoning: The High Court’s observations effectively ignored the Competent Authority’s findings, which “prejudiced the case of the appellants” because the Adjudicating Authority heavily relied on those observations to override the previous refusal of seizure,,.
- Writ Jurisdiction over SCNs: While courts generally do not interfere at the SCN stage, the Court clarified that interference is justified in exceptional circumstances, such as when a notice is issued without jurisdiction or results in an abuse of the process of law,.
- Abuse of Process: By passing a final order while the department’s own appeal against the seizure refusal was still pending, the Adjudicating Authority “undone” the Competent Authority’s order and abdicated the powers of the Appellate Tribunal.
Final Ruling
The Supreme Court allowed the appeals and quashed the Adjudicating Authority’s final order of August 26, 2024,. It directed the Appellate Authority to decide the pending appeal regarding the seizure within two months. Only after that appeal is decided can the adjudication proceedings arising from the SCN proceed to their logical conclusion.
2026 INSC 309
J. Sri Nisha V. Special Director, Adjudicating Authority, Directorate of Enforcement And Anr. (D.O.J.01.04.2026)
