Case Name: J. SRI NISHA VS. THE SPECIAL DIRECTOR, ADJUDICATING AUTHORITY, DIRECTORATE OF ENFORCEMENT AND ANR.
Petition Number: SPECIAL LEAVE PETITION (CIVIL) NO. 23415 of 2025
Neutral Citation: 2026 INSC 309
Date of Judgement: 01.04.2026
Coram: HON’BLE MR JUSTICE VIKRAM NATH & HON’BLE MR JUSTICE SANDEEP MEHTA
INTRODUCTION
The appeal was filed by a company and its directors, challenging a High Court judgment that dismissed their writ petitions. The High Court had upheld a Show Cause Notice (SCN) issued by the Adjudicating Authority under the Foreign Exchange Management Act (FEMA). The Supreme Court examined the interplay between interim seizure proceedings under Section 37A and final adjudication proceedings under Section 16 of FEMA, specifically determining whether an Adjudicating Authority could proceed with an SCN and pass a final order while a Competent Authority’s prior refusal to confirm the underlying seizure was pending appeal.
FACTS
The appellants, M/s. Accord Distilleries & Breweries Pvt. Ltd. and its Directors, allegedly acquired 70 lakh shares in a Singapore-based company, M/s. Silver Park International Pte. Ltd., without the requisite Reserve Bank of India (RBI) approval, thereby contravening Section 4 of the Foreign Exchange Management Act, 1999 (FEMA). Consequently, the Authorised Officer seized the equivalent value of their Indian assets under Section 37A(1) of FEMA. However, when the matter was placed before the Competent Authority under Section 37A(3) for confirmation of the seizure, it was concluded that there existed no evidence to establish that any of the appellants had made payment towards the shares issued by M/s. Silver Park International Pte. Ltd. The Enforcement Directorate appealed this refusal, and the appeal remained pending before the Appellate Tribunal.
Despite the Competent Authority’s refusal to confirm the seizure, the Adjudicating Authority issued a Show-Cause Notice(SCN) to the appellants under Section 16(3) of FEMA on identical allegations. Even after the conclusion of the hearing, the authorities issued another corrigendum to the show-cause notice. The appellants challenged both the show-cause notice and the corrigendum before the High Court. However, the Single Judge and later the Division Bench of the Madras High Court also dismissed their appeals. These High Court decisions were then challenged before the Supreme Court.
ISSUES
- Whether a writ petition challenging a Show Cause Notice (SCN) is maintainable when the foundational basis for the notice has already been negated by a Competent Authority’s refusal to confirm a seizure?
- Whether the Adjudicating Authority can proceed with final adjudication under Section 16 of FEMA and effectively overrule a Competent Authority’s refusal to confirm a seizure under Section 37A, particularly while an appeal against that refusal is still pending?
SUBMISSIONS BY THE PARTIES
The Appellants argued that once the Competent Authority concluded there were no grounds to confirm the seizure of assets under Section 37A, the very foundation of the SCN was effaced, rendering the SCN non est in law. In addition, the appellants contended that the High Court had, in effect, disregarded and nullified the findings recorded by the Competent Authority and that the adverse observations made by the High Court had consequently prejudiced their case. They also contended that the Adjudicating Authority should have waited for the outcome of the pending appeal before the Appellate Tribunal rather than proceeding to pass a final adjudication order.
The Respondents argued that the interim seizure under Section 37A is merely an intermediary preventive measure and has no bearing on the final adjudication of the SCN. They asserted that the Adjudicating Authority possesses independent jurisdiction to decide the SCN on its own merits, irrespective of the Competent Authority’s refusal to confirm the seizure. Furthermore, they raised a preliminary objection that the appellants concealed the fact that a final adjudication order had already been passed.
JUDGEMENT AND ANALYSIS
The Hon’ble Supreme Court allowed the appeals and set aside both the High Court’s orders and the Adjudicating Authority’s final adjudication order. The Court dismissed the preliminary objection regarding concealment, noting that the appellants had explicitly mentioned the culmination of the SCN into a final order in their civil appeal pleadings. Regarding the maintainability of the writ petition, the Court clarified that while courts normally do not interfere at the SCN stage, interference is permissible in exceptional circumstances—such as an abuse of the process of law, lack of jurisdiction, or non-application of mind. The Competent Authority’s refusal to confirm the seizure was a substantive evaluation indicating that the preliminary threshold of a “reason to believe” had not been met. Therefore, the High Court was unjustified in rigidly dismissing the challenge to the SCN on the ground of non-maintainability.
Regarding the core statutory conflict, the Court strongly criticized the Adjudicating Authority’s approach. By passing a final adjudication order that explicitly disagreed with and undid the Competent Authority’s findings, while the Department’s appeal against those very findings was still pending, the Adjudicating Authority had essentially abdicated and usurped the powers of the Appellate Authority. The Court ruled that such a course of action is arbitrary and contrary to law. To rectify this, the Supreme Court reverted the proceedings to the SCN stage and issued strict directions: the Appellate Authority must first decide the Department’s pending appeal regarding the seizure within two months. Only after that appeal is disposed of can the proceedings arising out of the SCN commence.
CONCLUSION
This judgment establishes that while interim seizure and final adjudication under FEMA are distinct statutory processes, they are not entirely insulated from one another. An Adjudicating Authority cannot arbitrarily bypass or overrule the substantive, reasoned findings of a Competent Authority regarding foundational evidence, especially when those findings are sub judice before an Appellate Tribunal. Furthermore, it reaffirms that writ courts possess the constitutional jurisdiction to interfere at the Show Cause Notice stage to prevent manifest injustice when the foundational basis of the proceedings is demonstrably lacking.
