The Supreme Court has quashed the Foreign Exchange Management Act (FEMA) adjudication orders and revived proceedings at show cause stage.
The bench of Justice Vikram Nath and Justice Sandeep Mehta found that the High Court erred in treating seizure proceedings as irrelevant. It observed that the High Court’s reasoning effectively nullified the Competent Authority’s findings, even though the ED’s appeal against that order was still pending.
The dispute arose from allegations against M/s Accord Distilleries & Breweries Pvt. Ltd. and its directors regarding acquisition and transfer of shares in a Singapore-based entity, Silver Park International Pte. Ltd. The Enforcement Directorate (ED) claimed that the appellants had acquired foreign securities without requisite approval from the Reserve Bank of India, thereby violating Section 4 of FEMA.
Based on these allegations, assets of the appellants were seized in India under Section 37A of FEMA in September 2020. However, in February 2021, the Competent Authority refused to confirm the seizure, holding that there was no evidence that the shares had any actual value or that any payment had been made for them.
Despite this finding, the ED proceeded with adjudication and issued a show cause notice (SCN), which eventually culminated in a final order imposing penalties and confiscation in August 2024.
The appellants challenged the SCN and subsequent proceedings before the Madras High Court. Both the Single Judge and Division Bench dismissed their petitions, holding that adjudication proceedings under FEMA are independent of seizure proceedings and that writ petitions against SCNs are generally not maintainable.
The Supreme Court examined two central legal questions: Whether adjudication proceedings under FEMA can continue when the Competent Authority has refused to confirm seizure under Section 37A. Whether a writ petition challenging a show cause notice is maintainable in exceptional circumstances
The Court acknowledged that seizure and adjudication proceedings are distinct. However, it emphasized that findings of the Competent Authority—especially refusal to confirm seizure due to lack of evidence—cannot be ignored.
It held that the Competent Authority’s conclusion indicated absence of even a prima facie “reason to believe” that a FEMA violation had occurred, which forms the very basis for further proceedings.
The Court held that while writ petitions against show cause notices are generally discouraged, they are maintainable in exceptional circumstances—such as lack of jurisdiction or absence of foundational facts.
The Court strongly criticized the Adjudicating Authority for effectively overturning the Competent Authority’s order while an appeal was pending, calling it an impermissible exercise that encroached upon appellate jurisdiction.
The Supreme Court set aside the Madras High Court’s judgments and the ED’s adjudication order dated August 26, 2024, revived proceedings from the stage of the show cause notice, directed that the pending appeal against the Competent Authority’s order be decided first within two months and ordered that adjudication proceedings, if resumed thereafter, must proceed independently without being influenced by prior observations.
Case Details
Case Title: J. Sri Nisha Versus The Special Director
Citation: JURISHOUR-582-SC-2026
Case No.: SLP(Civil) No(s). 23415 of 2025
Date: 01/04/2026
