In a significant enforcement action, the Enforcement Directorate (ED) has intensified scrutiny on Indian residents who acquired overseas properties—particularly in Dubai—without routing funds through authorised banking channels.
The latest action, involving seizure of Indian assets linked to Dubai properties worth over Rs. 44 crore, underscores the serious legal consequences of bypassing India’s foreign exchange laws.
The development serves as a strong warning to individuals using cash, hawala, or other informal mechanisms to purchase foreign real estate, often under the mistaken belief that such transactions remain outside Indian regulatory oversight.
The ED Action Against Dubai Properties: Key Details
The ED recently attached immovable properties in India belonging to resident Indians who allegedly acquired multiple high-value residential properties in Dubai without any authorised outward remittance from India. The aggregate value of the overseas properties exceeded ₹44 crore.
Since foreign immovable properties cannot be physically seized under Indian jurisdiction, the ED exercised its powers under Section 37A of the Foreign Exchange Management Act (FEMA), 1999, to attach equivalent-value assets located in India.
Investigations revealed that the individuals failed to demonstrate:
- Any outward remittance through RBI-authorised dealer banks
- Use of the Liberalised Remittance Scheme (LRS)
- Proper documentation evidencing legal transfer of funds from India
The absence of a verifiable money trail led authorities to conclude that the properties were acquired through unauthorised means, potentially involving hawala or unaccounted funds.
Why Buying Overseas Property via Cash or Hawala Violates FEMA
1. Mandatory Use of Authorised Banking Channels
Under FEMA, all capital account transactions—such as acquisition of immovable property abroad by a resident Indian—must be undertaken strictly in accordance with RBI-permitted routes.
The Liberalised Remittance Scheme allows resident individuals to remit up to USD 250,000 per financial year for permitted purposes, including purchase of property abroad. However, the remittance must:
- Originate from an Indian bank account
- Be processed through an authorised dealer bank
- Be supported by prescribed declarations and documentation
Any payment made outside this framework constitutes a direct violation of FEMA.
2. Hawala and Informal Transfers Are Inherently Illegal
Hawala transactions are informal, undocumented fund transfer mechanisms that operate outside the formal banking system. Even if the underlying money is claimed to be tax-paid or legitimate, the use of hawala for overseas investments violates FEMA because:
- There is no regulatory oversight
- No audit trail exists
- Source and destination of funds cannot be verified
Such mechanisms are treated as illegal outward remittances under FEMA and can also trigger proceedings under anti-money laundering laws.
3. Failure to Establish Source of Funds and RBI Compliance
In overseas property transactions, the burden lies on the individual to prove that:
- Funds were remitted legally
- RBI regulations were followed
- Proper disclosures were made
In the absence of bank remittance records, authorities presume contravention, regardless of whether the property was registered in the buyer’s name abroad.
Legal Consequences of Buying Dubai Property Under Indian Law
FEMA Penalties
FEMA violations attract civil penalties that can extend up to three times the sum involved in the contravention. In addition, authorities are empowered to:
- Attach assets
- Freeze bank accounts
- Initiate adjudication proceedings
Section 37A specifically allows seizure of equivalent assets in India where foreign assets are held unlawfully.
Exposure Under the Prevention of Money Laundering Act (PMLA)
Where investigations indicate use of hawala, shell entities, or layered transactions, the offence may escalate into money laundering. PMLA proceedings carry:
- Criminal liability
- Provisional attachment of assets
- Arrest and prosecution in serious cases
Black Money (Undisclosed Foreign Assets) Act Implications
Failure to disclose foreign immovable property in Indian income-tax filings can attract proceedings under the Black Money Act, which prescribes:
- Penalty up to 120 percent of the value of undisclosed assets
- Separate prosecution provisions
This is in addition to penalties under FEMA and the Income-tax Act.
Compliance Requirements for Indians Buying Property Abroad
Use Only the LRS or RBI-Approved Routes
- Remit funds through authorised dealer banks
- Ensure compliance with yearly LRS limits
- Maintain bank advice and remittance confirmations
Maintain Complete Documentation
- Sale agreements and payment schedules
- Bank statements reflecting outward remittances
- RBI declarations and certificates where applicable
Mandatory Disclosure in Income-Tax Returns
- Foreign property must be disclosed in Schedule FA
- Rental income or capital gains must be reported in India
Non-disclosure significantly increases exposure to enforcement action.
Why This Enforcement Push Matters
Indian regulators are increasingly coordinating data across jurisdictions, aided by global information-sharing frameworks. Offshore investments that once remained unnoticed are now easily traceable.
The ED’s recent actions signal that:
- Overseas assets are no longer beyond Indian regulatory reach
- Informal fund transfers are a high-risk strategy
- Asset seizure within India is a real and immediate consequence
Conclusion
Buying property in Dubai—or any foreign jurisdiction—through cash, hawala, or unauthorised channels is not a grey area but a clear violation of Indian foreign exchange law.
The recent ED seizures reinforce a critical message that convenience today can result in crippling penalties tomorrow.
Indian residents must ensure that all overseas investments are routed strictly through RBI-authorised channels, properly documented, and fully disclosed. Non-compliance can lead not only to financial penalties but also to asset attachment and potential criminal proceedings.
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