RELEASE OF CURRENCY SEIZED UNDER FEMA LAW

[Mr. M. GOVINDARAJAN]

Currency

Section 2(h) of Foreign Exchange Management Act, 1999 (‘Act’ for short) defines the term ‘currency’ as including all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank.

Search and seizure

Section 37 of the Act gives powers to the Directorate of Enforcement to take up for investigation the contravention referred to in section 13 (penalties).   The Officers shall exercise the like powers which are conferred on income-tax authorities under the Income-tax Act, 1961 and shall exercise such powers, subject to such limitations laid down under that Act.

Section 37A inserted with effect from 14.05.2015 provides that upon receipt of any information or otherwise, if the Authorized Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4 (holding of foreign exchange), he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property.   No seizure shall be made in case where the aggregate value of such foreign exchange, foreign security or any immovable property, situated outside India, is less than the value as may be prescribed.

The order of seizure along with relevant material shall be placed before the Competent Authority, within a period of thirty days from the date of such seizure.  The Competent Authority shall dispose of the petition within a period of one hundred eighty days from the date of seizure by either confirming or by setting aside such order, after giving an opportunity of being heard to the representatives of the Directorate of Enforcement and the aggrieved person.

The order of the Competent Authority confirming seizure of equivalent asset shall continue till the disposal of adjudication proceedings and thereafter, the Adjudicating Authority shall pass appropriate directions in the adjudication order with regard to further action as regards the seizure made.

Any person aggrieved by any order passed by the Competent Authority may prefer an appeal to the Appellate Tribunal.

Release of seized currency

As per section 37A of the Act the competent officers of the Directorate of Enforcement can investigate on any information received by them from any source.  The Officers are empowered to cause search and seizure.  The currency may also be seized during the course of seizure.  The said amount will not be released till the Competent Authority passed on that seizure.  The aggrieved party may file appeal against this order.  Once the seizure order is confirmed the currency could not be released unless the said order is set aside by the Appellate Authorities or Tribunal or High Court. 

The above said view has been confirmed by the Telangana High Court in DIRECTORATE OF ENFORCEMENT VERSUS P.C. FINANCIAL SERVICES PRIVATE LIMITED AND 3 OTHERS [2022 (3) TMI 943 - TELANGANA HIGH COURT], the Enforcement Directorate has seized a sum of Rs.270 crores vide orders dated 26.08.2021m 30.09.2021 and 15.12.2021 from the respondent in this case.  The respondent company is a Chinese company.  This action was taken as a part of a probe against several non banking financial services and Fintech companies, which were providing online instant micro loans using mobile apps.  During the investigation under the Prevention of Money Laundering Act, the Enforcement Directorate found alleged FEMA violations by the respondent who provides instant personal micro loans through its mobile application ‘cashbean’.

The respondent filed a writ petition before the High Court challenging the seizure orders.  The respondent prayed the High Court to pass an order or director for quashing the impugned seizure orders as being illegal, arbitrary, unconstitutional and destructive of the respondent’s fundamental rights and also to restrain the Department from taking any coercive action in furtherance of the impugned orders against the respondents, its Directors, employees etc., during the pendency of the writ petition and/or pass any such further orders that the Court deems fit in the facts and circumstances of the case.

During the pendency of the writ petition, the Competent Authority passed an order on 04.02.2022 affirming the orders of seizure.  This order has not been challenged by the respondent. 

The respondent filed an interim application before the High Court for the release of Rs.15.35 crores for the payment of salaries to the employees of the Company.  The High Court allowed the interim application and directed the release of the said amount.  The writ petition itself has been disposed of by the High Court vide their order dated 12.02.2022

Against the order of Single Judge, the Department filed an appeal before the Division Bench.  The respondent submitted that the Department released a sum of Rs.9.68 crores and the utilization certificate was also submitted.  The Department contended that no such amount (Rs.9.68) has been seized by the Department.  The said amount was lying in the bank account of the respondent.  The bank was permitted to disburse the said amount.  It is not the seized and later on released by the Enforcement Directorate. No single rupee has been released from the seized amount of Rs.270 crores.

The High Court, on considering the arguments and documents before them, held that once the seizure orders were not set aside and no statutory provision was brought to the notice of the Single Judge for release of such amount and the seizure orders have been affirmed by the Competent Authority then no such provisional release could have been ordered by the Single Judge by disposing of the writ petition itself.