Omission of a Provision is Equivalent to Repeal; Past Proceedings Remain Valid: Madras High Court on FEMA Violations

In a significant ruling Madras High Court dismissed a batch of writ petitions filed by Sachin Bansal and others, challenging a show cause notice issued by the Enforcement Directorate (ED) under the Foreign Exchange Management Act, 1999 (FEMA). The petitioners contended that since Section 6(3)(b) of FEMA had been omitted by the Finance Act, 2015, proceedings initiated under this provision were illegal and void.
Rejecting this contention, Justice S. Sounthar held that “an omission of a statutory provision does not erase past liabilities; it is functionally equivalent to repeal and does not affect pending proceedings.” The Court further emphasized that the petitioners must pursue statutory remedies under FEMA instead of invoking writ jurisdiction under Article 226.
The case arose from a complaint filed by the Directorate of Enforcement (ED) against Sachin Bansal, Binny Bansal, Flipkart Online Services Pvt. Ltd., WS Retail Services Ltd., and several foreign investors, alleging violations of FEMA and the Transfer or Issue of Security by a Person Resident Outside India Regulations, 2000 (TISPRO Regulations).
According to the ED’s findings, the violations pertained to foreign direct investment (FDI) transactions conducted between 2009 and 2011. The key allegations were:
Flipkart Online Services Pvt. Ltd. received ₹142.40 crore in FDI from foreign investors without prior approval from the Government of India.
WS Retail Services Ltd. received ₹6,353.76 crore in FDI in violation of FEMA regulations.
The Bansals structured WS Retail Services as a dummy company to circumvent restrictions on foreign direct investment in retail business, effectively engaging in prohibited multi-brand retail trading.
Based on these allegations, the ED issued a show cause notice on July 1, 2021, directing the petitioners to respond. Instead of contesting the allegations before the adjudicating authority, the petitioners approached the Madras High Court, challenging the notice on multiple legal grounds.
"An Omission of Law Does Not Erase Past Violations" – High Court Rejects Argument Based on Section 6(3)(b) of FEMA
The petitioners argued that since Section 6(3)(b) of FEMA was omitted by the Finance Act, 2015, the ED had no jurisdiction to initiate proceedings under this provision. They relied on Supreme Court rulings in Rayala Corporation v. Director of Enforcement, (1969) 2 SCC 412, and Kolhapur Cane Sugar Works Ltd. v. Union of India, (2000) 2 SCC 536, which held that when a statutory provision is omitted without a saving clause, it ceases to have any effect, even for past violations.
Rejecting this argument, the High Court ruled: “The omission of a provision does not automatically render past violations unenforceable. The Supreme Court in Fibre Boards Pvt. Ltd. v. Commissioner of Income Tax, (2015) 10 SCC 333, has clarified that ‘omission’ is legally equivalent to ‘repeal.’ The application of Section 6 of the General Clauses Act ensures that proceedings already initiated under the omitted provision remain valid.”
The Court further relied on Shree Bhagwati Steel Rolling Mills v. Commissioner of Central Excise, (2016) 3 SCC 643, which held: “A law that is repealed or omitted does not automatically extinguish past liabilities unless an express contrary intention is evident in the repealing statute.”
The Court, therefore, upheld the ED’s authority to initiate action for past contraventions despite the omission of Section 6(3)(b) from FEMA.
"Delay in Issuance of Show Cause Notice Does Not Automatically Invalidate Proceedings"
The petitioners contended that the show cause notice was issued after an unreasonable delay of nearly 10 years and should be quashed on this ground alone. They relied on:
Union of India v. Citi Bank, 2022 SCC OnLine SC 1073, which held that statutory adjudication must be conducted within a reasonable time, even if no limitation period is prescribed.
State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd., (2007) 11 SCC 363, where the Supreme Court ruled that administrative actions must be initiated within a reasonable timeframe.
The High Court, however, ruled that what constitutes a “reasonable time” depends on the facts and circumstances of the case and should be determined by the adjudicating authority. The Court held:
“FEMA does not prescribe a limitation period for initiating adjudication under Section 13. While proceedings must be initiated within a reasonable time, the assessment of reasonableness is a factual issue that should be determined during adjudication, not at the stage of a writ petition.”
Thus, the Court declined to interfere with the show cause notice solely on the ground of delay.

"Allegations of Bias Against the Adjudicating Authority Are Unfounded"
The petitioners argued that the Special Director (Adjudicating Authority) was biased since the ED had already taken a position against them by filing a counter-affidavit supporting the allegations.
Rejecting this claim, the High Court observed: “The counter-affidavit was filed by a subordinate officer of the Enforcement Directorate, not by the adjudicating authority itself. The mere filing of a counter-affidavit does not establish bias. The adjudication process remains open for explanation, rebuttal, and appeal, ensuring due process.”
The Court further held that any potential bias or procedural lapses could be challenged through the statutory appellate mechanism under FEMA.
"Writ Jurisdiction Cannot Be Invoked When Statutory Remedies Are Available"
The respondents argued that FEMA provides a comprehensive statutory remedy, including:
•    An appeal before the Appellate Tribunal under Section 19.
•    A further appeal before the High Court under Section 35.
Agreeing with this contention, the Court ruled: “The Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1, has held that writ jurisdiction should not be exercised when an effective alternative remedy exists, unless there is a jurisdictional error or a violation of natural justice. In the present case, FEMA provides a multi-tier appellate structure. The petitioners must exhaust these remedies instead of invoking writ jurisdiction.”
The Madras High Court dismissed the writ petitions, upholding the validity of the FEMA proceedings against Sachin Bansal and others. The Court ruled that:
The omission of Section 6(3)(b) of FEMA does not invalidate past proceedings.
The delay in issuing the show cause notice does not automatically render it void; this must be assessed by the adjudicating authority.
Allegations of bias against the adjudicating authority were unfounded.
The petitioners must avail statutory appellate remedies instead of seeking relief under writ jurisdiction.
Final Order: “The writ petitions are dismissed with liberty to the petitioners to file their objections before the adjudicating authority within 30 days. If such objections are filed, the adjudicating authority shall consider them in accordance with law. No costs.”

Date of Decision: January 29, 2025