Supreme Court Holds That Non-confirmation Of Seizure Under Section 37A FEMA Vitiates Subsequent Adjudication Under Section 16 And Renders Show Cause Notice Unsustainable.

Supreme Court holds that non-confirmation of seizure under Section 37A FEMA vitiates subsequent adjudication under Section 16 and renders Show Cause Notice unsustainable.

The Supreme Court through its judgement dated 01.04.2026 in J. Sri Nisha v The Special Director, Adjudicating Authority, Directorate of Enforcement and Another¹ held that an order of an Authorized Officer (“AO”) for interim seizure of assets under Section 37A of the Foreign Exchange Management Act, 1999 (“FEMA”) has direct bearing on the adjudication proceedings under Section 16 of FEMA.

 The Court observed that, since the order of the AO under Section 37A of FEMA was under appeal before the appellate authority issuance of a Show Cause Notice (“SCN”) and passing of final order under Section 16 of FEMA by the adjudicating authority tantamount to abdicating the powers of the adjudicating authority. The Court also observed that the power of seizure under Section 37 is predicated upon the fact that there is prima facie contravention of Section 4, hence non-confirmation of seizure under Section 37 will automatically mean that even the preliminary threshold for contravention of Section 4 has not been met.

The Court noted that a writ petition against SCN can be entertained when notice suffers from patent lack of jurisdiction, reflects non-application of mind, is issued with a pre-determined or premeditated approach, which amounts to an abuse of the process of law, resulting in a violation of the principles of natural justice.

Footnote

^{1 SLP(Civil) No(s). 23415 of 2025.}

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