Summary
In 2002, shortly before FEMA's sunset period for pending FERA matters ended on 1 June 2002, the Enforcement Directorate issued show-cause notices to Citibank, Standard Chartered, Bank of America and others. The notices alleged FERA contraventions in 1992-93 by accepting foreign currency deposits into NRIs' NRE accounts from persons other than the account holders. The banks argued that the restriction was first imposed by an RBI circular of 31 July 1995. The Delhi High Court set aside the notices and penalties. The Supreme Court dismissed the appeals on a short ground without deciding the other issues. Where no limitation period is prescribed, proceedings must start within a reasonable time, and notices issued a decade later were not. Banks need preserve such records for only five or eight years.
Issues
- Whether show-cause notices under FERA issued in 2002 for transactions of 1992-93 were tenable when no limitation period was prescribed
- Whether the banks could be proceeded against after the period for which they were required to preserve records had expired
Provisions considered
- Sections 6(4), 6(5), 8(1), 64 and 73(3), Foreign Exchange Regulation Act, 1973The alleged contraventions by authorised dealers formed the basis of the notices. The Court did not decide them, quashing the proceedings on delay. (¶¶ 2, 18, 23)
- Section 49(3), Foreign Exchange Management Act, 1999The two-year sunset period ending 1 June 2002 explained why the notices were issued hurriedly. That timing did not cure their unreasonable delay. (¶¶ 15, 23)
- Rules 2, 3 and 4, Banking Companies (Period of Preservation of Records) Rules, 1985Banks must preserve records for five or eight years unless RBI orders longer. No such order existed, so proceedings on transactions beyond eight years were unfair. (¶¶ 24, 25, 26, 27)
Held
- Where a statute prescribes no period for initiating proceedings, the power must be exercised within a reasonable time, which depends on the facts of each case. (¶¶ 19, 20, 21, 22)
- Notices issued in 2002 for transactions of 1992-93, nearly a decade later and just before the FERA sunset period expired, were not issued within a reasonable time. They and the proceedings under them were liable to be set aside on that short ground. (¶¶ 18, 23)
- Banks must preserve specified records for five or eight years, and no RBI order required longer preservation of these records. Proceeding on transactions well beyond eight years old was therefore unfair and unreasonable. (¶¶ 25, 26, 27)
- The Court found it unnecessary to decide the other issues, including whether the 1995 RBI circular was clarificatory or could operate retrospectively. (¶ 18)
Result
Civil and criminal appeals of the Union and the Enforcement Directorate dismissed; the High Court's judgments quashing the show-cause notices and penalty orders were upheld; no order as to costs.