Jaipur, January 3, 2024 – In a significant ruling today, the Jaipur Bench of the High Court of Judicature for Rajasthan directed the Enforcement Directorate to release the seized currency assets of M/s Harish Forex Services Pvt. Limited and other petitioners within four weeks. The court held that the prolonged detention of these assets violates statutory provisions under the Foreign Exchange Management Act, 1999 (FEMA) and the Income Tax Act, 1961.
Background of the Case
The controversy dates back to March 14, 2019, when officers of the Enforcement Directorate conducted a search at the business and residential premises of certain petitioners, seizing both Indian and foreign currency. The authorities classified these funds as “stock-in-trade” associated with the petitioners’ foreign exchange business, which also involved the exchange of torn notes for new ones.
Subsequently, the petitioners submitted multiple representations—dated April 5, April 21, and August 19, 2019, as well as November 4 and November 24, 2020—requesting the release of the seized assets. Despite these efforts, the authorities neither responded nor expedited the adjudication process. Although a show cause notice was issued on October 16, 2020, and the petitioners filed a response on March 19, 2021, no determination was made even after nearly three years.
Legal Issues and Court’s Analysis
Central to the petition was the argument that, under Section 37 of FEMA, 1999, the Enforcement Directorate’s powers derive from the Income Tax Act, 1961. The relevant provisions of Section 132B of the Income Tax Act require that, if no determination on liability is made within 120 days from the last search authorization, the seized assets must be released—provided that the source of the funds is adequately disclosed. The petitioners had demonstrated that the source of the funds was clearly reflected in the seized books of account.
The court noted that the statutory framework was designed to ensure an expeditious determination of liability. It found that the inaction of the respondents, despite repeated representations and the expiry of the statutory timeframe, could not be justified. While the respondents contended that the petition merely sought to challenge the validity of the show cause notice, the court clarified that the pending adjudication did not absolve the statutory duty to release the assets.
Court’s Direction
Accordingly, the court partly allowed the petition and directed the respondents to “pass appropriate orders for release of the seized assets” within four weeks from the date of the order. It was further clarified that the release of the assets would remain subject to the final outcome of the ongoing proceedings initiated by the Enforcement Directorate against the petitioners.
Implications
Legal experts view this decision as a crucial step toward ensuring accountability and adherence to statutory timelines in cases involving asset seizure under FEMA and the Income Tax Act. The ruling reinforces that procedural delays in liability determination cannot justify the indefinite detention of assets, particularly when the source of funds is clearly documented.
As the case moves forward, stakeholders in the legal and financial sectors will be closely monitoring the Enforcement Directorate’s response to this directive and its potential implications for similar cases in the future.