Enforcement Directorate Cannot Initiate Proceedings Under Omitted FEMA Provision: Karnataka HC

By CA Sandeep Kanoi Fema / RBI Judiciary November 4, 2026

Kshithija Urs Vs Union of India (Karnataka High Court)

Summary: The Karnataka High Court, in Kshithija Urs Vs Union of India, allowed a writ petition challenging proceedings initiated by the Directorate of Enforcement under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 (FEMA). Justice Anu Sivaraman examined whether a complaint dated 25 October 2019 and a consequential show-cause notice dated 25 February 2020 could validly invoke a statutory provision that had already been omitted with effect from 15 October 2019. The petitioner sought quashing of both the complaint and the show-cause notice on the ground that the proceedings were without jurisdiction.

The petitioner submitted that Section 139 of the Finance Act, 2015 had omitted Section 6(3) of FEMA and that the omission became effective on 15 October 2019. According to the petitioner, neither the complaint nor the subsequent show-cause notice could lawfully rely upon Section 6(3)(b), because both were initiated after the provision ceased to operate. It was further argued that no saving clause preserved proceedings under the omitted provision. The petitioner relied upon Kolhapur Canesugar Works Ltd. v. Union of India and the Constitution Bench decision in Rayala Corporation (P) Ltd. v. Director of Enforcement concerning the distinction between repeal and omission.

The Union Government and Enforcement Directorate opposed the petition, contending that FEMA liabilities were civil in nature and continued notwithstanding the omission of Section 6(3)(b). They pointed out that the proceedings concerned inward remittances made between December 2016 and November 2018, when the provision was in force. Relying upon Suborno Bose v. Enforcement Directorate, the respondents maintained that the liability arising from those earlier transactions survived the subsequent statutory change. The dispute therefore centred on whether Section 6 of the General Clauses Act, 1897, preserved the Department’s ability to initiate proceedings after the omission.

Cases Discussed:

Rayala Corporation (P) Ltd. and M.R. Pratap v. Director of Enforcement, New Delhi, (1969) 2 SCC 412 — Constitution Bench authority on omission of rules and the operation of Section 6 of the General Clauses Act.
Kolhapur Canesugar Works Ltd. v. Union of India, (2000) 2 SCC 536 — Discussed the distinction between repeal and omission and relied upon Rayala Corporation.
Suborno Bose v. Enforcement Directorate, Civil Appeal No. 6267/2020 — Cited by the respondents on continuing civil liability under FEMA; distinguished in the present dispute.

Five Alternative SEO Titles:

1. FEMA Section 6(3)(b) Omission Invalidates ED Notice: Karnataka HC

2. Karnataka High Court Quashes FEMA Notice Issued After Statutory Omission

3. ED Show-Cause Notice Under Omitted FEMA Provision Set Aside

4. FEMA Complaint After 2019 Omission: Karnataka HC Rules on Jurisdiction

5. Karnataka HC Examines Section 6 General Clauses Act in FEMA Dispute

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

This writ petition is filed seeking the following reliefs:

a) Issue a writ of Certiorari or any other writ, order or direction, quashing the Show cause notice dated 25.02.2020 bearing No.T-4/SRO/SDE/BGZO/01/2020 issued by Respondent No.2 with regard to the Petitioner (Annexure-A);

b) Consequently, issue a writ of Certiorari or any other writ, order or direction, quashing the Complaint dated 25.10.2019 bearing No.T-3/BGZO/96/2018 filed by the Respondent No.3 before the Respondent No.2(Annexure B);

c) Grant such other reliefs as this Hon’ble Court deems fit in the above circumstances of the case, in the interest of justice and equity.

2. Heard the learned counsel for the petitioner as well as the learned counsel for the respondents.

3. It is submitted by the learned counsel for the petitioner that the short point, which arises for consideration in this writ petition is whether the respondents were justified in initiating proceedings against the petitioner on the basis of provision which stood omitted by the Finance Act, 2015. It is submitted that the complaint had been filed on 25.10.2019 and the proceedings were initiated as against the petitioner alleging violation of Section 6(3)(b) of the Foreign Exchange Management Act, 1999(for short “FEMA” Act) in the year 2021.

It is submitted by the learned counsel for the petitioner that the said provision i.e., Section 6(3)(b) stood omitted by the Finance Act, 2015, which was notified on 15.10.2019. The text of the Finance Act, 2015 is also produced along with the memo.

The relevant portion i.e., Section 139 reads as follows:-

“139. In Section 6 of the Foreign Exchange Act,-

(A) x x x x x

(B) x x x x x

4. It is submitted that there is no savings clause provided and that Section 6(3) therefore stands totally omitted.

In the above view of the matter, the contention is that the action taken on a complaint which was submitted on 25.10.2019 and the show cause notice issued on 25.02.2020 specifically referring to 6(3)(b) of the FEMA Act, which stood omitted with effect from 15.10.2019 is completely without jurisdiction and is illegal and unsustainable.

5. Learned Central Government Counsel appearing for first respondent as well as the learned standing counsel for respondents No.2 to 4 would, on the other hand, contend that the liability under the Foreign Exchange Management Act is admittedly a Civil liability and that the liabilities under the Act would continue even despite the omission of the provisions of Section 6(3)(b) with effect from 15.10.2019. It is submitted that the complaint which was preferred against the petitioner was in respect of inward remittances for the period from December 2016 to November 2018. It is submitted that since those inward remittances would attract the liabilities under the Act, at the relevant time, the omission of the provision would not make any difference and that the petitioner would be liable for the consequences of such remittances even in spite of the appeal under provisions.

6. Learned Central Government Counsel would also placed reliance on the judgment of the Apex Court in Suborno Bose v. Enforcement Directorate in Civil Appeal No.6267/2020, in support of the said contention.

7. Having considered the contentions advanced, it is noticed that Section 6(3)(b) of the FEMA Act as is stood before the omission read as follows:

“Section 6(3) in the Foreign Exchange Mangagement Act, 1999

(3) Without prejudice to the generally of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate the following

(a) xxxxx

(b) transfer or issue of any security by a person resident outside India;”

8. The provisions of the Finance Act, 2015 are quite specific. It provides for amendments to the FEMA Act and by Section 139 of Finance Act, 2015, Section 6(3) of the FEMA Act stood omitted. The said omission was effective from the date of notification i.e., 15.10.2019.

9. Learned counsel for the petitioner has also placed reliance on the decision of the Apex Court in Kolhapur Canesugar Works Ltd. V. Union of India reported in (2000) 2 SCC 536, where the effect of Section 6 of the General Clauses Act vis-a-vis and omission by amendment of provision has been specifically considered. It is held by the Apex Court that the decision of the Constitution Bench in MESSRS RAYALA CORPORATION (P) LTD. AND M.R.PRATAP V. DIRECTOR OF ENFORCEMENT, NEW DELHI reported in (1969) 2 SCC 412 is directly on the question of applicability of Section 6 of the General Clauses Act, in a case where a rule is deleted or omitted by a notification and the Bench held that

“Section 6 only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not of a rule”. In the instant case also the contention raised by the panel counsel for respondents No.2 to 4 is specifically referable to Section 6 of the General Clauses Act. The decision relied on by the learned panel counsel is with regard to the liability of a person who was not the director of the company in question at the time when the offence was allegedly committed. The Apex Court held that the liability under the FEMA Act is a continuing liability and that the liability is civil in nature and that therefore learned panel counsel contends that the enactment being civil in nature, the principal of prosecution for an offence under appeal law would not arise in the instant case. It is in the above circumstances that it is contended that Section 6 of the General Clauses Act would apply.

10. Having considered the contentions advanced, we notice that the complaint as well as the show cause notice issued to the petitioner were specifically referable to Section 6(3)(b) of the FEMA Act. It is clear that the complaint itself was made on 25.10.2019 and the show cause notice was issued on 25.02.2020. It is also clear that Section 6(3)(b) stood omitted by the Finance Act, 2015 as notified on 15.10.2019. In view of the clear language of the omission, I am of the considered opinion that the contentions raised by the learned panel counsel that Section 6 of the General Clauses Act would come to the aid of the respondents cannot be accepted. The Apex Court has clearly held that Section 6 only applies to repeals and not to omissions and since the present case is specifically one of omission, we are of the opinion that Section 6 would not have any application in the instant case. In view of the fact that what has been specifically referred in the complaint and the show cause notice is Section 6(3)(b), which stood omitted even as on the date, when the complaint was filed, I am of the opinion that the entire action as against the petitioner on the basis of infraction of Section 6(3)(b) was without jurisdiction.

Accordingly:-