Relief for DMK MP S Jagathrakshakan as Supreme Court sets aside confiscation of properties under FEMA

New Delhi: In a big relief for DMK MP S Jagathrakshakan, the Supreme Court has set aside the confiscation of properties belonging to Accord Distilleries & Breweries Pvt Ltd and its directors, including the lawmaker, his son J Sundeep Anand and his daughter — finding the action under the Foreign Exchange Management Act (FEMA) "arbitrary" and not in accordance with the law.

A bench of Justices Vikram Nath and Sandeep Mehta referred to flaws in proceedings initiated under FEMA and allowed civil appeals filed by J Sri Nisha, the daughter of the MP and others in its judgment delivered on April 1, 2026.

The court set aside the order of July 23, 2024 passed by the division bench of the high court and so also the order of the single judge of the high court of November 30, 2023, which rejected the writ petition preferred by the appellants.

As a consequence, the final order of August 26, 2024 passed by the adjudicating authority imposing penalty and ordering confiscation of the property held by appellants were declared to be arbitrary and contrary to law, the bench added.

The court found that the adjudicating authority undid the order of the competent authority even while the appeal against that order was pending.

"Such a course of action, in the opinion of this court, tantamount to abdicating the powers of the appellate authority, even when the order of the competent authority was still under challenge in appeal at the instance of the department," the bench said.

The bench noted that the high court repeatedly referred to the effect of the seizure order passed by the authorised officer under Section 37A of FEMA and the scope of consideration thereof by the adjudicating authority while passing the final order under Section 16.

"We may note that the observations made by the division bench impliedly efface the findings recorded by the competent authority while refusing to confirm the seizure, thereby foreclosing the outcome of the appeal pending before the appellate authority," the bench said.

Senior advocates Sidharth Luthra and Harin Raval, representing the appellants strongly contended that once the competent authority had concluded in the proceedings under Section 37A of FEMA that there was no ground to confirm the seizure of the assets of the appellants herein, the very foundation of the show cause notice (SCN) stood effaced.

They argued that in those circumstances, the SCN was fit to be quashed in exercise of the writ jurisdiction under Article 226 of the Constitution because the foundational facts for sustaining the said SCN proceedings were lacking.

It was further submitted that the order of the competent authority of February 3, 2021 refusing to confirm the seizure of the assets has been passed in favour of the appellants and that the appeal against the said order at the instance of the respondent (Directorate of Enforcement) is still pending adjudication before the appellate tribunal.

Additional Solicitor General Anil Kaushik, representing the respondents, opposed the appellants’ submission and contended that the nature of proceedings under Section 37A of FEMA is intermediary/interim in nature and has no bearing on the adjudication of the SCN.

The bench said in the present case, the competent authority declined to confirm the seizure by a well-reasoned order, thereby indicating that the material did not meet even this preliminary threshold. The court said the refusal to confirm the seizure, therefore, reflects a considered finding that the foundational requirement of a "reason to believe" was not satisfied on the material available.

"Thus, a prima facie satisfaction was recorded by the Competent Authority that there was no evidence of the appellants being involved in foreign security transactions having any value. Consequently, it has to be taken that there did not exist the 'reasons to believe' referred to in Sub-section (1) of Section 37A. These findings definitely support the cause of the appellants herein," the bench said.

The court noted the high court referred to sub-section (4) of Section 37A as if it were concluding that the seizure had been confirmed, whereas the factual situation reads otherwise. "In case the finding of the competent authority refusing to confirm the seizure for substantive reasons stands affirmed in appeal, manifestly, the same would have a bearing on the outcome of the adjudication proceedings," it said.

The court restored the matter at the stage of SCN , as it set aside the 2024 orders of the Madras High Court as well as the adjudicating authority’s final decision. The allegations against the appellants in the questioned SCN emanated from a transaction of acquisition of 70 lakh shares of an entity named M/s Silver Park International Pte Ltd, a Singapore based

Company, registered as per the laws of Singapore and subsequent transfer/distribution of these shares.

The bench said that the appellate authority should first decide the appeal preferred by the department against the order of the competent authority under Section 37A(5) of FEMA after hearing the parties and by passing a reasoned order within a period of two months.