Rajasthan HC Emphasizes Timely Compliance & Accountability in Asset Seizure & Release

Introduction

This case of Harish Forex Services (P.) Ltd. v. Assistant Director of Enforcement[i] pertains to the seizure and confiscation of assets by the enforcement authorities. The Rajasthan High Court (‘HC’) directed the Directorate of Enforcement (‘ED’) to release the seized assets within four weeks, emphasising the importance of adherence to statutory provisions and the need for efficiency and accountability in administrative actions. The ruling underscores the judiciary’s commitment to upholding individuals’ rights and ensuring due process in asset seizure and release proceedings.

Facts

• The writ petition challenged the seizure and confiscation of money by the ED, urging for its return. The ED had conducted a search on the petitioners’ premises based on received intelligence.

• The petitioner argued that the ED’s power of search and seizure, as conferred by s. 37 of the Foreign Exchange Management Act, 1999 (‘FEMA’), is subject to limitations laid down under the Income-tax Act, 1961 (‘IT Act’). Under the IT Act, the provisions for ‘search and seizure’ are outlined in s. 132, and the application of seized assets is governed by s. 132B.

• The petitioner’s currency was seized during a search conducted on 14.03.2019. Despite multiple representations seeking the release of the seized assets, no response was received. Subsequently, a show cause notice (‘SCN’) was issued by the ED, to which the petitioner duly responded. However, neither the representations for the release of the assets nor the proceedings pursuant to the SCN had been concluded.

• The petitioner highlighted that under the provisions of ss. 132B and 132 of the IT Act, the ED was obligated to release seized assets within 120 days and the inaction of the ED in this regard was apparent, and they should be directed to release the currency.

• In response, the ED argued that the petitioners were challenging the validity of the SCN, making the petition improper. They asserted that the SCN had been issued and was being adjudicated upon. However, they did not dispute the lack of response to the petitioners’ representations seeking the release of the seized currency from 2019 to 2020.

Held

• The HC partly allowed the petition and directed the ED to pass appropriate orders for the release of the seized assets within four weeks from the date of the ruling. It clarified that the ruling did not address the adjudication of the SCN, leaving the ED free to make that determination independently.

• The HC ruled that the ED’s failure to release the seized assets violated s. 132B of the IT Act, which is applicable under s.  37(3) of the FEMA. Despite repeated representations and the passage of over two years and nine months, the authorities had neither released the assets nor determined the liability. Therefore, the HC found no valid reason for the delay in making this determination.

Our Analysis

The HC’s ruling reflects a strict adherence to the legal framework governing the seizure and release of assets by enforcement authorities. By directing the release of the seized assets within a specified timeframe, the HC emphasises the importance of timely compliance with statutory provisions, particularly in cases where assets are seized during investigations. Despite repeated representations by the petitioners, the HC’s observation of the prolonged delay in releasing the assets underscores the need for efficiency and accountability in administrative actions. Additionally, by clarifying that its ruling does not preclude the independent adjudication of the SCN, the HC upholds the principle of due process while ensuring that the petitioners’ rights are protected. Overall, the ruling highlights the judiciary’s role in safeguarding individuals’ rights and ensuring the proper application of law in matters of asset seizure and release.

End Note

[i] [2024] 161 taxmann.com 277 (Rajasthan).

Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.