The Supreme Court has set aside the seizure of properties belonging to Accord Distilleries & Breweries Pvt Ltd and its directors, including five-time MP S Jagathrakshakan, his son, and Chennai-based businessman J Sundeep Anand and his daughter, holding that the basis of the proceedings under the Foreign Exchange Management Act (FEMA) has been corrupted, making the action “arbitrary and against the law”.
A bench of Justices Vikram Nath and Sandeep Mehta found that the confiscation order was not legally sustainable because the judiciary acted on a fundamentally flawed premise, ignoring previous findings that went to the root of the case.
It cited a key procedural error in that the competent authority under FEMA had earlier refused to confirm the seizure of the company’s assets, effectively holding that there was insufficient basis for such action.
The Supreme Court noted that this finding directly affected the basis of the show cause notice (SCN) and subsequent adjudication proceedings. Despite this, the judiciary continued to issue a final order imposing penalties and ordering confiscations, an approach that the Supreme Court found deeply flawed.
In its ruling on Thursday, the court held that once the competent authority refused to confirm the confiscation on objective grounds, the “fundamental facts” necessary to support the proceedings were eroded. In such a case, continued adjudication culminating in confiscation is an action without a valid legal basis.
Senior advocates Siddharth Luthra and HP Raval appeared for the DMK MP and his family.
The court particularly criticized the judiciary’s handling of the previous matter. She noted that the authority had effectively “annulled” the findings reached by the competent authority, even though the appeal against this order was still pending before the Court of Appeal.
The Council considered that such an approach was not permissible. By ignoring the statute and acting independently, the judiciary not only exceeded the statutory scheme but also encroached upon the scope of appellate authority.
“This amounts to an abdication of the powers of the Appellate Body,” the court said, emphasizing that the legal hierarchy under FEMA cannot be shortchanged.
The judgment also pointed out another flaw, namely the reliance of the judiciary on the observations made by the Madras High Court, which wrongly assumed that the seizure was certain. In fact, the competent authority rejected this assertion.
By operating on this false premise, the judiciary has allowed its decision-making process to be influenced by outcomes that do not reflect the true factual and legal position. The Supreme Court noted that this reliance had the effect of prejudicing the appellants and dismissing the cases that were still subject to adjudication.
Furthermore, the Court emphasized that the outcome of the pending appeal against the order of the competent authority should have been awaited before proceeding with the final ruling. Ignoring this step disrupted the legal sequence contemplated under FEMA and made the operation legally unviable.
Given these cumulative deficiencies, the Tribunal declared the confiscation order and substantive dismissal proceedings unsustainable. It set aside the 2024 orders of the Madras High Court as well as the final decision of the judiciary, remanding the matter to the show-cause notice stage.
The court ordered that the appellate authority must first decide the pending appeal against the order of the competent authority within two months. Only after that can the dismissal proceedings be resumed, and that too without being affected by the previous observations.
