FEMA Section 6(3) and the omission paradox: Divergent High Court rulings and overlooked Supreme Court guidance

Distinguishing between "omission" and "repeal" in statutory amendments has long challenged Indian jurisprudence, especially in regulatory domains where continued enforcement is essential.

The omission of Section 6(3) of FEMA through Section 139 of the Finance Act, 2015, effective from October 15, 2019, has fueled this controversy, potentially eroding the Enforcement Directorate's (ED's) ability to pursue historical contraventions.

The Karnataka High Court's interpretation of this ‘omission’ has amplified these concerns that appear to contradict established Supreme Court precedent and fundamental statutory interpretation principles. This analysis explores these rulings, contrasts them with the Madras High Court's more aligned interpretation, and underscores the need for corrective measures.

Section 6(3) of FEMA, 1999 originally empowered the Reserve Bank of India (RBI) to regulate "capital account transactions" through regulations that could "prohibit, restrict or regulate" various activities, including "transfer or issue of any security by a person resident outside India" under Section 6(3)(b). This provision formed the bedrock of India's foreign exchange control regime, enabling the RBI to issue the Transfer or Issue of Security by a Person Resident Outside India (TISPRO) Regulations, 2000.

The Finance Act, 2015, through Section 139, omitted this Section 6(3), effective from October 15, 2019, while simultaneously introducing Section 6(2A) and preserving existing regulations through the newly inserted Section 47(3).  This amendment shifted existing powers to the Central government in consultation with the RBI, excluding debt instruments. As articulated by the then Finance Minister in the Budget Speech for 2015-2016 (para-58):

"Capital Account Controls is a policy, rather than a regulatory, matter. I, therefore, propose to amend, through the Finance Bill, Section-6 of FEMA to clearly provide that control on capital flows as equity will be exercised by the Government, in consultation with the RBI."

Thus, the omitted Section 6(3) was re-enacted as 6(2A), serving the same substantive purpose and maintaining the regulatory continuity established under the omitted Section 6(3). The powers hitherto exercised by RBI under Section 6(3) was transferred to Central government under Section 6(2A).

The savings clause demonstrates Parliament's intent to ensure "regulatory continuity" by the Central government instead of RBI and not extinction of it. Section 47(3), inserted by the Finance Act, 2015, provides:

"All notifications, rules, regulations, orders, directions or decisions issued, made or taken, as the case may be, by the Reserve Bank under sub-section (3) of section 6... shall continue to be in force and shall be deemed to have been issued, made or taken under the corresponding provisions of this Act, until superseded by any notification, rules, regulations, order, direction or decision, as the case may be, issued, made or taken under this Act."

Accordingly, the TISPRO Regulations, 2000 framed under the original Section 6(3) were explicitly preserved and continued to operate under the new framework, ensuring no regulatory vacuum.

In Kshithija Urs v. Union of India, a concise judgment by Justice Anu Sivaraman quashed ED proceedings initiated post-omission for alleged violations from 2016–2018. The Court emphasised that Section 6 of the General Clauses Act applies only to "repeals," not "omissions," citing Rayala Corporation (P) Ltd. v. Director of Enforcement. It concluded that the absence of jurisdiction arose because the complaint dated October 25, 2019 and show cause notice dated February 25, 2020 are post-dated the omission.

The Court did not engage with Section 6A of the General Clauses Act or the saving intent of Section 47(3) of FEMA, suggesting that these were not adequately emphasised. The Court was apparently not apprised of the Supreme Court's comprehensive analysis in Fibre Boards Private Limited v. Commissioner of Income Tax (2015) and Shree Bhagwati Steel Rolling Mills v. CCE (2016), which explicitly declared the omission-repeal distinction in Rayala Corporation as merely "obiter dicta" and the decision itself as per incuriam for failing to consider Section 6A of the General Clauses Act.

Section 6A itself treats "express omission" as a repeal, preserving amendments unless contrary intent appears, but is unaddressed in the Karnataka High Court's decision.

Section 47(3) of FEMA embodies Parliament's intent to avoid enforcement vacuums, deeming the TISPRO Regulations valid under the new regime. As the Supreme Court observed in Har Narain Devi v. Union of India (2022), courts must interpret saving clauses expansively to honour legislative purpose. The Karnataka High Court's dismissal of this framework risks undermining this principle, potentially due to insufficient highlighting of its implications.

The subsequent ruling in Greenpeace Environment Trust v. Union of India (2025) by Justice Suraj Govindaraj perpetuated this approach, quashing similar ED actions against the NGO for foreign funding violations. Deeming the matter "covered" by Kshithija Urs, the Court offered no independent scrutiny, mechanically applying the prior ratio without delving into evolving precedents or statutory nuances.

The Supreme Court in Fibre Boards definitively resolved the “omission-repeal” debate that had persisted since Rayala Corporation and Kolhapur Canesugar Works Ltd v. Union of India (2000). The Court's analysis was comprehensive and directly addressed the interpretive issues raised by legislative omissions. They are legal authorities that apparently were not brought to the attention of the Karnataka High Court.

The Supreme Court explicitly held that the distinction between omission and repeal drawn in Rayala Corporation was not binding law, but merely obiter dicta:

"We are, therefore, of the view that the second so-called ratio of the Constitution Bench in Rayala Corporation (P) Ltd. cannot be said to be a ratio decidendi at all and is really in the nature of obiter dicta."

More significantly, the Court declared both Rayala Corporation and Kolhapur Canesugar as per incuriam for failing to consider Section 6A of the General Clauses Act:

“33. A reading of this section would show that a repeal by an amending Act can be by way of an express omission. This being the case, obviously the word “repeal” in both section 6 and 24 would therefore include repeals by express omission. The absence of any reference to Section 6-A, therefore, again undoes the binding effect of these two judgements on an application of the per incuriam principle.” 

This principle was subsequently reaffirmed in Shree Bhagwati, demonstrating its general applicability across regulatory contexts. These crucial developments in Supreme Court jurisprudence appear to have escaped the attention of counsel in the Karnataka High Court proceedings.

In Sachin Bansal v. Directorate of Enforcement, the Madras High Court dismissed writ petitions filed by FLIPKART challenging ED notices for 2009–2011 FEMA violations, equating omission with repeal under Section 6 of the General Clauses Act, per Fibre Boards. It upheld Section 47(3)'s saving effect and Section 6(2A)'s continuity, emphasising statutory remedies over premature writs. This thorough engagement with precedents and policy intent stands in stark contrast, illustrating the value of comprehensive advocacy.

The Karnataka High Court’s interpretation dilutes the deterrent effect of regulatory enforcement by creating predictable gaps in enforcement authority. If legislative omissions can retrospectively invalidate enforcement proceedings regardless of saving clause provisions, it encourages strategic non-compliance and undermines regulatory effectiveness. The international implications are also significant. Foreign investors require legal certainty regarding the enforceability of regulatory frameworks. 

First, the binding nature of Fibre Boards precedent must be clearly established. The Supreme Court's explicit declaration that the omission-repeal distinction in Rayala Corporation was obiter dicta and that both Rayala Corporation and Kolhapur Canesugar were per incuriam creates binding precedent that High Courts must consider when properly brought to their attention.

Second, Section 6A of the General Clauses Act provides direct statutory authority for treating express omissions as repeals. The provision's explicit inclusion of "express omission" within the definition of repeal eliminates any meaningful distinction between the two concepts for General Clauses Act purposes.

Third, the comprehensive savings clause framework in Section 47(3) demonstrates clear legislative intent to maintain regulatory continuity despite structural reorganisation.

The decisions in Kshithija Urs and Greenpeace Environment Trust reflect interpretive shortcomings that requires re-consideration through appellate proceedings. The apparent failure to bring relevant legal authorities and statutory provisions to the Court's attention has resulted in these decisions. Restoring uniformity will safeguard FEMA's enforcement integrity, ensuring amendments enhance rather than hinder regulation.

N Ramesh is a Special Public Prosecutor, Directorate of Enforcement, Chennai.