Karnataka High Court grants interim relief to Cafe Coffee Day in FEMA case

The Karnataka High Court on Wednesday granted coffeehouse chain Café Coffee Day (CCD) interim relief on a petition filed by it challenging proceedings initiated under the Foreign Exchange Management Act, 1999 (FEMA) in connection with a case registered by the Enforcement Directorate (ED) in 2022. .Justice BM Shyam Prasad ordered the ED to defer a personal hearing of CCD representatives that was scheduled to be held on January 30.The same should be put on hold till the Court hears CCD's plea on February 23. "Interim order is granted calling upon Respondent 2 (Special officer of the ED/ Adjudicating Authority under FEMA) to defer proceedings scheduled on January 30, 2026 until the next date of hearing and subject to further orders of this court on such date," the Court said. .On January 19, the Court had granted CCD's CEO Malavika Hegde interim relief on a similar plea, by staying the FEMA proceedings against her till her petition is heard next. Both matters have been listed for further consideration on February 23..The FEMA proceedings against CCD and its representatives arose from foreign direct investment (FDI) received by Coffee Day Enterprises Limited (CDEL) in 2010. The ED has alleged that the funds were utilised for the acquisition of shares in Indian companies in violation of FEMA and allied regulations.In November 2022, the ED filed a complaint before the Special Director of Enforcement, who acts as the adjudicating authority under FEMA. A show cause notice followed soon after..The present petition by CCD was filed after a related notice was issued on January 7 this year under rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. The said rule empowers the adjudicating officer under FEMA to order the appearance of persons suspected of FEMA violations, if s/he feels that an inquiry needs to be conducted in the matter. This stage arises after a reply issued to a show cause notice under Rule 4(1) is submitted by the noticee and the FEMA authority concludes that there is still sufficient cause to proceed to the inquiry stage. Representing CCD, Senior Advocate Sajan Poovayya today argued that such a personal hearing can be conducted only after the FEMA authority records in writing the reasons based on which he has concluded that an inquiry is warranted. Further, such reasons must be communicated several days in advance to the noticee under the FEMA rules as well as an internal circular, he pointed out.In CCD's case, this was not done and the FEMA inquiry against the coffee chain is, therefore, impermissible in law, Poovayya argued. .The Court also recorded Poovayya's stance that these FEMA proceedings are tied to an ED case from 2022, which is related to events alleged to have occurred around 2009. Such a delay itself is fatal to the FEMA proceedings, CCD argued. After hearing these preliminary submissions, the Court sought the ED's response in the matter. Its counsel, Madhu N Rao was called to accept notice on the ED's behalf. CCD's plea was filed through advocate Manu Prabhakar Kulkarni..[Live Coverage].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.