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Union of India & Anr. vs. Citi Bank, N.A. (with connected appeals)

Civil Appeal · 2022 INSC 1318Decided 24 Aug 2022
Civil Appeal No. 9337 of 2010
B.R. Gavai · Pamidighantam Sri Narasimha · Gavai

Background

Between 1992 and 1993, Citi Bank N.A. and other banks (acting as RBI-authorized foreign exchange dealers) accepted foreign currency deposits into NRI (Non-Resident External) bank accounts from persons other than the account holders themselves. Show-cause notices alleging violation of the Foreign Exchange Regulation Act (FERA) were issued only in 2002: nearly a decade later, and just before FERA's enforcement "sunset period" was set to expire on 1 June 2002. The Delhi High Court (at both single-judge and division-bench level) quashed the notices and set aside penalty orders, holding that the requirement that only the account holder personally deposit such funds was introduced only by an RBI circular dated 31 July 1995, so it could not apply retrospectively to 1992-93 conduct. The Enforcement Directorate/Union of India appealed to the Supreme Court.

Decision Breakdown

The Supreme Court dismissed all the Union of India's appeals, but on a different and narrower ground than the High Court's retrospectivity reasoning. It found it unnecessary to decide whether the 1995 circular was merely clarificatory. Instead, the Court held that where a statute prescribes no limitation period for initiating proceedings, authorities must still act within a "reasonable time," relying on precedents including State of Gujarat v. Patil Raghav Natha and Government of India v. Citedal Fine Pharmaceuticals. Issuing show-cause notices in 2002 for transactions from 1992-93 (roughly a decade later, and timed to beat FERA's sunset clause) was held unreasonable and unfair. The Court additionally noted that the Banking Companies (Period of Preservation of Records) Rules, 1985 only obliged banks to preserve most records for five to eight years, and since no RBI order had directed longer preservation, penalizing banks over transactions from beyond that window compounded the unfairness. All the civil and criminal appeals were dismissed with no order as to costs.

Lesson Learnt

Even when a law sets no explicit deadline for a regulator to act, that does not mean the regulator has unlimited time: enforcement action must be initiated within a reasonable period, and government agencies cannot wait roughly a decade (or act just to beat an expiring legal window) to raise old alleged violations, especially once the underlying records are no longer required to be kept.

Official source (sci.gov.in)View Judgment (PDF)

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