Introduction:

In the matter of Greenpeace Environment Trust and Greenpeace India Society v. Union of India & Others [W.P. No. 5691 of 2021 (GM-FE) c/w W.P. No. 4711 of 2021], the Karnataka High Court, through a judgment authored by Justice Suraj Govindaraj, quashed a complaint dated 25.02.2019 and a subsequent show cause notice dated 25.02.2020 issued by the Enforcement Directorate (ED) against the petitioner NGOs, who were accused of violating the Foreign Exchange Management Act, 1999 (FEMA), particularly Section 6(3)(b).

The ED had alleged that the petitioners created a front company—Direct Dialogue Initiative India Private Limited (Direct Dialogue)—to illegally circumvent the cancellation of their FCRA registration and continue receiving foreign funds amounting to approximately USD 3.87 million (INR 29.26 crore). According to the authorities, the contractual relationship between Greenpeace and Direct Dialogue was a façade to bypass legal restrictions under FEMA and FCRA.

Arguments:

The petitioners contended that after the cancellation of their FCRA registration on 02.09.2015, they only received domestic funds from Indian citizens and companies. Direct Dialogue, they argued, was legally contracted on 30.01.2018 merely to facilitate legitimate domestic fundraising operations. The ED’s case rested on the allegation that foreign funds continued to be channelled indirectly through Direct Dialogue, thus violating Section 6(3)(b) of FEMA, which restricts the transfer or acquisition of foreign exchange for investment in India by persons other than authorized dealers or Indian residents. However, the petitioners pointed out that this very provision was omitted by the Finance Act, 2015, and the omission was notified on 15.10.2019. As the ED’s complaint and subsequent show cause notice were issued post-omission—on 25.10.2019 and 25.02.2020 respectively—they were rendered legally unsustainable. Advocate Monica Patil, appearing for the petitioners, relied heavily on the judgment delivered in Kshithija Urs v. Union of India & Others [W.P. No. 1418/2021, decided on 06.12.2024], where a coordinate bench of the Karnataka High Court had held that after the omission of Section 6(3)(b), any complaint or proceedings initiated under it would be invalid. The court found that the factual matrix in the current petitions was materially similar to that case. The petitioners argued that their conduct was in accordance with the law as it stood post-2015 and that the ED’s action amounted to retrospective enforcement of an omitted provision—an approach that violates principles of legality and natural justice. The respondents, represented by CGC Unnikrishnan M, did not dispute the omission of the provision but attempted to maintain that the transaction patterns indicated a continued indirect receipt of foreign funds, which should still be actionable under FEMA’s general scheme. However, the High Court was not convinced, noting that the statutory provision under which the complaint was lodged did not exist at the time of issuance of the complaint or the show cause notice. Therefore, the proceedings lacked the foundational legal basis.

Judgement:

Justice Suraj Govindaraj emphatically quashed both the complaint and the notice, applying the ratio decidendi of the Kshithija Urs ruling. The judgment emphasized that initiating or continuing proceedings under a repealed or omitted provision is legally untenable and amounts to arbitrary action without statutory authority. This decision not only provides significant relief to the Greenpeace entities but also sets a precedent reaffirming that administrative and prosecutorial bodies must operate strictly within the bounds of current statutory frameworks. The court’s ruling represents a crucial reinforcement of the doctrine that any penal or quasi-penal proceedings must derive authority from extant legal provisions. In doing so, the Karnataka High Court has clarified that the Finance Act’s omission of Section 6(3)(b) forecloses any subsequent prosecutorial attempts based on that section. The ruling thus strengthens procedural fairness and statutory compliance in the field of financial regulation and administrative enforcement under FEMA.