Introduction:

The Karnataka High Court, while exercising its writ jurisdiction, passed an interim order staying further proceedings initiated under the Foreign Exchange Management Act against Malavika Hegde, the Chief Executive Officer of Cafe Coffee Day, in a case that raised significant questions on the legality of initiating adjudicatory action against a legal heir for alleged contraventions attributed to a deceased person, and the matter came up before Justice B M Shyam Prasad where the petitioner challenged a complaint dated November 3, 2022 and a subsequent show cause notice dated November 23, 2022 issued by the Enforcement Directorate, contending that the proceedings were fundamentally flawed in law since they sought to fasten liability upon her purely in her capacity as the legal representative of her late husband V G Siddhartha, the founder and former CEO of Cafe Coffee Day, who had passed away in 2019, much before the initiation of the impugned proceedings, and the case assumed wider importance as it touched upon the interpretation of Sections 16 and 43 of the FEMA framework and the limits of vicarious and posthumous liability in economic offences.

Arguments:

Appearing for Malavika Hegde, senior advocate Sajjan Poovaya forcefully argued that Cafe Coffee Day was a corporate entity conceived, managed and controlled by the petitioner’s late husband and that the foreign investment transactions in question related back to the year 2010 when he was actively managing the company, and it was submitted that as on the date of the complaint in November 2022 the person alleged to have committed the contravention was no longer alive, making the very initiation of adjudicatory proceedings against him legally impermissible, and Poovaya emphasized that while the complaint ostensibly named the company, it also arrayed the petitioner as a legal representative of her deceased husband, thereby compelling her to respond to alleged acts done more than a decade earlier without any assertion that she had personal knowledge, involvement or control over those transactions, and drawing attention to Section 43 of FEMA, it was contended that the statute contemplates enforcement of penalties against legal representatives only after adjudication and imposition of penalty upon the original noticee during his lifetime, and not initiation of proceedings against a legal heir as a substitute accused, and the senior counsel underscored that criminal or quasi criminal liability does not survive death unless expressly provided by statute, and that compelling a widow to face coercive proceedings for acts allegedly committed by her husband was contrary to settled principles of law and fairness, and it was argued that issuance of summons asking her to explain what her husband did in 2010 amounted to subjecting her to the enormity of proceedings without jurisdiction, while seeking interim protection till the legality of such action was examined, on the other hand the Enforcement Directorate sought time to respond to the petition and justify the initiation of proceedings under FEMA, maintaining that the complaint and show cause notice were part of adjudicatory proceedings under Section 16 of the Act and that the petitioner was being called upon only in her representative capacity, though detailed counter submissions were yet to be placed on record at the interim stage.

Court’s Judgment:

After hearing the submissions on the limited question of interim relief, Justice B M Shyam Prasad found that a prima facie case was made out in favour of the petitioner, particularly on the issue that proceedings had been initiated against her as a legal representative for alleged contraventions attributed to her deceased husband, and the Court took note of the argument that under the scheme of FEMA, liability of a legal representative could arise only after adjudication and imposition of penalty under Section 43 and not otherwise, and that a legal representative cannot be compelled to answer allegations of contravention as if stepping into the shoes of the deceased for the purpose of adjudication, and the Court recorded that the husband of the petitioner had died in 2019 while the proceedings were initiated in 2022, and in consideration of these submissions the Court granted an ad interim stay of all further proceedings pursuant to the show cause notice dated November 23, 2022 and the complaint dated November 3, 2022 insofar as they related to the petitioner, thereby protecting her from coercive action till the next date of hearing, and issued notice to the Enforcement Directorate calling upon it to respond to the challenge raised in the writ petition, while clarifying that the interim relief was confined to the petitioner and subject to further orders of the Court, and the matter was directed to be listed on February 23 for further consideration, marking an important moment in the evolving jurisprudence on posthumous liability under economic laws.