The Karnataka High Court has stayed the Enforcement Directorate’s FEMA proceedings against Malavika Hegde, CEO of Coffee Day Enterprises, citing serious legal issues including delay and liability. The Court has paused the ED’s 2022 complaint, show cause notice, and hearing notices till further hearing on January 23.
The Karnataka High Court on Monday stayed the proceedings initiated by the Enforcement Directorate under the Foreign Exchange Management Act, 1999 (FEMA) against Malavika Hegde, the Chief Executive Officer of Coffee Day Enterprises Limited (CDEL) and the wife of late Café Coffee Day founder VG Siddhartha.
The interim stay covers the complaint filed by the ED in November 2022, the show cause notice issued thereafter, and all subsequent hearing notices sent by the FEMA adjudicating authority. The order was passed by Justice Shyama Prasad.
The case relates to foreign direct investment (FDI) received by Coffee Day Enterprises Limited in 2010. The ED has alleged that the funds were used to acquire shares in Indian companies in violation of FEMA and related regulations.
Based on this allegation, the ED filed a complaint before the Special Director of Enforcement in November 2022, who functions as the adjudicating authority under FEMA. Soon after, a show cause notice was issued.
In these proceedings, Malavika Hegde was named as noticee No. 2 in her capacity as the legal representative of her late husband, VG Siddhartha. Challenging this action, Hegde approached the High Court under Articles 226 and 227 of the Constitution of India.
She sought the records relating to the show cause notice dated November 23, 2022 and the ED’s complaint dated November 3, 2022. She also requested the Court to quash the complaint, the show cause notice, and two subsequent hearing notices issued by the adjudicating authority.
One of the main arguments raised by Hegde was the long delay in initiating the proceedings. She submitted that the action was taken almost 12 years after the alleged FDI transactions and regulatory filings. According to her, such an extraordinary delay makes the proceedings arbitrary and unreasonable, thereby violating Articles 14 and 21 of the Constitution.
Another important issue raised before the Court was the question of personal liability under FEMA. Hegde argued that Section 42 of FEMA provides for personal liability only against persons who were in charge of and responsible for the conduct of the company’s business at the time of the alleged violation. She contended that such liability cannot be examined or enforced after the death of VG Siddhartha in July 2019.
The petition also relied on Section 43 of FEMA, which deals with proceedings against legal representatives. Hegde argued that proceedings against a legal heir can continue only if the liability had already been determined or crystallised during the lifetime of the deceased.
In this case, she pointed out that no such adjudication or final finding had taken place when VG Siddhartha was alive.
In addition, Hegde alleged serious violations of the principles of natural justice. She claimed that she was never properly served with the show cause notice issued in November 2022. She also challenged the issuance of hearing notices without first considering her reply, stating that this was contrary to the mandatory two-stage adjudication process prescribed under the FEMA Adjudication Rules.
After hearing the submissions, the Karnataka High Court stayed all further proceedings in the matter. The case is now listed for further hearing on January 23.
Malavika Hegde was represented by Senior Advocate Sajan Poovayya, along with advocate Manu Prabhakar Kulkarni from Poovayya & Co.
Case Title:
Malavika Hegde Vs Directorate of Enforcement
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