Karnataka High Court Defers FEMA Hearing Against Café Coffee Day

The Karnataka High Court has granted interim relief to Café Coffee Day (CCD) in a case related to proceedings under the Foreign Exchange Management Act, 1999 (FEMA).

Justice B M Shyam Prasad directed the Enforcement Directorate (ED) to defer a personal hearing that was scheduled for January 30, 2026. The Court clarified that the hearing will remain on hold until CCD’s petition is taken up for detailed consideration on February 23.

In its interim order, the Court stated that the adjudicating authority under FEMA must pause all proceedings related to the January 30 hearing until further orders are passed.

Earlier, on January 19, the High Court had granted similar interim relief to CCD’s CEO Malavika Hegde, staying FEMA proceedings initiated against her. Both matters will now be heard together on February 23.

The proceedings against CCD arise from foreign direct investment (FDI) received by Coffee Day Enterprises Limited in 2010. The ED has alleged that these funds were used to acquire shares in Indian companies in violation of FEMA and related rules.

In November 2022, the ED filed a complaint before the Special Director of Enforcement, who functions as the adjudicating authority under FEMA. A show cause notice was issued thereafter. The present petition was filed by CCD after a notice dated January 7, 2026 was issued under Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.

This rule allows the adjudicating officer to summon individuals for a personal hearing if an inquiry is considered necessary, after reviewing the reply to the show cause notice.

Appearing for CCD, Senior Advocate Sajan Poovayya argued that such a personal hearing can be held only after the authority records written reasons justifying the inquiry and communicates those reasons in advance to the noticee. He contended that this mandatory requirement was not followed in CCD’s case, making the proceedings legally invalid.

Poovayya also pointed out that the case is based on alleged transactions from around 2009, while proceedings were initiated only in 2022. According to CCD, this prolonged delay itself undermines the legality of the action.

After hearing the preliminary submissions, the Court sought a response from the ED. Advocate Madhu N Rao accepted notice on behalf of the agency. CCD was represented by Advocate Manu Prabhakar Kulkarni.