Decoding FEMA Residency:Why The 182 Day Requirement Cannot Be Read In Isolation

Introduction

The determination of whether a person qualifies as a “person resident in India” under the Foreign Exchange Management Act, 1999 (“FEMA”) is fundamental to it’s regulatory framework. Residential status determines whether a person is governed by the regulatory regime applicable to residents or by the restrictions applicable to persons resident outside India in relation to foreign investment, acquisition of immovable property, capital account transactions, and the establishment of a place of business in India.

In its judgment dated 9 June 2026 in¹ Directorate of Enforcement v. Joy of India & Ors., the Karnataka High Court (“High Court”) examined the scope of Section 2(v) of FEMA while deciding an appeal filed by the Special Director, Directorate of Enforcement (“Directorate”) against an order of the Appellate Tribunal( ² SAFEMA, FEMA, ³ PMLA, ⁴ NDPS and ⁵ PBPT Act) (“Tribunal”)  in favour of Joy of India, Mr. Kwan Oak Shu and Mrs. Mijeung Bang (“respondents”). Upholding the Tribunal's decision, the High Court held that the respondents were persons resident in India and consequently, that the statutory restrictions applicable to persons resident outside India did not apply to them.

The decision clarifies the interpretation of Section 2(v) of FEMA, particularly the relationship between the statutory residency test and the purpose of an individual's stay in India. It also reinforces the evidentiary significance of contemporaneous Reserve Bank of India (“RBI”) clarifications, remittances through authorised banking channels, and consistent tax compliance in determining alleged FEMA contraventions, while reaffirming the limited scope of appellate interference with factual findings recorded by specialised tribunals.

From Enforcement Proceedings to the High Court

The dispute originated from a complaint dated 9 March 2015 lodged by the Deputy Director, Directorate of Enforcement, Bengaluru, alleging contraventions of FEMA and the regulations made thereunder by the respondents. Pursuant to the complaint, the Joint Director issued a show cause notice under Section 16(3) of FEMA requiring the respondents to explain why adjudication proceedings should not be initiated and why their assets should not be confiscated under Section 13(2) of FEMA.

By an adjudication order dated 28 June 2016, the Joint Director held that the respondents had contravened FEMA, imposed penalties under Section 13(1), and ordered the confiscation of certain bank balances and an immovable property measuring approximately 3,237 square feet at Chelekere Village, Bengaluru, together with the building standing thereon.

The respondents appealed to the Tribunal. By its order dated 12 September 2019, the Tribunal allowed the appeal, holding that the respondents qualified as persons resident in India. The Tribunal accordingly held that no contravention of FEMA had been established and set aside the adjudication order, including the confiscation of the property and the penalties imposed by the Joint Director.

Aggrieved by the Tribunal's decision, the Directorate of Enforcement (“Directorate”) preferred Miscellaneous Second Appeal No. 40 of 2020 (“MSA”) before the High Court.

Separately, JDM Charitable Trust and Mr. Paikhomba Singh Thingnam, claiming to be in permissive possession of the building situated on the confiscated property, instituted Writ Petition No. 698 of 2018 (“WP”) challenging the adjudication order insofar as it affected their possessory rights and seeking protection against dispossession except in accordance with due process of law. As both proceedings arose from the same adjudication order, they were heard and decided together.

The Core Issue: Determining Residential Status Under FEMA

The principal issue before the High Court was whether the respondents qualified as “persons resident in India” under Section 2(v) of the FEMA. The determination of that issue was central to deciding whether the regulatory framework applicable to persons resident outside India governed the respondents and, consequently, whether the confiscation order and penalties imposed by the Directorate of Enforcement could be sustained.

The Court was required to consider whether:

1. the respondents satisfied the definition of persons resident in India.
2. Section 2(v) requires only residence in India for more than 182 days during the preceding financial year, or also requires residence for carrying on business, taking up employment, or any other purpose indicating an intention to remain in India for an uncertain period.
3. if the respondents were persons resident in India, the FEMA regulations applicable to persons resident outside India were inapplicable and, consequently, whether the adjudication order under Section 13 of FEMA could be sustained.
4. the connected WP survived once the validity of the adjudication order was determined.

Competing Contentions

Directorate of Enforcement (Appellant)

The Directorate contended that the respondents had contravened FEMA by establishing the partnership firm without obtaining the RBI's prior approval and by receiving donations from foreign nationals otherwise than through authorised banking channels, in violation of the applicable FEMA regulations. Although it did not dispute that the respondents had resided in India for more than 182 days during the relevant financial year, it argued that satisfaction of the 182-day requirement alone was insufficient to qualify them as “persons resident in India” under Section 2(v) of FEMA.

Relying on Section 2(v)(i)(B), the Directorate argued that the statutory definition requires not only residence in India for the prescribed period but also that such residence be for taking up employment, carrying on a business or vocation, or any other purpose indicating an intention to remain in India for an uncertain period. According to the Directorate, the respondents failed to satisfy these additional statutory requirements and therefore continued to be persons resident outside India. Consequently, the FEMA framework governing investment in partnership firms, acquisition of immovable property, capital account transactions, and the establishment of a place of business by persons resident outside India applied, rendering the impugned transactions liable to action under FEMA.

Joy of India, Mr. Kwan Oak Shu and Mrs. Mijeung Bang (Respondents)

Supporting the findings of the Tribunal, the respondents contended that they qualified as persons resident in India under Section 2(v) of FEMA. They submitted that they had entered India on a business visa, resided in India for more than 182 days during the financial year 2008–09, and established and carried on business in India, thereby satisfying the statutory requirements.

The respondents further submitted that, before acquiring the immovable property, they had sought clarification from the RBI and were informed that no prior approval was required if they satisfied the requirements of Section 2(v). They also relied on the remittance of the Foreign Inward Remittance Certificates (“FIRCs”) evidencing remittance of the purchase consideration through authorised banking channels, together with the partnership firm's consistent income tax compliance, including assessments from Assessment Year 2010–11 onwards and allotment of a Permanent Account Number (“PAN”), as evidence of the legitimacy of the transactions and absence of any FEMA contravention.

Connected Writ Petition

JDM Charitable Trust and Mr. Paikhomba Singh Thingnam claimed to be in permissive possession of the building situated on the confiscated property and challenged the adjudication order insofar as it affected their possessory rights. They sought restoration of possession pursuant to the Tribunal's order or, alternatively, protection against dispossession except in accordance with due process of law. As their claim arose from the validity of the adjudication order under challenge, the WP was consequential to the outcome of the MSA.

Interpretation of Section 2(v) of FEMA

The High Court examined the definition of person resident in India under Section 2(v) of FEMA in relation to capital account transactions under Section 6. It held that the respondents' residential status was determinative, as the FEMA provisions relating to investment in partnership firms, acquisition of immovable property, capital account transactions, and establishment of a place of business in India apply only to persons resident outside India.

Interpreting Section 2(v)(i)(B), the High Court held that a person qualifies as a person resident in India if he or she has resided in India for more than 182 days during the preceding financial year and has come to or stayed in India for taking up employment, carrying on a business or vocation, or any other purpose indicating an intention to remain in India for an uncertain period. The Court clarified that Part (B) of Section 2(v)(i) must be read with Part (A), noting that the expression "otherwise than" appears only in Part (B), a distinction relevant to the statutory interpretation.

Applying the Residency Test Under Section 2(v)

Applying this interpretation, the High Court affirmed the Tribunal's conclusion that the respondents were persons resident in India. It noted that the Directorate did not dispute that the respondents had resided in India for more than 182 days during the relevant financial year. The respondents had entered India on a business visa and established and carried on business in India, thereby satisfying the statutory test. The High Court also considered that the immovable property was purchased on 1 September 2009, more than a year after the respondents had entered India and only after they had obtained clarification from the RBI that no prior approval was required if the conditions under Section 2(v) were satisfied.

Applicability of the FEMA Framework

Having concluded that the respondents were persons resident in India, the High Court held that the regulatory framework applicable to persons resident outside India did not apply to them. Accordingly, the Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, 2000, the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, and the Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000, were inapplicable. The High Court further observed that the impugned transactions, including the purchase of the immovable property, were effected in Indian rupees and that there was no evidence of any transaction involving foreign exchange.

Evaluation of the Evidentiary Record and the Tribunal's Findings

The High Court held that the Directorate had failed to demonstrate any error warranting interference with the Tribunal's findings. It held that the Tribunal was justified in relying on the contemporaneous documentary record, including the RBI clarification, authorised banking records and the partnership firm's tax compliance, in concluding that the respondents had complied with FEMA.

The High Court further noted that, despite repeated opportunities granted from 23 January 2026 onwards and the personal appearance of the concerned officer, the Directorate was unable to produce the original adjudication records and ultimately informed the High Court that they could not be traced. The appeal was therefore decided on the basis of the material available on record.

Decision

Having independently examined the facts and applicable law, the High Court found no substantial question of law warranting interference with the Tribunal's decision. It accordingly dismissed MSA and affirmed the Tribunal's order dated 12 September 2019 setting aside the Joint Director's adjudication order dated 28 June 2016.

Since WP No. 698 of 2018 challenged the same adjudication order and the rights asserted therein depended upon its validity, the Court held that the WP had become infructuous and disposed of it accordingly.

Conclusion and Legal Significance

The judgment clarifies that the determination of residential status under Section 2(v) of FEMA requires a holistic application of the statutory test to the facts of each case. The 182-day requirement cannot be considered in isolation but must be assessed together with the purpose and circumstances of an individual's stay in India.

The decision also recognises the evidentiary significance of contemporaneous RBI clarifications, remittances through authorised banking channels, and consistent tax compliance in determining alleged FEMA contraventions. Where such records objectively establish the nature of transactions and regulatory compliance, enforcement action cannot be sustained merely on the basis of a misinterpretation of the law or unsupported assumptions.

The judgment further reaffirms the limited scope of appellate interference with factual findings of specialised tribunals. Unless such findings are shown to be unsupported by the record or otherwise legally unsustainable, appellate courts will ordinarily refrain from interfering.

Footnotes

^{1 Miscellaneous Second Appeal No. 40 of 2020, connected with Writ Petition No. 698 of 2018}

^{2 Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976}

^{3 Prevention of Money-Laundering Act, 2002,}

^{4 Narcotic Drugs and Psychotropic Substances Act, 1985,}

^{5 Prohibition of Benami Property Transactions Act, 1988}

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