http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 17  

CASE NO.: Appeal (civil)  1748 of 1999

PETITIONER: STANDARD CHARTERED BANK AND OTHERS                               

RESPONDENT: DIRECTORATE OF ENFORCEMENT AND OTHERS                                            

DATE OF JUDGMENT: 24/02/2006

BENCH: CJI Y.K. SABHARWAL, C.K. THAKKER & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T WITH

CIVIL APPEAL NO.1749 OF 1999, 1750/1999,  1751/1999 & 1944/1999,  WRIT PETITION (CRIMINAL) NO.165 OF 2004  CRIMINAL APPEAL NOS.684/2005, 847/2004 AND  848/2004   AND  CRIMINAL APPEAL NO. 246 OF 2006 @ SPECIAL LAVE PETITION (Crl.) NO.5892 OF 2004

P.K. BALASUBRAMANYAN, J.

               Leave granted in SLP(Crl.) No.5892/2004.

1.              On receipt of notices under the Foreign  Exchange Regulation Act, 1973 (hereinafter referred to as  the FERA) for showing cause why adjudication proceedings  for imposition of penalty under Sections 50 and 51 of the  FERA be not initiated against the appellant bank and some  of its officers and further notices under Section 61 of the  FERA giving an opportunity to the first appellant bank and  its officers of showing that they had the necessary  permission from the concerned authority for the  transaction involved, the appellant bank filed Writ Petition  No.1972 of 1994, seeking a declaration that the relevant  sections of the FERA are unconstitutional, being violative of  Articles 14 and 21 of the Constitution of India and for writs  of prohibition restraining the authorities under the FERA  from proceeding with the proposed adjudication and the  proposed prosecution, in terms of the Act.   Yet another  writ petition was filed by the officers of the bank as CWP  No.2377 of 1996 challenging the individual notices.   The  High Court of Bombay rejected the challenge to the  constitutional validity of Sections 50, 51, 56 and 68 of the  FERA, but clarified that Section 68(1) of the FERA was not  applicable to an adjudication proceeding and that it was  confined to a prosecution for penal offences under the Act.   Being aggrieved, the appellant bank and its officers have  filed Civil Appeal Nos.1748/99 and 1749/99.   The Union  of India, in its turn has filed C.A. Nos.1751 and 1944 of  1999 challenging the very decision, to the extent the High  Court restricted the application of Section 68(1) of the  FERA.    

2.              Civil Appeal No.1750/1999 is filed by the  Standard Chartered Bank to which also notices have been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 17  

issued under the Act.  That challenges the dismissal of the  Writ Petition No.509/1994 filed by the appellant therein,  which was disposed of along with Writ Petition No.1972 of  1994, by a common judgment.

3.              These appeals which came up before a Bench of  two learned Judges, were referred to a Bench of three  Judges by order dated 20.04.2004.   When the matters  came up before a three Judge Bench, the three Judge  Bench doubted the correctness of a decision relied upon by  the bank and its officers in Assistant Commissioner,  Assessment-II, Bangalore & Ors. vs. Valliappa Textiles  Ltd. and Another ( 2003 (11) SCC 405) which was a  Judgment of a Bench of  three Judges and by order dated  16.07.2004 referred the question to a Constitution Bench.    The matters, thus, came up before a Constitution Bench,  which, by Judgment dated 5.5.05, [reported in 2005 (4)  SCC 530] overruled the decision in Assistant  Commissioner, Assessment-II, Bangalore & Ors. vs.  Valliappa Textiles Ltd. and Another ( 2003 (11) SCC 405)  and sent down these appeals for being heard on merits by a  Division Bench.   The question that was decided was  whether in a case where an offence was punishable with a  mandatory sentence of imprisonment, a company  incorporated under the Companies Act, can be prosecuted,  as the sentence of imprisonment cannot be imposed on the  company.   The majority in the Constitution Bench, held  that there could be no objection to a company being  prosecuted for penal offences under the FERA and the fact  that a sentence of imprisonment and fine has to be  imposed and no imprisonment can be imposed on a  company or an incorporated body, would not make Section  56 of the FERA inapplicable and that a company did not  enjoy any immunity from prosecution in respect of offences  for which a mandatory punishment of imprisonment is  prescribed.  In the light of the said decision of the  Constitution Bench, the controversy before us has  narrowed down and we have to proceed on the basis that  the appellant banks are liable to be prosecuted for offences  under the FERA.

4.              In this context, it is necessary to refer to the  scope of the writ petitions filed by the appellant bank and  its officers in the High Court of Bombay.   The prayers in  the said writ petition are for a declaration that provisions of  Sections 50, 51, 56 and 68 of the FERA are  unconstitutional, invalid and void being violative of Articles  14 and 21 of the Constitution of India and for a writ of  prohibition directing the authorities under the Act from  proceeding further, based on the notices issued to the bank  and its officers.   It may be seen that the challenge to the  constitutional validity is based on the alleged violation of  Articles 14 and 21 of the Constitution of India.  It is  admitted that the Act has been included in the Ninth  Schedule to the Constitution of India, as Item No.100.    Therefore, in terms of Article 31B of the Constitution of  India, none of the provisions of the FERA can be deemed to  be void or ever to have become void on the ground that the  FERA or any of the provisions thereof, are inconsistent with  or take away or abridge any of the rights conferred by Part  III of the Constitution.   Obviously, the rights conferred by  Articles 14 and 21 of the Constitution are rights flowing  from Part III of the Constitution and, therefore, it is clear  that no challenge based on violation of Articles 14 or 21,  even if it has substance, can enable the appellants to get

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 17  

the relevant provisions of the Act struck down as prayed for  by them in prayer (a) of the writ petition.   Now that the  Constitution Bench has already ruled that penal  proceedings under the Act can be initiated against a  company or a corporation, that avenue of challenge is also  closed to the appellants.   Probably, it is in that context  that learned senior counsel appearing in C.A.No.1750/99  argued that the submission was that a penal proceeding  cannot be initiated simultaneously with an adjudication  under the Act and that the adjudication must precede and  only after its conclusion, penal action could be initiated.

5.              Before proceeding further, we must notice that  though on behalf of the appellants, in the written  submissions, a contention was taken that the inclusion of  the FERA in the Ninth Schedule was violative of the basic  structure of the Constitution, at the time of hearing, Mr.  K.K. Venugopal, learned senior counsel, submitted that  that contention was not being pursued.   Once that  contention is not pursued, the appellants are confronted  with Article 31B of the Constitution in view of the inclusion  of the Act in the Ninth Schedule and there will be no  necessity for this Court to undertake the exercise of  considering whether the provisions of the Act violate Article  14 of the Constitution, an argument which was sought to  be pursued at considerable length based on the  interpretation to be placed on Section 68 of FERA.  

6.              It appears from the judgment of the High Court,  especially from paragraph 2 thereof, that the argument  before that court was on the basis that the violation of  Articles 14 and 21 amounted to a violation of the basic  structure of the Constitution, namely, the rule of law, and  the court had to quash the legislative provisions.  If the  contention founded on the basic structure theory is not  pursued, it is not very clear how far it would be open to the  appellants to urge and necessary for this Court to consider  the validity of the relevant provisions on the ground that  they are violative of Articles 14 and 21 of the Constitution.    The High Court found no reason to accept the argument  based on the violation of rights under Articles 14 and 21 of  the Constitution or based on the alleged impact of the  provisions on rule of law and rejected the contention,  though it upheld the plea that Section 68 of the FERA had  no application for imposition of a penalty based on an  adjudication under Sections 50 and 51 of FERA.   The  question is whether there is any reason to interfere with the  decision of the High Court on either of these aspects.

7.              Mr. K.K. Venugopal, learned senior counsel,  advanced considerable arguments on the interpretation  and scope of Section 68 of the FERA.  Considering the  prayers in the writ petitions filed in the High Court of  Bombay by the appellants, it is possible to say that all that  is required is to decide whether the appellants can  successfully challenge the constitutional validity of the  relevant provisions of the FERA as being violative of Articles  14 and 21 of the Constitution and whether the statutory  authority has to be restrained by the issue of a writ of  prohibition from proceeding further on the basis of the  notices it had issued for adjudication as well as for penal  action.   It is not a case where any successful challenge  could be mounted on the provisions providing both for  adjudication and imposition of penalty and for penal action  in the context of the objectives sought to be achieved by the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 17  

Act and the serious repercussions  of transgression of the  provisions of the Act on the economy of the country.    Therefore, the argument based on violation of Article 14  relying on the decision in State of West Bengal vs. Anwar  Ali Sarkar  (1952 SCR 284) and those following it, are of no  avail to the appellants.  No merit can also be found in the  argument that Section 68 of the FERA confers an  unfettered power on the investigating officer to pick and  choose at his will, those whom he desires to prosecute and  omit those whom he does not want to prosecute, in a case  to which Section 68 of the FERA is attracted.     

8.              In view of the immunity from challenge enjoyed  by the provisions of the Act, there arises no necessity to  read down the provisions of the Act so as to ensure that  they do not violate the rights conferred by Article 14 of the  Constitution.  The provisions therefore call for a natural  interpretation and, if necessary, a purposive interpretation,  keeping in view the object sought to be achieved by the Act.   In the guise of interpretation, there is no occasion to whittle  down the ambit of the provisions to save them from the  charge of arbitrariness, hit by Article 14 of the  Constitution.   

9.              Before proceeding further it is necessary to point  out that the notices issued under Section 61 of the FERA  are merely notices of enquiry, giving an opportunity to the  appellants of showing that they had the necessary  permission from the concerned authority under the FERA  in respect of the particular transaction.   These notices,  therefore, do not in any manner decide anything against  the appellants and they merely set out the grounds based  on which the appellants allegedly violated the provisions of  the FERA and since one of the ingredients of the offence is     absence of permission from the concerned authority, they  are intended only to give an opportunity to the appellants  to show that they had the necessary permission and hence,  there was no violation of the relevant provision or  provisions  of the FERA as sought to be made out in the  notice.   As pointed out by the learned Additional Solicitor  General, on the failure of the appellants to show that they  had the requisite permission, a complaint will have to be  lodged before the concerned magistrate \026 here it has been  launched with the permission of this Court pending these  appeals \026 and the magistrate will consider whether the  process should issue on the basis of the complaint made  before him.   In view of the fact that sufficient opportunities  will be available to the appellants to put forward their  contentions before the concerned criminal court, it cannot  be said that there is any merit in the challenge to the  notices issued under Section 61 of the FERA.   The said  notices are really in terms of Section 61 of the FERA and  their scope and ambit is also controlled by Section 61 of  the FERA and on receipt of those notices, it was open to the  appellants to show that they had the necessary permission  from the concerned authority under the Act.   Of course, if  they do not have such permission, apparently, in the case  on hand, there was no such permission, they have  necessarily to put forward their defences before the  criminal court in the prosecutions that have been launched  in that behalf.

10.             It is argued that the issue of a notice under  Section 61 is not a mere formality and that it is a real right  given to a person accused of an offence to establish that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 17  

proceedings are being initiated without jurisdiction or  wholly in violation of the provisions of FERA.   Article 20(3)  of the Constitution is referred to and it is submitted that  many rights including the right against self incrimination is  available to a person accused of an offence.   Section 61(2)  of FERA makes it clear that no court can take cognizance of  an offence except upon a complaint by the officer referred  to therein.   The proviso to Section 61(2) of the Act provides  that no complaint regarding the offences referred to in that  Section shall be made unless an opportunity is given to the  concerned person to show that he had the requisite  permission where the offence charged is an act which  requires permission under the Act.   We think that if the  notice sets out the alleged contravention, (an act which  could have been done with permission) and calls upon the  person accused of the offence whether he had the requisite  permission for the transaction, that will satisfy the  requirement of the Section.

11.             Learned counsel relied on East India  Commercial Co. Ltd., Calcutta and another vs. The  Collector of Customs, Calcutta  (1963(3) SCR 338) to  emphasise that the notice is not a mere formality and  should contain the relevant materials based on which the  prosecution was being initiated.   The following passage  was relied on: Assuming that a notice could be laconic, in  the present case it was a speaking one  clearly specifying the alleged act of  contravention. If on a reading of the said  notice, it is manifest that on the assumption  that the facts alleged or allegations made  therein were true, none of the conditions  laid down in the specified sections was  contravened, the respondent would have no  jurisdiction to initiate proceedings pursuant  to that notice. To state it differently, if on a  true construction of the provisions of the  said two sections the respondent has no  jurisdiction to initiate proceedings or make  an inquiry under the said sections in  respect of certain acts alleged to have been  done by the appellants, the respondent can  certainly be prohibited from proceedings  with the same."

                On a reading of the notices issued under Section  61 of the Act, we are of the view that they are in terms of  that Section and there is no reason to interfere with them  in these writ petitions and that it would be appropriate to  leave the appellants to their available defences in the  prosecutions that have been initiated.   Suffice it to say  that it is not possible to issue the writ of prohibition as  sought for by the appellants on the ground that these  notices do not satisfy the jurisdictional requirement under  Section 61 of the Act.

12.             At this stage, we cannot ignore the argument on  behalf of the respondents that if the appellants are not able  to show any permission, complaints have to be filed before  the concerned magistrate and that magistrate will issue  process only on being satisfied that a case has been made

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 17  

out for such issue and that the attempt of the appellants to  block the prosecution should not be countenanced.   The  object of the present notice, submitted counsel, is limited  and the arguments attempted on behalf of the appellants  can be raised before the criminal court when the occasion  arises.   We find merit in this submission.   Obviously, it is  open to the appellants to put forward all their defences to  the prosecution at the appropriate stage.

13.             The other set of notices are in respect of the  adjudication under Section 50 of the FERA.  Again, it is for  the appellants to put forward their objections thereto before  the concerned authority and it is for that authority to  decide the relevant aspects while deciding to impose or not  to impose any penalty on the appellants.   The appellants  have a right of appeal under Section 52 of the FERA to the  Appellate Board and a further right of appeal to the High  Court under Section 54 of the FERA.  We see no  justification for the issue of a writ of prohibition restraining  the authority under the FERA from proceeding further with  the adjudication.   It is for the appellants to put forward  their defences, if any available, before the adjudicating  authority and pursue it in accordance with law.  

14.             Considerable arguments were put forward by  learned counsel for the appellants in Civil Appeal No.1749  of 1999 in attempting to establish that Section 68(1) of  FERA is violative of Article 14 of the Constitution.   It was  contended that the provisions empowered an investigating  officer to pick and choose at his will, in the absence of any  definition, all those whom he desires to proceed against  and omit those he does not want to subject to prosecution.   This, it was said, was arbitrary.  The prejudice that may be  caused to a person sought to be roped in under Section 68  of FERA was highlighted.   It was submitted that the  proviso to sub-section (1) would not be a mitigating factor  in view of the serious damage done to the reputation of the  person alleged to be an offender under FERA.   It was  contended that the section also offended Article 14 of the  Constitution as it permitted a whole class of persons to be  prosecuted irrespective of their culpability.  Vast and  arbitrary powers were conferred on the department to  prosecute the same person, a director of the company  either under sub section (1) where inevitably the accused  carried the burden to prove his absence of knowledge or  under sub-section (2) where the prosecution takes on itself  the burden of proving the wrong doing, with a potential to  pick and choose between sub-section (1) and sub-section  (2).   This also violated Article 21 of the Constitution.  The  fiction involved in Section 68(1) would equally violate  Article 21 where the presumption of knowledge attaches to  the officers of the company against whom no wrong doing  whatsoever is alleged except by indicating his status in the  company.   Learned Additional Solicitor General met these  contentions by pointing out that in view of the inclusion of  the Act in the Ninth Schedule to the Constitution, these  arguments even if found tenable, cannot carry the  appellants far.   He also submitted that Section 68(1) was  consistent with similar provisions under other laws and it  applied only to a person who was in charge of and who was  responsible to the company for the conduct of the business  of the company as well as the company at the relevant  time.   This was a clear identification of the person who was  to be roped in, in terms of Section 68(1) of FERA, and there

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 17  

was nothing arbitrary, unclear or unreasonable in the  provision.   He also pointed that under Section 68(1) what  was needed to be proved was an offence against the  company and when that was done, the person in charge of  the affairs of the company at the relevant time, still had an  opportunity to prove that the alleged contravention took  place without his knowledge or that he exercised all due  diligence to prevent such a contravention and that this  availability of opportunity, adequately safeguarded the  rights of any person who was sought to be roped in under  Section 68(1) of the FERA.   Counsel also pointed out that  under Section 68(2), if any other officer of the company had  to be roped in, the burden was on the prosecution and this  clearly showed that there was nothing arbitrary in Section  68(2) of the Act or on the placing of the burden of proof  differently under the two sub-sections.   In answer, learned  counsel for the appellant further submitted that the  reversal of burden of proof under Section 68 of FERA was  violative of Article 14 of the Constitution of India and relied  on Collector of Customs vs. Nathella Sampathu Chetty  (1962 (3) SCR 786) in support.    

15.             As we have indicated earlier, in view of the fact  that the FERA has been included in the Ninth Schedule to  the Constitution, the challenge based on Articles 14 and 21  cannot prevail even assuming that the arguments have any  substance.   But on the scheme of the Act, with particular  regard to Sections 56, 59, 61 and 68 of FERA, we find that  the provisions cannot be successfully challenged as either  being arbitrary or discriminatory.   All that Section 68(1)  says is that if the commission of an offence by the company  is proved, the person who was in charge and was  responsible to the company for the conduct of the business  of the company at the time the contravention was  committed, was to be deemed to be guilty of the  contravention and was liable to be proceeded against and  punished.   He is being punished in view of his status in  the company and because it is proved that the company is  guilty of contravention of any of the provisions of FERA.    There is nothing unreasonable in this, since a company  normally acts through a person who is in charge of its  affairs and even in that case, the person in charge and  responsible to the company for the conduct of its business,  is given an opportunity to show that the alleged  contravention by the company took place without his  knowledge or in spite of the exercise of all due diligence by  him to prevent such contravention.   Section 68(2) is  attracted in a case where a company has contravened the  provisions of the Act or any rule, direction or order made  thereunder and that particular contravention is proved to  have taken place with the consent or connivance or is  attributable to any neglect on the part of any Director,  Manager, Secretary or other officer of the company.   In  other words, the prosecution, in addition to prosecuting the  company, can also prosecute any particular officer whose  action or inaction or negligence resulted in the commission  of the particular offence by the company.   This only means  that a person who is instrumental in the commission of an  act by the company that is in contravention of FERA or the  rules or directions issued thereunder, also lays himself  open to prosecution.  Having done something or omitted to  do something leading to the company contravening  the  provisions of the Act, the officer concerned cannot say that  it is unreasonable to prosecute him also, along with the  company and the person in charge of and responsible to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 17  

the company for the conduct of its business.

16.             The argument that the section violates Article 14  of the Constitution cannot thus be accepted.   The same is  the position regarding the argument based on Article 21 of  the Constitution.   The object of the Act is clearly to protect  the economic interests of the country and to deal with any  violation that causes economic loss to the country.   In the  context of that object, any contravention of the provisions  of the Act have to be viewed seriously and any one directly  responsible or conniving at the offence is liable to be  punished.   This appears to be the legislative intent in  enacting FERA 1973 replacing the Foreign Exchange  Regulation Act, 1947 and also including it in the Ninth  Schedule to the Constitution.  

17.             Considerable amount of argument was raised as  to who is the person who is liable to be prosecuted under  Section 68(1) as in charge of or responsible for the affairs of  the company.   The question whether a particular person  who is sought to be prosecuted under Section 68(1) of the  Act, is the person who is liable to be prosecuted under  Section 68(1), is a question that has to be raised at the  trial.   We have already noticed the scope of the writ  petitions giving rise to these appeals.   The question sought  to be raised on this aspect based on the various decisions  of the English Courts and the decision of this Court in  Valliappa Textiles Ltd. and Another (supra) depends  upon the facts of the case proved before the Court dealing  with the prosecution and it is not necessary for us to  pronounce on those aspects in these appeals.   Suffice it to  say, that the arguments on this score are of no avail while  considering the constitutional challenge to Section 68 of  the Act as being violative of Articles 14 and 21 of the  Constitution.   We reject the contention, leaving it to the  concerned appellant to raise that plea before the  appropriate forum regarding his culpability under Section  68(1) of FERA.

18.             Learned senior counsel for the appellants in Civil  Appeal No.1750 of 1999, in addition to adopting the  arguments of learned senior counsel already adverted to,  also contended that on the scheme of the Act, it was  incumbent on the Directorate of Enforcement to first  adjudicate in terms of Section 51 of FERA and only if  satisfied, proceed with the prosecution under Section 56 of  the Act.   According to counsel, under the scheme of FERA,  the adjudication proceedings must first be commenced and  only after they are completed, the directorate of  enforcement can, in the light of the findings in the  adjudication for penalty, decide to initiate a prosecution  and seek to impose or not to impose a further punishment  under Section 56 of the Act.   It is submitted that the  adjudication proceedings would give an idea to the  authorities under the Act as to the gravity of the violation  and the opportunity to decide whether the contravention  deserved also a punishment by way of prosecution.  They  would decide whether the penalty imposed under Section  50 of the Act is adequate or not.   If in the adjudication  proceedings it is found that the alleged offender has not  infringed any of the provisions of the Act, there will be no  occasion for the Directorate of Enforcement to prosecute  the concerned person.  It would then be incongruous and  unreasonable for the Directorate of  Enforcement  to  prosecute a person for violating FERA, when in the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 17  

adjudication proceedings against him, it had been found  that the person had not violated any of the provisions of  FERA.  It was in this context that the scheme of the FERA  should be understood as indicating that there should first  be an adjudication and thereafter, if the Directorate of  Enforcement feels that the penalty is inadequate, to  consider the launching of a prosecution.

19.             Learned Additional Solicitor General contended  that under FERA, adjudication and prosecution are two  separate and distinct procedures with distinct purposes.   There was no bar either in FERA or in any other law, to an  adjudication and prosecution being launched in respect of  an alleged contravention of FERA.   Counsel submitted that  the law has permitted it by providing two separate modes  for dealing with the person who contravenes the law in  relation to foreign exchange.  While the primary purpose of  imposing of the penalty is the interests of revenue and the  preservation of foreign exchange, the primary purpose of  prosecution is to serve as a strong deterrent to persons or  companies contravening the provisions of the Act and to  send a message to the society at large.  Counsel pointed  out that Section 56 of FERA which deals with offences and  prosecutions, commences with the words "without  prejudice to any award of penalty by the adjudicating  officer under this Act".  A person contravening any of the  provisions shall upon conviction by a court will be  punished, even if a penalty has been imposed on him.   There was no warrant for reading the words "without  prejudice to" as restricting the right of the authorities  under the Act to proceed with the adjudication first and to  commence the prosecution only at its conclusion.  Counsel  also emphasized that the two proceedings are  independently dealt with.   Counsel pointed out that even  in respect of the FERA Act of 1947, in Shanti Prasad Jain  vs. Director of Enforcement (1963 (2) SCR 297), this  Court had upheld a special procedure under the statute  holding that it was not violative of Article 14 of the  Constitution.  It is submitted that the purpose of the Act is  to bring the accused to book, more so in case of a serious  offence and it could not have been the intention of the  legislature to await a long time for an adjudication to be  completed by way of an appeal and a second appeal and  then only to commence the prosecution.

20.             The Act was enacted, as indicated by its  preamble, for the conservation of foreign exchange  resources of the country and the proper utilization thereof  in the economic development of the country.   When  interpreting such a law, in the absence of any provision in  that regard in the Act itself, we see no reason to restrict the  scope of any of the provisions of the Act, especially in the  context of the presence of the "without prejudice" clause in  Section 56 of the Act dealing with offences and  prosecutions.   We find substance in the contention of the  learned Additional Solicitor General that the Act subserves  a twin purpose.   One, to ensure that no economic loss is  caused by the alleged contravention by the imposition of an  appropriate penalty after an adjudication under Section 51  of the Act and two, to ensure that the tendency to violate is  curbed by imposing an appropriate punishment after a due  prosecution in terms of Section 56 of the Act.  The  contention that as a matter of construction --\026 since the  provisions could not be attacked as violative of the rights  under Part III of the Constitution ----   we should interpret

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 17  

the provisions of the Act and hold that an adjudication has  to precede a prosecution cannot be accepted as we see  nothing in the provisions of the Act justifying such a  construction.  On the scheme of the Act, the two  proceedings are seen to be independent and the launching  of the one or the other or both is seen to be controlled by  the respective provisions themselves.   In the context of the  inclusion of this Act in the Ninth Schedule, the reliance  placed  on the decision in Rayala Corporation (P) Ltd. &  Ors. Vs. Director of Enforcement, New Delhi (1969 (2)  SCC 412) cannot enable this Court to deem the provisions  as arbitrary and to read them down or understood them in  the manner suggested by the learned senior counsel.   The  very purpose of the Act and the very object of inclusion of  the Act in the Ninth Schedule justifies an interpretation of  the provisions as they stand on the basis that there is  nothing arbitrary or unreasonable in the provisions and in  the scheme as enacted.   We may also notice that Section  23D of the Foreign Exchange Regulation Act, 1947, which  was considered in Rayala Corporation (P) Ltd. & Ors. had  a proviso, which indicated that the adjudication for the  imposition of penalty should precede the making of a  complaint in writing to the concerned court for prosecuting  the offender.   The absence of a similar proviso to Section  56 or to Section 51 of the present Act, is also a clear  indication that the legislature intended to treat the two  proceedings as independent of each other.   Obviously, the  legislature must be taken to have been conscious of the  interpretation placed on the corresponding provisions by  this Court in the decisions above referred to when the 1973  Act was enacted and it was also included in the Ninth  Schedule to ward off any challenge on the ground that it  would be violative of Article 14 of the Constitution, unless  understood or read in a particular fashion.

21.             Learned senior counsel appearing for the  appellant in criminal appeal arising out of SLP(Crl) No.5892  of 2004 in which the Full Bench decision of the Calcutta  High Court is challenged, supported the arguments raised  by learned senior counsel in Civil Appeal No.1750 of 1999.    The Full Bench of the Calcutta High Court in the judgment  under appeal has, on a consideration of the relevant  aspects, answered the reference made to it by holding that  a complaint under Section 56 of FERA can never be said to  be premature if it is instituted before the awarding of  penalty under Section 50 of the Act and such criminal  proceeding being an independent proceeding, can be  initiated during the pendency of an adjudication proceeding  under Section 51 of FERA, 1973.  Therein, the Full Bench  has referred to the decision of the Madras High Court in  A.S.G. Jothimani Nodar vs. The Deputy Director,  Enforcement Directorate (1984 Excise and Customs  Cases 319) and that of the Andhra Pradesh High Court in  Anil Kumar Agarwal vs. K.C. Basu (2003 Criminal Law  Journal 2197) which also take the same view as the one  taken by the Full Bench in the judgment under challenge.    The court has also derived support for its view from the  decisions of this Court in Assistant Collector of Customs,  Bombay vs. L.R. Melwani and another ( AIR 1970 SC 962)  and in P. Jayappan vs. S.K. Perumal (AIR 1984 SC 1693 =  1984 Suppl. SCC 437).   We see no reason not to approve  the answer given by the Full Bench to the question referred  to it for decision.    On the whole, we are satisfied that  there is no justification in accepting the argument that  unless an adjudication proceeding under Section 51 of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 17  

Act is completed, a prosecution under Section 56 of FERA  cannot be initiated.  Both proceedings can simultaneously  be launched and can simultaneously be pursued.

22.             Counsel submitted that the devising of a special  machinery for adjudication, the limiting of the "without  prejudice" clause in Section 56 to any award of penalty and  not the initiation of proceedings under Section 51 of the  Act, the making of a contravention of any of the provisions  of this Act as the key to both proceedings, would all  indicate that an adjudication should precede a prosecution  under Section 56 of the Act.  There is nothing in the Act to  indicate that a finding in an adjudication, is binding on the  court in a prosecution under Section 56 of the Act.  There  is no indication that the prosecution depends upon the  result of the adjudication.   We have already held that on  the scheme of the Act, the two proceedings are  independent. The finding in one is not conclusive in the  other.   In the context of the objects sought to be achieved  by the Act, the elements relied on by the learned senior  counsel, would not justify a finding that a prosecution can  be launched only after the completion of an adjudication  under Section 51 of the Act.   The decision in K.C. Builders  and another vs. Assistant Commissioner of Income Tax  (2004 (2) SCC 731) is clearly distinguishable.  The Court  proceeded as if under the Income Tax Act, the prosecution  is dependent on the imposition of penalty.  That was a case  where the prosecution was based on a finding of  concealment of income and the imposition of penalty.    When the Tribunal held that there was no concealment,  and the order levying penalty was cancelled, according to  this Court, the very foundation for the prosecution itself  disappeared.   This Court held that it was settled law that  levy of penalties and  prosecution under Section 276-C of  the Income Tax Act are simultaneous and hence, once the  penalties are cancelled on the ground that there was  concealment, the quashing of the prosecution under  Section 276-C of the Income Tax Act was automatic.   We  have held already that on the scheme of FERA, the  adjudication and the prosecution are distinct and separate.   Hence, the ratio of the above decision is not applicable.    That apart, there is merit in the submission of the learned  Additional Solicitor General that the correctness of the view  taken in K.C. Builders (supra) may require reconsideration  as the reasoning appears to run counter to the one adopted  by the Constitution Bench in Assistant Collector of  Customs, Bombay vs. L.R. Melwani and another (supra)  and in other decisions not referred to therein.   For the  purpose of these cases, we do not think it necessary to  pursue this aspect further.   Suffice it to say, that the ratio  of that decision has no application here.

23.             The prayer for the issue of a writ of prohibition  restraining the authorities under the Act from proceeding  with the adjudication and the prosecution is essentially  based on the constitutional challenge to the relevant  provisions of the Act on the ground that they violate  Articles 14 and 21 of the Constitution of India.  Once we  have held, as the High Court did, that the provisions are  constitutional, the basis on which the writ of prohibition is  sought for by the appellants disappears.  It is settled by the  decisions of this Court that a writ of prohibition will issue  to prevent a Tribunal or Authority from proceeding further  when the Authority proceeds to act without or in excess of  jurisdiction; proceeds to act in violation of the rules of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 17  

natural justice; or proceeds to act under a law which is  itself ultra vires or unconstitutional.  Since the basis of the  claim for the relief is found not to exist, the High Court  rightly refused the prayer for the issue of a writ of  prohibition restraining the Authorities from continuing the  proceedings pursuant to the notices issued.  As indicated  by this Court in State of Uttar Pradesh Vs. Brahm Datt  Sharma [(1987) 2 SCC 179] when a show cause notice is  issued under statutory provision calling upon the person  concerned to show cause, ordinarily that person must place  his case before the Authority concerned by showing cause  and the courts should be reluctant to interfere with the  notice at that stage unless the notice is shown to have been  issued palpably without any authority of law.  On the facts  of this case, it cannot be said that these notices are  palpably without authority of law.  In that situation, the  appellants cannot successfully challenge the refusal by the  High Court of the writs of prohibition prayed for by them.  

24.             Thus, on the whole, in the context of the answer  given by the Constitution Bench on one of the important  aspects raised in these cases and in the light of the prayers  made in the writ petitions giving rise to these appeals, we  see no reason at the instance of the appellants in these  four appeals either to interfere with the decisions of the  High Court of Bombay or with the answer given by the Full  Bench of the High Court of Calcutta to the first question  referred to it for decision.   In that view, all these appeals  are liable to be dismissed.

CIVIL APPEAL NOS. 1751 and 1944 OF 1999 25.             These appeals are by the Union of India and the  Authorities under the FERA challenging the decision of the  High Court of Bombay to the extent that court held that  Section 68 of the Act is inapplicable to proceedings for  adjudication under Section 51 of the Act and its operation  is confined only to prosecutions under the Act.  The High  Court reasoned that the argument that having regard to the  placement of Section 68 under the Legislative Scheme of  FERA, the same is equally applicable to penalty, could not  be accepted since the very caption of Section 68 indicates  that it deals with offences by a company and as such  Section 68 cannot be invoked for the levy of penalty on the  persons indicated therein.  According to the High Court,  apart from the caption, sub-Sections (1) and (2) of Section  68 speak of the officers referred to therein being liable to be  proceeded against and punished and this indicates that it  is intended to apply only in respect of prosecutions against  a company and only in such a prosecution for an offence by  the company, the persons indicated therein are liable to be  proceeded against and punished.  The Section does not  indicate that it could be extended to penalty.  Since the  penalty could be imposed on a company, as distinct from  the punishment of imprisonment, if the company  contravenes any of the provisions of the Act, it would be  proper to understand Section 68 as being confined only to  criminal prosecutions.  The High Court stated that Section  50 of the Act dealing with liability for penalty, does not  refer to the persons referred to by Section 68 of the Act.  As  such, Section 68 of the Act could not be availed of to  impose a penalty on the officials of the company in terms of  Sections 50 and 51 of the Act simultaneously with the  company, which is the person guilty of contravention.  In  view of the fact that Section 50 also prescribes an outer  limit for the penalty to be imposed and the said penalty can

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 17  

be imposed on the company itself, it would be incongruous  to hold that the same quantum of penalty could be  recovered from the officials of the company all over again.   That would lead to an anomalous position of the penalty  exceeding the outer limit prescribed in Section 50 in  respect of a particular offence committed by the company.   The High Court gave liberty to the Writ Petitioners to raise  this aspect before the Adjudicating Authority based on its  finding.   

26.             The learned Additional Solicitor General in  support of the appeals by the Union of India, urged that the  expression ’offence’ used in Section 68 is all comprehensive  and would include every contravention in respect of which  an adjudication under Section 50 of the Act can also be  made against a company and the object of the Act being to  prevent the evasion of the law relating to foreign exchange,  the expression ’offence’ need not be confined to a criminal  offence and Section 68 should be understood as being  applicable even in respect of adjudications of penalty under  Sections 50 and 51 of the Act.  Learned counsel submitted  that the legislation being in the interests of society, it must  be construed in that context.  Learned counsel also referred  to Section 64 of the Act and pointed out that whereas sub- Section (1) specifies Section 56, sub-section (2) ropes in a  proceeding for adjudication of penalty as well and in  Section 68 of the Act there was no such specification as  found in Section 64 (1) of the Act and that was a pointer to  understand Section 68 as being applicable to an  adjudication of penalty as well, especially in the context of  Section 64(2).   It is submitted on behalf of the respondents  in these appeals that a reference to Section 56 of the Act  shows that it deals with offences and prosecutions.  In the  absence of a definition in the Act, the term ’offence’ should  be understood in the context of Section 40 of the Indian  Penal Code as an act that is criminally punishable and  Section 3(38) of the General Clauses Act as an act made  punishable by any law and the essential ingredient is that  it should be a criminal act as understood.  Whereas under  Section 50 of FERA, in the matter of adjudication of penalty  there was an outer limit of five times of the amount or  value involved in any contravention, under Section 56 of  the Act, as regards the fine to be imposed, there was no  limit.  It was submitted that in the case of contravention by  a company, the adjudication is against the company and  the penalty is imposable on the company itself within the  limits prescribed by Section 50 of the Act, and in the light  of this position, the High Court was justified in holding that  Section 68 could not be applied in the matter of  adjudication of penalty and the imposition of penalty can  only be on the company when the company is the person  who contravenes any of the provisions of the Act coming  within Section 50 of the Act.   

27.             Both, Section 50 providing for imposition of  penalty and Section 56 providing for prosecution, speak of  contravention of the provisions of the Act.  Contravention is  the basic element.  The contravention makes a person  liable both for penalty and for prosecution.  Even though  the heading to Section 56 refers to offences and  prosecutions, what is made punishable by the Section is  the contravention of the provisions of the Act and the  prosecution is without prejudice to any award of penalty.   The award of penalty is also based on the same  contravention.  Section 63 is the power of confiscation of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 17  

currency, security or any other money or property in  respect of which a contravention of the provisions of the Act  has taken place conferred equally on the Adjudicating  Authority and the Court, whether it be during an  adjudication of the penalty or during a prosecution.   Whereas Section 64 (1) relating to preparation or attempt at  contravention is confined to Section 56, the provision for  prosecution, sub-Section (2) of Section 64 makes the  attempt to contravene or abetment of contravention, itself a  contravention, for the purposes of the Act including an  adjudication of penalty under the Act.  Section 68 relating  to offences by companies, by sub-Section (1) introduces a  deeming provision that the person who was in charge of  and was responsible to the company for the conduct of the  business of the company, shall also be deemed to be guilty  along with the company of the contravention of the  provisions of the Act and liable to be proceeded against and  punished accordingly. The proviso, no doubt, indicates that  a person liable to punishment could prove that the  contravention took place without his knowledge or that he  exercised all due diligence to prevent such contravention.    Sub-Section (2) again speaks only of a contravention of the  provisions of the Act and the persons referred to in that  sub-section are also to be deemed to be guilty of the  contravention liable to be proceeded against and punished  accordingly.  The word ’offence’ is not defined in the Act.   According to Concise Oxford English Dictionary, it means,  ’an act or instance of offending’.  Offend means, ’commit an  illegal act’ and illegal means, ’contrary to or forbidden by  law’.  According to New Shorter Oxford English Dictionary,  an offence is "a breach of law, rules, duty, propriety,  etiquette, an illegal act, a transgression, sin, wrong,  misdemeanour, misdeed, fault."  Thus, an offence only  means the commission of an act contrary to or forbidden by  law.  It is not confined to the commission of a crime alone.   It is an act committed against law or omitted where the law  requires it and punishable by it.  In its legal signification,  an offence is the transgression of a law; a breach of the  laws established for the protection of the public as  distinguished from an infringement of mere private rights;  a punishable violation of law, a crime, the doing that which  a penal law forbids to be done or omitting to do what it  commands (see P. Ramanatha Aiyar’s Advanced Law  Lexicon, 3rd Edn, 2005 page 3302).  This Court in Depot  Manager, Andhra Pradesh State Road Transport  Corporation Vs. Mohd. Yousuf Miya [(1997) 2 SCC 699]  stated that the word ’offence’ generally implies infringement  of a public duty, as distinguished from mere private rights  punishable under criminal law.   In Brown v. Allweather  Mechanical co. [(1954) 2 QB 443], it was described as "a  failure to do something prescribed by a statute may be  described as an offence, though no criminal sanction is  imposed but merely a pecuniary sanction recoverable as a  civil debt."     The expression ’offence’ as defined in Section  3(38) of the General Clauses Act means an act or omission  made punishable by any law for the time being in force.   ’Punishable’ as noticed by this Court in Sube Singh & Ors.  Vs. State of Haryana & Ors. [(1989) 1 SCC 235] is  ordinarily defined as deserving of, or capable or liable to  punishment.  According to Concise Oxford English  Dictionary, ’punish’ means, ’inflict a penalty on as  retribution for an offence, inflict a penalty on someone for  (an offence)’.  In the New Shorter Oxford English Dictionary  (Vol. 2, 3rd ed., reprint 1993), the meaning of punishment is  given as, "infliction of a penalty in retribution for an

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 17  

offence; penalty imposed to ensure application and  enforcement of a law."  Going by Black’s Law Dictionary (8th  ed.) it is, "a sanction-such as a fine, penalty, confinement,  or loss of property, right or privilege-assessed against a  person who has violated the law."  According to Jowitts  Dictionary of English Law Vol. 2 (2nd ed. By John Burke),  punishment is the penalty for transgressing the law.   It is  significant to notice that Section 68, both in sub-Section (1)  and in sub-Section (2) uses the expression, shall be liable  to be proceeded against and punished accordingly.  There  does not appear to be any reason to confine the operation  of Section 68 only to a prosecution and to exclude its  operation from a penalty proceeding under Section 50 of  the Act, since the essential ingredient of both is the  contravention of the provisions of the Act.  A company is  liable to be proceeded against under both the provisions.   Section 68 is only a provision indicating who all in addition  can be proceeded against when the contravention is by a  company or who all should or can be roped in, in a  contravention by a company.  Section 68 only clarifies the  nature and mode of proceeding when the contravention of  any of the provisions of the Act is by a company, whether it  be by way of adjudication to impose a penalty or by way of  prosecution leading to imprisonment and a fine.

28.             The High Court rested its decision mainly on the  use of the expression in sub-Sections (1) and (2) of Section  68 that the officer or officers concerned shall be                                       ’liable to be proceeded against and punished accordingly’.   According to the High Court, the use of the expression  "punished" makes it apparent that Section 68 can be  availed of only when there is a criminal prosecution for an  offence by a company, where the person or persons  indicted are liable to be punished.  Hence, its application  cannot be extended to penalty proceedings.  The other  reason mentioned by the High Court is that the provision  under Section 68 had a special task and it dealt with  offences and prosecutions against any person which  includes a company and on conviction such a person is  liable to be imprisoned and company being a juristic  person, it cannot suffer imprisonment.  Then, section 68  springs into the operation to identify every person who is  liable to be punished with imprisonment for the  contravention by the company.  However, penalty can be  saddled on the company if it has contravened any of the  provisions of the Act.  Section 50 does not refer to every  person as envisaged by Section 68.  As such, Section 68  cannot be availed of to indict the officials of the company  for the purposes of penalty.  Section 50 also lays down an  outer limit of penalty.  Since the penalty can be imposed on  the company itself as a person contravening the provisions  of the Act, if the operation of Section 68 is extended to  penalty proceedings also, the penalty would become  leviable against each person who comes within the purview  of Section 68 of the Act and that will create a serious  anomaly.   

29.             There does not appear to be any reason to  confine the operation of Section 68 of the Act as was done  by the High Court.  Merely because the expression  ’punished’ is used, it does not mean that it is confined to a  prosecution under Section 56 of the Act, since the element  that attracts the imposition of penalty and the prosecution  is the same, namely, the contravention of any of the  provisions of the Act.  Moreover, there is nothing in the Act

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 17  

which confines the expression ’punished’ only to a  punishment for a criminal prosecution. An imposition of a  penalty can also be a punishment.  The second part of the  reasoning appears to be self-contradictory.  If a person  includes a company, there is no reason to confine Section  68 to a prosecution only, because the company as a person  is liable to be proceeded against under Section 50 and  Section 56 of the Act, though in a criminal prosecution the  punishment by way of imprisonment can be imposed only  on the officer or officers of the company referred to in  Section 68 of the Act.  Section 68 only indicates the  manner in which a contravention by a company can be  dealt with and it does not show that it is confined in its  operation only to prosecutions against a company.  It is a  general provision relating to a contravening company,  which is to be proceeded against whether it be under  Section 50 or under Section 56 of the Act.     The fact that a  fine alone can be imposed on a company in a prosecution  under Section 56 of the Act, cannot enable us to confine  the operation of Section 68 to criminal prosecutions alone  under the Act.  We see no reason to whittle down the scope  of Section 68 of the Act.   

30.             It is true that the entire penalty that may be  imposed on adjudication, is capable of being recovered from  the company itself.  But that does not mean that it cannot  be recovered from the officer incharge of the company or  those who connived at or were instrumental in the  contravention of the provisions of the Act by the company.   Once the ingredient of the offence is contravention of the  provisions of the Act and the consequences flowing from  the contravention is to make that person including a  company liable for penalty as well as for prosecution, there  does not appear to be any justification in confining the  scope of the Section 68 only to prosecutions under Section  56 of the Act.  We have earlier indicated that use of the  expression ’offence’ in the marginal heading of Section 68 is  not indicative of the expression ’being confined to a  criminal offence alone’ because an offence in the context of  the Act is really a contravention of any of the provisions of  the Act referred to in Section 50 and in Section 56 of the  Act.  

31.             Hence, the decision of the High Court calls for  modification as regards the scope and applicability of  Section 68 of the Act.  The appeals filed by the Union of  India are liable to be allowed to that extent.   

WRIT PETITION NO. 165 OF 2004 32.             The challenge in this Writ Petition to the  prosecution launched against the Writ Petitioner is on the  same basis as the one contained in the Writ Petitions giving  rise to the Civil Appeal Nos. 1748, 1749 and 1750 of 1999.   For the reasons set out by us in the earlier paragraphs, this  Writ Petition has only to be dismissed.  Obviously, it would  be open to the Writ Petitioner to raise all available defences  before the concerned Criminal Court.  

CRIMINAL APPEAL NO. 684 OF 2005 33.             This appeal challenges the decision of the High  Court of Andhra Pradesh refusing to interfere with an order  of the Special Judge of Economic Offences at Hyderabad  refusing to discharge the appellant.  The argument before  the High Court was that the prosecution contemplated by  Section 56 of the Act could take place only if an adverse

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 17  

finding is recorded by the Adjudicating Officer in the  proceedings under Section 51 of the Act and that no crime  or offence can be said to have been committed by the  appellant unless the proceedings under Section 51 of the  Act culminates in a finding adverse to him. The High Court  rejected this contention.  In view of our conclusions  recorded earlier, the said argument which is reiterated  before us in support of this appeal, has only to be rejected.   The order of the High Court does not call for interference  and this appeal deserves to be dismissed.  

CRIMINAL APPEAL NOS. 847 AND 848 OF 2004 34.             The accused has filed these appeals challenging  the orders of the High Court of Delhi.   Criminal Appeal No.  847 of 2004 is filed by the accused challenging the decision  dismissing an application filed by the appellant under  Section 482 of the Code of Criminal Procedure, by following  the decision of this Court in Santram Paper Mills Vs.  Collector of Central Excise, Ahmedabad [(1998) 8 SCC  335] and taking the view that an adjudication proceeding is  independent of the criminal liability under the Act.  The  contention of the appellant was that since in the  adjudication proceedings no penalty was imposed and  there was no finding of personal involvement of the  appellant, the prosecution had also to be quashed.  We  have held that the two proceedings are independent of each  other and the finding on the adjudication is not conclusive  on a prosecution under the Act.  Hence, the High Court  was fully justified in refusing to quash the proceedings on  the ground put forward by the appellant.  There is no merit  in Criminal Appeal No. 847 of 2004.

35.             The appellant, after the petition under Section  482 of the Code of Criminal Procedure was dismissed,  purported to file another Writ Petition challenging the vires  of  Section 140 (1) of the Customs Act.  He also sought a  stay of further proceedings before the Additional Chief  Metropolitan Magistrate, New Delhi based on the complaint  filed by the Enforcement Officer.  The Division Bench after  taking note of the earlier proceedings declined to stay the  proceedings.  That order is challenged in this appeal.  

36.             We see no reason to interfere with the interim  order passed by the High Court in view of our conclusions  as above.  Even otherwise, the High Court has exercised its  discretion properly in refusing to grant a stay of further  proceedings and there is no reason to interfere with that  order.  Criminal proceedings of this nature cannot be  allowed to be delayed unduly.   This appeal also is liable to  be dismissed.  

37.             In the result, W.P.(Crl.) 165 of 2004 and all  appeals other than Civil Appeal Nos. 1751 and 1944 of  1999 are dismissed. Civil Appeal Nos. 1751 and 1944 of  1999 are allowed by vacating the finding of the High Court  of Bombay that Section 68 of FERA is confined in its  operation only to prosecutions under Section 56 of the Act.   The parties are directed to suffer their costs in all the  appeals.