2006 Supreme(SC) 169

2006(2) Supreme 470
Supreme Court of India
(From Bombay High Court)
Y.K. Sabharwal, CJI., C.K. Thakker and P.K. Balasubramanyan, JJ.
Standard Chartered Bank & Ors. —Appellants
versus
Directorate of Enforcement & Ors. —Respondents
Civil Appeal No. 1748 of 1999
With
Civil Appeal Nos. 1749 of 1999, 1750/1999, 1751/1999 and 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 Leave Petition (Crl.) No. 5892 of 2004
Decided on 24-2-2006
Counsel for the Parties :
For the Appearing Parties : P.P. Malhotra, ASG, K.K. Venugopal, Jaideep Gupta, T.R. Andhyarujina, U.U. Lalit, A.K. Panda, S. Divan, Sr. Advocates, Ms. B. Vijayalakshmi Menon, Ms. Indu Malhotra, Ms. Sunita, Ms. Haripriya, U.A. Rana, Sadeep Kharel, Ms. Srabonee Roy (for M/s. Gagrat & Co.), Santosh Paul, A.K. Rao, Rajeev Sharma, M.J. Paul, Amit Sibal, Ms. Radha Rangaswamy, Ms. Prachi Bajpai, Atif Chaudhary, Pradeep Kumar Malik, R.K. Handoo, K.V. Mohan, Rana Mukherjee, Ms. Anuradha, Ms. Swati Grover, Ms. Sonia Dube, Prasenjit Keswani, Ms. Indra Sawhney, A. Subba Rao, N.K. Matta, P. Parmeswaran, B. Krisna Prasad, V.K. Verma, H.D. Petit, Tara Chand Sharma, Ms. Neelam Sharma, D. Bharathi Reddy, M/s. Fox Mandal & Co. (N.P.), Advocates.

Important PointIn view of the fact that the Foreign Exchange Regulation Act has been included in the Ninth Schedule to the Constitution, the challenge based on Articles 14 and 21 of the Constitution cannot prevail and the provisions of Sections 56, 59, 61 and 68 of the FERA cannot be successfully challenged as either being arbitrary or discriminatory.

Headnote:(i) Foreign Exchange Regulation Act, 1973—Sections 50, 51, 56, 68—Constitution of India—Articles 14, 21, 31B, Ninth Schedule—Constitutional validity of the provisions challenged—Notices issued u/s 61 of FERA—Adjudication u/s 50 of FERA—FERA has been included in the Ninth Schedule to the Constitution—Challenge based on Articles 14 and 21 cannot prevail—Notices issued as to why adjudication proceedings for imposition of penalty under Sections 50 and 51 be not initiated against appellant bank and some of its officers—Further notices issued u/s 61 of FERA giving an opportunity to first appellant bank and its officers of showing that they had the necessary permission from the concerned authority for the transaction involved—Appellant bank filed writ petition seeking a declaration that relevant sections of FERA are unconstitutional—High Court rejected challenge to constitutional validity of Sections 50, 51, 56 and 68 of FERA—Whether appellants can challenge constitutional validity of provisions of FERA as being violative of Articles 14 and 21 of the Constitution—(No).

       Held : 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. (Para 13)

       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 the company for the conduct of its business. (Para 15)

       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. (Para 16)

       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 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. (Para 27)

       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 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 imprisoment 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. (Para 29)

       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. (Para 31)

       (ii) Words and Phrases—Word ‘offence’—Meaning.

       Held : 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. (Para 27)