Superintendent and Remembrance of
Legal Affairs, West Vs. Girish Kumar Navalakha & Ors [1975] INSC 56 (3
March 1975)
MATHEW, KUTTYIL KURIEN MATHEW, KUTTYIL KURIEN
RAY, A.N. (CJ) KRISHNAIYER, V.R.
GUPTA, A.C.
CITATION: 1975 AIR 1030 1975 SCR (3) 802 1975
SCC (4) 754
ACT:
Constitution of India, 1950, Art. 14--Purpose
of challenged classification in doubt--Concept of 'Purpose' and 'similar
situations', when can be resorted to--Legislature if can be given benefit of
doubt about its purpose.
Constitution of India, 1950, Art.
14--Under-inclusive classification meaning of--Under-inclusive classification,
when permissible.
Foreign Exchange Regulation Act, 1947,
Section 23--Two different procedures for dealing with persons contravening the
Act--Benefit of inquiry by Director of Enforcement not available to persons
dealt with under s. 23(IA) --Classification, if unreasonable.
HEADNOTE:
The respondents were tried for having
committed offences under S. 4(3), 20(3) and 22 of the Foreign Exchange
Regulation Act, 1947 read with s. 120-B of the Indian Penal Code and s. 23 of'
the Act. The Court discharged the respondents in view of the decision of the
High Court of Calcutta in M/s Serajuiddin & Co. and Ors. v. Union of India
and Ors. Civil Rules Nos. 2183 (W) of 1966 and cases Nos.
1998 and 1999 of 1963 decided on 16-9-1971,
holding that s.
23(AI) was violative of Art. 14 of the
Constitution. The appellant filed a revision petition against the order, before
the High Court. The High Court concurred with the decision of the trial Court
and dismissed the revision.
This appeal, by special leave, is against
that order dismissing the revision, It was contended for the respondents that
s. 23 provides for two different procedures for dealing with contravention of
the provisions of the Act. That is to say, persons who have contravened the
provisions specified in s. 23(1)(a) and are found guilty by the Director of
Enforcement need not face prosecution in a criminal court if the Director is of
opinion that the penalty he is empowered to impose would be adequate
punishment, whereas, the persons alleged to contravene the other provisions of
the Act have necessarily to face prosecution in criminal court without being
given the benefit of an inquiry by the Director of Enforcement and the
opportunity to the delinquents to convince him that imposition of penalty by
him would be adequate punishment even if they are found guilty. The
classification made in s. 23(1) is under-inclusive and is, therefore,
unreasonable.
Allowing the appeal,
HELD : (i) When the purpose of a challenged
classification is in doubt, the courts attribute to the classification the
purpose thought to be most probable. Instead of asking what purpose or purposes
the statute and other materials reflect, the court may ask what
constitutionally permissible objective this statute and other relevant
materials could plausibly be construed to reflect. The latter approach is the
proper one in economic regulation cases. The decisions dealing with economic
regulation indicate that courts have used the concept of 'purpose' and 'similar
situations' in a manner which give considerable leeway to the legislature.
This approach of judicial restraint and
presumption of constitutionality requires that the legislature is given the
benefit of doubt about its purpose. [805H-806C] (ii) Often times the courts
hold that tinder-inclusion does not deny the equal protection of laws under
Article 14. In strict theory, this involves an 803 abandonment of the principle
that classification must include all who are similarly situated with respect to
the purpose. This under-inclusion is often explained by saying that the
legislature, is free to remedy parts of a mischief or to recognize degrees of
evil and strike at the harm where it thinks it most :acute. There are two main
considerations to justify an under-inclusive classification. First,
administrative necessity. Second, the legislature might not be fully convinced
that the particular policy which it adopts will be fully successful or wise.
Thus to demand application of the policy to all whom it might logically
encompass would restrict the opportunity of a state to make experiment. These
techniques would show that some sacrifice of absolute equality may be required
in order that the legal system may preserve the flexibility to evolve new
solutions to social and economic problems. [806E; H.807B] Missouri &. and
T. Rly. v. May, (1903) 194 U.S. 267 at p.
269 and Gujarat v. Ambica, Mills A.I.R. 1974
S.C. 1300 referred to.
(iii) The experience of the Government was
that persons contravening the provisions of the Act specified in s.
23(1)(a) invariably escaped without
punishment.: firstly because, successful prosecution of these offences in many
cases was not possible for want of legal evidence; secondly because, the
criminal courts were not equipped with the training, expertize and experience
necessary to deal with the intricate and ingenious methods adopted by the
persons contravening them. The Government, therefore, thought that imposition
of penalty by departmental adjudication would prove a more effective means of
,checking these types of foreign-exchange offences as against the previous
system of' prosecution of all offences on the basis of the strict standard of
proof required for criminal prosecution-which proof was, by and large, so much
within the special knowledge of the offender and so much out of the reach .of
the department. [808D-F] The basis of classification was that in cases where
there was likelihood of getting sufficiently unimpeachable evidence as, for
instance. in cases involving contravention of sections 14, 13(2), 15, 18 etc.,
where the Reserve Bank of India as a specialized agency comes into the picture
and be in possession of relevant materials, those cases were left to bedealt
with under s. 23(IA) by criminal courts.
The classification made in s. 23(IA) is,
therefore, not discriminatory. [808H;-809E]
CRIMINAL APPELLATE JURISDICTION: Criminal
Appeal No. 203 of 1973.
Appeal by special leave from the Judgment and
Order dated the 14th March, 1973 of the Calcutta High Court in Criminal
Revision No. 613 of 1972.
L. N. Sinha, Solicitor-General. G. L. Sanghi
and Girish Chandra for the Appellant.
A. K. Sen Mrs. Liela Seth and U. K. Khaitan
for the Respondents.
The Judgment of the Court was delivered by
MATHEW, J. The respondents were tried before the Presidency Magistrate, 11th
Court for having committed offences under sections 4(3), 20(3) and 22 of the
Foreign Exchange Regulation Act, 1947 (hereinafter called 'the Act') read with
S. 120-B of the Indian Penal Code and S. 23 of the Act.
The Court discharged the respondents in view
of the decision of the High Court-of Calcutta in M/s. Serajuddin & Coand
Others v. Union of India and Others(1) holding that S.
(1) Civil Rules Nos. 2183 (W), 2184 (W) of
1966 and cases Nos. 1998 and 1999 of 1963 decided on 16-9-1971.
804 23(IA) was violative of Article, 14 of
the Constitution.
The appellant filed a revision petition
against the order, before the High Court. The Court concurred with the decision
of the trial Court and dismissed the revision.
This appeal, by special leave, is against
that order.
The question for consideration is whether S.
23(1A) of the Act violates Article 14 of the Constitution.
Section 23 (1) as it originally stood in the
Act provided that whoever contravenes any of the provisions of the Act or of
any rule, direction or order made there under shall be punishable with
imprisonment for a term which may extend to two years or with fine, or with
both, and any Court trying any such contravention may, if it thinks fit and in
addition to any sentence which it may impose for such contravention, direct
that any currency, security, gold or silver or goods or other property in
respect of which the contravention has taken place shall be confiscated.
Section 23 was amended in 1950 and 1952. We are not concerned with those
amendments.
In 1957, the section was further amended by
the Foreign Exchange Regulation (Amendment) Act, 1957 (Act No. 39 of 1957).
This amendment provided for departmental adjudication in respect of
contravention of certain provisions of the Act. The section as amended read as
under:
"23(1) If any person contravenes the
provisions of s. 4, s. 5, s. 9 or sub-section (2) of s. 12 or of any rule,
direction or order made there under, he shall(a) be liable to such penalty not
exceeding three times the value of the foreign exchange in respect of which the
contravention has taken place, or five thousand rupees, whichever is more, as
may be adjudged by the Director of Enforcement in the manner hereinafter
provided or, (b) up on conviction by a Court, be punishable with imprisonment
for a term which may extend to two years, or with fine or with both, (IA)
Whoever contravenes(a) any of the provisions of this Act or of any rule,
direction or order made there under, other than those referred to in
sub-section (1) of this section and s. 19 shall, upon conviction by a court, be
punishable with imprisonment for a term which may extend to two years, or with
fine or with both.
(b) any direction or order made under s. 19
shall, upon conviction by a Court, be punishable with fine which may extend to
two thousand rupees." By s. 23D it was provided that the Director of
Enforcement shall for the purpose of adjudicating under clause (a) of
sub-section (1) of s. 23 805 hold an inquiry after notice to the person
proceeded against and impose a penalty, but if at any stage of the inquiry he
is of opinion that having regard to the circumstances of the case, the penalty
he is empowered to impose would not be adequate, he shall, instead of imposing
a penalty, file a complaint in writing to the Court.
The argument of the respondents was that s.
23 provides for two different procedures for dealing with contravention of the
provisions of the Act; that while persons contravening the provisions of the
Act specified in s. 23(1) (a) have to be dealt with by the Director of
Enforcement in the first instance and need face trial in criminal court only if
he is of opinion that having regard to circumstances of the case the penalty he
is empowered to impose would not be adequate, the persons contravening the
other provisions of the Act are liable to be prosecuted in the first instance
in criminal court without an injury by the Director of Enforcement which would
give them the possibility to escape prosecution in a criminal court. In other
words the argument was that persons who have contravened the provisions
specified in s.
23 (I) (a) anti are found guilty by the
Director of Enforcement need not face prosecution in a criminal court if the
Director is of opinion, that the penalty he is empowered to impose would be
adequate punishment, whereas, the persons alleged to contravene the other
provisions of the Act have necessarily to face prosecution in criminal court
without being given the benefit of an inquiry by the Director of Enforcement
and the opportunity to the delinquents to convince him that imposition of
penalty by him would be adequate punishment even if they are found guilty.
The question, therefore, is whether persons
contravening the provisions specified in s. 23 (I) (a) are similarly situated
with persons contravening the other provisions of the Act with respect to the
purpose or object of the Act or whether by reason of the nature of the offences
resulting from the contravention of the provisions specified in s. 2 3 (I) (a)
the persons contravening them form a class by themselves distinct from the
persons contravening the other provisions of the Act and therefore the
legislative judgment to deal with them under a different procedure was
justified with reference to the ultimate purpose of the Act.
The preamble provides the key to the general
purpose of the Act. that purpose is the regulation of certain payments,
dealings in foreign exchange and securities and the import and export of
currency and bullion in the economic and financial interest of India. The
general purpose or object of the Act given in the preamble may not show the
specific purpose of the classification made in s. 23(1) (a) and s.
23(1A). Supreme Court has therefore to
ascribe a purpose to the statutory classification and coordinate the purpose
with the more general purpose of the Act and with other relevant Acts and
public policies. For achieving this the Court may not only consider the
language of s. 23 but also other public knowledge about the evil sought to be
remedied, the prior law, the statement of the purpose of the change in the
prior law and the internal legislative history. When the purpose of a
challenged classification is in doubt, the courts attribute to the
classification the purpose 806 thought to be Most probable. Instead of asking
what purpose or purposes the statute and other materials reflect, the court may
ask what constitutionally permissible objective this statute and other relevant
materials could plausibly be construed to reflect. The latter approach is the
proper one in economic regulation cases. The decisions dealing with economic
regulation indicate that courts have used the concept of 'purpose' and 'similar
situations' in a manner which give considerable leeway to the legislature. This
approach of judicial restraint and presumption of constitutionality requires
that the legislature is given the benefit of doubt about its purpose. How far a
court will go in attributing a purpose which though perhaps not the most
probable is at least conceivable and which would allow the classification to
stand depends to a certain extent upon its imaginative power and its devotion
to the theory of judicial restraint.
At this stage, it is necessary to sharpen the
focus to understand the real grievance of the respondents. As already
indicated, their submission is that since they are similarly situated with
persons contravening the provisions of the Act specified in s. 23 (1) (a), they
should have been included in that class and dealt with by the Director
Enforcement in the first instance so that they might also have the benefit of
inquiry by him with the possible advantage of escaping with penalty even if
they are found guilty of the offences. Their grievance therefore is that the
classification made in s. 23 (1) is under-inclusive and is, therefore,
unreasonable.
Often times the courts hold that
under-inclusion does not deny the equal protection of laws under Article 14. In
strict theory, this involves an abandonment of the principle that
classification must include all who are similarly situated with respect to the
purpose. This under inclusion is often explained by saying that the legislature
is free to remedy parts of a mischief or to recognize degrees of evil and
strike at the harm where it thinks it most acute.
The Courts have recognised the very real
difficulties under which legislatures operate-difficulties arising out of both
the nature of the legislative process and of the society which legislation
attempts perennially to reshape and they have refused to strike down
indiscriminately all legislation embodying classificatory inequality here under
consideration. Mr. Justice Holmes, in urging tolerance of under-inclusive
classifications, stated that such legislation should not be disturbed by the
Court unless it can clearly see that there is no fair reason for the law which
would not require with equal force its extension to those whom it leaves
untouched. See Missouri K. and T. Rly. v. May(I). What, then, are the fair
reasons for non-extension ? What should a court do when it is faced with a law
making an under-inclusive classification in areas relating to economic and tax
matters'? There are two main considerations to justify an Linder inclusive
classification. First, administrative necessity.
Second, the legislature might not be fully
convinced that the particular policy which it adopts (1) (1903) 193 U. S. 1967
at p. 269.
807 will be fully successful or wise. Thus to
demand application of the policy to, all whom it might logically encompass
would restrict the opportunity of a state to make experiment. These techniques
would show that some sacrifice of absolute equality may be required in order
that the legal system may preserve the flexibility to evolve new solutions to
social and economic problems. The gradual and piece-meal change is often
regarded as desirable and legitimate though in principle it is achieved at the
cost of some equality.
It would seem that in fiscal and regulatory
matters the court not only entertains a greater presumption of
constitutionality but also, places the burden on the party challenging its
validity to show that it has no reasonable basis for making the classification.
This was the approach of this Court in State of Gujarat v. Ambica Mills(1). The
Court said :
"The piecemeal approach to a general
problem permitted by under-inclusive classifications, appears justified when it
is considered that legislative dealing with such problems is usually an
experimental matter. It is impossible to tell how successful a particular
approach may be, what dislocations might occur, what evasions might develop,
what new evils might be generated in the attempt.
Administrative expedients must be forged and
tested. Legislators, recognizing these factors, may wish to proceed cautiously,
and courts. must allow them to do so (37 California Rev. 341)." The
background of the amendment of s. 23 of the Act will be relevant for
appreciating the reason for making the distinction between the two classes of
contraventions. From April, 1949 to December, 1952, the Reserve Bank was
handling all cases including those relating to unauthorized import, export of
gold and silver. The Bank had an enforcement section. In 1952, the Central
Government authorised the Customs and Central Excise officers to investigate
and prosecute cases if import or export of gold and silver in contravention of
the provisions relating to them. In May, 1956, the Central Government took over
the work relating to enforcement, i.e., the residuary work done by the Reserve
Bank other than those entrusted to Custom.% Department A Directorate of
Enforcement was set up in May, 1956 with the idea that there should be a
specialized agency to deal with specified categories of offences. Between
April, 1949 and April 1956, when the duty of enforcement was with the Reserve
Bank, the Bank had completed investigation in about 200 cases but prosecutions
could be launched in respect of 66 cases only and out of these 60 cases ended
in convictions. No prosecution could be launched in respect of other cases in
view of the fact that evidence legally necessary to secure conviction in a
court was not forthcoming.
When the work was transferred to the
Enforcement Directorate of the Ministry of Finance, its experience was also
similar.
From May, 1956 till about 1957, the
Directorate had handled 832 cases. But prosecutions could be launched only in
respect of 32 cases. This Was due to the fact that legal evidence necessary for
establishing the cases beyond (1) A.I.R. 1974 S.C. 1300.
808 doubt in a court of law was not
forthcoming partly because it was difficult to secure cooperation of the
foreign collaborators in getting the incriminating documents against the
suspects and partly because the banks in foreign countries were under no
obligation to furnish statements of accounts maintained by the suspects in
them. Faced with this difficulty, the Government had to consider other ways of
enforcing the provisions of the Act more effectively.
The Government, after considering the pros
and cons decided to provide for departmental enquiry and adjudication of
contravention of certain provisions of the Act by an authority specially
constituted for that purpose. In the statement of Objects and Reasons to the
Foreign Exchange Regulation Bill, 1957, it was stated ;
". . . The most important of these
amendments is the one providing for departmental inquiry an adjudication of
foreign exchange offences by an authority constituted by Government on the Sea
Customs Act." In short, the reason for the amendments made in 1957 was the
experience gained in the working of the Act till then. That experience was that
persons contravening the provision of the Act specified in s. 23 (1) (a)
invariably escaped without punishment : firstly because, successful prosecution
of these offences in many cases was not possible for want of legal, evidence;
secondly because, the criminal courts were not equipped with the training,
expertize and experience necessary to deal with the intricate and ingenious
methods adopted by the persons contravening them.
The Government therefore thought that
imposition of penalty by departmental adjudication would prove a more effective
means if checking these types of foreign-exchange offences as against the
previous system of prosecution of all offences on the basis of the strict
standard of proof required for criminal prosecution which proof was by and
large, so much within the special knowledge of the offender and so much out of
the reach of the department. It may be noted that after the amendment in 1957,
further amendments of s. 23 were made in 1964 whereby sections 10, 17, 18(A)
and 18(B) were also brought within the purview of s. 23(1)(a). The introduction
of these sections within s. 23(1)(a) was the result of further experience
gained during the succeeding years. It was only on the basis of the experience
gained by the working of the Act that a decision could be taken about the
classification of offences in respect of which a trial by a court would be
expedient and those in respect of which summary procedure visualized by s. 23(1)
(a) might be necessary.
Generally speaking, therefore, the basis of
the classification was that in cases where there was likelihood of getting
sufficiently unimpeachable evidence as, for instance, in cases involving
contravention ,of sections 14, 13(2), 15, 18, etc., where the Reserve Bank of
India as a specialized agency comes into the picture and be in possession ,of
relevant materials, those cases were left to be dealt with under s.23(1A) by
criminal courts.
809 In paragraph 17 of the affidavit of Shri
M. L. Sharma, Under Secretary, Ministry of Finance, Department of Economic
Affairs, filed with the permission of this Court, the reasons why the
legislature selected the contravention of certain provisions of the Act for
being dealt with by the criminal courts in the first instance have been fully
stated. According to that affidavit, broadly speaking, the classes of offences which
have been brought under sections 23(1) and 23A are what may be termed as
'primary' offences and those brought under s.23(1A)may be termed as 'secondary'
offences. Primary offences are those which need detection and action at
executive or field level by the concerned specialized agency. There is greater
need for taking deterrent measures in respect of these offences. It is not a
question of the seriousness or gravity of the offences. Both primary and
secondary offences may be grave or serious and involve large amounts. But the
difference is that primary offences are distinguished by the volume and areas
of incidence and may need greater deterrence which sometimes may lie in large
pecuniary penalty and sometimes in criminal punishment by way of imprisonment.
A delinquent who has become an insolvent may not feet any deterrent effect
however large the pecuniary penalty may be and such a case may call for a
sentence of imprisonment. In respect of secondary offences there are heady
built-in institutional checks laid down by the Reserve Bank or other Government
agencies. As indicated above, where contraventions do take place in regard to,
other sections, there would normally be adequate or reasonable documentary
evidence, etc., and these will facilitate prosecution in courts of law.
We do. not think that there is any merit in
the contention that the classification made in s.23(lA) is discriminatory.
Even according to the respondents, it is the
classification made in s.23(1)(a) which is under inclusive and is, therefore,
unreasonable. If this Court were_ to declare that the classification made in s.
23 (1) (a) is under inclusive and therefore unreasonable, the result would be
that contraventions of the provisions specified in s. 23(1)(a) would also fall
within s. 23(1 A) and would have to be dealt with by the Criminal Court--a
consummation which the respondents devotedly want to avoid.
We do not think that the High Court was right
in holding that s. 23(1A) was bad. We set aside the order of the High Court and
allow the appeal.
V.M.K.
Appeal allowed.
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