Full Judgment Text
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PETITIONER:
SUPERINTENDENT AND REMEMBRANCER OF LEGAL AFFAIRS, WEST
Vs.
RESPONDENT:
GIRISH KUMAR NAVALAKHA & ORS.
DATE OF JUDGMENT03/03/1975
BENCH:
MATHEW, KUTTYIL KURIEN
BENCH:
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
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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
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left to be- dealt with under s. 23(IA) by criminal courts.
The classification made in s. 23(IA) is, therefore, not dis-
criminatory. [808H;-809E]
JUDGMENT:
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 & Co- and
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 thereunder 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 thereunder, 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
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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 thereunder,
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.
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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-exten-
sion ? 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-
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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 neces-
sary 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.
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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
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classes of offenceswhich have been brought under sections
23(1) and 23A are what maybe 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 fur
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.
810