Decided on June 17,1970

Bheru Manufacturing Co. Appellant


K.VEERASWAMI, J. - (1.) THE two questions common to these matters are: (1) as to the validity of adjudication proceedings initiated under Section 23(1)(a) of the Foreign Exchange Regulation Act, 1947 ; and (2) as to the jurisdiction of the Delhi Special Police Establishment, to investigate into contravention of the provisions mentioned in Section 23(1), more particularly offences under Section 120 -B of the Indian Penal Code, read with such contravention, as well as under Section 420 of the Indian Penal Code, read with Section 511 of the same Code. Kailasam, J., decided them against the parties affected in two of these cases from which the writ appeals arise. The learned Judge, however, confined the jurisdiction of the Special Police Establishment to investigate into the alleged offence under Section 420 of the Indian Penal Code, but appeared to think that the fact that while they investigated into a cognizable offence, certain facts amounting to an offence under special Acts emerged, did not deprive them of the jurisdiction to investigate into such facts.. It is not clear, as far as we can find, from the order of Kailasam, J., whether he thought that the Special Police Establishment had powers to investigate into an offence under Section 120 -B of the Indian Penal Code, read with Sections 4, 5 and 23 of the Foreign Exchange Regulation Act. We have come to the conclusion that the learned Judge was right in the view he took, but we are inclined to go further and uphold the powers, subject to certain qualifications, of the Special Police Establishment to investigate into contraventions mentioned in Section 23(1) of the Foreign Exchange Regulation Act, as well.
(2.) THE Director, Enforcement Directorate of the Ministry of Finance, by two separate notices in December, 1967, called upon S. Alim and M. Mangilal, partners of M/s. Bheru Stainless Steel Warehouse, Madras, to show cause within the specified time why adjudication proceedings under Section 23(1)(a) of the Foreign Exchange Regulation Act, should not be taken, firstly, for contravention of Section 5(1)(a) by both of them making a payment of Rs. 30,000 or on about April, 1967, to M/s. Naina Mohamed and Co., Singapore, a person resident outside India, without the general or special exemption from the Reserve Bank of India, and secondly, for contravention of Section 5(1)(b) of the Act, by their acknowledgement of a debt of Rs. 50,000 due or payable to a non -resident, without similar exemption. On 6th September, 1968, an Inspector of Police attached to the Special Police Establishment, sent a notice under Section 160 of the Code of Criminal Procedure, to M. Mangilal, to appear before him on a certain date, for the purpose of answering certain questions relating to a case which he was investigating under Chapter IV of the Code. The particulars of the case were stated to be: R.C. No. 9 of 1968/EOW/MAD. Under Section 120 -B, Indian Penal Code, R/W -4, 5 and 23 of the Foreign Exchange Regulation Act, Section 5 of the Import and Export (Control) Act and Section 420, Indian Penal Code, R/W Section 511. Indian Penal Code - -against M/s. Bheru Manufacturing Co., and others. Bheru Manufacturing Company then applied in one case for a direction restraining the Enforcement Directorate from taking any action under Section 23(1)(a), and in the other for a writ of quo warranto, calling upon the Superintendent of Police, Central Bureau of Investigation, Madras, to show the validity of his appointment and his exercising powers in Madras State. Ibrahim Kutti, Ismail and Syed Abdul Khadir, petitioners respectively in the three writ petitions before us, asked for similar reliefs against adjudication proceedings under Section 23(1)(a), and also investigation by the Special Police Establishment, into an offence under Section 120 -B read with Section 4(1) of the Foreign Exchange Regulation Act, and Sections 123, 135(a) and 135(i) of the Customs Act, 1962. The record shows that R.C. No. 4 of 1969 was registered on 20th March, 1969, under those sections, and that after obtaining on application to the Chief Presidency Magistrate, Madras, his permission to investigate into the offences mentioned in the First Information Report, since they were non -cognizable, they have started investigation.
(3.) THE invalidity of the proceedings under Section 23(1)(a) of the Foreign Exchange Regulation Act, is said to arise because in view of the proviso to Section 23 -D(1), Section 23(1) conferred upon the Director unguided and arbitrary power of choice to proceed under Clause (a) or Clause (b), and, therefore, to that extent, violates Article 14. This ground is now fully covered by M/s. Rayala Corporation (P.) Ltd. and M.R. Pratap v. The Director of Enforcement, New Delhi A.I.R. 1970 S.C. 494. The Supreme Court held: In our opinion, these two Sections 23(1) and 23 -D(1) must be read together, so that the procedure laid down in Section 23 -D(1) is to be followed in all cases in which proceedings are intended to be taken under Section 23(1). The effect of this interpretation is that, whenever there is any contravention of any section or rule mentioned in Section 23(1), the Director of Enforcement must first proceed under the principal clause of Section 23 -D(1) and initiate proceedings for adjudication of penalty. He cannot, at that stage, at his discretion, choose to file, a complaint in a Court for prosecution of the person concerned for the offence under Section 23(b). The Director of Enforcement can only file a complaint by acting in accordance with the proviso to Section 23 -D(1), which clearly lays? down that the complaint is only to be filed i n those cases where, at any stage of the inquiry, the Director of Enforcement comes to the opinion that having regard to the circumstances of the case, the penalty which he is empowered to impose, would not be adequate. The Criminal Appeals arose from a common order of Krishnaswamy Reddy, J., declining to quash a complaint, which the Supreme Court set aside. It allowed the appeals on the ground that the complaints against the accused were premature. In view of this decision, the said ground of attack on the validity of Section 23(1) cannot be sustained. The other ground for invalidating adjudication proceedings under Section 23(1)(a) is based on the consequence of the interaction of Section 23 -F on Section 23(1)(a), read with Section 23 -D(1). Under Section 23(1)(a), the Director of Enforcement is empowered to adjudge after an inquiry, as contemplated by Section 23 -D(1), the contravention of any of the provisions mentioned in the body of Sub -section (1) and the penalty leviable in respect of it, subject to the limit imposed. If the Director, in the course of such inquiry, is of opinion that the penalty which he could impose under Section 23(1)(a) would be inadequate in the circumstances, he should instead of imposing any penalty himself, make a complaint in writing to the Court. That is what the proviso to Section 23 -D(1) enacts. Section 23 -F enjoins that if any person fails to pay the penalty imposed by the Director of Enforcement or the Appellate Board, or the High Court, or fails to comply with any of their directions or orders, he shall, on conviction before a Court, be punishable with imprisonment for a term which may extend to two years, or with fine, or with both. The argument is that if adjudication thus led directly to conviction, the provision for adjudication itself would be invalid. In absolute liability cases, the criminal Court adjudges criminal liability with reference to the Criminal Procedure Code and the evidence recorded. The steps that precede a conviction under Section 23 -F are, collection of evidence, inquiry and adjudication under Section 23(1)(a) read with Section 23 -D(1) followed by levy of penalty, default in payment of penalty, and lastly the conviction based on such default. The proceeding under Section 23(1)(a) read with Section 23 -D(1) are of a civil character, and that being the case, some of the evidence collected or recorded in the course of such proceedings, might possibly be compelled evidence. Such evidence eventually forms the basis of adjudication under Section 23(1)(a), and also a conviction under Section 23 -F. Further, in a conviction under Section 23 -F, the Court has no opportunity to test such evidence. Also, the evidence in the course of an inquiry contemplated by Section 23 -D is not according to the rules, and not recorded by judicial authority. The quality and effect of such evidence in such a proceeding is essentially different from those of evidence recorded in a criminal proceeding, but the basis of a conviction under Section 23 -F is evidence , recorded in that manner in a proceeding under Section 23 -D which is of a civil nature. In conviction for revenue offences as Income Tax, it is not based on absolute liability, but on evasion and the like. The effect of reading Sections 23(1)(a), 23 -D(1) and 23 -F is that the nature of the proceeding under Section 23(1)(a) is a criminal proceeding, the validity of which cannot be maintained in view of the manner of the collection of evidence, its intrinsic quality, value and infirmities, as well as especially the liability to conviction under Section 23 -F automatically arises from a default in payment of the penalty adjudged under Section 23(1)(a). Thus proceeds the reasoning of the learned Counsel in inviting us to hold Section 23(1)(a) to be invalid along with Section 23(1)(b). But we are unable to accept it as a sound or tenable contention.;

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