# i' RAYALA CORPORATION (P) LTD .• & ORS v. DIRECTOR OF ENFORCEMENT, NEW DELHI

- **Citation:** [1970] 1 S.C.R. 639
- **Court:** Supreme Court of India
- **Decided:** 1969-07-23
- **Bench:** J.M. Shelat, V. Bhargava, C. A. Vaidialingam, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-rayala-corporation-p-ltd-ors-v-director-of-enforcement-new-delhi-4673
- **Pages:** 19

## Headnote

Foreign Exchange Regulation Act (7 of 1947), and Foreign Exchange
Regulation (Amendment) Act (39 of 1957), ss. 4(1), 23(1) and 23D(I)
-Section 23(1)(b), if ultra vires Art.
14-Scope of proviso to
s.
23 (D) (!)~·Defence of India Rules, 1962, R. 132A-Omission by Notification-If prosecution permissible for offence committed when Rule was
in existenc.e.
The premises of the first appellant were raided
by the Enforcement
Directorate and certain records were seized.
The second appellant was
the first ·appellant's managing director. Thereafter, on 25th August 1967,
notice was issued by th'e' respondent to the two appellants to sho\v cause
within fourteen days wQy adjudication proceedings should net be instituted
against them under s. Z3D (I) of the Foreign Exchange Regulation Act,
1947, for violation of :ss. 4 and 9 of the Act, on the
allegation that
2,44,713.70 Swedish KrOnafs had been deposited by them in a bank account
in Sweden instead of s:Urrendering the foreign exchange to an :iuthorised
dealer as required by t~ Act. After investigation, on 4th November 1967,
another notice was issu~d to the second appellant stating that out of the
total sum mentionep, he had acquired, during 1963 to 1965, Sw. Kr.
88,913.09, that he helcl_
1the amount in a bank in Sweden instead of offering
it to the Reserve Bank of India and thereby contravened ss. 4(1) and 9
of the Act, and askint
1
• him to show if he had any special exemption for
acquiring the foreign exchange. A similar show cause notice was issued
to the first appellant in, respect of the same amount on 20th January 1968.
On 16th March 1968,: 1n supersession of the show cause notice dated 25th
August 1967, a further notice was addressed to both the appellants to
show cause within 14, days why adjudication proceedings under s. 23D
of the Act should not: be held against them in. respect of the balance of
Sw. Kr. 1,55,801.41 a~d added that it had since been decided to launch
a prosecution in respect df the Sw. Kr. 88,913.09 and on the 17th March
1968 a complaint was· !filed against both the ·appellants in the Chief Presidency Magistrate's Cotjtt for contravention of ss. 4( I), 5 (I) ( e) and 9 of
the Act, punishable under s. 23 (I )(b) of Act, and for violation rule
132A(2) of the Defence of India Rules, 1962, punishable under rule
132A(4). Thereupon,; the appellants filed applications in the High Court
under s. 561A, Criminal Procedure Code., for quashing the proceedings in
the Magistrate's court, but the applications were dismissed.
In appeal to· this Court, it was contended that : (I) The punishment
under s. 23(1)(b) is severer and heavier than the penalty to which a person
is made liable if adjudication P'oceedings are taken under s. 23(1) (a),
but the section Ia'ys down no. principles at an for determining when the
person concerned· shobld be proceeded against undc;:r s.
23 ( 1) ("a) and
when under s. 23(1) (b) and has left it to the arbitrary discretion of the
respondent and h_ence, violates Art. 14 of Constitution;
(2) Even if s.
23 ( 1) (b) is not voi~<·the respondent did not act in accordance with the
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[ 1970] I S.c.R.
requirements of the proviso to s. 23D( I) which lays down that a complaint may be made at any stage of !he enquiry, but only if, having regard
to the circumstan~ of the case, the Director of Enforcement finds that
the penalty which he is empowered to impose under .s. 23(1)(a) would
not be adequate; and (3) Since the Notification issued by the Ministry of
Home Affairs dated 30th March 1965 provided that R. 132A shall be
omitted except as respec1s things done or omitted 10 be done under that
Rule, a prosecution in respect of an offence punishable under that Rule
could not be instituted on I ?th March 1968 when that Rule had ceased
to exist even though it might be in respect of an oftener. committed earlier ·
during the period that the rule was in force.
HELD : (I) The choice whether the proceeding be taken under s.
23(1)(a) or 23(1)(b) a~t the

## Text

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RAYALA CORPORATION (P) LTD .• & ORS.
V.
DIRECTOR OF ENFORCEMENT, NEW DELHI
July 23, 1969
[J.M. SHELAT, V. BHARGAVA,, C. A. VAIDIALINGAM, K. S. HEGDE
AND A. N. GROVER, JJ.J
Foreign Exchange Regulation Act (7 of 1947), and Foreign Exchange
Regulation (Amendment) Act (39 of 1957), ss. 4(1), 23(1) and 23D(I)
-Section 23(1)(b), if ultra vires Art.
14-Scope of proviso to
s.
23 (D) (!)~·Defence of India Rules, 1962, R. 132A-Omission by Notification-If prosecution permissible for offence committed when Rule was
in existenc.e.
The premises of the first appellant were raided
by the Enforcement
Directorate and certain records were seized.
The second appellant was
the first ·appellant's managing director. Thereafter, on 25th August 1967,
notice was issued by th'e' respondent to the two appellants to sho\v cause
within fourteen days wQy adjudication proceedings should net be instituted
against them under s. Z3D (I) of the Foreign Exchange Regulation Act,
1947, for violation of :ss. 4 and 9 of the Act, on the
allegation that
2,44,713.70 Swedish KrOnafs had been deposited by them in a bank account
in Sweden instead of s:Urrendering the foreign exchange to an :iuthorised
dealer as required by t~ Act. After investigation, on 4th November 1967,
another notice was issu~d to the second appellant stating that out of the
total sum mentionep, he had acquired, during 1963 to 1965, Sw. Kr.
88,913.09, that he helcl_
1the amount in a bank in Sweden instead of offering
it to the Reserve Bank of India and thereby contravened ss. 4(1) and 9
of the Act, and askint
1
• him to show if he had any special exemption for
acquiring the foreign exchange. A similar show cause notice was issued
to the first appellant in, respect of the same amount on 20th January 1968.
On 16th March 1968,: 1n supersession of the show cause notice dated 25th
August 1967, a further notice was addressed to both the appellants to
show cause within 14, days why adjudication proceedings under s. 23D
of the Act should not: be held against them in. respect of the balance of
Sw. Kr. 1,55,801.41 a~d added that it had since been decided to launch
a prosecution in respect df the Sw. Kr. 88,913.09 and on the 17th March
1968 a complaint was· !filed against both the ·appellants in the Chief Presidency Magistrate's Cotjtt for contravention of ss. 4( I), 5 (I) ( e) and 9 of
the Act, punishable under s. 23 (I )(b) of Act, and for violation rule
132A(2) of the Defence of India Rules, 1962, punishable under rule
132A(4). Thereupon,; the appellants filed applications in the High Court
under s. 561A, Criminal Procedure Code., for quashing the proceedings in
the Magistrate's court, but the applications were dismissed.
In appeal to· this Court, it was contended that : (I) The punishment
under s. 23(1)(b) is severer and heavier than the penalty to which a person
is made liable if adjudication P'oceedings are taken under s. 23(1) (a),
but the section Ia'ys down no. principles at an for determining when the
person concerned· shobld be proceeded against undc;:r s.
23 ( 1) ("a) and
when under s. 23(1) (b) and has left it to the arbitrary discretion of the
respondent and h_ence, violates Art. 14 of Constitution;
(2) Even if s.
23 ( 1) (b) is not voi~<·the respondent did not act in accordance with the
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SUPREME COURT RllPORTS
[ 1970] I S.c.R.
requirements of the proviso to s. 23D( I) which lays down that a complaint may be made at any stage of !he enquiry, but only if, having regard
to the circumstan~ of the case, the Director of Enforcement finds that
the penalty which he is empowered to impose under .s. 23(1)(a) would
not be adequate; and (3) Since the Notification issued by the Ministry of
Home Affairs dated 30th March 1965 provided that R. 132A shall be
omitted except as respec1s things done or omitted 10 be done under that
Rule, a prosecution in respect of an offence punishable under that Rule
could not be instituted on I ?th March 1968 when that Rule had ceased
to exist even though it might be in respect of an oftener. committed earlier ·
during the period that the rule was in force.
HELD : (I) The choice whether the proceeding be taken under s.
23(1)(a) or 23(1)(b) a~t the person who is liable for action for
contravention under L 23 (I ), is not left entirely to the discretion of the
Director of Enforcement but the criterion for making the choice is indicated in the proviso to s. 230(1). [648 A-BJ
The Foreign Exchange Regulation (Amendment) Act, 1957, amended
s. 23 (I) and at the same al•o introduced s. 230, The intention of the
Legislature from such simultaneous amendment was that the two sections
are to be read together. While providing for alternative proceedings under
•. 23(1)(a) and s. 23(1)(b), the Legislature ensured that the procedure
laid down in s. 23D( I) was to be followed in all cases in which proceedings
are intended to be taken under s. 23 ( 1). Thus, whenever there is any contravention of any section or rule mentioned in s. 23 ( 1) the Director of
Enforcement must first proceed under the principal clause of s. 230( I)
and initiate proceedings for adjudication of penalty.
He cannot at that
stage, in his discretion, choose to file a complaint in a court for proseculion
of the person concerned for the offence under s. 23(1)(b). Though the
Legislature bas not used in either of the sub-sections specific words excluding the filing of a complaint before proceedings for adjudication are
taken under s. 230(1), it must be presumed that Parliament knew that
if provision was made for two alternative puni..bmcnts for the same act.
one differing from the other, and without any limitations, such a provision
would be void under Art. 14.
In view of the principle that an interpr"~a
tion which would save a section should be preferred ss. 23(1) and 230(1)
must be interpreted to mean that the Director of Enforcement must first
initiate proceedings under the principal clause of s. 23D( I) for adjudication
of penalty and that he is empowered to file a complaint in court for the
offence under s. 23 (I )(b) only when at any stage of the ad1udicM/on
enquiry, he 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. [647 D, F-H; 648 B-H; 649 A-C]
Shanti Prasad Jain v. The Director of Enforcement, [1963] 2 S.C.R. 297,
followed.
(2) When such a safeguard is provided by the Legislature it ia necessary that the authority, which takes the steps of instituting against
that
person proceedings, in which, a severer punishment can be awarded, complies strictly with all the conditions laid down by law, that is, the Director
oould tile a complaint for prosecution in coun only .if, having regard to
the circum•tances of the case, he finds that the penalty that he is empowered to impose in the adjudication proceedings would not be adequate.
(650 G-H]
Jo the present case, the enquiry had been instituted by the issue of the
show cause notice dated 25th August 1967.
But it does not appear on
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641
the record that even after the issue of that notice, any such material came
before the respondent which could be relevant for forming an opinion
that the penalty which he, was empowered to impose for the contravention
in respect Sw. Krs. 88,913.09 would not be adequate.
No doubt some
investigation was made, but the investigation would not be part of the
enquiry which had to be held in accordance with the Act and the Adjudication Proceedings and Appeal Rules, 1957. Neither of the appellants had
shown cause in pursuance of the notice and there was no consideration
of such cause to decide whether adjudication proceedings should be held
or not.
Nor were any statements taken or recorded during an enquiry
under s. 23D(l). Whatever statements were recorded were in the courst.
of investigation and not in the course of an enquiry under s. 23D(l).
Therefore, the complaint must be held to have been filed without satisfying
the requirements and conditions of the proviso to s. 23D(l) of the Act,
and in so far as it related to the contravention of the provisions ot ss.
4(1), 5(1) (e) and 9 of the Act, punishable under s. 23(1) (b), it must be
held invalid.
[651 D-E; 652 C-D, F-G; 653 B-D]
(3) The language Used in the Notification of 30th March 1965 only
affords protection to action already taken while the rule was in force,
but cannot justify initiation of a new proceeding which will not be a
thing done or omitted to be done under the rule but, a new act of initiating
a proceeding after the rule had ceased to exist. The offence alleged against
the appellants is in respect of acts done by them which cannot be held to
be acts under that rule.
Unlike case of Wicks v. Director of Public Pr?-
secutions, [1947] A.C. 362, where an express provision was made that the
operation of the Emergency Powers (Defence) Act, 1939 (a temporary
Act) was not to be affected by its expiry as re·spects things previously
done or omitted to be done, in the present case, the operation of 'r. 132A
of the Defence of India Rules has not bden continued after its omission.
Section 6 of the Gener3l Clauses Act, 1897, also could not be invoked,
because, the section dof!s not apply to temporary statutes. or rules and
omissions.
It only applies to repeals to Central Acts. Furthe·r, the Notification of the Ministry of Home Affairs omitting R. 132A. did not make
any such provision similar to that contained in s. 6 of the General Clauses
Act.
Moreover, though s. 4( 1) of the Foreign Exchange Regulation Act
was amended simultaneously with the omission of the r. 132A, the Legislature did not make any provision that an offence previously committed
under r. 132A would continue to 'remain punishable as an offence of contraveiition of s. 4(1) of the Act nor was any provision made permitting
operation of r. 132A itsel'f to permit institution of prosecutions in respect
of such offences.
Consequently, after the omission of r. 132A the complaint is incompetent even in respect of the o·ffence under Rule 132A(4)~
[654 A-D; 655 F-H; 656 B-C, E-F; 657 A-F]
S. Krishnan & Ors . . v. The State of Madras, [1951] S.C.R. 621. applied.
State of M.~. v. !lira/al Sutwala, A.I.R. 1959 M.P. 93, !. K. Gas
Plant Manufacturing Co. Rampur v. The King Emperor, [1947] F.C.R.
141, distinguished.
Seth Jugmendar Das v. State, A.I.R. 1951 All. 703, referred to.
CRIMINAL APPELLATE JURISDICTION : Criminal Appeals Nos.
18 a;nd 19 ol 1969.
Appeal from the judgment and order dated October 16, 1968
of the Madras High Coun in Criminal Misc. Petition No. 980.
of 1968.
642
SUPREME COURT REPORTS
[1970] 1 S.C.R.
A. K. Sen, N. C. Raghavachari, W. S. Sitaram and R. GopalaA
krishnan, for the appellants.
S. T. Desai, B. D. Sharma and S, P. Nayar, for the respondent.
P. R. Gokulakrishnan, Advocate-Genera/, Tamil Nadu
and
A. V. Rangam, for the intervener.
Bhargava, J.
These appeals, by certificate, challenge a
rommon Order of the Hi;;h Court of Madras dismissing applications under section 561 A of the Code of Criminal
Procedure
presented by the appellants in the two appeals for quashing proceedings
being taken against them in the Court of the Chief
Presidency Magistrate, Madras, on the basis of a complaint filed
on 17th March, 1968 by the respondent, the Director of Enforcement, New Delhi.
Th.~ Rayala Corporation Private Ltd., appellant in Criminal Appeal :"o. 18 of 1969, was accused :\'o. 1 in
the complaint, while one M. R. Pratap, Managing Director of
accused No. 1, appellant in Criminal Appeal :'.'\o. 19/1969 was
accused No. 2.
The circumstances under which the complaint
was filed may be briefly stated.
The premises of accused No. I were raided by the Enforcement Directorate on the U>th and 21st December, J 966 and
certain records were seized from the control of the Manager.
Some enquiries were made subsequently and, thereafter, on the
25th August, 1967, a notice was issued by the respondent to the
two accused to show cause why adjudication proceedings should
not be instituted against them for violation of sections 4 and 9
of the Foreign Exchange Regulation Act VII of 1947 (hereinafter
referred to as "the Act") on the allegation that a.. total sum of
2,44,713.70
Swedish Kronars had been deposited in a Bank
account in Sweden in the name of accused No. 2 at the instance
of accused l"o. 1 which had acquired the foreign exchange and
had failed to surrender it to an authorised dealer as required
under the provisions of the Act. They were called upon to show
cause in writing within 14 days of the receipt of the notice.
Thereafter, some correspondence went on between the respondent
and the two accused and, later, on 4th November, 1967, another
notice was issued by the respondent addressed to accused No. 2
alone stating that accused No. 2 had acquired a sum of Sw. Krs.
88.913.09 during the period 1963 to 1965 in Stockholm, was
holding that sum in a bank account, and did not offer or cause it
to be "offered to the Reserve Bank of India on behalf of the
Central Government, ~o that he had contravened the provisions
of s. 4(1) and s. 9 of the Act, and affording to him an opportunity under s. 23 ( 3) of the Act of showing, within 15 days from
the receipt of the notice. that he had permission or special exempB
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643
tion from the Reserve Bank of India in his favour for acquiring
this amount of foreign exchange and for not surrendering the
amount in accordance with law.
A similar show cause notice
was issued to accused No. I in respect of the same amount on
20th January, 1968, mentioning the deposit in favour of accused
No. 2 and failure of ai:cused No. I to surrender the amount, and
giving an opportunity to accused No. I to produce the pennission or special exemption from the Reserve Bank of India. On
the 16th March, 1968, another notice was issued addressed to both
the accused to show cause in writing within 14 days of the receipt of
the notice why adjudication proceedings as contemplated ins. 23-D
of the Act should not be held against them in respect of a sum
of Sw. Krs. 1,55,801.41 which were held in a bank account in
Stockholm in the name of accused No. 2 and in respect of which
both the accused had contravened the provisions of ss. 4(3), 4(1),
5(l)(e) and 9 of the Act. The notice mentioned that it was being
issued in supersession of the first show cause notice dated 25th
August, 1967, and added that it had since been decided to launch
a prosecution in rtlSpect of Sw. Krs. 88,913.09. The latter amount
was the amount in respect of which the two notices of 4th November, 1967 and 20th January, 1968 were issued to the two accused,
while this notice of l(ith March, 1968 for adjudication proceedings related to the balance of the amount arrived at by deducting
this sum from the original total sum of Sw. Krs. 2,44,713.70. The
next day, on 17th March, 1968, a complaint was filed against
both the accused in the Court of the Chief Presidency Magistrate,
Madras, for contravention of the provisions of ss. 4 ( 1), 5 ( 1 )( e)
and 9 of the Act punishable under s. 23 (1) (b) of the Act. In
addition, the compla/nt also charged both the accused with violation of Rule 132-A(2) of the Defence of India Rules (hereinafter
referred to as "the D.I. Rs.") which was punishable under Rule
132-A(4) of the said Rules. Thereupon, both the accused moved
the High Court for quashing the proceedings sought to be taken
against them on the basis of this complaint. Those applications
having been dismis~ed, the appellants have come up in these
appeals challenging the order of the High 'Court dismissing their
applications and praying for quashing of the proceedings being
taken on the basis of that complaint.
In these appeals, Mr. A. K. Sen, appe:;ring on behalf of the
appellants, has raised three points. In respect of the prosecution
for violation of ss. 4 (1), 5 (1 )( e) and 9 of the Act punishable
under s. 23 ( 1) (b) of the Act, the principal ground raised is that
s. 23 (1 )(b) of the Act· is ultra ,·:res Article 14 of the Constitution inasmuch as it provides for a punishment heavier and severer
than the punishment or penalty provided for the same acts
under s. 23 (1) (a) of the Act. In the alternative, the second point
taken is that, even if s. 23 (1 )(b) is not void, the complaint in
644
SUPREME COURT REPORTS
[1970] l S.C.R.
respect of the offences punishable under that section has not been
filed properly in accordance with the proviso to s. 23-D( I) of the
Act, so that proceedings cannot be competently taken on the
basis of that complaint. The third point raised relates to the
charge of violation of R. 132-A(2) of the D.I. Rs.
punishable
under R. 132-A(4) of those Rules, and is
to the effect that
R. 132-A of the D.I. Rs. was omitted by a notification of the
Ministry of Home Affairs dated 30th March, 1965 and, consequently, a prosecution in respect of an offence punishable under
that Rule could not be instituted on 17th March, 1968 when that
Rule had ceased to exist.
On these three grounds, the order
quashing the proceedings being taken on the complaint in respect
of all the offences mentioned in it has been sought in these
appeals.
To appreciate ti1e first point raised before us and to deal with
it properly, we may reproduce below the provisions of s. 23 and
s. 23-D( I) of the Act :-
"23. 1'enalty and procedure.-( 1) If any
person
contravenes tbe provisions of section 4, section 5, section 9, section 10, sub-section
(2) of section 12,
section 18, section 18A or section 18B 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) upon conviction by a Court.
be punishable
with imprisonment for a term which may extend to two
years, or with fine, or with both.
(IA) If any person contravenes any of the provisions of this Act, or of any rule, direction or order
made thereunder, for the contravention of which no
penalty is expressly provided, he 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.
(IB) Any Court trying a contravention under subsection (I) or sub-section (I A)
and the authority
adjudgin~ any contravention under clause (a) of subsection (I) may. if it thinks fit, and in addition to any
sentence or penalty which it may impose for such contravention, direct that any currency, security,
gold er
silver, or goods or any other money or property, In
respect of which the contravention has taken place,
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645
shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any,
of the person committing the contravention or any part
thereof shall be brought back into India or shall be
retained outside India in accordance with the directions
made in this behalf.
Explanation.-For the purposes of this sub-section,
property in respect of which contravention has taken
place shall include deposits in a bank, where the said
property is converted into such deposits.
(2) Notwithstanding anything contained in section
32 of the Code of Criminal Procedure, 1898 (Act 5 of
1898), it shall be laWful for any magistrate of the first
class, specially empowered in this behalf by the State
Government, and for any presidency magistrate to pass
a sentence of fine exceeding two thousand rupees on any
person convicted of an offence punishable under this
section.
( 3) No Court shall take cognizanc-e-
(a) of any offence , punishable under sub-section
( 1) except upon complaint in writiilg made by the
Director of Enforcement, or
( aa) of any offence punishable under sub-section
(2) of section 191,-
( i) where the offence is alleged to have been committed by an officer of Enforcement not lower in rank
than an Assistant Director, of Enforcement, except with
the previous' sanction of the Central Government;
(ii) where the offence is alleged to have been committed by an officer of Enforcement lower in rank than
an Assistant Director of Enforcement, except with the
previous sariction of the Director of Enforcement, or;
(b) of any offence punishable under sub-section
(lA) of this section or section 23F, except upon complaint in writing made by the Director of Enforcement
or any officer authorised in this behalf by the Central
Government or the Reserve Bank by a general or
special order;
Provided that where any such offence is the contravention of any of the provisions of this Act or any rule,
direction or ord"r made thereunder which prohibits the
doing of an act without permission, no such complaint
shall be made unless the ner.nn o.-.-nopif nf the offence
...... '1i:1d
646
SUPREME COURT REPORTS
[1970] I S.C.R.
( 4) Nothing in the first proviso to section 188 of the
Code of Criminal Procedure, 1898 (Act 5 of 1898), shall
apply to any offence punishable under this section."
23D. Power to adjudicate.-( 1) for the
purpose
of adjudging under clause (a) of sub-section (I) of
section 23 whether any person has committed a contravention, the Director of Enforcement shall hold an
inquiry in the prescribed manner after giving
that
person a reasonable opportunity of being heard and if,
on such inquiry, he is satisfied that the person
has
committed the contravention, he may
impose
such
penalty as he thinks fit in accordance with the provisions of the said section 23 :
Provided that if, at a.ny stage of the inquiry, the
Director of Enforcement is of opinion
that having
regard t" the circumstances of the case, the penalty
which he is empowered to impose would not be adequate, he shall, instead of imposing any penalty himself, make a complaint in writing to the Court."
A plain reading of s. 23 (I) of the Act shows that uμder this subsection provision is made for action being taken against any person who contravenes the provisions of ss. 4, 5, 9, IO, 12(2), 18,
I 8A or I 8B or of any rule, direction or order made thereunder;
and els. (a) and (b) indicate the two different proceedings that
can be taken for such contravention.
Under cl. (a), the person
is liable to a penalty only, and that penalty cannot exceed •J>~;:e
times the value of the foreign exchange in respect of which the
contraventio:l has taken place, or Rs. 5,000/-, whichever is more.
This penalty can be imposed by an adjudication made by the
Director of Enforcement in .the manner provided in s. 23D of the
Act. The alternative punishment that is provided in cl. ( b) is to
be imposed upon conviction by a Court whe.n the Court can sentence the person to imprisonment for a tenn which may extend
to two years, or with fine, or with both.
Clearly, the punishment provided under s. 23( I) (b) is severer and heavier than the
penalty to which the person is m'ade liable if proceedings are
taken under s. 23 (I) (a) instead of prosecuting him in a Court
under s. 23 (I )(b). The argument of Mr. Sen is that this sec·
tion lays down no principles at all for detennining when the person concerned should be proceeded against under s. 23 (I)( a)
and whe;n. under s. 23(1)(b), and it would appear that it is left
to the arbitrary discretion of the Director of Enforcement to decide
which proceedings should be taken.
The liability of a person
for more or less severe punishment for the same act at the sole
discretion and arbitrary choice of the Director of Enforcement,
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RAYALA CORP. v. DIR. ENFORCEMENT (Bhargava, J.)
647
it is urged, denies equality before law guaranteed under Art. 14
of the Cqnstitution.
The submission made would have carried great force with us
but for our view that the effect of s. l;Z3D of the Act is that the
choice in respect of the proceeding to be taken under s. 23(1)(a)
or s. 23 ( 1) (b) has not been left to the unguided and arbitrary
discretion of the Director of Enforcement, but is governed by
principles indicated by that section.
Jin this c~~ection, it is pe_rtinent to note that s. 23 ( 1) of the Act as ongmally enacted 1n
1 94 7 did not provide for alternative punishment for the sa!'le
contravention a,nd contained only one single provision under which
any person contravening any of the provisions of the Act or of
any rule, direction or order made thereunder was . punishable
with imprisonment for a term which could exteard to two years or
with fine or with both, with the additional clause that any Court
trying any such contravention might, if it thought fit and in addition to any sentence which it might impose for such cqntravention, dire~t that any currency, security, gold or silver, or goods
or other property in. respect of which the contravention has taken
place shall be confiscated.
No questio,n of the applicability of
Art. 14 of the Constitution could, therefore,
'arise
whil~ the
provision stood as originally enacted.
Parliament, by Foreign Exchange Regulation (Amendment)
Act XXXIX of 1957, amended s. 23(1) and, at the same time,
also introduced s. 23D in the Act. It was by ibis amendment
that two alternative. proceedings for the s'ame contraventiqn were
provided in s. 23 ( 1). In thus introducing two different proceedings, Parliament put in the forefront proceedings for penalty to be
taken by the Directpr of F,nforcement by taking up adjudication,
while the punishment to be awarded by the Court upon conviction, was mentioned as the second type of proceeding that could
be resorted to.
Section 23D(l) is also divisible into two parts.
The first part Jays down what the Director of Enforcement has to
do in order to adjudgepein'alty under s. 23(1)(a), and the second
part, contained in the proviso, gives the power to the Director of
Enforcement to file a complaint instead of imposing a penalty
himself.
In our opinion, these two ss. 23 ( l) and 23D(l) m•1st
be read together, so that the procedure laid clown in s. 23D(l)
is to be followed i;i all cases in which proceedings are Intended
to be taken under s. 23 ( 1). The effect of this interpretation is
that, whenever there is any contravention of any section or rule
mentioned in s. 23 (1 ) , the Director of Enforcement must first
proceed UJider the principal clause ot s. 23D(l) and initiate proceedings for adjudication of penalty.
He cannot, at that stage,
at his discretion, clioose to file a COO!plaint in a Court for prosecution of the person concerned for the offence under s. 23 ( 1 )(b).
The Director of Enforcement can only file a complaint by acting
Ll4Sup./69-12
648
SUPREME COURT REPORTS
[ 1970] I S.C.R.
in accordance with the proviso to s. 23C: 1), which clearly Jays
down that the co1I1p1aint is only to be filed in those cases where
at any stage of the inquiry, the Director of Enforcement com~
to the opinion that, having regard to the circumstances of the
case, the penalty which he is empowered to impose would not be
adequate.
Until this requirement is satisfied, he ~not make a
complamt to the Court for prosecution of th~ person concerned
und.er s. 23 ( 1 )(b). The choice of the proceeding to be taken
against the person, who is liable for action for contravea:rtion under
s. 23 ( 1), is, thus, not left entirely to the discretion of the Director
ot Enforcement, but the criterion for making the choice is laid
down in the proviso to s. 230(1). It cannot pcssibly be cont~ded, and no attempt was made by Mr. Sen to contend that if
we accept this interpretation that the right of the Dir::ctor' of
Enfoccement to make a complaint to the Court for the offence
under s. 23 (I ) ( b) can be exercised only in those cases where in
accordance with the proviso, he comes to the opinion that the
penalty. ~hich he is empowered to impose would not be adequate,
the vahdtty of s. 23 (I )(b) of the Act ca,n still be challenged.
In this connection, it was urged before us that the language
-Of the principal clause of s. 230( 1) taken together with the language of the proviso does not justify an interpretation that a
complaint for an offence under s. 23 ( 1) (b) cannot be made by
the Director of Enforcement except in accordance with the proviso, particularly because the principal clause of s. 230( I) merely
lays down the procedure that has to be adopted by the Director
of Enforcement when proceeding under s. 23 (I)( a), and contains
no words indicating that such a proceeding must invari:.bly be
resorted to by him whenever he gets infocmation of a ~·mlraven
tian mentioned in s. 23 ( 1). The language does not contain any
words creating a bar to his proceeding to file a complaint straightaway instead of taking proceedings for
adjudication under
s. 230( 1). It is true that neither in s. 23 (I) itsell · 'nor in
s. 230 ( 1) has the Legislature used specific words ex duding the
filing of a complaint before proceedings for adjudicatiau are taken
under s. 23D(l). If any such words had been used, no such
controversy could have been raised as has been put forward
before us in these appeals.
We liave, however, to gather the intention of the Legislature from the enactment as a whole. Jn this
connection, significance attaches to the fact that s. 23D ( 1) was
introduced simultaneously with the provision made foc alternative
proceedings under s. 23 ( 1) in its two els. (a) and (b). It appears
to be obvious that the Legislature adopted this course so as to
ensure that all proceedings under s. 23 ( 1) are taken in the manner laid down in s. 23D( 1). Parliament must be credited with
the knowledge that, if provision is made for two alternative
punishments for the same act one differing from the other without
any limitations, such a provision would be void under Art. 14 of
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RAYALA CORP. v. DIR. ENFORCEMENT (Bhargava, J.)
649
the Constitution; and that is the reason why Parliament simultaneously introduced the procedure to be adopted under s. 23D(l)
in the course of which the Director of Enforcement is to decide
whether a complaint is to be made in Court and under what circumstances he can do so: We have also to keep in view the
general principle of interpretation that, if a particular interpretation will enure to the validity of a law, that interpretation must
be preferred.
In these circumstances, we have no hesitation in
holding that, whenever there is a coritravention by any person
which is made punishable under either cl. (a) or cl. (b) o.f s.
23 ( 1), the Director of Enforcement must first initiate proceedings
urrde,r the principal clause of s .. 23D( 1) and he is empowered to
file a complaint in Court only when he finds that he is required
to· do so in accordance with the proviso.
It is by resorting to
the proviso only that he cdll place that person in greater jeopardy
of being liable to a more severe punishment under s. 23 (1 )(b)
of the Act.
Th& view we have taken is in line with the decision of this
Court in Shanti Prasad Jain v. The Director of Enforcement(1 ),
where this Court considered the val;idity of s. 23 (1) (a) and
s. 23D which were challenged on the ground of two alternative
procedures being applicable for awarding punisllment for the
same act. The court noticed the position in the following
words:-
"It will be seen that when there is a contravention
of s. '4 (1), action.with respect to it is to bi: taken in the
first instance i.by the Director of Enforcement. He may
either adjudge the matter himself in accordance with
s. 23(1)(a); or he may send it on to a Court if he
considers that a more severe penalty than he can impose
is c_ajled for;, Now, the contention of the~ appellant is
thst when the case is transferred to a Court, it will be
tried in acco~dance with the procedure prescribed by the
Criminal Procedure Code, but that when the Director
himself tries it, he will follow the procedure prescribed
therefor under the Rules framed under the Act, and
that when the law provides for the same offence being
tried under two procedures, which
are substantially
different, and it is left to the discretion af an executive
officer whether the trial should take place under the one
or the other of them, there is clear discrimination, and
Art. 14 is contravened. Therefore, s. 23(1)(a) must,
it is argued,. be struck down as unconstitutional and the
imposition of fine on the appellant under that section
set aside as illegal."
(1)'[1963] 2 S.C.R. 297·
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SUPREME COURT REPORTS
[ 19'70] l S.C.R.
The Court then distinguished the provisions of the Act with the
law considered in the case of State of West Bengal v.
Anwar
Ali(') and held:-
"Section 23D confers authority on the very officer
who has power to try and dispose of a case to send it on
for trial to a Court. and that too only when he considers
that a more severe punishment than what he is authorised to impose should be awarded."
On this view about the effect o[ s. 23D, the Court gave the decision that the power conferred on the Director of Enforcement
under s. 23D to transfer cases to a Court is not unguided and
arbitrary, and does not offend Art. 14 of the Constitution; and
s. 23(1) (a) cannot be assailed as uni;Qnstitutional. In that case,
the argument was that s. 23 (I) (a) s'ITould be struck down, because the procedure prescribed by it permitted proceedings to be
taken by the Director of Enforcement himself which procedure
did not confer the same rights on the defence as the procedure
prescribed for trial if the Director of Enforcement filed a complaint for the offence under s. 23(l)(b). In the case before us,
it is s. 23 (1 )(b) which is challenged and on a slightly different
ground that it ?rovides for a higher punishment than that provided by·s. 23(1 )(a). The answer to both the question.sis found
i.n the view taken by us in the present case as well as by this Court
in the case of Shanti Prasad Jain(') that the Director of Enforcement, though he has power to try the case under s. 23 (1 )(a),
can only send the case to the Court if he consil"ers that a severer
punishment than what he is authorised to Lrnpose
should be
awarded. The Court in that case also thus a:cepted the principle
that s. 23D limits entirely the procedure the Director of Enforcement has to observe when deciding whether the punishment should ·
be under s. 2311 )(a) or under s. 23(1 )(b).
However, we consider that, in this case, there is considerable
force in the second point urged by Mr. Sen on behalf of the appellants that the respondent, in filing the complaint on 17th March,
1968, did not act in accordance with the requirements of the
proviso to s. 23D(l ).
We have held above that the proviso to
s. 230( 1) lays down the only manner in which the Director of
Enforcement can make a complaint and this provision has been
laid down as a safeguard to ensure that a person, who is being
proceeded against for a contravention under s. 23 (1), is not put
in danger of higher and severer punishment at the choice and
sweet-will of the Director of Enforcement.
When such a safeguard is provided by legislature, it is necessary that the authority,
which takes the step of instituting against that person proceedings
in which a severer punishment can be awarded, complies strictly
(I) [1952) S.C.R. 284.
(2) [1963J 2 S.C.R. 297.
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·RAYALA CORP. v. DIR. ENFORCEMENT (Bhargava, J.)
651
with all the conditions laid down by law to be satisfied by him
before instituting that proceeding. In the present i;:ase, therefore,
we have to see whether the requirements of the proviso to s. 23D( 1)
were satisfied at the stage when the respondent filed the impugned
complaint on 17th March, 1968.
The proviso to s. 23D(l) lays down that the complaint may
be made at any stage of the enquiry but only if, having regard
to the circumstances of the case, the Director of Enforcement
finds that the penalty which he is empowered to impose would not
be adequate. It was urged by Mr. Sen that, in this case, the
complaint was not filed as a result of the enquiry under the prin·
cipa.J clause of s. 23D ( 1) at all and, in any case, there was no
material before the respondent on which he could have formed
the opinion that the penalty which he was emvowered to impose
would not be adequate in respect of the swn c-f Sw. Krs. 88,913.09
which, it .was alleged, had been
acquire~ by the two accused during the period 1963 to 1965 and kept in deposit against
law. Arguments at some length were advanced before us on the
question as to what should be the stage of the enquiry at which
the Director of Enforcement should form his opinion and wi!l
be entitled to file the complaint in Court. It appears to us that
it is not necessary in this case to go into that question.
It is true
that the enquiry in this case under s. 23D( 1) had been instituted
by the issue of the show cause notice dated 25th August, 1967,
that being the notice mentioned in Rule 3 ( 1) of the Adjudication
Proceedings and Appeal Rules, 1957, On the record, however,
it does not appear that, even after the issue of that notice, any
such material came before the respondent which could be relevant
for forming an opinion that the penalty which he was empowered
to impose. for the contravention in respect of the sum of Sw. Krs.
88,913.09 would not be adequate. The respondent, in the case
of accused No. 2, appears to have formed a prima facie opinion
that a complaint should be made against him in Court when he
issued the notice on 4th November, 1967 under the proviso to
s. 23 ( 3) of the Act, and a similar opinion in respect of accused
No. 1 when he issued the notice on 20th January, 1968 under the
same proviso. There js, however, no information on the record
to indicate that, by the time these notices were
issued,
any
material had appeared before the respondent in the course of
the enquiry initiated by him through the notice dated 25th
August, 1967 which could lead to the opinion being formed by
the respondent that he will not be in a position to impose
adequate penalty by continuing the adjudication proceedings.
Even subseqnently, when one of the accused replied to the notice,
there does not appear to have been brought before the respondent
any such relevant material.
Mr. S. T. Desai on behalf of the respondent drew our attention
to. para. 3(E) of the petition presented by accused No. 1 for
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SUPREME COURT REPORTS
[ 19 70] 1 S.C.R.
certificate under Art. 132(1) and Art. 134(l)(c) of the Constitution in this case which contains the followi.rg pleading :-
"In this case, having issued show cause notice dated
25-8-67 in respect of the subject matter of the pending
prosecution and having taken various acts, taking statements, taking recorded statements, investigations, the
respondent did not hold an enquiry for the purpose of
his forming an
opinion that the accused is
guilty of
violations and that the penalty is not adequate and as
such, the prosecution filed in C.C. 8756 of 68 is liable
to be quashed on this ground."
Relying on this pleading, Mr. Desai urged that it amounts to an
admission by accused No. 1 that, during enquiry, various 1tatements were taken and recorded and investigations made, so that
we should not hold that there was no material on the basis of
which the respondent could have formed the opinion that it was
a fit case for making a complaint.
The pleading does not show
that any statements were taken or recorded during the course of
the enquiry held under s.