# STANDARD CHARTERED BANK AND ORS v. DIRECTORATE OF ENFORCEMENT AND ORS

- **Citation:** [2006] 2 S.C.R. 709
- **Court:** Supreme Court of India
- **Decided:** 2006-02-24
- **Case number:** Civil Appeal No. 1748 of 1999
- **Bench:** Y.K. Sabharwal, C.K. Thakker, P.K. Balasubramany An
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/standard-chartered-bank-and-ors-v-directorate-of-enforcement-and-ors-21264
- **Pages:** 31

## Headnote

Foreign Exchange Regulation Act, 1973:
A
B
Sections 50, 51, 56 and 68-Constitutional validity of-FERA included C
in the Ninth Schedule to the Constitution of India-Immunity from challenge
enjoyed by the provisions of FERA-Show-cause notices issued to a Bank and
its Officers-High Court rejected challenge to the constitutional validity o/Ss.
50, 51, 56 and 68-But High Court clarified that S. 68(1) was confined to
prosecution for penal offences only and not to an adjudication proceeding D
under FERA-Correctness of-Held: As FERA is included in the Ninth schedule
to the Constitution, no challenge based on violation of Arts. I 4 or 21, even
~
if it has substance, is maintainable-Further, S. 68 is not merely confined to
prosecution of penal offences and is equally applicable to adjudication
proceeding under FERA.
Section 61-Show-cause notices issued to a Bank and its Officers- E
Scope and ambit of-Writ of prohibition-Maintainability of-Held: The show.
cause notices are merely notices of enquiry giving an opportunity to the Bank
and its Officers of showing that they had the necessary permission from the
concerned authority under FERA in respect of a particular transaction-The
Bank and its Officers are entitled to put forward their defences before the F
1
criminal court-Hence, writ of prohibi!ion not maintainable.
Section 50-Adjudication under-Show-cause notices issued to a Bank
and its Officers-Writ petition for stay of adjudication-Maintainability a/-
Held: It is for the concerned authority to decide any objections put forward
by the Bank-The Bank and its Officers have a right of appeal under S. 52 G
to the Appellate Board and a further right of appeal to the High Court under
S. 54-Hence, writ of prohibition restraining the authority under the FERA
from proceeding further with the adjudication, not maintainable.
Section 68(1)-Constitutional validity of-Person in-charge and
709
H
710
SUPREME COURT REPORTS
[2006) 2 S.C.R.
A responsible for conduct of business of company-Prosecution of-Held: In
view of the fact that FERA has been included in the Ninth Schedule to the
Constitution, the challenge based on Articles I 4 and 2 I cannot prevail even
if it has substance-Even if there is any violation by the company of any of
the provisions of FERA. the person in-charge of the company is given an
opportunity to show that the alleged contravention by the company took place
B without his knowledge or in spite of the exercise of all due diligence by him
to prevent such contravention -Hence, S. 68( I) is not unreasonable.
Sections 51, 56 and 68---Show-cause notices issued to a Bank and its
Officers--Adjudication and prosecution-Simultaneous launching of-Held:
C Adjudication need not precede prosecution---The two proceedings are
independent of each other and are controlled by the respective provisions
themselves-Both proceedings can simultaneously be launched and can
simultaneously be pursued.
The appellant-Bank filed a writ petition before the High Court
D seeking a declaration that Sections 50, 51, 56 and 158 of the Foreign
Exchange Regulation Act, 1973 (FERA) were unconstitutional, invalid and
void being violative of Articles 14 and 21 of the Constitution of India and
for a writ of prohibition directing the authorities under the Act from
proceeding further, based on the show-cause notices i.ssued to the bank
and its officers. The High Court rejected the challenge to the constitutional
E validity of the said Sections of FERA, but clarified that Section 68(1) of
FERA was not applicable to an adjudication proceeding and that it was
confined to prosecution for penal offences under the Act. Hence the appeal.
F
Dismissing the appeal, the Court
HELD: 1. The challenge to the constitutional validity of Sections 50,
51, 56 and 68 of The Foreign Exchange Regulation Act, 1973 (FERA) is
based on the alleged violation of Articles 14 and 21 of the Constitution of
India. It is admitted that FERA has been included in the Ninth Schedule
to the Constitution of Ind

## Text

_Characters 0–39,902 of 84,707. This is a partial read: ask again with offset=39902 for what follows._

STANDARD CHARTERED BANK AND ORS.
v.
DIRECTORATE OF ENFORCEMENT AND ORS.
FEBRUARY 24, 2006
[Y.K. SABHARWAL, CJ., C.K. THAKKER AND
P.K. BALASUBRAMANY AN, JJ.]
Foreign Exchange Regulation Act, 1973:
A
B
Sections 50, 51, 56 and 68-Constitutional validity of-FERA included C
in the Ninth Schedule to the Constitution of India-Immunity from challenge
enjoyed by the provisions of FERA-Show-cause notices issued to a Bank and
its Officers-High Court rejected challenge to the constitutional validity o/Ss.
50, 51, 56 and 68-But High Court clarified that S. 68(1) was confined to
prosecution for penal offences only and not to an adjudication proceeding D
under FERA-Correctness of-Held: As FERA is included in the Ninth schedule
to the Constitution, no challenge based on violation of Arts. I 4 or 21, even
~
if it has substance, is maintainable-Further, S. 68 is not merely confined to
prosecution of penal offences and is equally applicable to adjudication
proceeding under FERA.
Section 61-Show-cause notices issued to a Bank and its Officers- E
Scope and ambit of-Writ of prohibition-Maintainability of-Held: The show.
cause notices are merely notices of enquiry giving an opportunity to the Bank
and its Officers of showing that they had the necessary permission from the
concerned authority under FERA in respect of a particular transaction-The
Bank and its Officers are entitled to put forward their defences before the F
1
criminal court-Hence, writ of prohibi!ion not maintainable.
Section 50-Adjudication under-Show-cause notices issued to a Bank
and its Officers-Writ petition for stay of adjudication-Maintainability a/-
Held: It is for the concerned authority to decide any objections put forward
by the Bank-The Bank and its Officers have a right of appeal under S. 52 G
to the Appellate Board and a further right of appeal to the High Court under
S. 54-Hence, writ of prohibition restraining the authority under the FERA
from proceeding further with the adjudication, not maintainable.
Section 68(1)-Constitutional validity of-Person in-charge and
709
H
710
SUPREME COURT REPORTS
[2006) 2 S.C.R.
A responsible for conduct of business of company-Prosecution of-Held: In
view of the fact that FERA has been included in the Ninth Schedule to the
Constitution, the challenge based on Articles I 4 and 2 I cannot prevail even
if it has substance-Even if there is any violation by the company of any of
the provisions of FERA. the person in-charge of the company is given an
opportunity to show that the alleged contravention by the company took place
B without his knowledge or in spite of the exercise of all due diligence by him
to prevent such contravention -Hence, S. 68( I) is not unreasonable.
Sections 51, 56 and 68---Show-cause notices issued to a Bank and its
Officers--Adjudication and prosecution-Simultaneous launching of-Held:
C Adjudication need not precede prosecution---The two proceedings are
independent of each other and are controlled by the respective provisions
themselves-Both proceedings can simultaneously be launched and can
simultaneously be pursued.
The appellant-Bank filed a writ petition before the High Court
D seeking a declaration that Sections 50, 51, 56 and 158 of the Foreign
Exchange Regulation Act, 1973 (FERA) were unconstitutional, invalid and
void being violative of Articles 14 and 21 of the Constitution of India and
for a writ of prohibition directing the authorities under the Act from
proceeding further, based on the show-cause notices i.ssued to the bank
and its officers. The High Court rejected the challenge to the constitutional
E validity of the said Sections of FERA, but clarified that Section 68(1) of
FERA was not applicable to an adjudication proceeding and that it was
confined to prosecution for penal offences under the Act. Hence the appeal.
F
Dismissing the appeal, the Court
HELD: 1. The challenge to the constitutional validity of Sections 50,
51, 56 and 68 of The Foreign Exchange Regulation Act, 1973 (FERA) is
based on the alleged violation of Articles 14 and 21 of the Constitution of
India. It is admitted that FERA has been included in the Ninth Schedule
to the Constitution of India, as Item No. 100. Therefore, in terms of Article
G 318 of the Constitution of India, none of the provisions of FERA can be
deemed to be void or ever to have become void on the i~round that FERA
or any of the provisions thereof, are inconsistent with or take away or
abridge any of the rights conferred by Part Ill of the Constitution.
Obviously, the rights conferred by Articles 14 and 21 of the Constitution
are rights flowing from Part Ill of the Constitution and, therefore, it is
H clear that no challenge based on violation of Articles 14 or 21, even if it
,
STANDARD CHARTERED BANK''· DIRECTORATEOFENFORCEMENT
71 J
has substance, can enable the appellants to get the relevant provisions of A
the Act struck down as prayed for by them in the prayer of the writ
petition. Now that the Constitution Bench has already ruled that penal
proceedings under the Act can be initiated against a company or a
corporation, that avenue of challenge is also closed to the appellants.
(720-G-H; 721-A-D) B
Assistant Commissioner, Assessment If, Bangalore v. Valliappa Textiles
Ltd., (2003) 11 SCC 405 and State of West Bengal v. Anwar Ali Sarkar, (1952)
SCR 284, referred to.
2. In view of the immunity from challenge enjoyed by the provisions
of the Act because of its inclusion in the Ninth Schedule to the Constitution C
of India, there arises no necessity to read down the provisions of the Act
so as to ensure that they do not violate the rights conferred by Article 14
of the Constitution. The provisions, therefore, call for a natural
interpretation and, if necessary, a purposive interpretation, keeping in view
the object sought to be achieved by the Act. In the guise of interpretation, D
there is no occasion to whittle down the ambit of the provisions to save
them from the charge of arbitrariness, hit by Article 14 of the Constitution.
(722-F-G[
3.1. The notices issued under Section 61 of FERA are merely notices
of enquiry, giving an opportunity to the appellants of showing that they - E
had the necessary permission from the concerned authority under FERA
in respect of the particular transaction. These notices, therefore, do not
in any manner decide anything against the appellants and they merely set
out the grounds based on which the appellants allegedly violated the
provisions of FERA and since one of the ingredients of th~ offence is F
absence of permission from the concerned authority, they are intended
only to give an opportunity to the appellants to show that they had the
necessary permission and hence, there was no violation of the relevant
provision or provisions of FERA as sought to be made out in the notice.
(723-A-C)
G
3.2. On the failure of the appellants to show that they had the
requisite permission, a complaint will have to be lodged before the
concerned Magistrate - here it has been launched with the permission of
this Court pending these appeals - and the Magistrate will consider
whether the process should issue on the basis of the complaint made before
him. In view of the fact that suffici.ent opportunities are available to the H
712
SUPREME COURT REPORTS
(2006] 2 S.C.R.
A appellants to put forward their contentions before the concerned criminal
court, it cannot be said that there is any merit in the challenge to the
notices issued under Section 61 of FERA. The said notices are really in
terms of Section 61 of FERA and their scope and ambit is also controlled
by Section 61 of FERA and on receipt of those notices, it was open to the
appellants to show that they had the necessary pe1rmission from the
B concerned authority under the Act. Of course, if they do not have such
permission, apparently, in the case on hand, there was no such permission,
they have necessarily to put forward their defences before the criminal
c
court in the prosecutions that have ben launched in that behalf.
~
[723-C-EJ
4. The notices issued under Section 61 of the Act are in terms of that
Section and there is no reason to interfere with them in these writ petitions
and that it would be appropriate to leave the appellants to their available
defences in the prosecutions that have been initiated. Suffice it to say that
it is not possible to issue the writ of prohibition as s.ought for by the
D appellants on the ground that these notices do not satisfy the jurisdictional
requirement under Section 61 of the Act. [724-E-F[
East India Commercial Co. Ltd v. Collector of Customs, (1963[ 3 SCR
J
338, referred to.
5. It is for the appellants to put forward their objections thereto
E before the concerned authority and it is for that authority to decide the
relevant aspects while deciding to impose or not to impose any penalty on
the appellants. The appellants have a right of appeal under Section 52 of
FERA to the appellate Board and a further right of appeal to the High
Court under Section 54 of FERA. There is no justification for the issue of
F a writ of prohibition restraining the authority under FERA from
proceeding further with the adjudication. It is for the appellants to put
forward their defences, if any available, before the adjudicating authority
and pursue it in accordance with law. [725-A-BI
6. In view of the fact that FERA has been included in the Ninth
G Schedule to the Constitution, the challenge based on Articles 14 and 21
cannot prevail even assuming that the arguments have any substance. But
on the scheme of the Act, with particular regard to Sections 56, 59, 61
and 68 of FERA, the provisions cannot be successfully challenged as either
being arbitrary or discriminatory. All that Section 68(1) says is that if the
commission of an offence by the company is proved, the person who was
H in charge and was responsible to the company for the conduct of the
-
STANDARD CHARTERED BANK '· DIRECTORATE OF ENFORCEMENT
713
business of the company at the time the contravention was committed, was A
to be deemed to be guilty of the contravention and was liable to be
proceeded against and punished. He is being punished in view of his status
in the company and because it is proved that the company is guilty of
contravention of any of the provisions of FERA. There is nothing
unreasonable in this, since a company normally acts through a person who B
is in charge of its affairs and even in that case, the person in charge and
responsible to the company for the conduct of its business, is given an
opportunity to show that the alleged contravention by the company took
place without his knowledge or in spite of the exercise of all due diligence
by him to prevent such contravention. Section 68(2) is attracted in a case
where a company has contravened the provisions of the Act or any rule, C
.direction or order made thereunder and that particular contravention is
proved to have taken place with the consent or connivance or is
attributable to any neglect on the part of any Director, Manager,
Secretary, or other officer of the company. In other words, the prosecution,
in addition to prosecuting the company, can also prosecute any particular
officer whose action or inaction or negligence resulted in the commission
of the particular offence by the company. This only means that a person
who is instrumental in the commission of an act by the company that is
in contravention of FERA or the rules or directions issued thereunder,
also lays himself open to prosecution. Having done something or omitted
D
to do something leading to the company contravening the provisions of E
the Act, the officer concerned cannot say that it is unreasonable to
prosecute him also, along with the company and the person in charge of
and responsible to the company for the conduct of its business.
(726-E-H; 727-A-C)
Collector of Customs Nathe/la v. Sampathu Chetty, (1962) 3 SCR 786, F
1
referred to.
7.1. The argument that Section 68 of FERA violates Article 14 of
the Constitution cannot thus be accepted. The same is the position
regarding the argument based on Article 21 of the Constitution. The object
of the Act is clearly to protect the economic interests of the country and G
to deal with any violation that causes economic loss to the country. In the
context of that object, any contravention of the provisions of the Act has
to be viewed seriously and anyone directly responsible or conniving at the
offence is liable to be punished. (727-D-E)
7.2. The question whether a particular person who is sought to be H
714
SUPREME COURT REPORTS
[2006] 2 S.C.R.
A prosecuted under Section 68(1) of the Act is the person, who is liable to
/.
B
be prosecuted under Section 68(1), is a question that has to be raised at
the trial. [727-FJ
Assistant Commissioner, Assessment//, Bangalore v. Valliappa Textiles
Ltd., [2003) 11 SCC 405, referred to.
8.1. The Act was enacted, as indicated by its preamble, for the
conservation of foreign exchange resources of the country and the proper
utilization thereof in the economic development of the country. When
interpreting such a law, in the absence of any provision in that regard in
the Act itself, there is no reason to r:strict the sc,ope of any of the
C provisions of the Act, especially in the context of tl~e presence of the
"without prejudice" clause in Section 56 of the Act df,aling with offences
and prosecutions. The Act sub-serves a twin purpose. One, to ensure that
no economic loss is caused by the alleged contravention by the imposition
of an appropriate penalty after an adjudication unde1r Section 51 of the
Act and two, to ensure that the tendency to violate is curbed by imposing
D an appropriate punishment after due prosecution in terms of Section 56
of the Act. The contention that as a matter of construction - since the
provisions could not be attacked as violative of the rights under Part III
+
of the Constitution - the provisions of the Act should be so interpreted
that an adjudication has to precede a prosecution cannot be accepted as
E there is nothing in the provisions of the Act justifying suich a construction.
On the scheme of the Act, the two proceedings are seen to be independent
and the launching of the one or the other or both is seen to be controlled
by the respective provisions themselves. [729-D-G I
Shanthi Prasad Jain v. Director of Enforcement, [19631 2 SCR 297,
F referred to.
8.2. The very purpose of the Act and very object of inclusion of the
Act in the Ninth Schedule justifies an interpretation of the provisions as
they stand on the basis that there is nothing arbitrary 01r unreasonable in
the provisions and in the scheme as enacted. (730-AI
G
Roya/a Corporation (P) Ltd. v. Director of Enforcement, [1969) 2 SCC
412, held inapplicable.
8.3. The legislature intended to treat the two proceedings as
independent of each other. Obviously, the legislature must be taken to have
been conscious of the interpretation placed on the corresponding
H provisions by this Court when the 1973 Act was enacted and it was also
-
STANDARD CHARTERED BANK"· DIRECTORATE OFENFORCEMENT
715
· "-included in the Ninth Schedule to ward off any challenge on the ground A
that it would be violative of Article 14 of the Constitution, unless
understood or read in a particular fashion. [730-B-DJ
9. There is no justification in accepting the argument that unless an
adjudication proceeding under Section 51 of the Act is completed, a
prosecution under Section 56 of the FERA cannot be initiated. Both B
proceedings can simultaneously be launched and can simultaneously be
pursued. (730-H; 731-Al
Assistant Collector of Customs v. L.R. Melwani, AIR (1970) SC 962
and P. Jayappan v. S.K. Peumal, AIR (1984) SC 1693, referred to.
A.S.G. Jothimani Nodar v. The Deputy Director, Enforcement
Directorate, (1984) ECC 319 (Mad) and Anil Kumar Agarwal v. K.C. Basu,
(2003) Cr. L.J. 2197 (Andh), approved.
c
10. There is nothing in the Act to indicate that a finding in an
adjudication is binding on the court in a prosecution under Section 56 of D
the Act. There is no indication that the prosecution depends upon the result
of the adjudication. Therefore, it is held that on the scheme of the Act,
the two proceedings are independent. The finding in one is not conclusive
in the other. [731-B-DJ
K.C. Builders v. Assistant Commissioner of Income Tax, [20041 2 SCC E
731, held inapplicable.
Assistant Collector of Customs v. L.R. Melwani, AIR (1970) SC 962
and P. Jayappan v. S.K. Peumal, AIR (1984) SC 1693, referred to.
11.1. The prayer in the writ petition for the issue of a writ of F
prohibition restraining the authorities under the Act from proceeding with
the adjudication and the prosecution is essentially based on the
constitutional challenge to the relevant provisions of the Act on the ground
that they violate Articles 14 and 21 of the Constitution of India. Once it
is held that the provisions are constitutional, the basis on which the writ
of prohibition is sought for by the appellants disappears. It is settled by G
the decisions of this Court that a writ of prohibition will issue to prevent
a Tribunal or Authority from proceeding further when the Authority
proceeds to act without or in excess of jurisdiction; proceeds to act in
violation of the rules of natural justice; or proceeds to act under a law
which is itself ultra vires or unconstitutional. Since the basis of the claim H
716
SUPREME COURT REPORTS
[2006] 2 S.C.R.
A for the relief is found not to exist, the High Court rightly refused the
prayer for the issue of a writ of prohibition restraining the Authorities
from continuing the proceedings pursuant to the notices issued.
(732-A-D(
11.2. When a show-cause notice is issued under a statutory provision
B calling upon the person concerned to show cause, ordinarily that person
must place his case before the Authority concerned by showing cause and
the courts should be reluctant to interfere with the notice at that stage
unless the notice is shown to have been issued palpably without any
\. -
authority of law. On the facts of thi:s case, it cannot be said that these
notices are palpably without authority of law. In that situation, the
C appellants cannot successfully challenge the refusal by the High Court of
the writs of prohibition prayed for by them. (732-D-EI
State ofUttar Pradesh v. Brahm Datt Sharma, (198712 SCC 179, relied
on.
D
12.1. Both, Section 50 providing for imposition of penalty and Section
56 providing for prosecution, speak of contravention of the provisions of
the Act. Contravention is the basic element. The contravention makes a
person liable both for penalty and for prosecution. Even though the
heading to Section 56 refers to offenc1!S and prosecutions, what is made
E punishable by the Section is the contravention of the provisions of the Act
and the prosecution is without prejudice to any award of penalty. The
award of penalty is also based on the same contravention. Section 63 is
the power of confiscation of currency, security or any other money or
property in respect of which a contravention of the provisions of the Act
has taken place conferred equally on the Adjudicating Authority and the
F Court, whether it is during an adjudication of the penalty or during a
prosecution. Whereas Section 64(1) relating to preparation or attempt at
contravention is confined to Section 56, the provision for prosecution,
Section 64(2) makes the attempt to contravene or abetment of
contravention, itself a contravention, for the purposes of the Act including
an adjudication of penalty under the Act. Section 68 relating to offences
G by companies, by sub-Section (1) introd111ces a deeming provision that the
person who was in-charge of and was r~,sponsible to the company for the
conduct of the business of the company, shall also be deemed to be guilty
along with the company of the contrave11tion of the provisions of the Act
and liable to be proceeded against and punished accordingly.
H
[734-E-H; 735-Al
t
>-
I
STANDARD CHARTERED BANK v. DIRECTORATE OF ENFORCEMENT
7 J 7
..f ·
12.2. An offence only means the commission of an act contrary to A
'
or forbidden by law. It is not confined to the commission of a crime alone.
It is an act committed against law or omitted where the law requires it
and punishable by it. In its legal signification, an offence is the
transgression of a law; a breach of the laws established for the protection
of the public as distinguished from an infringement of mere private rights; B
a punishable violation of law, a crime, the doing of which a penal law
forbids or omitting to do what it commands. (735-D-E)
~ -\
Depot Manager, Andhra Pradesh State Road Transport Corporation v.
Mohd. Yousuf Miya, (1997) 2 SCC 699, referred to.
Brown v. All-weather Mechanical Co., (1954) 2 QB 443, referred to. C
Concise Oxford English Dictionary, P. Ramanatha Aiyar: Advanced
Law Lexicon 3rd Edn. 2005, p. 3302, referred to.
12.3. It is significant to notice that Section 68, both in sub-Section D
(1) and in sub-Section (2) uses the expression, shall be liable to .be
pi:oceeded against and punished accordingly. There does not appear to
be any reason to confine the operation of Section 68 only to a prosecution
and to exclude its operation from a penalty proceeding under Section 50
of the Act, since the essential ingredient of both is the contravention of
the provisions of the Act. A company is liable to be proceeded against E
under both the provisions. Section 68 is only a provision indicating who
all in addition can be proceeded against when the contravention is by a
company or who all should or can be roped in, in a contravention by a
company. Section 68 only clarifies the nature and mode of proceeding
when the contravention of any of the provisions of the Act is by a company,
whether it be by way .of adjudication to impose a penalty or by way of F
prosecution leading to imprisonment and a fine. [736-B-D)
Sube Singh v. State of Haryana, (1989) 1SCC235 and Santram Paper
Mills v. Collector of Central Excise, [1998) 8 SCC 335, referred to.
New Shorter Oxford English Dictionary Vol. 2, 3rd Edn., reprint G
1993, Black's Law Dictionary 8th Edn. And John Burks: Jowitts
Dictionary of English Law Vol. 2, 2nd Edn., referred to.
13. There does not appear to be any reason to confine the operation
of Section 68 of the Act as was done by the High Court. Merely because . H
718
SUPREME COURT REPORTS
(2006) 2 S.C.R ..
A the expression 'punished' is used, it does not mean that it is confined to a
>
prosecution under Section 56 of the Act, since the element that attracts
the imposition of penalty and the prosecution is the same, namely, the
contravention by any of the provisions of the Act. Moreover; there is
nothing in the Act which confiD1es the expression 'punished' only to a
B punishment for a criminal prosecution. An imposition of a penalty can also
be a punishment. The second part of the reasoning appears to be selfcontradictory. If a person includes a company, there is no reason to confine
Section 68 to a prosecution only, because the company as a person is liable
to be proceeded against under Section 50 and Section 56 of the Act, though
in a criminal prosecution the punishment by way of imprisonment can be
C imposed only on the officer or officers of the company referred to in
Section 68 of the Act. Section 68 only indicates the manner in which a
contravention by a company can be dealt with and it does not show that
it is confined in its operation only to prosecutions against a company. It
is a general provision relating to a contravening company, which is to be
D
E
proceeded against whether it is under Section 50 or under Section 56 of
the Act. The fact that a fine alone can be imposed on a company in a
prosecution under Section 56 of the Act, cannot enable this Court to
confine the operation of Section 68 to criminal prosecutions alone under
the Act. There is no reason to whittle down the scope of Section 68 of the
Act. [737-8-F[
14. It is true that the entire penalty that may be imposed on
adjudication is capable of being recovered from the company itself. But
that does not mean that it cannot be recovered from the officer in-charge
of the company or those who connived at or were instrumental in the
contravention. of the provisions of the Act by the company. Once the
F ingredient of the offence is contravention of the provisions of the Act and
the consequences flowing from the contravention is to make that person
including a company liable for penalty as well as for prosecution, there
does not appear to be any justification in confining the scope of Section
68 only to prosecutions under Section 56 of the Act. Use of the expression
G 'offence' in the marginal heading of Section 68 is not indicative of the
expression 'being confined to a criminal offence alone' because an offence
in the context of the Act is really a contravention of any of the provisions
of the Act referred to in Section 50 and in Section 56 of the Act.
[737-F-H; 738-A)
H
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1748 of 1999.
...
STANDARD CHARTERED BANK'· DIRECTORA TEOFENFORCEMENT [BALASUBRAMANYAN. l.] 719
~
From the Final Judgment and Order dated 7.11.1998 of the Bombay A
High Court in W.P. (C) No. 1972 of 2004.
P.P. Malhotra, ASG, K.K. Venugopal, Jaideep Gupta, T.R. Andhyarujina,
U.U. Lalit, A.K. Panda, S. Divan, Ms. B. Vijayalakshmi Menon, Ms. Indu
Malhotra, Ms. Sunita, Ms. Haripriya, U .A. Rana, Sadeep Khare I, Ms. Srabonee
B
Roy (for Mis. Gagrat & Co.), Santosh Paul, A.K. Rao, Rajeev Sharma, M.J.
Paul, Amit Sibal, Ms. Radha Rangaswamy, Ms. Prachi Bajpal, AtifChaudhary,
Pradeep Kumar Malik, R.K. Handoo, K.V. Mohan, Rana Mukherjee, Ms .
.,. "
Anuradha, Ms. Swati Grover, Ms. Sonia Dube, Prasenjit Keswani, Ms. Indra
Sawhney, A. Subba Rao, N.K .. Matta, P. Parmeswaran, B. Krisna Prasad,
V.K. Verma, H.D. Petit, Tara Chand Sharma, Ms. Neelam Sharma and D. c
Bharathi Reddy, Mis. Fox Manda! & Co. (N.P.) for the appearing parties.
The Judgment of the Court was delivered by
P.K. BALASUBRAMANYAN, J. Leave granted in SLP(Crl.) No.5892/
2004.
D
I
I. On receipt of notices under the Foreign Exchange Regulation Act,
-1
1973 (hereinafter referred to as the FERA) for showing cause why adjudication
proceedings for imposition of penalty under Sections 50 and 51 of the FERA
be not initiated against the appellant bank and some of its officers and further
notices under Section 61 of the FERA giving an opportunity to the first E
appellant bank and its officers of showing that they had the necessary
permission from the concerned authority for the transaction involved, the
appellant bank filed Writ Petition No.1972 of 1994, seeking a declaration
that the relevant sections of the FERA are unconstitutional, being- violative
of Articles 14 and 21 of the Constitution oflndia and for writs of prohibition
F
restraining the authorities under the FERA from proceeding with the proposed
-1
adjudication and the proposed prosecution, in terms of the Act. Yet another
writ petition was filed by the officers of the bank as CWP No.2377of1996
challenging the individual notices. The High Court of Bombay rejected the
challenge to the constitutional validity of Sections 50, 51, 56 and 68 of the
FERA; but clarified that Section 68(1) of the FERA was not applicable to an G
adjudication proceeding and that it was coniined to a prosecution for penal
' ...\,
offences under the Act. Being aggrieved, the appellant bank and its officers
have filed Civil Appeal Nos.1748/99 and 1749/99. The Union of India, in its
tum has filed C.A. Nos.1751 and 1944 of 1999 challenging the very decision,
-
to the extent the High Court restricted the application of Section 68(1) of the
FERA.
H
720
SUPREME COURT REPORTS
[2006] 2 S.C.R.
A
2. Civil Appeal No.1750/1999 is filed by the Standard Chartered Bank
B
c
D
E
F
G
H
to which also notices have been issued under the Act. That challenges the
dismissal of the Writ Petition No.509/1994 filed by the appellant therein,
which was disposed of along with Writ Petition No.1972 of 1994, by a
common judgment.
3. These appeals which came up before a Bench of two learned Judges,
were referred to a Bench of three Jludges by order dated 20.04.2004. When
the matters came up before a three Judge Bench, the three Judge Bench
doubted the correctness of a decision relied upon by the bank and its officers
in Assistant Commissioner, Assessment-If, Bangalore & Ors. v. Va//iappa
Textiles Ltd and Anr., [2003] 11 SCC 405) which was a Judgment of a
Bench of three Judges and by order dated 16.07.2004 referred the question
to a Constitution Bench. The matti:rs, thus, came up before a Constitution
Bench, which, by Judgment dated 5.5.05, [reported in [2005] 4 SCC 530]
overruled the decision in Assistant Commissioner, Assessment-II, Bangalore
& Ors. v. Valliappa Textiles Ltd. and Anr., [2003] 11 SCC 405 and sent
down these appeals for being heard on merits by a Division Bench. The
question that was decided was whether in a case where an offence was
punishable with a mandatory sentence of imprisonment. a company
incorporated under the Companies Act, can be prosecuted, as the sentence of
imprisonment cannot be imposed on the company. The majority in the
Constitution Bench, held that there could be no objection to a company being
prosecuted for penal offences under the FERA and the fact that a sentence
of imprisonment and fine has to be imposed and no imprisonment can be
imposed on a company or an incorporated body, would not make Section 56
of the FERA inapplicable and that a company did not enjoy any immunity
from prosecution in respect of offences for which a mandatory punishment
of imprisonment is prescribed. In the light of the said decision of the
Constitution Bench, the controversy before us has narrowed down and we
have to proceed on the basis that the appellant banks are liable to be prosecuted
for offences under the FERA.
4. In this context, it is necessary to refer to the scope of the writ
petitions filed by the appellant bank and its officers in the High Court of
Bombay. The prayers in the said writ petition are for a declaration that
provisions of Sections 50, 51, 56 and 68 of the FERA are unconstitutional,
invalid and void being violative of Articles 14 and 21 of the Constitution of
India and for a writ of prohibition directing the authorities under the Act
from proceeding further, based on the notices issued to the bank and its
...
>
-
}
I
STANDARD CHARTERED BANK,., DIRECTORATE OF ENFORCEMENT [BALASUBRAMANY AN. I.] 721
.
officers. It may be seen that the challenge to the constitutional validity is A
~
based on the alleged violation of Articles 14 and 21 of the Constitution of
India. It is admitted that the Act has been included in the Ninth Schedule to
the Constitution of India, as Item No.JOO. Therefore, in tenns of Article 31 B
of the Constitution of India, none of the provisions of the FERA can be
deemed to be void or ever to have become void on the ground that the FERA B
or any of the provisions thereof, are inconsistent with or take away or abridge
any of the rights conferred by Part III of the Constitution. Obviously, the
rights conferred by Articles 14 and 21 of the Constitution are rights flowing
~~
from Part III of the Constitution and, therefore, it is clear that no challenge .
based on violation of Articles 14 or 21, even if it has substance, can enable
the appellants to get the relevant provisions of the Act struck down as prayed c
for by them in prayer (a) of the writ petition. Now that the Constitution
Bench has already ruled that penal proceedings under the Act can be initiated
against a company or a corporation, that avenue of challenge is also closed
to the appellants. Probably, it is in that context that learned senior counsel
appearing in C.A.No.1750/99 argued that the submission was that a penal D
proceeding cannot be initiated simultaneously with an adjudication under the
Act and that the adjudication must precede and only after its conclusion,
'
penal action could be initiated.
'
5. Before proceeding further, we must notice that though on behalf of
the appellants, in the written submissions, a contention was taken that the E
inclusion of the FERA in the Ninth Schedule was violative of the basic
structure of the Constitution, at the time of hearing, Mr. K.K. Venugopal,
learned senior counsel, submitted that that contention was not being pursued.
Once that contention is not pursued, the appellants are confronted with Article
318 of the Constitution in view of the inclusion of the Act in the Ninth
Schedule and there will be no necessity for this Court to undertake the exercise F
"i'
of considering whether the provisions of the Act violate Article 14 of the
Constitution, an argument which was sought to be pursued at considerable
length based on the interpretation to be placed on Section 68 of FERA.
6. It appears from the judgment of the High Court, especially from
G
paragraph 2 thereof, that the argument before that court was on the basis that
the violation of Articles 14 and 21 amounted to a violation of the basic
.·-A
structure of the Constitution, namely, the rule of law, and the court had to
quash the legislative provisions. If the contention founded on the basic structure
theory is not pursued, it is not very clear how far it would be open to the
appellants to urge and necessary for this Court to consider the validity of the H
722
SUPREME COURT REPORTS
[2006) 2 S. C.R.
A relevant provisions on the ground that they are violative of Articles 14 and
21 of the Constitution. The High Court found no reason to accept the argument
based on the violation of rights under Articles 14 and 21 of the Constitution
or based on the alleged impact of the provisions on rule of law and rejected
the contention, though it upheld the plea that Section 68 of the FERA had no
B application for imposition of a penalty based on an adjudication under Sections
50 and 51 of FERA. The question is whether there is any reason to interfere
with the decision of the High Court on either of these aspects.
7. Mr. K.K. Venugopal, learned senior counsel, advanced considerable
arguments on the interpretation and scope of Section 68 of the FERA.
C Considering the prayers in the writ petitions filed in the High Court of Bombay
by the appellants, it is possible to say that all that is required is to decide
whether the appella11ts can successfully challenge the constitutional validity
of the relevant provisions of the FERA as being violative of Articles 14 and
21 of the Constitution and whether the statutory authority has to be restrained
by the issue of a writ of prohibition from proceeding further on the basis of
D the notices it had issued for adjudication as well as for penal action. It is not
a case where any successful challenge could be mounted on the provisions
providing both for adjudication and imposition of penalty and for penal action
in the context of the objectives sought to be achieved by the Act and the
serious repercussions of transgression of the provisions of the Act on the
E economy of the country. Therefore, the argument based on violation of Article
14 relying on the decision in State of West Bengal v. Anwar Ali Sarkar,
[1952] SCR 284 and those following it, are of no avail to the appellants. No
merit can also be found in the argument that Section 68 of the FERA confers
an unfettered power on the investiga1:ing officer to pick and choose at his
will, those whom he desires to prosecute and omit those whom he does not
F want to prosecute, in a case to which Section 68 of the FERA is attracted.
8. In view of the immunity from challenge enjoyed by the provisions
of the Act, there arises no necessity to read down the provisions of the Act
so as to ensure that they do not violate the rights conferred by Article 14 of
the Constitution. The provisions therefore call for a natural interpretation
G and, if necessary, a purposive interpretation, keeping in view the object sought
to be achieved by the Act. In the guis1e of interpretation, there is no occasion
to whittle down the ambit of the provisions to save them from the charge of
arbitrariness, hit by Article 14 of the Constitution.
H
9. Before proceeding further it is necessary to point out that the notices
\. .
-
'~
,/
STANDARD CHARTERED BANK"· DIRECTORATE OF ENFORCEMENT [BALASUBRAMANYAN, J.] 72J
-.\
issued under Section 61 of the FERA are merely notices of enquiry, giving A
an opportunity to the appellants of showing that they had; the necessary
pennission from the concerned authority under the FERA in respect of the
particular transaction. These notices, therefore, do not in any manner decide
anything against the appellants and they merely set out the grounds based on
which the appellants allegedly violated the provisions of the FERA and since B
one of the ingredients of the offence is absence of permission from the
concerned authority, they are intended only to give an opportunity to the
... ~
appellants to show that they had the necessary permission and hence, there
was no violation of the. relevant provision or provisions of the FERA as
sought to be made out in the notice. As pointed out by the learned Additional
Solicitor General, on the failure of the appellants to show that they had the c
requisite pennission, a complaint will have to be lodged before the concerned
magistrate here it has been launched with the permission of this Court pending
these appeals and the magistrate will consider whether the process should
issue on the basis of the complaint made before him. In view of the fact that
sufficient opportunities will be available to the appellants to put forward their D
contentions before the concerned criminal court, it cannot be said that there
:is any merit in the challenge to the notices issued under Section 61 of the
'
FERA. The said notices are really in tenns of Section 61 of the FERA and
their scope and ambit is also controlled by Section 61 of the FERA and on
receipt of those notices, it was open to the appellants to show that they had
the necessary pennission from the concerned authority under the Act. Of E
course, if they do not have such permission, apparently, in the case on hand,
there was no such pennission, they have necessarily to put forward their
defences before the criminal court in the prosecutions that have been launched
in that behalf.
10. It is argued that the issue of a notice under Section 61 is not a mere F
"
.,
fonnality and that it is a real right given to a person accused of an offence
to establish that the proceedings are being initiated without jurisdiction or
wholly in violation of the provisions ofFERA. Article 20(3) of the Constitution
is referred to and it is submitted that many rights including the right against
self incrimination is available to a person accused of an offence. Section G
61 (2) of FERA makes it clear that no court can take cognizance of an offence
• J.,
except upon a complaint by the officer referred to therein. The proviso to
Section 61 (2) of the Act provides that no complaint regarding the offences
referred to in that Section shall be made unless an opportunity is given to the
..J.
concerned person to show that he had the requisite permission where the
'
offence charged is an act which requires permission under the Act. We think H
724
SUPREME COURT REPORTS
[2006) 2 S.C.R.
A that if the notice sets out the alleged contravention, (an act which could have
been done with permission) and calls upon the person accused of the offence
whether he had the requisite permission for the transaction, that will satisfy
the requirement of the Section.
11. Learned counsel relied on East India Commercial Co. ltd., Calcutta
B andAnr. v. The Collector of Customs, Calcutta (1963) 3 SCR 338 to emphasise
that the notice is not a mere formality and should contain the relevant materials
based on which the prosecution v.as being initiated.