2012 (7) TMI 202 - SC - FEMA

Supreme Court Upholds COFEPOSA Section 3(1) Validity

The Supreme Court upheld the constitutional validity of Section 3(1) of COFEPOSA, emphasizing preventive detention's role in preventing activities ... Constitutional validity of Section 3(1) of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (‘COFEPOSA’) to the extent it empowers the competent authority to make an order of detention against any person ‘with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange’ - petitioner contending that repeal of FERA and enactment of FEMA (FEMA did not regard its violation of criminal offence) an act where no punitive detention (arrest and prosecution) is even contemplated or provided under law, such an act cannot be made the basis for preventive detention and any law declaring it to be prejudicial to the interest of the State so as to invoke the power of preventive detention is violative of Articles 14, 19 and 21 of the Constitution. Held that:- It is true that FEMA does not have provision for prosecution and punishment like Section 56 of FERA and its enforcement for default is through civil imprisonment. However, insofar as conservation and/or augmentation of foreign exchange is concerned, the restrictions in FEMA continue to be as rigorous as they were in FERA. Although contravention of its provisions is not regarded as a criminal offence, yet it is an illegal activity jeopardizing the very economic fabric of the country. On the touchstone of constitutional jurisprudence, as reflected by Article 22 read with Articles 14, 19 and 21, impugned provision cannot be rendered as unconstitutional. There is no constitutional mandate that preventive detention cannot exist for an act where such act is not a criminal offence and does not provide for punishment. An act may not be declared as an offence under law but still for such an act, which is an illegal activity, the law can provide for preventive detention if such act is prejudicial to the state security. After all, the essential concept of preventive detention is not to punish a person for what he has done but to prevent him from doing an illegal activity prejudicial to the security of the State. In complete agreement with the position stated in UOI vs. Venkateshan S.(2002 (4) TMI 789 (SC))“if the activity of any person is prejudicial to the conservation or augmentation of foreign exchange, the authority is empowered to make a detention order against such person and the Act does not contemplate that such activity should be an offence”, no merit is found in challenge to the constitutional validity of impugned part of Section 3(1) of COFEPOSA - Decided against the Petitioner. Issues Involved:1. Constitutional validity of Section 3(1) of COFEPOSA.2. Preventive detention under COFEPOSA in light of FEMA replacing FERA.3. Legal distinction between preventive and punitive detention.4. Impact of the Ninth Schedule on the constitutional challenge.5. Procedural aspects of challenging detention orders.Detailed Analysis:1. Constitutional Validity of Section 3(1) of COFEPOSA:The central issue concerns the constitutional validity of Section 3(1) of COFEPOSA, which empowers the competent authority to make an order of detention against any person to prevent activities prejudicial to the conservation or augmentation of foreign exchange. The petitioners argued that this provision violates Articles 14, 19, and 21 of the Constitution, as preventive detention for acts not considered criminal offenses under FEMA is unconstitutional. The Court upheld the constitutional validity, emphasizing that preventive detention is a precautionary measure to prevent acts prejudicial to state security, irrespective of whether such acts are criminal offenses.2. Preventive Detention under COFEPOSA in Light of FEMA Replacing FERA:The petitioners contended that with the repeal of FERA and the enactment of FEMA, which does not criminalize foreign exchange violations, the basis for preventive detention under COFEPOSA no longer exists. The Court rejected this argument, stating that the conservation and augmentation of foreign exchange remain critical for national security. Despite FEMA not criminalizing foreign exchange violations, such activities are still illegal and jeopardize the national economy, justifying preventive detention under COFEPOSA.3. Legal Distinction Between Preventive and Punitive Detention:The Court reiterated the distinction between preventive and punitive detention. Preventive detention aims to prevent future acts prejudicial to state security based on reasonable anticipation, not to punish past acts. This distinction is crucial as preventive detention does not require the act to be a criminal offense. The Court cited several precedents affirming that preventive detention laws are constitutionally valid even if the acts in question are not criminal offenses.4. Impact of the Ninth Schedule on the Constitutional Challenge:COFEPOSA is included in the Ninth Schedule of the Constitution, which protects certain laws from being challenged on the grounds of violating fundamental rights. The Court referred to the judgment in I.R. Coelho v. State of T.N., which allows for judicial review of Ninth Schedule laws if they violate the basic structure of the Constitution. However, since the constitutional validity of COFEPOSA had already been upheld by a nine-Judge Bench in Attorney General for India v. Amratlal Prajivandas, the Court concluded that it could not be challenged again on the same grounds.5. Procedural Aspects of Challenging Detention Orders:The petitioners initially filed a writ petition challenging the detention order, which was dismissed as withdrawn. They then filed another writ petition before the Delhi High Court, which was dismissed, followed by a special leave petition before the Supreme Court, which was also withdrawn. The Court noted that the petitioners had not disclosed these facts in their current writ petition. The Court emphasized that the petitioners could challenge the detention order only after its execution, as per the previous order dated July 13, 2010. The Court rejected the petitioners' application to quash the detention order, noting their contumacious conduct in avoiding the execution of the detention order.Conclusion:The Supreme Court upheld the constitutional validity of Section 3(1) of COFEPOSA, emphasizing that preventive detention is justified to prevent activities prejudicial to the conservation or augmentation of foreign exchange. The Court distinguished between preventive and punitive detention and noted that preventive detention laws are valid even if the acts are not criminal offenses. The inclusion of COFEPOSA in the Ninth Schedule protects it from being challenged on the grounds of violating fundamental rights. The Court also addressed procedural aspects, emphasizing that the petitioners could challenge the detention order only after its execution.