1975 (3) TMI 59 - SC - FEMA

Court upholds validity of Foreign Exchange Regulation Act, 1947, section 23(1A) classification.

The court upheld the validity of section 23(1A) of the Foreign Exchange Regulation Act, 1947, ruling that it did not violate article 14 of the ... Whether section 23(1A) of the Foreign Exchange Regulation Act, 1947 violates article 14 of the Constitution? Held that:- We do not think that there is any merit in the contention that the classification made in section 23(1A) is discriminatory. Even according to the respondents, it is the classification made in section 23(1)(a) which is under-inclusive and is, therefore, unreasonable. If this court were to declare that the classification made in section 23(1)(a) is under-inclusive and, therefore, unreasonable, the result would be that contraventions of the provisions specified in section 23(1)(a) would also fall within section 23(1A) and would have to be dealt with by the criminal court—a consummation which the respondents devotedly want to avoid. We do not think that the High Court was right in holding that section 23(1A) was bad. Appeal allowed. Issues Involved:1. Whether section 23(1A) of the Foreign Exchange Regulation Act, 1947, violates article 14 of the Constitution.Issue-Wise Detailed Analysis:1. Constitutionality of Section 23(1A) of the Foreign Exchange Regulation Act, 1947:The primary issue for consideration was whether section 23(1A) of the Foreign Exchange Regulation Act, 1947 (hereinafter 'the Act'), violates article 14 of the Constitution. The respondents were charged under sections 4(3), 20(3), and 22 of the Act, read with section 120B of the Indian Penal Code and section 23 of the Act. The lower courts discharged the respondents, citing a High Court decision which held that section 23(1A) was violative of article 14.Section 23(1) and its Amendments:Section 23(1) initially provided penalties for contraventions, including imprisonment, fines, and confiscation of property. Amendments in 1950, 1952, and 1957 introduced departmental adjudication for certain contraventions, allowing the Director of Enforcement to impose penalties or refer cases to criminal courts if the penalties were deemed inadequate.Respondents' Argument:The respondents argued that section 23 provides two different procedures for dealing with contraventions:- Section 23(1)(a) allows the Director of Enforcement to adjudicate and impose penalties, with criminal prosecution only if penalties are inadequate.- Section 23(1A) mandates direct prosecution in criminal courts without initial departmental inquiry, denying the benefit of potentially avoiding criminal prosecution.Court's Analysis:The court examined whether persons contravening provisions under section 23(1)(a) are similarly situated with those under section 23(1A) concerning the Act's purpose. The court noted that the Act's preamble indicates its general purpose is regulating payments, foreign exchange, and securities in India's economic interest. The court emphasized the need to attribute a reasonable purpose to the statutory classification, considering legislative history and public policy.Judicial Restraint and Presumption of Constitutionality:The court highlighted the concept of judicial restraint, giving the legislature the benefit of the doubt regarding its purpose. It referenced the principle that under-inclusion does not necessarily deny equal protection under article 14, allowing legislatures to address parts of a problem incrementally.Administrative Necessity and Legislative Experimentation:The court acknowledged the difficulties legislatures face and the legitimacy of gradual, piece-meal changes. It cited the State of Gujarat v. Shri Ambica Mills case, supporting the idea that legislative experimentation justifies under-inclusive classifications in economic regulation.Historical Context and Legislative Intent:The court reviewed the historical context of section 23's amendments, noting the challenges in prosecuting certain offences due to insufficient legal evidence and the need for specialized enforcement agencies. The amendments aimed to enhance enforcement effectiveness through departmental adjudication for specific contraventions.Primary vs. Secondary Offences:The court distinguished between 'primary' offences (requiring deterrent measures and specialized agency action) and 'secondary' offences (with built-in institutional checks and adequate documentary evidence). It concluded that the classification in section 23(1A) was based on reasonable grounds and administrative necessity.Conclusion:The court found no merit in the contention that section 23(1A) was discriminatory. It held that the classification was justified and did not violate article 14. The court set aside the High Court's order, upholding the validity of section 23(1A) and allowing the appeal.