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Foreign Exchange Regulation Act, 1973 – ss. 50, 51 and 56 – Scope and applicability of – Charges against the appellant for contravening the provisions of s.9(1)(f)(i) and s.8(2) r/w s.64(2) – Enforcement Directorate (ED) sought to prosecute appellant in a proceeding u/s.56 though on the self-same facts and cause of action, respondent-adjudicating authority had dropped charges framed against the appellant u/s.50 – Plea of appellant that standard of proof required to bring home the charge in a criminal case is much higher than the adjudication proceeding and once the appellant was exonerated in the adjudication proceeding, his prosecution was an abuse of the process of Court – Held (per majority): The yardstick would be to judge as to whether allegation in the adjudication proceedings and the proceedings for prosecution was identical and exoneration of the person concerned in the adjudication proceeding was on merits – In case it is found on merit that there was no contravention of the provisions of the Act in the adjudication proceedings, the trial of the person concerned shall be an abuse of the process of the court – In the instant case, in the adjudication proceeding on merit the adjudicating authority had categorically held that the charges against the appellant for contravening the provisions of s.9(1)(f)(i) and s.8(2) r/w s.64(2) were not sustainable – In the face of the finding by the Enforcement Directorate in adjudication proceeding that there was no contravention of any of the provisions of the Act, it would be unjust and an abuse of the process of the court to permit the Enforcement Directorate to continue with the criminal prosecution – Resultantly the appellant’s prosecution is quashed – Held (per minority): The scheme of the Act makes it clear that adjudication by the concerned authorities and prosecution are distinct and separate – The two proceedings are independent and irrespective of the outcome of the decision u/s.50, there cannot be any bar in initiating prosecution u/s.56 – In the light of the mandate of s.56, it is the duty of the Criminal Court to discharge the functions vested with it and give effect to the legislative intention, particularly, in the context of the scope and object of FERA which was enacted for economic development of the country and augmentation of revenue. The Enforcement Directorate alleged that the appellant had contravened the provisions of Section 8(2) and 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 and accordingly rendered himself liable to imposition of penalty under Section 50 of the Act. Accordingly, adjudication proceeding as contemplated under Section 51 of the Act were instituted against him for the aforesaid contraventions. The adjudication officer (the Special Director) came to the conclusion that the allegation made against the appellant of contravention of the provisions of Section 8, 9(1)(f)(i) and Section 8(2) read with Section 64(2) of the Act were not sustainable. The Enforcement Directorate did not challenge this order and it attained finality. The Enforcement Directorate on the same allegation which was the subject matter of adjudication proceeding laid complaint against the appellant for prosecution under Section 56 of the Act before the Metropolitan Magistrate. After the issuance of process and exoneration in the adjudication proceeding, the appellant filed application for dropping the proceedings, inter alia, contending that on the same allegation the adjudication proceedings having been dropped and the appellant exonerated, his continued prosecution is an abuse of the process of the Court. The Metropolitan Magistrate rejected his prayer. Aggrieved, the appellant preferred criminal revision application which was dismissed by the High Court by the impugned order. In the instant appeal, dispute arose as to whether the Enforcement Directorate (ED) could prosecute the appellant in a proceeding under Section 56 of the FERA when on the self-same facts and cause of action, the respondent-adjudicating authority had dropped the charges framed against the appellant under Section 50 of the FERA. It was contended on behalf of the appellant that standard of proof required to bring home the charge in a criminal case is much higher than the adjudication proceeding and once the appellant was exonerated in the adjudication proceeding, his prosecution was an abuse of the process of Court. =Allowing the appeal (per majority), Per Chandramauli Kr. Prasad, J. (for Harjit Singh Bedi, J. and himself): HELD: 1. Section 50 of the Foreign Exchange Regulation Act, 1973 (FERA) provides for mandatory penalty and fixes the outer limit of such penalty on any person contravening the provisions of the Act which is to be adjudged by the Director of Enforcement or any other officer of the Enforcement not below the rank of an Assistant Director empowered by the Central Government. The procedure and the power to adjudicate penalty has been provided under Section 51 of the Act. From a plain reading of Section 51 of the Act it is evident that for adjudging the penalty under Section 51 of the Act for contravention of the provisions of the Act or any rule, direction or order made thereunder the adjudicating officer is to be satisfied that the person has committed the contravention after holding an inquiry in the prescribed manner and after giving the person concerned a reasonable opportunity of making representation. Thus besides the procedural requirement the sine qua non for imposition of penalty under Section 51 of the Act is that the adjudicating officer has to record its satisfaction that the person concerned has committed the contravention of any of the provisions of the Act or of any rule, direction or order made thereunder. [Paras 8, 9] [903-E-H; 904-A-G] 2. As would be evident from the preamble of the FERA, it was enacted for the conservation of foreign exchange resources of the Country and the proper utilization thereof in the economic development of the Country. The proceedings under Section 51 and 56 of the Act are independent of each other and the finding in an adjudication proceeding under Section 51 of the Act is not binding in the proceeding for prosecution under Section 56 of the Act and both can go hand in hand. Further, the prosecution can be launched even before conclusion of adjudication proceeding under Section 51 of the Act. [Paras 10, 11] [904-H; 905-H; 906-A-C] 3. The standard of proof in a criminal case is much higher than that of the adjudication proceeding. The Enforcement Directorate has not been able to prove its case in the adjudication proceeding and the appellant has been exonerated on the same allegation. The appellant is facing trial in the criminal case. Therefore, the determination of facts in the adjudication proceeding cannot be said to be irrelevant in the criminal case. However, the finding in an adjudication proceeding is not binding in the proceeding for criminal prosecution. A person held liable to pay penalty in adjudication proceeding cannot necessarily be held guilty in criminal trial. Adjudication proceedings are decided on the basis of preponderance of evidence of a little higher degree whereas in a criminal case entire burden to prove beyond all reasonable doubt lies on the prosecution. [Paras 15, 16] [909-H; 910-A-B; 911-F-G] 4. The yardstick would be to judge as to whether allegation in the adjudication proceeding as well as proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceeding is on merits. In case it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceeding, the trial of the person concerned shall be in abuse of the process of the court. [Para 19] [916-A-B] 5. In the instant case, in the adjudication proceeding on merit the adjudicating authority has categorically held that “the charges against Shri Radheshyam Kejriwal for contravening the provisions of Section 9(1)(f) (i) and Section 8(2) read with Section 64(2) of the Foreign Exchange Regulation Act, 1973 cannot be sustained”. In the face of the aforesaid finding by the Enforcement Directorate in adjudication proceeding that there is no contravention of any of the provisions of the Act, it would be unjust and an abuse of the process of the court to permit the Enforcement Directorate to continue with the criminal prosecution. [Para 23] [919-F-H; 910-A] 6. In the result the impugned judgment of the Metropolitan Magistrate and the order affirming the same by the High Court are set aside and appellant’s prosecution is quashed. [Para 24] [920-B] Standard Chartered Bank and others vs. Directorate of Enforcement and others (2006) 4 SCC 278; Assistant Collector of Customs, Bombay and another vs. L.R. Melwani and another AIR 1970 SC 962 and Iqbal Singh Marwah v. Meenakshi Marwah (2005) 4 SCC 370 – distinguished. Uttam Chand and others vs. Income Tax Officer, Central Circle, Amritsar (1982) 2 SCC 543; G.L. Didwania and Another vs. Income Tax Officer and Another 1995 Supp (2) SCC 724 and K.C. Builders and Another vs. Assistant Commissioner of Income Tax (2004) 2 SCC 731 – relied on. Hemendra M. Kothari v. Shri W.S. Vaigankar, Asstt. Director, Enforcement Directorate (FERA), Govt. of India and State of Maharashtra [decided by Bombay High Court on 25-04-2007] and Sunil Gulati & Anr. V. R.K. Vohra 145 (2007) DLT 612 – approved. B.N. Kashyap vs. Emperor AIR (32) 1945 Lahore 23 Full Bench; K.G. Premshanker v. Inspector of Police (2002) 8 SCC 87 – referred to. Case Law Reference: (2006) 4 SCC 278 distinguished Para 11, 20 AIR 1970 SC 962 distinguished Para 12, 13 AIR (32) 1945 Lahore 23 referred to Para 15 (2002) 8 SCC 87 referred to Para 15 (2005) 4 SCC 370 distinguished Para 16 (1982) 2 SCC 543 relied on Para 17 1995 Supp (2) SCC 724 relied on Para 17 (2004) 2 SCC 731 relied on Para 17 145 (2007) DLT 612 approved Para 22 Per Sathasivam, J. (dissenting): HELD: 1. The Foreign Exchange Regulation Act, 1973 (FERA) being a statute relating to economic offences, there is no reason to restrict the scope of any provisions of the Act. These provisions ensure that no economic loss is caused by the alleged contravention by the imposition of an appropriate penalty after adjudication under Section 51 of the Act and to ensure that the tendency to violate is guarded by imposing appropriate punishment after due transaction in terms of Section 56 of the Act. In fact, Section 23D of the Foreign Exchange Regulation Act, 1947 had a proviso, which indicates that the adjudication for the imposition of penalty should precede making of complaint in writing to the court concerned for prosecuting the offender. The absence of a similar proviso to Section 51 or to Section 56 of the 1973 Act is a clear indication that the Legislature intended to treat the two proceedings as independent of each other. There is nothing in the present Act to indicate that a finding in adjudication is binding on the Court in a prosecution under Section 56 of the Act or that the prosecution under Section 56 depends upon the result of adjudication under Section 51 of the Act. The two proceedings are independent and irrespective of the outcome of the decision under Section 50, there cannot be any bar in initiating prosecution under Section 56. The scheme of the Act makes it clear that the adjudication by the concerned authorities and the prosecution are distinct and separate. No doubt, the conclusion of the adjudication, in the case on hand, the decision of the Special Director, may be a point for the appellant and it is for him to put forth the same before the Magistrate. Inasmuch as FERA contains certain provisions and features which cannot be equated with the provisions of Income Tax Act or the Customs Act and in the light of the mandate of Section 56 of the FERA, it is the duty of the Criminal Court to discharge its functions vest with it and give effect to the legislative intention, particularly, in the context of the scope and object of FERA which was enacted for the economic development of the country and augmentation of revenue. Though the Act has since been repealed and not available at present, those provisions cannot be lightly interpreted taking note of the object of the Act. [Para 23] [942-D-H; 943-A-D] 2. In view of the above, the conclusion arrived at by the Metropolitan Magistrate, Calcutta as well as the decision of the High Court are upheld. [Para 24] [943-E] G.L. Didwania and Another v. Income Tax officer and Another 1995 Supp (2) SCC 724; K.C. Builders and Another v. Assistant Commissioner of Income-Tax (2004) 2 SCC 731; P.S. Rajya vs. State of Bihar (1996) 9 SCC 1; Uttam Chand and Others v. Income Tax Officer, Central Circle, Amritsar (1982) 2 SCC 543 – distinguished. Standard Chartered Bank and Others vs. Directorate of Enforcement and Others (2006) 4 SCC 278; K.G. Premshanker vs. Inspector of Police and Another (2002) 8 SCC 87; Assistant Collector of Customs vs. L.R. Malwani, 1969 (2) SCR 438; Iqbal Singh Marwah and Another vs. Meenakshi Marwah and Another (2005) 4 SCC 370 – relied on. Asstt. Commr. vs. Velliappa Textiles Ltd. (2003) 11 SCC 405; ANZ Grindlays Bank Ltd. vs. Directorate of Enforcement (2004) 6 SCC 531; Standard Chartered Bank vs. Directorate of Enforcement (2005) 4 SCC 530 – referred to. B.N. Kashyap vs. Emperor AIR (32) 1945 Lahore 23 Full Bench – referred to. Case Law Reference: 1995 Supp (2) SCC 724 distinguished Para 9, 10, 11, 16, 19, 22 (2004) 2 SCC 731 distinguished Para 9 , 11 (1996) 9 SCC 1 distinguished Para 9 , 12 (1982) 2 SCC 543 distinguished Para 9 , 13 (2006) 4 SCC 278 relied on Para 15, 22 (2002) 8 SCC 87 relied on Para 15, 17 1969 (2) SCR 438 relied on Para 15, 18, 19, 22 (2005) 4 SCC 370 relied on Para 15, 20 AIR (32) 1945 Lahore 23 Full Bench referred to Para 15, 21 (2003) 11 SCC 405 referred to Para 16 (2004) 6 SCC 531 referred to Para 16 (2005) 4 SCC 530 referred to Para 16 CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 1097 of 2003. From the Judgment & Order dated 10.08.2001 of the High Court of Calcutta in C.R.R. No. 3593 of 1997. A. Sharan, Punet Jain, Sushil Kr. Jain, Pramod Sharma, Anil K. Verma, Pratibha Jain for the Appellant. P.P. Malhotra, ASG, P.K. Dey, Ranjana Narayan, B. Krishna Prasad. Tara Chandra Sharma, Neelam Sharma for the Respondents.

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REPORTABLE

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.1097 OF 2003
RADHESHYAM KEJRIWAL ….. APPELLANT
VERSUS
STATE OF WEST BENGAL & ANR. ….. RESPONDENTS
J U D G M E N T
CHANDRAMAULI KR. PRASAD, J.
1. We have gone through the draft judgment prepared by

our noble and learned Brother Sathasivam, J. and we find

ourselves unable to subscribe to the view taken by him.
2. Shorn of unnecessary details facts giving rise to the

present appeal are that on 22nd May, 1992 various premises in

occupation of the appellant Radheshyam Kejriwal besides

other persons were searched by the officers of the Enforcement

Directorate. The appellant was arrested on 3rd May, 1992 by

the officers of the Enforcement Directorate in exercise of the

power under Section 35 of the Foreign Exchange Regulation
2

Act, 1973 (hereinafter referred to as the `Act’) and enlarged on

bail on the same day. Further the appellant was summoned

by the officers of the Enforcement Directorate to give evidence

in exercise of the power under Section 40 of the Act and in the

light thereof his statement was recorded on various dates, viz.

22nd May, 1992, 10th March, 1993, 16th March, 1993, 17th

March, 1993 and 22nd March, 1993. On the basis of materials

collected during search and from the statement of the

appellant it appeared to the Enforcement Directorate that the

appellant, a person resident in India, without any general or

specific exemption from Reserve Bank of India made payments

amounting to Rs.24,75,000/- to one Piyush Kumar Barodia in

March/April, 1992 as consideration for or in association with

the receipt of payment of U.S. $ 75,000 at the rate of Rs.33/-

per U.S. Dollar by the appellant’s nominee abroad in

Yugoslavia. It further appeared to the Enforcement Directorate

that transaction involved conversion of Indian currency into

foreign currency at rates of exchange other than the rates for

the time being authorised by the Reserve Bank of India. In the

opinion of the Enforcement Directorate the act of the
3

appellant in making the aforesaid payment of

Rs.24,75,000/- in Indian currency for foreign currency at the

rate of Rs.33/- per US Dollar against the official rate of Dollar

i.e. Rs.30/- per Dollar (approximately), contravened the

provision of Section 8(2) of the Act. Further the Said payment

having been made without any general or special exemption

from Reserve Bank of India, the appellant had contravened the

provisions of Section 9(1)(f)(i) of the Act and accordingly

rendered himself liable to imposition of penalty under Section

50 of the Act. Enforcement Directorate was further of the

opinion that by abetting in contravening the provisions of

Sections 9(1)(f)(i) and 8(2) of the Act read with the provisions of

the Section 64(2) of the Act the appellant has rendered himself

liable for penalty under Section 50 of the Act.
3. Accordingly, a show cause notice dated 7th May, 1993

was issued by the Special Director of the Directorate of

Enforcement calling upon the appellant to show cause as to

why adjudication proceeding as contemplated under Section

51 of the Act be not held against him for the contraventions
4

pointed above. Show cause notice dated 7th May, 1993

referred to above led to institution of proceeding under Section

51 of the Act (hereinafter referred to as the `adjudication

proceedings’). The adjudication officer came to the conclusion

that the allegation made against the appellant of contravention

of the provisions of Section 8, 9(1)(f)(i) and Section 8(2) read

with Section 64(2) of the Act cannot be sustained. While doing

so the Special Director observed as follows:
The payment alleged to have been made by

Shri Radheshyam Kejriwal amounting to

Rs.24,75,000/- has to be examined in the context of

Section 9(1)(f)(i) and Section 8(2) r/w Section 64(2)

of Foreign Exchange Regulation Act, 1973. The

important ingredients for sustaining the conviction

under the above provisions would require the proof

of payment having been made to the credit of any

person @ exchange other than the rate which has

been authorized by the Reserve Bank of India. In

the case before me, it has not been proved beyond

reasonable doubt whether a sum of Rs.24,75,000/-

has actually been paid or not. There is no

documentary evidence except the statement of Shri

Piyush Kumar Barodia and the retracted statement

of Shri Radheshyam confirming the fact that

Rs.24,75,000/- was exchanged @ of Rs.33/- per

dollar. Therefore, it is very relevant to take the

above facts and circumstances into consideration

before coming to a conclusion as to the correctness
5

of the statements given by S/Shri Radheshyam

Kejriwal and Piyush Kumar Barodia. The

documentary evidence available and the statements

of the other co-accused will definitely throw further

light in the matter.

After considering all the above facts, I find that

the only evidence available against Shri

Radheshyam Kejriwal is the fact that his telephone

number and name are mentioned in the documents

seized from Shri Piyush Kumar Barodia and the fact

that some transactions have been noted against his

name which do not match the sum of

Rs.24,75,000/- which was alleged to have been

transferred. Secondly, there is no evidence to show

that he was indulging in any foreign exchange

transaction to transfer money abroad. In

conclusion, the benefit of doubt will have to be given

to Shri Radheshyam Kejriwal in the absence of any

further evidence and also the fact that both Raju

Poddar and Babubhai Umaidmal have denied

having taken part in any such transaction.

Significantly, on enquiry, it was found that Shri

Sirish Kumar Barodia, brother of Shri Piyush

Kumar Barodia staying at Bombay, was not

available for the past year during which these

transactions took place. Shri Piyush Kumar Barodia

is absconding, therefore, his case is being decided

on merits. However, since the charges against Shri

Radheshyam Kejriwal for contravening the

provisions of Section 9(1)(f)(i) and Section 8(2) read

with Section 64(2) of the Foreign Exchange

Regulation Act, 1973 cannot sustained, the charges

against Shri Piyush Kumar Barodia can also not be

sustained. Therefore, the charges against S/Shri

Raju Poddar, Sirish Kumar Barodia and Babubhai

Umaidmal Jain @ Babubhai Bhansali, are not

sustainable for contravening the provisions of
6

Section 9(1)(f)(i) and 8(2) read with Section 64(2) of

the Foreign Exchange Regulation Act, 1973.

In view of the foregoing, the proceedings

initiated against S/Shri Piyush Kumar Barodia,

Radheshyam Kejriwal, Raju Poddar, Sirish Kumar

Barodia and Babubhai Umaidmal Jain and

Babubhai Bhansali, vide the impugned

Memorandum, are hereby dropped.”
It is common ground that the Enforcement Directorate

has not challenged this order and it has attained finality.
4. It is relevant to state that any person contravening the

provisions of Sections 8 and 9 of the Act besides other

provisions is also liable to be prosecuted under Section 56 of

the Act without prejudice to any award of penalty by the

adjudicating officer under Section 51 of the Act. However,

before launching such prosecution for contravening such

provisions of the Act which prohibits the doing of an act

without permission, the proviso to Section 61(2) of the Act

mandates giving an opportunity to the person concerned to

show that he had such permission. Accordingly, by notice

dated 29th December, 1994 the appellant was given an

opportunity to show permission granted by the Reserve Bank
7

of India. Appellant replied to that but did not produce

any permission.

5. The Enforcement Directorate on the same allegation

which was the subject matter of adjudication proceeding laid

complaint against the appellant for prosecution under Section

56 of the Act before the Metropolitan Magistrate. After the

issuance of process and exoneration in the adjudication

proceeding appellant filed application for dropping the

proceedings, inter alia, contending that on the same allegation

the adjudication proceedings having been dropped and the

appellant exonerated, his continued prosecution is an abuse of

the process of the Court. The Metropolitan Magistrate by order

dated 2nd September, 1997 rejected his prayer. Aggrieved by

the same appellant preferred criminal revision application and

reiterated the same submission but it did not find favour with

the Calcutta High Court and by the impugned order dated 10th

August, 2001, it rejected the revision application. While doing

so it observed as follows:
8

“Therefore, the contention of Mr. Ghosh is

unacceptable that in the adjudication proceedings

being held by the department concerned the

allegations against the petitioner having not been

found established the prosecution against him

before a Court of law cannot have any legs to stand

upon, since the same departmental authority which

held the enquiry against him and found no

materials for establishing his guilt cannot be

expected to lodge the prosecution on the self-same

allegations against that person before a Court and

cannot be expected to take a different stand on the

self-same materials as available against him on the

record. As we have noted above, the Enforcement

Officer who has investigated into the case is a

different agency from that of the adjudicating officer

and, what is more important, it cannot be taken for

granted that the Court will take the same view on

the materials on record which have prompted the

departmental authority to find the allegations not

substantiated. As it has been already pointed out,

the procedure according to which the trial of such

an accused by the Court it held has some special

features and the two testing processes are so

divergent that there is ample scope for the two

parallel authorities to hold even diametrically

opposite views so far as the question of proof of the

charge against the accused is concerned. The most

of decisions relied upon by Mr. Ghosh and

discussed above in respect of his above contention

cannot be attracted to our present case for the

simple reason that none of those judicial

pronouncements are relating to a case under the

Foreign Exchange Regulation Act the provisions of

which cannot be equated with those of the Income

Tax Act or Customs Act.”
9

6. Being aggrieved, the appellant is before us with the leave

of the Court.

7. Mr. Amarendra Sharan, Senior Counsel appearing on

behalf of the appellant submits that standard of proof required

to bring home the charge in a criminal case is much higher

than the adjudication proceeding and once the appellant has

been exonerated in the adjudication proceeding, his

prosecution is an abuse of the process of Court. Mr. P.P.

Malhotra, Additional Solicitor General, however, contends that

from the scheme of the Act as reflected from Sections 50, 51,

56 of the Act, the plea put forth by the appellant is

unsustainable.
8. The submissions made necessitate examination of the

scheme of the Act. Section 50 of the Act which is relevant for

the purpose reads as follows:
50. Penalty.– If any person contravenes any

of the provisions of this Act other than section 13,

clause (a) of sub-section (1) of section 18, section 18A

and clause (a) of sub-section (1) of Section 19 or of

any rule, direction or order made thereunder, he

shall be liable to such penalty not exceeding five

times the amount or value involved in any such
1

contravention or five thousand rupees, whichever is

more, as may be adjudged by the Director of

Enforcement or any other officer of Enforcement not

below the rank of an Assistant Director of

Enforcement specially empowered in this behalf by

order of the Central Government in either case

hereinafter referred to as the adjudicating officer.
The aforesaid provision provides for mandatory penalty

and fixes the outer limit of such penalty on any person

contravening the provisions of the Act which is to be adjudged

by the Director of Enforcement or any other officer of the

Enforcement not below the rank of an Assistant Director

empowered by the Central Government. The procedure and

the power to adjudicate penalty have been provided under

Section 51 of the Act, which reads as follows:
51. Power to adjudicate.– For the purpose of

adjudicating under section 50 whether any person

has committed a contravention of any of the

provisions of this Act other than those referred to in

that section or of any rule, direction or order made

thereunder, the adjudicating officer shall hold an

inquiry in the prescribed manner after giving that

person a reasonable opportunity for making a

representation in the matter 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 that

section.
1
9. From a plain reading of Section 51 of the Act it is evident

that for adjudging the penalty under Section 51 of the Act for

contravention of the provisions of the Act or any rule, direction

or order made thereunder the adjudicating officer is to be

satisfied that the person has committed the contravention

after holding an inquiry in the prescribed manner and after

giving the person concerned a reasonable opportunity of

making representation. Thus besides the procedural

requirement the sine qua non for imposition of penalty under

Section 51 of the Act is that the adjudicating officer has to

record its satisfaction that the person concerned has

committed the contravention of any of the provisions of the Act

or of any rule, direction or order made thereunder.

10. As would be evident from the preamble of the Act, it was

enacted for the conservation of foreign exchange resources of

the Country and the proper utilization thereof in the economic

development of the Country. It is relevant here to mention

that the Forty Seventh Report of the Law Commission of India

on the Trial and Punishment of Social and Economic Offences
1

quoted the following portion from the Report of the Study

Team on Leakage of Foreign Exchange through Invoice

Manipulation:
“…like the Customs Act, there should be a

provision that for an offence in the Foreign

Exchange Regulation Act, both adjudication by the

Director of Enforcement and conviction by a Court

of law are possible. The two should not be

alternatives as at present. We would also suggest

that in more and more cases, prosecution should

also be launched apart from adjudication so as to

have a deterrent effect.”
Bearing in mind aforesaid the Legislature in order to

ensure that no economic loss is caused by the contravention

provided for an appropriate penalty under Section 51 of the

Act and to prevent the tendency to violate is curbed by

inserting Section 56 of the Act providing for imposing

appropriate punishment after due prosecution, relevant

portion whereof reads as follows:
“56. Offences and prosecutions.– (1) Without

prejudice to any award of penalty by the

adjudicating officer under this Act, if any person

contravenes any of the provisions of this Act other

than section 13, clause (a) of sub- section (1) of

section 18, section 18 A, clause (a) of sub- section (1)
1

of section 19, sub- section (2) of section 44 and

sections 57 and 58, or of any rule, direction or order

made thereunder, he shall, upon conviction by a

court, be punishable,-

xxx xxx xxx xxx
11. With deepest respect we are entirely in agreement with

the conclusion of our learned Brother Sathasivam, J. that the

proceedings under Section 51 and 56 of the Act are

independent of each other and the finding in an adjudication

proceeding under Section 51 of the Act is not binding in the

proceeding for prosecution under Section 56 of the Act and

both can go hand in hand. Further, the prosecution can be

launched even before conclusion of adjudication proceeding

under Section 51 of the Act. In fact, it has explicitly been said

by this Court in the case of Standard Chartered Bank and
others vs. Directorate of Enforcement and others (2006) 4
SCC 278 which is as follows :
“24.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 the Act. There is no

indication that the prosecution depends upon the

result of the adjudication. We have already held that

on the scheme of the Act, the two proceedings are
1

independent. The finding in one is not conclusive in

the other. In the context of the objects sought to be

achieved by the Act, the elements relied on by the

learned Senior Counsel, would not justify a finding

that a prosecution can be launched only after the

completion of an adjudication under Section 51 of the

Act.”

12. However, in a case like the present one in which the

penalty proceeding under Section 51 of the Act and the

prosecution under Section 56 of the Act though launched

together but the penalty proceeding culminated earlier

exonerating the person, the question would arise as to

whether continuance of the prosecution would be permissible

or not. In other words, the question with which we are

concerned is the impact of the findings which are recorded on

the culmination of adjudication proceeding on criminal

proceeding and in case in the adjudication proceeding person

concerned is exonerated can he ask for dropping of the

criminal proceeding on that ground alone. Mr. Malhotra

submits that finding in the adjudication proceeding cannot

either operate as estoppel or res judicata in case of

prosecution under Section 56 of the Act and in this
1

connection, he has drawn our attention to a Constitution

Bench judgment of this Court in the case of the Assistant
Collector of Customs, Bombay and another vs. L.R.
Melwani and another AIR 1970 SC 962, wherein in
paragraph 8, it has been held as follows :
“8. We shall now take up the contention that the

finding of the Collector of Customs referred to earlier

operated as an issue estoppel in the present

prosecution. The issue estoppel rule is but a facet of

the doctrine of autre fois acquit.”

xxxx xxxx xxxx xxxx
But before an accused can call into aid the above

rule, he must establish that in a previous lawful trial

before a competent court, he has secured a verdict of

acquittal which verdict is binding on his prosecutor.

In the instant case for the reasons already

mentioned, we are unable to hold that the proceeding

before the Collector of Customs is a criminal trial.

From this it follows that the decision of the Collector

does not amount to a verdict of acquittal in favour of

accused Nos. 1and 2.”
We do not find any substance in the submission of

Mr. Malhotra and the decision relied on has no bearing in the

facts and circumstances of the case.
1

13. In L.R. Melwani’s case (supra), the accused persons

resisted their prosecution on the ground that the Collector of

Customs having given the benefit of doubt, in view of the

guarantee granted under Article 20 (2) of the Constitution for

the same offence they can not be tried more than once. It was

also contended that that person once convicted or acquitted

can not be tried for same offence again in view of the

safeguard provided under Section 403 of Code of Criminal

Procedure, 1898, which corresponds to Section 300 of the

Code of Criminal Procedure, 1973. In order to get benefit of

Section 300 of the Code of Criminal Procedure, 1973, it is

necessary for an accused person to establish that not only he

had been tried by a Court of competent jurisdiction for an

offence but convicted or acquitted of that offence and the said

conviction or acquittal is in force. In the aforesaid background

the question which fell for consideration before this Court was

as to whether the proceeding before the Collector of Customs

is a criminal trial by a court of competent jurisdiction for trial

of offence. On analysis of the various authorities of this Court,

the Constitution Bench came to the conclusion that the
1

Collector of Customs was not a Court of competent jurisdiction

for criminal trial. This would be evident from the following

passage from the said judgment :-

“……. Hence the question is whether that

prosecution is barred under Article 20 (2) of the

Constitution which says that no person shall be

prosecuted and punished for the same offence more

than once. This Article has no direct bearing on the

question at issue. Evidently those accused persons

want to spell out from this Article the rule of autre

fois acquit embodied in S.403, Criminal Procedure

Code. Assuming we can do that, still it is not

possible to hold that a proceeding before the

Collector of Customs is a prosecution for an offence.

In order to get the benefit of Section 403, Criminal

Procedure Code or Article 20 (2), it is necessary for

an accused person to establish that he had been

tried by a “Court of competent jurisdiction” for an

offence and he is convicted or acquitted of that

offence and the said conviction or acquittal is in

force…..”
14. In the present case, it is not the case of the appellant

that they were tried by the Enforcement Directorate and

therefore further trial by the criminal court is not permissible

but their contention is that in the face of the finding in the

adjudication proceeding, their continued prosecution is an

abuse of the process of the court. In view of what we have

observed above, the contention of Mr. Malhotra is without
1

merit and the decision relied on in no way supports

his contention.
15. Mr. Malhotra, then contends that finding of the

Enforcement Directorate in the adjudication proceedings is not

binding or relevant in the criminal court where the appellant is

facing the trial. In support of the contention, reliance has

been placed on a full Bench decision of the Lahore High Court

in the case of B.N. Kashyap vs. Emperor AIR (32) 1945

Lahore 23 and our attention has been drawn to the following

passage:

“There is no reason in my judgment as to why

the decision of the civil Court particularly in an action

in personam should be allowed to have that sanctity.

There appears to be no sound reason for that view.

To hold that when a party has been able to satisfy a

civil court as to the justice of his claim and has in the

result succeeded in obtaining a decree which is final

and binding upon the parties, it would not be open

to criminal Courts to go behind the findings of the

civil Court is to place the latter without any valid

reason in a much higher position than what it

actually occupies in the system of administration in

this country and to make it master not only of cases

which it is called upon to adjudicate but also of cases

which it is not called upon to determine and over

which it has really no control. The fact is that the

issues in the two cases although based on the same

facts (and strictly speaking even parties in the two
1

proceedings) are not identical and there appears to

be no sufficient reason for delaying the proceedings

in the criminal Court, which unhampered by the civil

Court, is fully competent to decide the questions that

arise before it for its decision and where in the

nature of things there must be a speedy disposal.”
We do not find any substance in this submission of Mr.

Malhotra also. We may observe that standard of proof in a

criminal case is much higher than that of the adjudication

proceeding. The Enforcement Directorate has not been able to

prove its case in the adjudication proceeding and the appellant

has been exonerated on the same allegation. The appellant is

facing trial in the criminal case. Therefore, in our opinion, the

determination of facts in the adjudication proceeding cannot

be said to be irrelevant in the criminal case. In the case of
B.N. Kashyap (Supra), the full Bench had not considered as
to the effect of a finding of fact in a civil case over the criminal

cases and that will be evident from the following passage from

the said judgment :

“I must, however, say that in answering the

question, I have only referred to civil cases where the

actions are in personam and not those where the

proceedings or actions are in rem. Whether a finding

of fact arrived at in such proceedings or actions
2

would be relevant in criminal cases, it is

unnecessary for me to decide in this case. When

that question arises for determination, the provisions

of Section 41, Evidence Act, will have to be carefully

examined.”
This Court had the occasion to consider this question in

the case of K.G. Premshanker v. Inspector of Police (2002)
8 SCC 87, wherein it has been held as follows :-

“30. What emerges from the aforesaid
discussion is — (1) the previous judgment which
is final can be relied upon as provided under
Sections 40 to 43 of the Evidence Act; (2) in civil
suits between the same parties, principle of res
judicata may apply; (3) in a criminal case, Section
300 CrPC makes provision that once a person is
convicted or acquitted, he may not be tried again for
the same offence if the conditions mentioned therein
are satisfied; (4) if the criminal case and the civil
proceedings are for the same cause, judgment of the
civil court would be relevant if conditions of any of
Sections 40 to 43 are satisfied, but it cannot be said
that the same would be conclusive except as
provided in Section 41. Section 41 provides which
judgment would be conclusive proof of what is
stated therein.”

Hence, we reject this submission of Mr. Malhotra.
16. Mr. Malhotra submits that finding recorded in the

adjudication proceeding is not binding on the criminal

proceeding as both the cases have to be decided on the basis

of the evidence therein. Reliance has been placed on a
2

decision of this Court in the case of Iqbal Singh Marwah v.
Meenakshi Marwah (2005) 4 SCC 370, relevant portion
whereof reads as follows :-
“32. Coming to the last contention that an
effort should be made to avoid conflict of findings
between the civil and criminal courts, it is necessary
to point out that the standard of proof required in
the two proceedings are entirely different. Civil
cases are decided on the basis of preponderance of
evidence while in a criminal case the entire burden
lies on the prosecution and proof beyond reasonable
doubt has to be given. There is neither any
statutory provision nor any legal principle that the
findings recorded in one proceeding may be treated
as final or binding in the other, as both the cases
have to be decided on the basis of the evidence
adduced therein….”

We do not have the slightest hesitation in accepting the

broad submission of Mr. Malhotra that finding in an

adjudication proceeding is not binding in the proceeding for

criminal prosecution. A person held liable to pay penalty in

adjudication proceeding can not necessarily be held guilty in

criminal trial. Adjudication proceedings are decided on the

basis of preponderance of evidence of a little higher degree

whereas in a criminal case entire burden to prove beyond all

reasonable doubt lies on the prosecution. In the case of Iqbal
Singh Marwah (supra) relied on by Mr. Malhotra, the question
which fell for consideration was as to whether bar under
2

Section 195 (1) (b) (i) and (ii) operates for taking cognizance

when a complaint is filed alleging that will filed by the accused

in a probate case is forged and while holding that the bar

would not operate if the will is forged before its filing in the

court, hence the aforesaid observation of this court has no

bearing in the facts and circumstances of this case.
17. It is trite that standard of proof required in criminal

proceedings is higher than that required before adjudicating

authority and in case accused is exonerated before the

adjudicating authority whether his prosecution on same set of

facts can be allowed or not is the precise question which falls

for determination in this case. There are authorities of this

Court in relation to the Income-tax Act in this regard. The first

in the series is the judgment of this Court in the case of
Uttam Chand and others vs. Income Tax Officer, Central
Circle, Amritsar (1982) 2 SCC 543 in which registration of
firm was cancelled on the ground that it was not genuine and

prosecution initiated for filing false return. However, in

appeal, the Income Tax Appellate Tribunal reversed the finding
2

and held the firm to be genuine. Relying on that, this court

quashed the prosecution inter alia observing as follows :

“1. Heard counsel, special leave granted In view of

the finding recorded by the Income Tax Appellate

Tribunal that it was clear on the appraisal of the

entire material on the record and Shrimati Janak

Rani was a partner of the assessee firm and that the

firm was a genuine firm, we do not see how the

assessee can be prosecuted for filing false returns.

We, accordingly, allow this appeal and quash the

prosecution.

2. There will be no order as to costs.”
In the case of G.L. Didwania and Another vs. Income
Tax Officer and Another 1995 Supp (2) SCC 724, on setting
aside the order of the assessing authority which led to the

prosecution of the assessee by the Income-Tax Appellate

Tribunal, this Court held the prosecution not permissible and

while doing so observed as follows :

“4. In the instant case, the crux of the matter is

attracted and whether the prosecution can be

sustained in view of the order passed by the

tribunal. As noted above, the assessing authority

held that the appellant-assessee made a false

statement in respect of income of M/s. Young India

and Transport Company and that finding has been

set aside by the Income Tax Appellate Tribunal. If

that is the position then we are unable to see as to

how criminal proceedings can be sustained.”
2

Similar view has been taken by this Court in the case of
K.C. Builders and Another vs. Assistant Commissioner of
Income Tax (2004) 2 SCC 731, in which it has been held as
follows:

“26. In our view, once the finding of concealment

and subsequent levy of penalties under Section

271(1)(c) of the Act has been struck down by the

Tribunal, the assessing officer has no other

alternative except to correct his order under Section

154 of the Act as per the directions of the Tribunal.

As already noticed, the subject-matter of the

complaint before this Court is concealment of income

arrived at on the basis of the finding of the assessing

officer. If the Tribunal has set aside the order of

concealment and penalties, there is no concealment

in the eye of the law and, therefore, the prosecution

cannot be proceeded with by the complainant and

further proceedings will be illegal and without

jurisdiction. The Assistant Commissioner of Income

Tax cannot proceed with the prosecution even after

the order of concealment has been set aside by the

Tribunal. When the Tribunal has set aside the levy

of penalty, the criminal proceedings against the

appellants cannot survive for further consideration.

In our view, the High Court has taken the view that

the charges have been framed and the matter is in

the stage of further cross-examination and, therefore,

the prosecution may proceed with the trial. In our

opinion, the view taken by the learned Magistrate

and the High Court is fallacious. In our view, if the

trial is allowed to proceed further after the order of

the Tribunal and the consequent cancellation of

penalty, it will be an idle and empty formality to
2

require the appellants to have the order of the

Tribunal exhibited as a defence document inasmuch

as the passing of the order as aforementioned is

unsustainable and unquestionable.”

18. Mr. Sharan contends that aforesaid principle shall apply

with equal force in the prosecution under the Act as the basic

principle which these judgments take note of to quash the

prosecution is the higher standard of proof required in a

criminal case than the adjudication proceeding and no

reference at all has been made to the provisions of the Income-

tax Act to come to that conclusion. The decisions referred to

above pertain to prosecution under the Income-tax Act and

obviously had not adverted to any of the provisions of the Act,

particularly Sections 50, 51 and 56 of the Act points out Mr.

P.P. Malhotra, the Additional Solicitor General and therefore

these decisions in his submission shall have no bearing on the

facts of the present case.
19. We find substance in the submission of Mr. Sharan.

There may appear to be some conflict between the views in the

case of Standard Charted Bank (supra) and L.R. Melwani

(supra) holding that adjudication proceeding and criminal
2

proceeding are two independent proceedings and both can go

on simultaneously and finding in the adjudication proceeding

is not binding on the criminal proceeding and the judgments

of this Court in the case of Uttam Chand (supra), G.L.

Didwania (supra) and K.C. Builders (supra) wherein this Court

had taken a view that when there is categorical finding in the

adjudication proceeding exonerating the person which is

binding and conclusive, the prosecution cannot be allowed to

stand. Judgments of this Court are not to be read as statute

and when viewed from that angle there does not seem any

conflict between the two sets of decisions. It will not make any

difference on principle that latter judgments pertain to cases

under the Income Tax Act. The ratio which can be culled out

from these decisions can broadly be stated as follows :-
(i) Adjudication proceeding and criminal prosecution can
be launched simultaneously;

(ii)Decision in adjudication proceeding is not necessary
before initiating criminal prosecution;
2

(iii)Adjudication proceeding and criminal proceeding are
independent in nature to each other;

(iv)The finding against the person facing prosecution in
the adjudication proceeding is not binding on the

proceeding for criminal prosecution;

(v) Adjudication proceeding by the Enforcement
Directorate is not prosecution by a competent court of

law to attract the provisions of Article 20 (2) of the

Constitution or Section 300 of the Code of Criminal

Procedure;

(vi)The finding in the adjudication proceeding in favour of
the person facing trial for identical violation will

depend upon the nature of finding. If the exoneration

in adjudication proceeding is on technical ground and

not on merit, prosecution may continue; and

(vii) In case of exoneration, however, on merits where
allegation is found to be not sustainable at all and

person held innocent, criminal prosecution on the

same set of facts and circumstances can not be
2

allowed to continue underlying principle being the

higher standard of proof in criminal cases.
In our opinion, therefore, the yardstick would be to judge

as to whether allegation in the adjudication proceeding as well

as proceeding for prosecution is identical and the exoneration

of the person concerned in the adjudication proceeding is on

merits. In case it is found on merit that there is no

contravention of the provisions of the Act in the adjudication

proceeding, the trial of the person concerned shall be in abuse

of the process of the court.
20. In the submission of Mr. Malhotra the matter stands

squarely covered by the decision of this Court in the case of
Standard Chartered Bank (supra) which submission has
found favour with learned Brother Sathasivam, J. We deem it

expedient to consider the ratio and background of the said

case in little detail. In the said case alleging violation of some

of the provisions of the Act the Enforcement Directorate

issued notices to the Standard Chartered Bank and its officers

as to why proceedings for imposition of penalty under Section
2

50 of the Act be not initiated against them. Further notices

under Section 61 of the Act were also issued to them calling

upon them to produce the necessary permission from the

concerned authority for the transaction involved. The

Standard Chartered Bank and its officers filed writ petitions in

the Bombay High Court challenging the constitutional validity

of Sections 50, 51 and 68 of the Act. The Bombay High Court

upheld the constitutional validity of the aforesaid provisions of

the Act but at the same time observed that Section 68(1) of the

Act shall not be applicable to adjudication proceeding and it is

confined to prosecution under the Act. The Bank and its

officers aggrieved by the judgment of the Bombay High Court

upholding the constitutional validity of the impugned

provisions of the Act and the Union of India dissatisfied with

the observation of the Court whereby it restricted the

application of Section 68(1) of the Act to only criminal

prosecution filed separate appeals before the Supreme Court.

This Court upheld the decision of the Bombay High Court so

far as the constitutional validity of the aforesaid provisions of

the Act is concerned and accordingly dismissed the appeals
3

filed by the Bank and its officers. However, this Court

reversed the view of the Bombay High Court in regard to the

applicability of Section 68(1) of the Act and held that it shall

be applicable to both adjudication proceeding as well as

proceeding for prosecution under the Act. In the case in hand

we are not concerned with either of the issue.
21. Another contention which was raised in the aforesaid

case was that criminal proceeding under Section 56 of the Act

could not be initiated before culmination of adjudication

proceeding under Section 51 of the Act. It was contended in

the said case that there has to be finding in the adjudication

proceeding about the violation of the provision of the Act and

consequential imposition of a penalty and only thereafter in

the light of those findings prosecution under Section 56 of the

Act could be launched. It was resisted by the Union of India

relying on the words “Without prejudice to any award of

penalty by the Adjudicating Officer” in Section 56 of the Act

and submission was made that criminal action cannot wait till

outcome of the adjudication proceeding. In the context of the
3

aforesaid argument this Court observed that proceedings

under Section 51 and 56 of the Act are proceedings

independent of each other and can be initiated simultaneously

and finding in an adjudication proceeding is not binding on

the Court in a proceeding for prosecution under Section 56 of

the Act. The effect of finding of exoneration in the

adjudication proceeding on criminal proceeding was not an

issue and, therefore, the judgment under consideration cannot

be said to have decided this question with which we are

concerned in the present appeal.
22. A learned Single Judge of the Bombay High Court had

the occasion to consider this question in a case under the

Foreign Exchange Regulation Act in Criminal Application No.

1070 of 1999 (Hemendra M. Kothari vs. Shri W.S. Vaigankar,

Assistant Director, Enforcement Directorate (FERA), Govt. of

India and State of Maharashtra), decided on 25.04.2007 and

on a review of large number of decisions of this Court and

other courts it came to the following conclusion :-
“21. It may be noted that in the present case

the applicant was exonerated by the Dy. Director of
3

Enforcement, who was adjudicating authority, in

the adjudication proceedings. Admittedly that order

was not challenged in appeal by the respondent and

thus that order has become final. I have already

noted the facts and findings of the adjudicating

authority in detail. The adjudicating authority had

clearly come to the conclusion that there was no

material to hold the present applicant guilty for

contravention of the provisions of FERA and he was

completely exonerated. When in the departmental

proceedings before the adjudicating authority, the

department could not establish the charges, it is

difficult to imagine how the department could prove

the same charges before the criminal Court when

the standard of proof may be much higher and

stringent than the standard of proof required in

departmental proceedings.”
The Delhi High Court also considered this question

arising out of a case under Foreign Exchange Regulation Act,

in detail in the case of Sunil Gulati & Anr. V. R.K. Vohra 145
(2007) DLT 612, and held as follows :-
“In case of converse situation namely where

the accused persons are exonerated by the

competent authorities/Tribunal in adjudication

proceedings, one will have to see the reasons for

such exoneration to determine whether these

criminal proceedings should still continue. If the

exoneration in departmental adjudication is on

technical ground or by giving benefit of doubt and

not on merits or the adjudication proceedings were

on different facts, it would have no bearing on

criminal proceedings. If, on the other hand, the

exoneration in the adjudication proceedings is on

merits and the concerned person(s) is/are innocent,
3

and the criminal prosecution is also on the same set

of facts and circumstances, the criminal

prosecution cannot be allowed to continue. The

reason is obvious criminal complaint is filed by the

departmental authorities alleging

violation/contravention of the provisions of the Act

on the part of the accused persons. However, if the

departmental authorities themselves, in

adjudication proceedings, record a categorical and

unambiguous finding that there is no such

contravention of the provisions of the Act, it would

be unjust for such departmental authorities to

continue with the criminal complaint and say that

there is sufficient evidence to foist the accused

persons with criminal liability when it is stated in

the departmental proceedings that ex facie there is

no such violation. The yardstick would, therefore,

be to see as to whether charges in the departmental

proceedings as well as criminal complaint are

identical and the exoneration of the concerned

person in the departmental proceedings is on merits

holding that there is no contravention of the

provisions of any Act.”
We respectfully endorse the view taken by the Bombay

High Court in the case of Hemendra M. Kothari (supra) and

Delhi High Court in Sunil Gulati (supra).
23. Bearing in mind the principles aforesaid we proceed to

consider the case of the appellant. In the adjudication

proceeding on merit the adjudicating authority has

categorically held that “the charges against Shri Radheshyam
3

Kejriwal for contravening the provisions of Section 9(1)(f)(i) and

Section 8(2) read with Section 64(2) of the Foreign Exchange

Regulation Act, 1973 cannot be sustained”. In the face of the

aforesaid finding by the Enforcement Directorate in

adjudication proceeding that there is no contravention of any

of the provisions of the Act, it would be unjust and an abuse of

the process of the court to permit the Enforcement Directorate

to continue with the criminal prosecution.
24. In the result the appeal is allowed, the impugned

judgment of the learned Metropolitan Magistrate and the order

affirming the same by the High Court are set aside and

appellant’s prosecution is quashed.

…………………………………………J

[HARJIT SINGH BEDI]

…………………………………………J

[CHANDRAMAULI KR. PRASAD]

NEW DELHI

FEBRUARY 18, 2011.
3
REPORTABLE

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1097 OF 2003

Radheshyam Kejriwal …. Appellant(s)

Versus

State of West Bengal & Anr. …. Respondent(s)

J U D G M E N T
P. Sathasivam, J.
1) This appeal is filed against the final judgment and order

dated 10.08.2001 passed by the High Court of Calcutta in

C.R.R. No. 3593 of 1997 whereby the learned single Judge of

the High Court dismissed the application filed by the appellant

herein under Sections 401 and 482 of the Code of Criminal

Procedure, 1973 (hereinafter referred to as `the Code’) for

quashing the criminal proceedings initiated against him vide

Complaint Case No. 965 of 1995 under Section 56 of the

Foreign Exchange Regulation Act, 1973 (hereinafter referred to

3
as “the FERA”) pending in the Court of 9th Metropolitan

Magistrate, Calcutta.

2) BRIEF FACTS:

a) On 07.05.1993, a show cause notice bearing No. T-4/2-

C/93 was issued by the Special Director, Enforcement

Directorate, FERA, Government of India, New Delhi to five

persons including the appellant herein for holding inquiry

under Section 51 of the FERA for the purpose of adjudicating

the penalty under Section 50 for contravening the provisions

of Sections 8(2) and 9(1)(f)(i) of the FERA which provides that

no person shall make or receive any payment except with the

special permission of the Reserve Bank of India. A search

was conducted in the premises of one Shri Piyush Kumar

Barodia at Calcutta wherefrom certain documents were found

including the telephone diary. Apart from certain

incriminating documents found against some other persons,

some entries resembling to the name of the appellant herein

were also found. After interrogating several persons, the

Department came to the conclusion that Piyush Kumar

Barodia was engaged in the transaction of providing dollars

3
abroad by receiving the money in Indian currency in India. He

used to send money through his younger brother placed at

Bombay, who in turn, used to give the same to one Shri Babu

Bhai Umaidmal Jain @ Bhansali and Bhansali used to send

the money to one Shri Anil Bhai at London and the Anil Bhai

used to deliver equivalent amount of foreign exchange to the

agents of such intending persons abroad.

(b) On 09.12.1994, the Enforcement Directorate, before

receiving the reply from the appellant herein, in response to

the notice dated 07.05.1993, issued another show cause

notice under Section 61 of the FERA for taking cognizance of

the offences committed on account of the contravention of the

provisions of the FERA. On 07.09.1995, without waiting for

the reply of the appellant in response to the two notices, one

under Section 51 for adjudication of penalty proceedings and

other under Section 61 for taking cognizance of the offence, a

complaint was filed by the Department under Section 56 of the

FERA alleging violation of provisions contained in Sections 8(2)

and 9(1)(f)(i) of the FERA. The Special Director, Enforcement

Directorate, FERA, New Delhi after going through the entire

3
record and the evidences, vide order dated 18.11.1996,

acquitted the appellant by holding that no penalty could be

imposed as there is no proper evidence to connect the

appellant with the contravention of any of the provisions of the

FERA and accordingly directed to drop the proceedings and

discharged the notices.

(c) Though no triable issue remained after the final

adjudication by the Special Director, Enforcement Directorate,

the criminal proceedings were not dropped by the Department.

On 27.03.1997, the appellant filed an application before the

Metropolitan Magistrate, Calcutta for dropping the

proceedings. Vide order dated 02.09.1997, the Metropolitan

Magistrate rejected the said application and held that there is

no bar to proceed with the criminal case as the proceeding

before the FERA Board is separate.

(d) Being aggrieved by the said order, on 04.12.1997, the

appellant filed an application under Sections 401 and 482 of

the Code before the High Court of Calcutta for quashing of the

criminal proceedings. The High Court, by the impugned order

dated 10.08.2001, rejected the prayer for quashing of the

3
criminal proceedings. Against the said order, the appellant

has filed this appeal by way of special leave before this Court.

3) Heard Mr. Amarendra Sharan, learned senior counsel for

the appellant and Mr. P.P. Malhotra, learned ASG for the

respondents.

4) The main question that arises for consideration in this

appeal is whether the Enforcement Directorate (ED) FERA can

prosecute the appellant in a proceeding under Section 56 of

the FERA when on the self-same facts and cause of action, the

respondent-adjudicating authority dropped the charges

framed under Section 50 of the FERA.

5) Since I have briefly stated the factual details in the earlier

paragraphs, there is no need to traverse the same once again.

However, it is not in dispute that the residential premises of

the appellant, a business man was searched by the office of

the Enforcement Directorate on 22.05.1992 and certain

documents were seized. Based on the same, on 07.05.1993, a

show cause notice was served against him by the Enforcement

Directorate directing him to show cause as to why

adjudication proceedings as contemplated under Section 51 of

4
the FERA should not be proceeded against him for

contravening the provisions of Sections 8(2) and 9(1)(f)(i) of the

FERA. The appellant submitted his reply to the show cause

notice. Thereafter, adjudication proceedings in respect of the

show cause notice dated 07.05.1993 was instituted before the

Special Director, Enforcement Directorate, FERA, New Delhi.

After considering the submissions of both sides, Special

Director passed an order dated 18.11.1996 holding that the

Enforcement Directorate had failed to make out a prima facie

case in support of charges of violation of Sections 8(2) and

9(1)(f)(i) of the FERA and directed that the aforementioned

Departmental proceedings be dropped. It is relevant to point

out that in the meantime i.e. on 26.07.1995, the respondents

filed a complaint against the appellant in the Court of Chief

Metropolitan Magistrate, Calcutta on the same cause of action

which was taken cognizance by the Magistrate. According to

the appellant, inasmuch as the same issues having already

been adjudicated by the authority concerned, the Magistrate

ought to have dropped the complaint and the continuation of

the proceedings would result in abuse of the process of the

4
Court. Aggrieved by the order of the Magistrate in not

dropping the proceedings and continuing the same, the

appellant preferred revision before the High Court being CRR

No. 3593 of 1997. By the impugned order, the High Court

accepting the stand of the Department refused to quash the

criminal proceedings and dismissed the revision.

6) In order to appreciate the claim of the appellant, it is

useful to refer the relevant provisions of FERA which are

applicable to the issue raised. They are:
“Penalty
50. If any person contravenes any of the provisions of this

Act [other than section 13, clause (a) of sub-section (1) of

section 18, section 18A and clause (a) of sub-section (1) of

section 19] or of any rule, direction or order made

thereunder, he shall be liable to such penalty not exceeding

five times the amount or value involved in any such

contravention or five thousand rupees, whichever is more, as

may be adjudged by the Director of Enforcement or any

other officer of Enforcement not below the rank of an

Assistant Director of Enforcement specially empowered in

this behalf by order of the Central Government (in either

case hereinafter referred to as the adjudicating officer).
Power to adjudicate
51. For the purpose of adjudging under section 50 whether

any person has committed a contravention of any of the

provisions of this Act (other than those referred to in that

section) or of any rule, direction or order made thereunder,

the adjudicating officer shall hold an inquiry in the

prescribed manner after giving that person a reasonable

opportunity for making a representation in the matter and if,
4
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 that

section.
Offences and Prosecutions
56. (1) Without prejudice to any award of penalty by the

adjudicating officer under this Act, if any person contravenes

any of the provisions of this Act [other than section 13,

clause (a) of sub-section (1) of section 18, section 18A clause

(a) of sub-section (1) of section 19, sub-section (2) of section

44 and sections 57 and 58], or of any rule, direction or order

made thereunder, he shall, upon conviction by a court, be

punishable, -(i) in the case of an offence the amount or value

involved in which exceeds one lakh of rupees, with

imprisonment for a term which shall not be less than six

months, but which may extend to seven years and with fine:

Provided that the court may, for any adequate and special

reasons to be mentioned in the judgement, impose a

sentence of imprisonment for a term of less than six months;

(ii) in any other case, with imprisonment for a term which

may extend to three years or with fine or with both.”

7) Mr. Amarendra Sharan, learned senior counsel for the

appellant, after taking through the above provisions as well as

the order dated 18.11.1996 of the Special Director,

Enforcement Directorate, dropping the departmental

proceedings submitted that in view of the said conclusion and

of the fact that the Department had not challenged the same

by way of further appeal, there cannot be criminal prosecution

for the same cause of action under Section 56(1) of FERA.

4
8) I have gone through the order of the Special Director

dated 18.11.1996. I have already pointed out that pursuant to

the search and seizure, after issuance of show cause notice

and opportunity of hearing, the Special Director, Enforcement

Directorate passed the above order. After considering all the

materials and finding that no incriminating documents

relating to foreign exchange transactions and further finding

that the charges against the appellant for contravening the

provisions of Sections 8 (2) and 9(1)(f)(i) read with Section 64

(2) of FERA cannot be sustained, the Special Director dropped

the proceedings initiated against the appellants and others.

Admittedly, the Department had not challenged the said

conclusion by way of an appeal to the Foreign Exchange

Regulation Appellate Board as per Section 52 of the FERA. It

is the claim of the appellant that since there is a categorical

finding by the Special Director exonerating the appellant from

all charges leveled against him, the Department is not

permitted to initiate criminal proceedings under Section 56 of

the FERA. It is the stand of the appellant that in view of the

language used in sub-section (1) of Section 56, namely,

4
“without prejudice to any award or penalty by the adjudicating

officer under this Act….”, and in the light of the categorical

conclusion by the Special Director dropping all the charges,

the Enforcement Department is estopped from initiating

prosecution.

9) In support of the above claim, learned senior counsel for

the appellant relied on the following decisions:-
1) G.L. Didwania and Another vs. Income Tax officer
and Another, 1995 Supp (2) SCC 724;
2) K.C. Builders and Another vs. Assistant
Commissioner of Income-Tax, (2004) 2 SCC 731;
3) P.S. Rajya vs. State of Bihar, (1996) 9 SCC 1 and
4) Uttam Chand and Others vs. Income Tax Officer,
Central Circle, Amritsar, (1982) 2 SCC 543.
10) The first decision, being G.L. Didwania (supra) arose

under the Income Tax Act. The appellant therein was an

assessee and for the assessment year 1960-61, he filed his

return of income showing his income as Rs. 26,224/- in the

prescribed form and the verification was signed by him on

25.08.1961 and the return was filed on 08.09.1961. The

4
appellant showed his business income from firms in Delhi and

Bombay. The assessment was made on 31.10.1961 by the

officer concerned taking the income to be of Rs. 35,699/-.

There was another firm, M/s Young India and Transport

Company in which the minor children of the appellant and his

two employees were partners. In the assessment proceeding,

the assessing authority reached the conclusion that it was not

a genuine firm and the instrument of partnership was invalid

and inoperative. Therefore, the proceedings under Sections

147 and 148 of the Income Tax Act were initiated against the

appellant and his assessment was reopened. In pursuance of

the notice under Section 148, the appellant filed his return

showing his income as Rs. 29,500/-. By an order dated

17.03.1969, the Income Tax Officer assessed the income of the

appellant as Rs. 52,634/- and this figure was arrived at by

adding the income of M/s Young India and Transport

Company and for the same assessment year as though it was

the income of the appellant. The appellant made a statement

in the verification to the return filed on 02.12.1971 and

delivered an account/statement which according to the

4
assessing authority was false or the assessee knew or believed

to be false. On the basis of this assessment, the prosecution

was launched and the complaint by the authorised authority

was filed on 09.09.1977. Meanwhile, the appellant-assessee

filed an appeal before the Income Tax Appellate Tribunal and

the Tribunal by its order dated 24.02.1977 allowed the appeal

and held that there was no substantial material to hold that

the appellant was the owner of the entire business. The

Appellate Tribunal also observed that the assessing authority

arrived at wrong conclusion from the facts on record and held

that the business run in the name of M/s Young India and

Transport Company belonged to the assessee and accordingly

the appellate authority deleted the addition of Rs. 23,134/-

from the total income of the assessee. After the Appellate

Tribunal passed the order, allowing the appeal in favour of the

appellant, the assessee filed a petition before the Magistrate to

drop the criminal proceedings. The Magistrate by his order

dated 02.09.1979 dismissed the said application and held that

the prosecution has got a right to lead evidence in support of

his complaint and the court can come to the conclusion

4
whether or not any criminal offence is made out. The

Magistrate also observed that the order of the Tribunal can be

taken only as evidence. Aggrieved by the same, the appellant-

assessee filed an application under Section 482 of the Code

before the High Court and the High Court dismissed the same

in limine which was challenged before this Court. The

question before this Court was whether the prosecution can be

sustained in view of the order passed by the Tribunal. In the

factual scenario, this Court held as under:

“4. … …. As noted above, the assessing authority held that

the appellant-assessee made a false statement in respect of

income of M/s Young India and Transport Company and

that finding has been set aside by the Income Tax Appellate

Tribunal. If that is the position then we are unable to see as

to how criminal proceedings can be sustained.”

The ratio laid down in the decision is that in view of

conclusion of the Income Tax Appellate Tribunal, the

Department is not permitted to continue the criminal

proceeding which was pending before the Magistrate and the

finding of the Appellate Tribunal is a conclusive one. Based on

such conclusion, this Court quashed the criminal proceeding

and allowed the appeal of the assessee.

4
11) The second decision being K.C.Builders (supra) also

arose under the Income Tax Act. Here again, relying on the

earlier decision in G.L. Didwania (supra), this Court held as

under:

“31. It is a well-established principle that the matter which

has been adjudicated and settled by the Tribunal need not

be dragged into the criminal courts unless and until the act

of the appellants could have been described as culpable.”

12) The third decision being P.S. Rajya (supra), relates to

power of the Court under Section 482 of the Code in respect of

quashing of complaint/FIR. In this decision, it was held that

if the issue in the criminal proceeding is identical to the

departmental proceeding which could not be established, the

Department is not permitted to pursue the same charge in the

criminal proceeding.

13) The last decision relied on by the counsel is Uttam
Chand (supra). This decision also arose under the Income
Tax Act. Without adverting to any statutory provisions and

the earlier decisions, confining to the facts of this case, noting

the finding recorded by the Income Tax Appellate Tribunal that

one Smt. Janak Rani was a partner of the assessee firm and

that the firm was a genuine firm, this Court quashed the

4
criminal proceeding initiated against her for filing false

returns.

14) The first two decisions admittedly arose from the Income

Tax Act. It is not demonstrated before us that whether

identical provisions, namely, Sections 50, 51 and 56 of the

FERA are available in the Income Tax Act. Even otherwise, in

the light of the language used in Section 56(1) of the FERA,

there cannot be any bar irrespective of the decision under

Section 50, which I will elaborate in the succeeding

paragraphs. The third decision relied on by the appellant

relates to power of the Court under Section 482 of the Code for

quashing the complaint/FIR and the last decision relied on

has to be confined to the facts of that case since no other

material was available. In other words, there is no ratio for

being considered for other cases.

15) Now, let me consider the stand of the Department as

projected by Mr. P.P. Malhotra, learned ASG. After taking

through Sections 50, 51 and 56 of the FERA, Mr. Malhotra

submitted that both the proceedings, namely, the

departmental adjudication and imposition of penalty as

5
covered by Sections 50 and 51 and the prosecution covered by

Section 56 of the Act can go hand in hand and there is no bar

from simultaneous operation of these two systems. He also

submitted that all the decisions relied on by the learned

counsel for the appellant have no bearing on the issue in the

case on hand since no one has dealt with the provisions of

FERA, more particularly, Sections 50, 51 and 56. In support

of his claim, he relied on the following decisions:- 1) Standard
Chartered Bank and Others vs. Directorate of
Enforcement and Others, (2006) 4 SCC 278; 2) K.G.
Premshanker vs. Inspector of Police and Another, (2002) 8
SCC 87; 3) Assistant Collector of Customs vs. L.R.
Malwani, 1969 (2) SCR 438; 4) Iqbal Singh Marwah and
Another vs. Meenakshi Marwah and Another, (2005) 4 SCC
370 and 5) B.N. Kashyap vs. Emperor, AIR (32) 1945 Lahore

23 Full Bench.

16) The first decision i.e. Standard Chartered Bank
(supra), is a three-Judge Bench decision and arose on the very
same provisions, namely, Sections 50, 51 and 56 of the FERA.

Since, at the outset, Mr. Amarendra Sharan has pointed out

5
that the question in that decision was not the one relating to

the issue being considered in the case on hand, let me first

note down the facts and points determined by the three-Judge

Bench. On receipt of notices under the FERA for showing

cause why adjudication proceedings for imposition of penalty

under Sections 50 and 51 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

appellant Bank and its officers of showing that they had the

necessary permission from the authority concerned 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 of India and for writ of prohibition

restraining the authorities under the FERA from proceeding

with the proposed adjudication and the proposed prosecution,

in terms of the Act. In another writ petition which was filed by

the officers of the Bank as CWP No. 2377 of 1996 challenging

the individual notices, the High Court of Bombay rejected the

challenge to the constitutional validity of Sections 50, 51, 56

5
and 68 of the FERA, but clarified that Section 68(1) of FERA

was not applicable to an adjudication proceeding and that it

was confined to a prosecution for penal offences under the Act.

Being aggrieved, the appellant-Bank and its officers as well as

the Union of India have filed Civil Appeals before this Court.

Initially, those appeals came up before a Bench of two learned

Judges which referred the same to a bench of three Judges by

order dated 20.04.2004. The three-Judge Bench doubted the

correctness of a decision relied on by the Bank and its officers

in Asstt. Commr. vs. Velliappa Textiles Ltd. (2003) 11 SCC

405 which was a judgment of a Bench of three Judges and by

order dated 16-7-2004 [ANZ Grindlays Bank Ltd. Vs.
Directorate of Enforcement, (2004) 6 SCC 531] referred the
question to a Constitution Bench. The Constitution Bench, by

judgment dated 5-5-2005 (Standard Chartered Bank vs.
Directorate of Enforcement (2005) 4 SCC 530) overruled the
decision in Asstt. Commr. vs. Velliappa Textiles Ltd.
(supra) and sent 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

5
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 the three-Judge

Bench has narrowed down and proceeded on the basis that

the appellant-Banks are liable to be prosecuted for offences

under the FERA. Since the Bench elaborately considered the

scope and applicability of Sections 50, 51, and 56 of the FERA

with which I am concerned, I extract the entire discussion and

the ultimate conclusion.

5
“20. The learned Senior Counsel for the appellants in Civil

Appeal No. 1750 of 1999, in addition to adopting the

arguments of the learned Senior Counsel already adverted

to, also contended that on the scheme of the Act, it was

incumbent on the Directorate of Enforcement to first

adjudicate in terms of Section 51 of FERA and only if

satisfied, proceed with the prosecution under Section 56 of

the Act. According to counsel, under the scheme of FERA,

the adjudication proceedings must first be commenced and

only after they are completed, the Directorate of Enforcement

can, in the light of the findings in the adjudication for

penalty, decide to initiate a prosecution and seek to impose

or not to impose a further punishment under Section 56 of

the Act. It is submitted that the adjudication proceedings

would give an idea to the authorities under the Act as to the

gravity of the violation and the opportunity to decide whether

the contravention deserved also a punishment by way of

prosecution. They would decide whether the penalty imposed

under Section 50 of the Act is adequate or not. If in the

adjudication proceedings it is found that the alleged offender

has not infringed any of the provisions of the Act, there will

be no occasion for the Directorate of Enforcement to

prosecute the person concerned. It would then be

incongruous and unreasonable for the Directorate of

Enforcement to prosecute a person for violating FERA, when

in the adjudication proceedings against him, it had been

found that the person had not violated any of the provisions

of FERA. It was in this context that the scheme of FERA

should be understood as indicating that there should first be

an adjudication and thereafter, if the Directorate of

Enforcement feels that the penalty is inadequate, to consider

the launching of a prosecution.

21. The learned Additional Solicitor General contended that

under FERA, adjudication and prosecution are two separate

and distinct procedures with distinct purposes. There was

no bar either in FERA or in any other law, to an adjudication

and prosecution being launched in respect of an alleged

contravention of FERA. Counsel submitted that the law has

permitted it by providing two separate modes for dealing

with the person who contravenes the law in relation to

foreign exchange. While the primary purpose of imposing of

the penalty is in the interests of revenue and the

preservation of foreign exchange, the primary purpose of

prosecution is to serve as a strong deterrent to persons or

companies contravening the provisions of the Act and to

send a message to society at large. Counsel pointed out that

Section 56 of FERA which deals with offences and

prosecutions, commences with the words “without prejudice

to any award of penalty by the adjudicating officer under this

Act”. A person contravening any of the provisions shall upon

conviction by a court will be punished, even if a penalty has
5
been imposed on him. There was no warrant for reading the

words “without prejudice to” as restricting the right of the

authorities under the Act to proceed with the adjudication

first and to commence the prosecution only at its conclusion.

Counsel also emphasised that the two proceedings are

independently dealt with. Counsel pointed out that even in

respect of FERA of 1947 in Shanti Prasad Jain v. Director of

Enforcement this Court had upheld a special procedure

under the statute holding that it was not violative of Article

14 of the Constitution. It is submitted that the purpose of

the Act is to bring the accused to book, more so in case of a

serious offence and it could not have been the intention of

the legislature to await a long time for an adjudication to be

completed by way of an appeal and a second appeal and

then only to commence the prosecution.

22. The Act was enacted, as indicated by its preamble, for

the conservation of foreign exchange resources of the

country and the proper utilisation 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, we see no reason to restrict the scope of any of the

provisions of the Act, especially in the context of the

presence of the “without prejudice” clause in Section 56 of

the Act dealing with offences and prosecutions. We find

substance in the contention of the learned Additional

Solicitor General that the Act subserves 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 under Section 51 of the Act

and two, to ensure that the tendency to violate is curbed by

imposing an appropriate punishment after a 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–we should interpret the provisions of the Act

and hold that an adjudication has to precede a prosecution

cannot be accepted as we see nothing in the provisions of the

Act justifying such 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. In the

context of the inclusion of this Act in the Ninth Schedule, the

reliance placed on the decision in Rayala Corpn. (P) Ltd. v.

Director of Enforcement cannot enable this Court to deem the

provisions as arbitrary and to read them down or

understand them in the manner suggested by the learned

Senior Counsel. The very purpose of the Act and the very

object of inclusion of the Act in the Ninth Schedule justifies
5
an interpretation of the provisions as they stand on the basis

that there is nothing arbitrary or unreasonable in the

provisions and in the scheme as enacted. We may also notice

that Section 23-D of the Foreign Exchange Regulation Act,

1947 which was considered in Rayala Corpn. (P) Ltd. had a

proviso, which indicated that the adjudication for the

imposition of penalty should precede the making of a

complaint in writing to the court concerned for prosecuting

the offender. The absence of a similar proviso to Section 56

or to Section 51 of the present Act, is also a clear indication

that 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 provisions by this Court in the

decisions above referred to when the 1973 Act was enacted

and it was also included in the Ninth Schedule to ward off

any challenge on the ground that it would be violative of

Article 14 of the Constitution, unless understood or read in a

particular fashion.

23. The learned Senior Counsel appearing for the appellant

in criminal appeal arising out of SLP (Crl.) No. 5892 of 2004

in which the Full Bench decision of the Calcutta High Court

is challenged, supported the arguments raised by the

learned Senior Counsel in Civil Appeal No. 1750 of 1999. The

Full Bench of the Calcutta High Court in the judgment

under appeal has, on a consideration of the relevant aspects,

answered the reference made to it by holding that a

complaint under Section 56 of FERA can never be said to be

premature if it is instituted before the awarding of penalty

under Section 50 of the Act and such criminal proceeding

being an independent proceeding, can be initiated during the

pendency of an adjudication proceeding under Section 51 of

FERA, 1973. Therein, the Full Bench has referred to the

decision of the Madras High Court in A.S.G. Jothimani Nadar

v. Dy. Director, Enforcement Directorate and that of the

Andhra Pradesh High Court in Anilkumar Aggarwal v. K.C.

Basu which also take the same view as the one taken by the

Full Bench in the judgment under challenge. The Court has

also derived support for its view from the decisions of this

Court in Asstt. Collector of Customs v. L.R. Melwani and in P.

Jayappan v. S.K. Perumal. We see no reason not to approve

the answer given by the Full Bench to the question referred

to it for decision. On the whole, we are satisfied that 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 FERA cannot

be initiated. Both proceedings can simultaneously be

launched and can simultaneously be pursued.

5
24. Counsel submitted that the devising of a special

machinery for adjudication, the limiting of the “without

prejudice” clause in Section 56 to any award of penalty and

not the initiation of proceedings under Section 51 of the Act,

the making of a contravention of any of the provisions of this

Act as the key to both proceedings, would all indicate that an

adjudication should precede a prosecution under Section 56

of the Act. 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 the Act. There is no

indication that the prosecution depends upon the result of

the adjudication. We have already held that on the scheme of

the Act, the two proceedings are independent. The finding in

one is not conclusive in the other. In the context of the

objects sought to be achieved by the Act, the elements relied

on by the learned Senior Counsel, would not justify a finding

that a prosecution can be launched only after the completion

of an adjudication under Section 51 of the Act. The decision

in K.C. Builders v. CIT is clearly distinguishable. The Court

proceeded as if under the Income Tax Act, the prosecution is

dependent on the imposition of penalty. That was a case

where the prosecution was based on a finding of

concealment of income and the imposition of penalty. When

the Tribunal held that there was no concealment, and the

order levying penalty was cancelled, according to this Court,

the very foundation for the prosecution itself disappeared.

This Court held that it is settled law that levy of penalties

and prosecution under Section 276-C of the Income Tax Act

are simultaneous and hence, once the penalties are

cancelled on the ground that there was concealment, the

quashing of the prosecution under Section 276-C of the

Income Tax Act was automatic. We have held already that on

the scheme of FERA, the adjudication and the prosecution

are distinct and separate. Hence, the ratio of the above

decision is not applicable. That apart, there is merit in the

submission of the learned Additional Solicitor General that

the correctness of the view taken in K.C. Builders may

require reconsideration as the reasoning appears to run

counter to the one adopted by the Constitution Bench in

Asstt. Collector of Customs v. L.R. Melwani and in other

decisions not referred to therein. For the purpose of these

cases, we do not think it necessary to pursue this aspect

further. Suffice it to say, that the ratio of that decision has

no application here.”

17) The next decision heavily relied on by the Department is
K.G. Premshanker (supra) which is also a three-Judge Bench
decision. In this case, this Court has considered the effect of

5
the decision of the civil court on the criminal proceedings and

initiation of civil and criminal proceedings against the same

person belonging to the same cause. The following discussion

and conclusion are relevant:

“30. What emerges from the aforesaid discussion is — (1)

the previous judgment which is final can be relied upon as

provided under Sections 40 to 43 of the Evidence Act; (2) in

civil suits between the same parties, principle of res judicata

may apply; (3) in a criminal case, Section 300 CrPC makes

provision that once a person is convicted or acquitted, he

may not be tried again for the same offence if the conditions

mentioned therein are satisfied; (4) if the criminal case and

the civil proceedings are for the same cause, judgment of the

civil court would be relevant if conditions of any of Sections

40 to 43 are satisfied, but it cannot be said that the same

would be conclusive except as provided in Section 41.

Section 41 provides which judgment would be conclusive

proof of what is stated therein.

31. Further, the judgment, order or decree passed in a

previous civil proceeding, if relevant, as provided under

Sections 40 and 42 or other provisions of the Evidence Act

then in each case, the court has to decide to what extent it is

binding or conclusive with regard to the matter(s) decided

therein.

32. In the present case, the decision rendered by the

Constitution Bench in M.S. Sheriff case would be binding,

wherein it has been specifically held that no hard-and-fast

rule can be laid down and that possibility of conflicting

decision in civil and criminal courts is not a relevant

consideration. The law envisages “such an eventuality when

it expressly refrains from making the decision of one court

binding on the other, or even relevant, except for limited

purpose such as sentence or damages”.

33. Hence, the observation made by this Court in V.M. Shah

case1 that the finding recorded by the criminal court stands

superseded by the finding recorded by the civil court is not

correct enunciation of law. Further, the general observations

made in Karam Chand case are in context of the facts of the

case stated above. The Court was not required to consider

5
the earlier decision of the Constitution Bench in M.S. Sheriff

case as well as Sections 40 to 43 of the Evidence Act.

34. In the present case, after remand by the High Court, civil

proceedings as well as criminal proceedings are required to

be decided on the evidence, which may be brought on record

by the parties.”

18) In L.R. Malwani (supra), which is also a Constitution

Bench decision, though various questions of law posed before

the Bench, I am concerned with question Nos. 1 and 2 which

reads thus:
“(i) Whether the prosecution from which these Criminal

Revision Petitions arose is barred under Article 20(2) of the

Constitution as against accused Nos. 1 and 2 in that case by

reason of the decision of the Collector of Customs in the

proceedings under the Sea Customs Act ?

(ii) Whether under any circumstance the finding of the

Collector of Customs that the 1st and 2nd accused are not

proved to be guilty operated as an issue estoppel in the

criminal case against those accused ?”

In those appeals, the case of the prosecution was that the

accused persons and some other unknown persons had

entered into a conspiracy at Bombay and other places in the

beginning of October, 1959 or thereabout for the purpose of

smuggling foreign goods into India and in pursuance of that

conspiracy they had smuggled several items of foreign goods in

the years 1959 and 1960. In that connection, an enquiry was

6
held by the Customs authorities. In the course of the enquiry,

some of the goods said to have been smuggled were seized.

After the close of the enquiry those goods were ordered to be

confiscated. In addition, penalty was imposed on some of the

accused. Thereafter, on February 19, 1965, the Assistant

Collector of Customs, Bombay after obtaining the required

sanction of the Government filed a complaint against five

persons including the appellants in Criminal Appeal No. 35 of

1967 (accused Nos. 1 and 2 in the case) under Section 120-B,
I.P.C. read with Clauses (37), (75), (76) and (81) of Section 167

of the Sea Customs Act, 1878 (Act VIII of 1878) as well as

under Section 5 of the Imports and Exports (Control) Act,

1947. Before the commencement of the enquiry in that

complaint, the 1st accused filed the application mentioned

above on August 3, 1965. In the enquiry held by the Collector

of Customs, he gave the benefit of doubt to accused Nos. 1

and 2. This is what he stated therein:
“As regards M/s. Larmel Enterprises (of which accused No. 1

is the proprietor and accused No. 2 is the Manager) although

it is apparent that they have directly assisted the importers

in their illegal activities and are morally guilty. Since there is

no conclusive evidence against them to hold them as persons

6
concerned in the act of unauthorised importation, they

escape on a benefit of doubt.”
Despite the above finding, the Assistant Collector in his

complaint sought to prosecute these accused persons. The

Constitution Bench has considered the contention that “the

finding of the Collector of Customs referred to earlier operated

as an issue estoppeld in the present prosecution”. The

following conclusion of the Constitution Bench is relevant:
“9. The rule laid down in that decision was adopted by this

Court in Pritam Singh v. State of Punjab, AIR 1956 SC 415

and again in N.R. Ghose alias Nikhil Ranjan Ghose v. State

of West Bengal, (1960) 2 SCR 58. But before an accused can

call into aid the above rule, he must establish that in a

previous lawful trial before a competent court, he has

secured a verdict of acquittal which verdict is binding on his

prosecutor. In the instant case for the reasons already

mentioned, we are unable to hold that the proceeding before

the Collector of Customs is a criminal trial. From this, it

follows that the decision of the Collector does not amount to

a verdict of acquittal in favour of accused Nos. 1 and 2.”

19) It is relevant to point that the above dictum of the

Constitution Bench in L.R. Malwani (supra) was relied on by

a three-Judge Bench in Standard Chartered Bank (supra).

20) In Iqbal Singh Marwah (supra), about the binding

nature of the decision in criminal court in respect of the same

issue, it was held:

6
“32. Coming to the last contention that an effort should be
made to avoid conflict of findings between the civil and
criminal courts, it is necessary to point out that the
standard of proof required in the two proceedings are
entirely different. Civil cases are decided on the basis of
preponderance of evidence while in a criminal case the entire
burden lies on the prosecution and proof beyond reasonable
doubt has to be given. There is neither any statutory
provision nor any legal principle that the findings recorded
in one proceeding may be treated as final or binding in the
other, as both the cases have to be decided on the basis of
the evidence adduced therein. While examining a similar
contention in an appeal against an order directing filing of a
complaint under Section 476 of the old Code, the following
observations made by a Constitution Bench in M.S. Sheriff v.

State of Madras give a complete answer to the problem
posed: (AIR p. 399, paras 15-16)
“15. As between the civil and the criminal proceedings we
are of the opinion that the criminal matters should be given
precedence. There is some difference of opinion in the High
Courts of India on this point. No hard-and-fast rule can be
laid down but we do not consider that the possibility of
conflicting decisions in the civil and criminal courts is a
relevant consideration. The law envisages such an
eventuality when it expressly refrains from making the
decision of one court binding on the other, or even relevant,
except for certain limited purposes, such as sentence or
damages. The only relevant consideration here is the
likelihood of embarrassment.
16. Another factor which weighs with us is that a civil
suit often drags on for years and it is undesirable that a
criminal prosecution should wait till everybody concerned
has forgotten all about the crime. The public interests
demand that criminal justice should be swift and sure; that
the guilty should be punished while the events are still fresh
in the public mind and that the innocent should be absolved
as early as is consistent with a fair and impartial trial.
Another reason is that it is undesirable to let things slide till
memories have grown too dim to trust.
This, however, is not a hard-and-fast rule. Special
considerations obtaining in any particular case might make
some other course more expedient and just. For example,
the civil case or the other criminal proceeding may be so
near its end as to make it inexpedient to stay it in order to
give precedence to a prosecution ordered under Section 476.
But in this case we are of the view that the civil suits should
be stayed till the criminal proceedings have finished.”

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21) In B.N. Kashyap (supra), the Full Bench of the Court

while considering Sections 40 to 43 of the Evidence Act, 1872

has held that finding on certain facts by a civil Court in action

in personam is not relevant before the Criminal Court when it

is called upon to give a finding on the same facts. Similarly

the finding on certain facts by the Criminal Court is not

relevant before the civil Court when it is called upon to give a

finding on the same facts.

22) The above decisions, particularly, the decision in
Standard Chartered Bank (supra) which arose under the
FERA and dealt with the scope of Sections 50, 51 and 56

which in turn relied on and followed in the decision of

Constitution Bench in L.R. Malwani (supra) is directly on the

point raised in this appeal. In fact, this Court, in para 21, in

the Standard Chartered Bank (supra) considered the very

scope of the words “without prejudice to any award of penalty

by the adjudicating officer under this Act” as mentioned in

Section 56 of the Act.

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23) Considering the interpretation relating to Sections 50, 51

and 56 by various decisions, I am of the view that in a statute

relating to economic offences, there is no reason to restrict the

scope of any provisions of the Act. These provisions ensure

that no economic loss is caused by the alleged contravention

by the imposition of an appropriate penalty after adjudication

under Section 51 of the Act and to ensure that the tendency to

violate is guarded by imposing appropriate punishment after

due transaction in terms of Section 56 of the Act. In fact, it is

relevant to point out that Section 23D of the Foreign Exchange

Regulation Act, 1947 had a proviso, which indicates that the

adjudication for the imposition of penalty should precede

making of complaint in writing to the court concerned for

prosecuting the offender. The absence of a similar proviso to

Section 51 or to Section 56 of the present 1973 Act is a clear

indication that the Legislature intended to treat the two

proceedings as independent of each other. There is nothing in

the present Act to indicate that a finding in adjudication is

binding on the Court in a prosecution under Section 56 of the

Act or that the prosecution under Section 56 depends upon

6
the result of adjudication under Section 51 of the Act. It is

reiterated that the two proceedings are independent and

irrespective of the outcome of the decision under Section 50,

there cannot be any bar in initiating prosecution under

Section 56. The scheme of the Act makes it clear that the

adjudication by the concerned authorities and the prosecution

are distinct and separate. No doubt, the conclusion of the

adjudication, in the case on hand, the decision of the Special

Director dated 18.11.1996, may be a point for the appellant

and it is for him to put forth the same before the Magistrate.

Inasmuch as FERA contains certain provisions and features

which cannot be equated with the provisions of Income Tax

Act or the Customs Act and in the light of the mandate of

Section 56 of the FERA, it is the duty of the Criminal Court to

discharge its functions vest with it and give effect to the

legislative intention, particularly, in the context of the scope

and object of FERA which was enacted for the economic

development of the country and augmentation of revenue.

Though the Act has since been repealed and not available at

6
present, those provisions cannot be lightly interpreted taking

note of the object of the Act.

24) In view of the above analysis and discussion, I agree with

the conclusion arrived at by the Metropolitan Magistrate,

Calcutta as well as the decision of the High Court.

Consequently, the appeal fails and the same is dismissed.
…………………………………….J.

(P. SATHASIVAM)

NEW DELHI;

FEBRUARY 18, 2011.

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