Supreme Court of India
M/S. SEEMA SILK & SAREES & ANR.versusDIRECTORATE OF ENFORCEMENT & ORS.
- Citation
- 2008 INSC 632
- Decided
- 12 May 2008
- Disposal
- Dismissed
- Bench
- S B SINHA
Holding
Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973 are constitutionally valid and not violative of Article 14.
Summary
M/s. Seema Silk & Sarees, a partnership firm, and its partner were penalised under Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973 for failing to repatriate export proceeds within the prescribed period. They challenged the constitutional validity of these provisions, arguing that the reverse burden of proof and the distinction between exporters and domestic traders violated Article 14 of the Constitution. The Supreme Court held that the Act is protected by Article 31B, being placed in the Ninth Schedule, and that the classification is based on intelligible differentia serving a legitimate legislative purpose. The Court further observed that hardship or commercial inconvenience does not render a statute unconstitutional and that the reverse burden is a procedural presumption, not a violation of equality. Consequently, the appeal was dismissed and the provisions were upheld as constitutionally valid.
Issues considered
- The constitutional validity of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973.
- Whether the reverse burden of proof imposed by these sections violates Article 14 of the Constitution.
- Whether the distinction between domestic traders and exporters amounts to unlawful discrimination.
- Whether the provisions are confiscatory in nature.
- Whether the Act, being in the Ninth Schedule, is shielded from challenge under Article 31B.
Legislation cited
- Constitution of Indias. Article 14, s. Article 31B
- Foreign Exchange Regulation Act, 1973s. 18(2), s. 18(3)
- Income Tax Act, 1961
Subjects
Foreign Exchange Regulation ActArticle 14Article 31Breverse burden of proofexport proceeds repatriationconstitutional validitydiscriminationNinth Schedule
Judgment
[2008] 8 S.C.R. 201
....
M/S. SEEMA SILK & SAREES & ANR. A
I/
DIRECTORATE OF ENFORCEMENT & ORS.
,(Criminal Appeal No. 860 Of 2008)
MAY 12, 2008
B
[S.B. SINHA AND LOKESHWAR SINGH PANTA, JJ.]
Foreign Exchange Regulation Act, 1973 - s.18(2) and (3)
- Payment of exported goods - Exporter unable to repatriate
the export proceeds - Constitutional validity .of s. 18(2) and (3) c
- Challenge to - Held: Provisions are constitutionally valid -
Act is protected under Article.31 B having been placed in Ninth
Schedule of the Constitution - Domestic .trades and exporter
stands on different footing - Discrimination on the ground of
valid classification based on intelligible differentia is not ultra
D
vires Article 14 even though hardship may be caused - Re-
verse burden of proof also does not render it unconstitutional
- Further, the said provision not ultra vires being contrary to
accounting practice - On facts, no case made out that the Act
was confiscatory in nature - Neither foundational fact brought
on record nor pleaded - In absence thereof, provision cannot E
be rendered ultra vires - Since submissions whether export-
ers committed any offence or not would remain open, order of
,_ High Court upholding constitutionality of s. 18(2) and (3) not
. to be interfered with - Constitution of India, 1950 - Article 14.
F
Appellant no.1 is a partnership firm and appellant
no.2 is its. partner. It is alleged that appellants-exporters
could not repatriate the value of goods from the export
proceeds. The Enforcement Directorate issued notice ul
s. 18(2) and (3) of the Foreign Exchange Regulation Act,
G
1973. The appellants furnished the details ofrepatriation
"" they could bring about as also step taken by them. The
.Bank did not grant the appellants extension of time for
repatriation of export and filed suit against them before
201 H
202 SUPREME COURT REPORTS [2008] 8 S.C.R.
A the tribunal. The Enforcement Directorate imposed pen-
alty. Aggrieved, appellant filed appeal and the same was
allowed. The Enforcement Directorate filed appeal. How-
ever, High Court did not stay the order. A criminal case
was also initiated. The appellants filed application for
B quashing of the criminal proceedings pending against
them. The application was disposed of as the appellants
had already filed application for discharge. The applica-
tion for discharge was dismissed later. The appellants filed
writ petition questioning the constitutionality of s. 18(2)
C and 18(3) of the Act as also constitutional validity of the
Constitution 39th Amendment Act. The writ petition was
dismissed. Hence the' present appeal.
Dismissing the appeal, the Court
D HELD: 1.1 The· Foreign Exchange Regulation Act,
1973 is protected under Article 31 B of the Constitution of
India having been placed in the Ninth Schedule thereof,
even otherwise, there is no reason to arrive at a conclu-
sion that the Act is ultra vires Article 14 of the Constitu-
tion. A discrimination on the ground of valid classifica-
E tion which answers the test of intelligible differentia does
not attract the wrath of Article 14 of the Constitution of
India. Hardship, by itself, may not be a ground for holding
the said provision to be unconstitutional. (Paras 11 and
12) [208-G; 209-A-B] •
F
Ajoy Kumar Bane•rjee v. Union of India (1984) 3 SCC
127 - referred to.
1.2 No case has been made out that the Act is confis-
catory in nature. No foundation fact has also been brought
G on record. Appellants have not annexed even a copy of
the writ petition. The counsel has not been able to satisfy "'
that there existed any factual foundation in support of his
argument. In absence of such factual foundation having
been pleaded, no case has been made out for declaring
H the said provision ultra vires the Constitution of
MIS. SEEMA & SAREES v. DIRECTORATE OF 203
ENFORCEMENT & ORS.
"?..
lndia.(Paras 13 and 14) [209-F.G; 210-G] A
Southern Petrochemical Industries Co. Ltd. v. Electricity
Inspector & ETIO (2007) 5 SCC 447 - referred to.
1.3 A domestic trader and an exporter stand on differ-
ent footings. The said provisions were made when the coun- B
try was undergoing severe 'foreign exchange crunch'. The
Parliament in its wisdom has inserted the said provisions
so as to prevent fraud. Section 18(1) of the Act provides for
filing of an application for grant of exemption by the Reserve
Bank of India. Refusal to give such an exemption is required c
to be preceded by reasonable opportunity of making a rep-
resentation. (Para 15) [210-H;211-A-B]
1.4 A legal provision does not become unconstitu-
tional only because it provides for a reverse burden. The
question as regards burden of proof is procedural in na- D
ture. The presumption raised against the trader is a re-
buttable one. Reverse burden as also statutory presump-
tions can be raised in several statutes. Presumption is
raised only when certain foundational facts are estab-
lished by the prosecution. The accused in such an event E
would be entitled to show that he has not violated the pro-
visions of the Act. In a case of this nature, particularly,
when an appeal against the order of the Tribunal is pend-
• ing, that the appellants are not entitled to take the benefit
... thereof at this stage. Such contentions must be raised F
before the criminal court. (Paras 16 and 17) [211-8-E]
1.5 Commercial expediency or auditing of books of
accounts cannot be a ground for questioning the consti-
tutional validity of a Parliamentary Act. If the Parliamen-
tary Act is valid and constitutional, the same cannot be G
declared ultra vi res only because the appellant faces some
difficulty in writing off the bad debts in his books of ac-
counts. He may do so. But that does not mean the statute
is unconstitutional or the criminal prosecution becomes
vitiated in law. (Para 18) [211-FG} H
204 SUPREME COURT REPORTS [2008] 8 S.C.R.
A 1.6 An order of discharge can be interfered with by
High Court on limited grounds. At that stage, it need not be
shown that the appellants may not ultimately be convicted.
It is enough if there exists a strong suspicion. The factual
matrix involved in the matter is one of the accounting. The
B burden being on appellants to show that they had taken
all permissible steps as are provided for under the law, the
question of passing any order of discharge at this stage
would not arise. (Paras 19 and 20) [211-G-H; 212-A-B]
1. 7 The export was to the tune of US $ 55,03,218. 78.
C Appellants on their own showing exported goods to the
developed countries. They did not obtain any general or
special permission from the Reserve Bank of India for non-
realisation of export proceeds beyond six months which
is the period specified u/s 18 of the Act. (Para 21) [212-B-C]
D
1.8 As all contentions as to whether the appellants
have committed any offence or nut shall remain open no
case has been made out for interference of the impugned
judgment. (Para 22) [212-D]
E CRIMINALAPPELLATE JURISDICTION: Criminal Appeal
rr.JO. 860 of 2008
From the final Judgment & Order dated 30.7.2007 of the
High Court of Judicature at Bombay in Crl. Writ Petition No. •
336 of 2007
F
MathewsJ. Nedumpara and. S. Usha ReddyfortheAppellants.
G.E. Vahanbvati, SG, Rajni Singh, Sushi! Kr., B.V. Bala ram
Pas and Ravindra Keshavrao Adsure for the Respondents.
G The Judgment of the Court was delivered by
S.B. SINHA, J : 1. Leave granted.
2. Constitutionality of Sub-sections (2) and (3) of Section
18 of the Foreign Exchange Regulation Act, 1973 (for short "the
H Act") is in question in this appeal which arises out of a judgment
M/S. SEEMA & SAREES v. DIRECTORATE OF 205
...\. ENFORCEMENT & ORS. [S.B. SINHA, J]
and order dated 30.07.2007 passed by the High Court of Judi- A
cature at Bombay in Criminal Writ Petition No. 336 of 2007.
3. Appellant No. 1 herein is a partnership firm and Appel-
lant No. 2 is its partner. Appellant No. 1 used to export garments
and textiles to various countries. It allegedly could not repatriate
the value of goods from the export proceeds. According to the B
appellants, whereas export to developed economies like US,
UK, Europe and Japan, on credit basis, does not undergo se-
vere competition and very minimal profit margin can be main-
tained, export to the less developed countries or the countries
with poor legal system earn greater profit margin. c
4. Appellants' business allegedly came to a standstill be-
cause of its inability to repatriate export proceeds to the tune of
16.5 crores from a few overseas buyers. A notice was issued
...; by the Enforcement Directorate under Sections 18(2) and 18(3)
D
of the Act alleging that in view of their failure to repatriate the
entire sale proceeds of the exports which the appellants have
made during 1997-98, the said provision is attracted.
They, in the cause shown, allegedly furnished details of
repatriation they could bring about as also the steps taken by E
them in that behalf. They applied for extension of time through
the authorized dealer, viz., the Canara Bank. However, with the
passage of time, the Branch Manager of the Bank did not grant
' any extension of time for repatriation of the export proceeds. A
4" suit was also filed by the Canara Bank before the Debt Recov- F
ery Tribunal, Mumbai.
5. The Enforcement Director, in the aforementioned pro-
ceedings, imposed a penalty of Rupees One Crore on the firm
and Rs.25 lakhs each on the partners. An appeal preferred by
the appellants before the Appellate Tribunal was allowed hold- G
.r&: ing that the appellants have taken all reasonable steps for re-
patriation. A further appeal was taken by the Enforcement Di-
rectorate before the High Court which was marked as FA Nos.
8 and 9 of 2005. However, the High Court although entertained
the appeal, did not pass any order of stay. H
206 SUPREME COURT REPORTS [2008] 8 S.C.R.
A 6. A criminal case was also initiated. Cognizance thereon
was taken and the appellants were summoned by an order dated
19.06.2004 by the Chief Metropolitan Magistrate, Esplanade
Court, Mumbai. Appellants thereafter filed a criminal applica-
tion bearing No. 6901 of 2005 for quashing of the criminal pro-
B ceedings pending against them. The said application was dis-
posed of by an order dated :26.07.2006 observing that as the
appellants had already filed application for discharge, the
learned Magistrate may pass appropriate order thereupon.
By an order dated 10. 10.2006, the said application for
c discharge was dismissed. It was inter alia contended by the
appellants in the said discharge application that the order of
Tribunal being civil in nature, the same was binding on the crimi-
r:ial court and, thus, the prosecution against them under Section
56 of the Act for was not maintainable. The order taking cogni-
D zance having been passed on 27.05.2002, the same was con-
tended to be bad in law.
7. Appellants preferred writ petition thereagainst question-
ing the constitutionality of Sections 18(2) and 18(3) of the Act
as also constitutional validity of the Constitution 391h Amend-
E ment Act. By reason of the impugned judgment, the said writ
petition has been dismissed.
8. Mr. Mathews J. Nedumpara, learned counsel appear-
ing on behalf of the appellants, would submit that Sections 18(2) j.
F and 18(3) of the Act placing the burden of proof upon the ac-
cused must be held to be a law having draconian character and,
thus, is unconstitutional.
It was submitted that by reason of the said provision, dis-
crimination has been made between a domestic trader and an
G exporter and, thus, the same is violative of Article 14 of the Con- Jil
stitution of India.
It was urged that validity of the said provision must be
judged on the touchstone of commercial considerations inas-
much as whether an exporter may not be able to repatriate the
H
M/S. SEEMA & SAREES v. DIRECTORATE OF 207
-.J.
ENFORCEMENT & ORS. [S.B. SINHA, J]
export proceeds particularly when such exports are made to A
the developing countries. The learned counsel would contend
that all traders in terms of the provisions of the Income Tax Act,
1961 make a provision for bad debt. When a trader suffers loss,
it is permissible to make a provision for writing off such bad
debts. It was furthermore urged that in terms of the provisions of B
the Income Tax Act, the accounts are required to be audited by
a Chartered Accountant and, thus, the impugned law being con-
trary to the accounting practice should not be sustained. Such
repatriation of exports proceeds, thus, being uncertain, it was
urged, the impugned provisions as also the Constitution 39th
Amendment Act cannot be sustained.
c
9. Mr. G. E. Vahanvati, learned Solicitor General appear-
ing on behalf of the respondents, on the other hand, would sub-
-I mit that a domestic trader and an exporter belong to different
classes and such classification, being valid, the impugned pro- D
visions are not ultra viresArticle 14 of the Constitution of India.
It was pointed out that having regard to the nature of busi-
ness and the risk involved in the export of commodities, the
appellant could approach the Reserve Bank of India for grant of
exemption and in that view of the matter it does not cause even E
any hardship to any individual.
~
10. Sections 18(2) and 18(3) of the Act reads as under:
>
"18. Payment for exported goods:
F
(1) ***
(2) Where any export of goods, to which a notification
under clause (a) of sub-section (1) applies, has been made,
no person shall, except with the permission of the Reserve
Bank, do or refrain from doing anything, or take or refrain G
from taking any action, which has the effect of securing -
(A) in a case falling under sub-clause (i) or sub-clause (ii)
of clause (a) of sub-section (1 ),-
(a) that payment for the goods - H
208 SUPREME COURT REPORTS [2008] 8 S.C.R.
A i. is made otherwise than in the prescribed
manner, or
ii. is delayed beyond the period prescribed under
clause (a) of sub-section (1), or
B (b) that the proceeds of sale of the goods exported do not
represent the full export value of the goods subject to such
deductions, if any, as may be allowed by the Reserve
Bank; and
(B) in a case falling under sub-clause (ii) of clause (a) of
sub-section (1 ), also that the sale of the goods is delayed
to an extent which is unreasonable having regard to the
ordinary course of trade: Provided that no proceedings in
respect of any contravention of the provisions of this sub-
section shall be instituted unless the prescribed period
D has expired and payment for the goods representing the
full export value has not been made in the prescribed
manner within the prescribed period.
(3) Where in relation to any goods to which a notification
under clause (a) of sub-section (1) applies the prescribed
E
period has expired and payment therefor has not been
made as aforesaid, it shall be presumed, unless the
contrary is proved by the person who has sold or is entitled
to sell the goods or to procure the sale thereof, that such
person has not taken all reasonable steps to receive or
F recover the payment for the goods as aforesaid and he
shall accordingly be presumed to have contravened the
provisions of sub-section (2)."
11. Admittedly, the Act finds place in the Ninth Schedule of
G the Constitution of India. In terms of Article 31 B of the Constitu-
tion of India inter alia none of the Acts specified in the Ninth
Schedule is ultra vires even if it is inconsistent with or takes
away or abridges any of the rights conferred by any provisions
of Part Ill of the Constitution of India.
H 12. Appellants have questioned the validity of the Act only
MIS. SEEMA & SAREES v. DIRECTORATE OF 209
,;._ ENFORCEMENT & ORS. [$.B. SINHA, J]
.
on the ground of infringement of Article 14 of the Constitution of A
India. Apart from the fact that the Act is protected under Article
31 B of the Constitution of India having been placed in the Ninth
Schedule thereof, even otherwise, we do not find any reason to
arrive at a conclusion that the Act is ultra vi res Article 14 of the
Constitution of India. A discrimination on the ground of V?lid clas- 8
sification which answers the test of intel/igib/e differentia does
~
not attract the wrath of Article 14 of the Constitution of India.
Hardship, by itself, may not be a ground for holding the said
provision to be unconstitutional.
In Ajay Kumar Banerjee v. Union of India [(1984) 3 SCC c
127], this Court held:
"50. Differentiation.is not always discriminatory. If there is a
rational nexus on the basis of which differentiation has been
made with the object sought to be achieved by particular
D
provision, then such differentiation is not discriminatory and
does not violate the principles of Article 14 of the
Constitution. This principle is too well-settled now to be
reiterated by reference to cases. There is intelligible basis
for differentiation. Whether the same result or better result
could have been achieved and better basis of differentiation E
evolved is within the domain of legislature and must be left
to the wisdom of the legislature. Had it been held that the
~ scheme of 1980 was within the authority given by the Act,
.k' we would. have rejected the challenge to the Act and the
scheme under Article 14 of the Constitution." F
13. No case has been made out that the Act is confiscatory
in nature. No foundation fact has also been brought on record.
Appellants have not annexed even a copy of the writ peti-
tion. The learned counsel has not been able to satisfy us that G
.....
there existed any factual foundation in support of his argument.
In Southern Petrochemical Industries Co. Ltd. v. E!ec-
tricity Inspector & ETIO [(2007) 5 SCC 447], this Court held:
"69. The issue that the 2003 Act is in violation of the H
210 SUPREME COURT REPORTS [2008] 8 S.C.R.
A equality clause contained in Article 14 of the Constitution
of India was not raised before the High Court. Only in one
of the civil appeals, prayer was made for urging additional
ground and the same having been directed, additional
ground has been taken to urge the said question. A ground
B taken, however, must be based on a factual foundation.
For attracting Article 14, necessary facts were required to
be pleaded. The foundational facts as to how Section 14
of the 2003 Act would be discriminatory in nature have not
been stated at all. The Government of Tamil Nadu has
c also not been given any opportunity to meet the said
contention.
70. It is now trite that such factual foundation, unless is
apparent from the statute, itself, cannot be permitted to be
raised and that too for the first time before this Court."
D
It was further opined:
"7 4. In absence of necessary pleadings and grounds taken
before the High Court, we are not in a position to agree
with the learned counsel appearing on behalf of the
E appellants that only because Section 13 of the repealed
Act is inconsistent with Section 14 of the 2003 Act, the
same would be arbitrary by reason of being discriminatory
in nature and ultra vires Article 14 of the Constitution of
India on the premise that charging section provides for
F levy of tax on sale and consumption of electrical energy,
while the exemption provision purports to give power to
exempt tax on "electricity sold for consumption" and makes
no corresponding provision for exemption of tax on
electrical energy self-generated and consumed."
G 14. In absence of such factual foundation having been
pleaded, we are of the opinion that no case has been made out for
..
declaring the said provision ultra vires the Constitution of India.
15. A domestic trader and an exporter stand on different
H footings. The said provisions were made when the country was
MIS. SEEMA & SAREES v. DIRECTORATE OF 211
. .f- ENFORCEMENT & ORS. [S.B. SINHA. J]
undergoing severe 'foreign exchange crunch'. The Parliament A
in its wisdom has inserted the said provisions so as to prevent
fraud. Sub-section (1) of Section 18 of the Act provides for filing
of an application for grant of exemption by the Reserve Bank of
India. Refusal to give such an exemption is required to be pre-
ceded by reasonable opportunity of making a representation. B
16. A legal provision does not become unconstitutional only
because it provides for a reverse burden. The question as re-
gards burden of proof is procedural in nature. [See Hiten P
Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16 and M. S.
Narayana Menon v. State of Kera/a, (2006) 6 SCC 39] c
17. The presumption raised against the trader is a rebut-
table one. Reverse burden as also statutory presumptions can
be raised in several statutes as, for example, the Negotiable
~ Instruments Act, Prevention of Corruption Act, TADA, etc. Pre-
D
sumption is raised only when certain foundational facts are es-
tabiished by the prosecution. The accused :n such an event
would be entitled to show that he has not violated the provisions
of the Act. In a case of this nature, particularly, when an appeal
against the order of the Tribunal is pending, we do not think that
the appellants are entitled to take the benefit thereof at this stage. E
Such contentions must be raised before the criminal court.
~
18. Commercial expediency or auditing of books of ac-
.£ counts cannot be a ground for questioning the constitutional
validity of a Parliamentary Act. If the Parliamentary Act is valid F
and constitutional, the same cannot be declared ultra vires only
because the appellant faces some difficulty in writing off the
bad debts in his books of accounts. He may do so. But that
does not mean the statute is unconstitutional or the criminal pros-
ecution becomes vitiated in law.
G
•
- 19. An order of discharge can be interfered with by the
High Court on limited grounds. At that stage, it need not be shown
that the appellants may not ultimately be convicted. It is enough
if there exists a strong suspicion.
H
212 SUPREME COURT REPORTS [2008] 8 S.C.R.
A 20. The factual matrix involved in the matter is one of the
accounting. The burden being on the appellants to show that
they had taken all permissible steps as are provided for under
the law, the question of passing any order of discharge at this
stage would not arise.
B 21. The export was to the tune of US $ 55,03,218. 78. Ap-
pellants on their own showing exported goods to the countries
like USA, Canada, France, Indonesia, etc. They did not obtain
any general or special permission from the Reserve Bank of
India for non-realisation of export proceeds beyond six months
C which is the period specified under Sub-section (1) of Section
18 of the Act.
22. As all contentions as to whether the appellants have
committed any offence or not shall remain open, we are of the
opinion that no case has been made out for interference of the
0
impugned judgment. The appeal is dismissed. No order as to
costs.
N.J. Appeal dismissed.
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