Foreign Exchange Regulation Act— Contravention of provisions of Act — Adjudication proceedings and criminal prosecution can be launched simultaneously — If the exoneration in the adjudication proceedings is on merits criminal prosecution on same set of facts cannot be allowed.

On 22nd May, 1992 various premises in the 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 u/s.35 of the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as the ‘Act’) and released 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 u/s.40 of the Act and in the light thereof his statement was recorded on various dates, viz., 22nd May, 1992, March 10, 1993, March 16, 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 the 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 applicant’s nominee abroad in Yugoslavia. It further appeared to the Enforcement Directorate that the 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 appellant in making the aforesaid payment of Rs.24,75,000 in Indian currency at the rate of Rs.33 per U.S. dollar against the official rate of dollar, i.e., Rs.30 per dollar (approximately), contravened the provisions of section 8(2) of the Act. Further the said payment having been made without any general or special exemption from the Reserve Bank of India, the appellant had contravened the provisions of section 9(1)(f) of the Act and accordingly rendered himself liable to imposition of penalty u/s.50 of the Act. The Enforcement Directorate was further of the opinion that by abetting in contravening the pro-visions of sections 9(1)(f)(i) and 8(2) of the Act read with the provisions of section 64(2) of the Act, the appellant had rendered himself liable for penalty u/s.50 of the Act.

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 proceedings as contemplated u/s.51 of the Act be not held against him for the contraventions pointed above. Show-cause notice dated 7th May, 1993 referred to above led to institution of proceedings u/s.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 sections 8, 9(1)(f)(i) and 8(2) of the Act read with section 64(2) of the Act could not be sustained. According to the Adjudication Officer, it had not been proved beyond reasonable doubt that a sum of Rs.24,75,000 had been actually paid, since there was no documentary evidence except the statement of Shri Piyush Kumar Barodia and a retracted statement of Shri Radheshyam. Since the Enforcement Directorate had not challenged the adjudication order it had become final.

Since any person contravening the provisions of section 8 and 9 of the Act besides other provisions is liable to be prosecuted u/s.56, a notice for prosecution came to be issued on 29-12-1994. After hearing, a complaint was lodged before the Metropolitan Magistrate. The application of the appellant for dropping the prosecution inter alia on the ground that on the same allegation the adjudication proceedings have been dropped was rejected by the Metropolitan Magistrate by his order dated 2-9-1997. The criminal revision application before the Calcutta High Court was rejected by an order dated 10-8-2001.

On further appeal, the Supreme Court observed that the ratio of various decisions on the subject could be broadly stated as follows:

(i)    Adjudication proceedings and criminal prosecution can be launched simultaneously;

(ii)    Decision in adjudication proceedings is not necessary before initiating criminal prosecution.

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

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

(v)    An adjudication proceeding by the Enforcement Directorate is not a 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 proceedings in favour of the person facing trial for identical violation will depend upon the nature of the finding. If the exoneration in the adjudication proceedings is on technical ground and not on the merits, prosecution may continue; and

(vii)    In case of exoneration, however, on the merits where the allegation is found to be not sustainable at all and the person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.

In the opinion of the Supreme Court, therefore, the yardstick would be to judge as to whether the allegation in the adjudication proceedings as well as the proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceeding is on the merits. In case it is found on the merits 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.

Bearing in mind the principles aforesaid, the Supreme Court proceeded to consider the case of the appellant. The Supreme Court noted that in the adjudication proceedings, on the merits the adjudicating authority had categorically held that the charges against Shri Radheshyam Kejriwal for contravening the provisions of section 9(1)(f)(i) and section 8(2) r.w.s. 64(2) of the Foreign Exchange Regulation Act, 1973 could not be sustained. The Supreme Court held that in the face of the aforesaid finding by the Enforecement Directorate in the adjudication proceedings 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. In the result, the Supreme Court by majority allowed the appeal and set aside the judgment of the learned Metropolitan Magistrate and the order affirming the same by the High Court and the appellant’s prosecution was quashed.

However, in a dissenting judgment separately delivered by P. Sathasivam J., it was held that considering the interpretation relating to sections 50, 51 and 56 by various decisions, in a statute relating to economic offences, there was no reason to restrict the scope of any provisions of the Act. These provisions ensured that no economic loss was caused by the alleged contravention by the imposition of an appropriate penalty after adjudication u/s.51 of the Act and to ensure that the tendency to violate is guarded by imposing appropriate punishment in terms of section 56 of the Act. Section 23D of the Foreign Exchange Regulation Act, 1947 had a proviso which indicated 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 was a clear indication that the Legislature intended to treat the two proceedings as independent of each other. There was nothing in the present Act to indicate that a finding in adjudication is binding on the Court in a prosecution u/s.56 of the Act or that the prosecution u/s.56 depends upon the result of adjudication u/s.51 of the Act. The two proceedings were independent and irrespective of the outcome of the decision u/s.50, there could not be any bar in initiating prosecution u/s.56. The scheme of the Act made it clear that the adjudication by the concerned authorities and the prosecution were distinct and separate. It was further held that no doubt, the conclusion of the adjudication, in the case on hand, the decision of the Special Director dated 18th November, 1996 may be a point for the appellant and it is for him to put forth the same before the Magistrate. Inasmuch as the FERA contains certain provisions and features which cannot be equated with the provisions of the 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 vested with it and give effect to the legislative intention, particularly, in the context of the scope and object of the FERA which was enacted for the economic development of the country and augmentation of revenue. Though the Act has since been repealed and is not applicable at present, those provisions cannot be lightly interpreted taking note of the object of the Act.

In view of the above analysis and discussion, the dissenting Judge agreed with the conclusion arrived at by the Metropolitan Magistrate, Calcutta as well as the decision of the High Court.