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2008 (5) TMI 10 - SC - FEMA


Issues Involved:
1. Constitutionality of Sub-sections (2) and (3) of Section 18 of the Foreign Exchange Regulation Act, 1973.
2. Validity of the criminal proceedings initiated under Section 56 of the Act.
3. Whether the provisions of the Act violate Article 14 of the Constitution of India.
4. The applicability of the reverse burden of proof.
5. The impact of commercial expediency and accounting practices on the constitutionality of the Act.

Detailed Analysis:

1. Constitutionality of Sub-sections (2) and (3) of Section 18 of the Foreign Exchange Regulation Act, 1973:
The Supreme Court examined the constitutionality of Sub-sections (2) and (3) of Section 18 of the Foreign Exchange Regulation Act, 1973, which were challenged by the appellants. The appellants argued that these provisions, which place the burden of proof on the accused, are draconian and unconstitutional. However, the Court held that these provisions are not ultra vires Article 14 of the Constitution of India. The Act is protected under Article 31B of the Constitution, having been placed in the Ninth Schedule, which shields it from being declared unconstitutional even if it infringes on fundamental rights.

2. Validity of the criminal proceedings initiated under Section 56 of the Act:
The appellants contended that the criminal proceedings against them under Section 56 of the Act were not maintainable, as the order of the Tribunal, being civil in nature, should be binding on the criminal court. The Court dismissed this argument, stating that the presumption against the trader is rebuttable and that the appellants had not provided sufficient evidence to show they had taken all reasonable steps to repatriate the export proceeds. The Court emphasized that such contentions must be raised before the criminal court.

3. Whether the provisions of the Act violate Article 14 of the Constitution of India:
The appellants argued that the provisions of the Act discriminate between domestic traders and exporters, thus violating Article 14 of the Constitution. The Court rejected this argument, stating that valid classification based on intelligible differentia does not attract the wrath of Article 14. The Court cited previous judgments, including Ajoy Kumar Banerjee v. Union of India, to support the principle that differentiation is not always discriminatory if it has a rational nexus with the object sought to be achieved.

4. The applicability of the reverse burden of proof:
The Court held that a legal provision does not become unconstitutional merely because it provides for a reverse burden of proof. Such provisions are procedural in nature and are found in various statutes like the Negotiable Instruments Act and the Prevention of Corruption Act. The presumption raised against the trader is rebuttable, and the accused can show that they have not violated the provisions of the Act. The Court cited Hiten P. Dalal v. Bratindranath Banerjee and M.S. Narayana Menon v. State of Kerala to support this view.

5. The impact of commercial expediency and accounting practices on the constitutionality of the Act:
The appellants argued that commercial expediency and the auditing of books of accounts should be considered in judging the validity of the Act. The Court dismissed this argument, stating that commercial expediency or accounting practices cannot be grounds for questioning the constitutional validity of a Parliamentary Act. The Court emphasized that if the Act is valid and constitutional, it cannot be declared ultra vires merely because the appellant faces difficulties in writing off bad debts in their books of accounts.

Conclusion:
The Supreme Court dismissed the appeal, holding that no case had been made out for declaring the provisions of the Foreign Exchange Regulation Act, 1973, ultra vires the Constitution of India. The Court found that the Act is protected under Article 31B, and the differentiation between domestic traders and exporters is based on valid classification. The reverse burden of proof is procedural and does not render the Act unconstitutional. The appeal was dismissed with no order as to costs.

 

 

 

 

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