Rayala Corporation (P) Ltd. And M.R.... vs Director Of Enforcement, New Delhi

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Criminal Appeal No. 18 of 1969; Criminal Appeal No. 19 of 1969

Decision Date: 23 July, 1961

Coram: V. Bhargava

Rayala Corporation (P) Ltd. and M.R. Pratap filed appeals that were granted a certificate for hearing before the Supreme Court of India. The judgment was delivered by Justice V. Bhargava. The appeals arose from a common order issued by the High Court of Madras, which had dismissed applications filed under Section 561A of the Code of Criminal Procedure. Those applications had been presented by the two appellants in order to obtain a quashing of criminal proceedings that were pending against them before the Chief Presidency Magistrate in Madras. The criminal proceedings were based on a complaint lodged on 17 March 1968 by the Director of Enforcement, New Delhi, who acted as the respondent. In the complaint, Rayala Corporation Private Ltd. was designated as accused number 1, while M.R. Pratap, who was the managing director of the corporation, was designated as accused number 2. The case therefore involved two separate criminal appeals—Criminal Appeal No. 18 of 1969 filed by the corporation and Criminal Appeal No. 19 of 1969 filed by Mr Pratap—both seeking relief from the orders of the Madras High Court.

The factual background leading to the complaint began with a raid carried out by the Enforcement Directorate on the premises of accused number 1 on 20 and 21 December 1966. During the raid, certain records that were under the control of the manager were seized. Subsequent investigations were conducted, and on 25 August 1967 the respondent issued a notice to both accused persons requiring them to show cause why adjudication proceedings under the Foreign Exchange Regulation Act, 1947 (referred to as “the Act”) should not be instituted against them. The notice alleged that a sum of Swedish Krona 2,44,713.70 had been deposited in a bank account in Sweden in the name of accused number 2, at the direction of accused number 1, and that this foreign exchange had not been surrendered to an authorised dealer as mandated by Sections 4 and 9 of the Act. Both accused were directed to submit their written explanations within fourteen days of receipt of the notice. After a period of correspondence between the respondent and the accused, a further notice was issued on 4 November 1967, this time addressed solely to accused number 2. The notice stated that accused number 2 had acquired Swedish Krona 88,913.09 between 1963 and 1965 while in Stockholm, was holding that amount in a bank account, and had failed to offer it to the Reserve Bank of India on behalf of the Central Government, thereby contravening Sections 4(1) and 9 of the Act. The notice also invoked Section 23(3) of the Act, granting accused number 2 a fifteen‑day period to demonstrate, in writing, that he possessed permission or a special exemption from the Reserve Bank of India authorising both the acquisition of the foreign exchange and the failure to surrender it as required by law.

In a comparable manner, a show‑cause notice of the same nature was served upon accused number 1 concerning the identical amount of Swedish Krona 88,913.09. This notice, like the one addressed to accused number 2, sought a written explanation from accused number 1 within the prescribed period, asking him to produce any permission or special exemption granted by the Reserve Bank of India that would justify his acquisition of the foreign exchange and his non‑surrender of the same in accordance with statutory requirements. The notice to accused number 1 referenced the same alleged breach of Sections 4 and 9 of the Act and offered the opportunity, under Section 23(3), to show cause as to why adjudication proceedings should not be instituted against him. The series of notices and the preceding raid formed the factual foundation upon which the respondent initiated the criminal complaint that now underlies the present appeals.

On 20 January 1968 the respondent issued a notice that referred to the deposit held in favour of accused No 2 and observed that accused No 1 had failed to surrender the amount. The notice also provided accused No 1 an opportunity to produce any permission or special exemption obtained from the Reserve Bank of India. Subsequently, on 16 March 1968 another notice was dispatched, addressed to both accused, requiring them to show cause in writing within fourteen days why adjudication proceedings contemplated under Section 23‑D of the Act should not be instituted against them in connection with a sum of Sw. Krs. 1,55,801.41. This sum was described as being held in a Stockholm bank account in the name of accused No 2 and as having been acquired in contravention of Sections 4(3), 4(1), 5(1)(e) and 9 of the Act. The notice indicated that it superseded the earlier show‑cause notice dated 25 August 1967 and explained that a prosecution had subsequently been decided for the amount of Sw. Krs. 88,913.09, which related to the two notices dated 4 November 1967 and 20 January 1968. The balance of the original total sum of Sw. Krs. 2,44,713.70, after deducting the latter amount, formed the basis of the adjudication proceeding under the 16 March notice. The following day, on 17 March 1968, a complaint was filed in the Court of the Chief Presidency Magistrate, Madras, charging both accused with contravention of Sections 4(1), 5(1)(e) and 9 of the Act, offences punishable under Section 23(1)(b) of the Act. The complaint additionally alleged violation of Rule 132‑A(2) of the Defence of India Rules, an offence punishable under Rule 132‑A(4) of those Rules. Both accused subsequently moved the High Court seeking quashing of the proceedings based on the complaint. Their applications were dismissed, and they appealed the High Court’s order, requesting that the proceedings initiated on the basis of the complaint be set aside. In the appeals, counsel for the appellants raised three principal points. The first point challenged the prosecution under Sections 4(1), 5(1)(e) and 9 of the Act on the ground that Section 23(1)(b) of the Act was ultra vires Article 14 of the Constitution because it prescribed a harsher punishment than that provided under Section 23(1)(a) for the same conduct. In the alternative, the counsel argued that even if Section 23(1)(b) were valid, the complaint pertaining to the offences punishable under that provision had not been filed in accordance with the procedural requirements set out in the proviso to Section 23‑D(1) of the Act, thereby rendering the proceedings incompetent. The second point contested the charge of violating Rule 132‑A(2) of the Defence of India Rules, asserting that the rule had been omitted by a Ministry of Home Affairs notification dated 30 March 1965, and consequently could not form the basis of a prosecution on 17 March 1968 when the rule was no longer in force. On these three grounds, the appellants prayed for the quashing of all proceedings instituted on the complaint.

The appellants contended that the complaint failed to satisfy the proviso to Section 23‑D(1) of the Act, thereby rendering any proceedings based on that complaint incompetent. Their third argument addressed the alleged violation of Rule 132‑A(2) of the Defence Instructions (D.I.)s, which is punishable under Rule 132‑A(4) of the same Rules. They asserted that Rule 132‑A had been removed by a notification issued by the Ministry of Home Affairs on 30 March 1965, and consequently, a prosecution for an offence punishable under that Rule could not lawfully have been instituted on 17 March 1968 because the Rule no longer existed at that time. On the basis of these three grounds – the deficiency in the proviso to Section 23‑D(1), the alleged ultra‑vires nature of the penalty provision, and the purported removal of the applicable Rule – the appellants sought a decree that would set aside the order allowing the proceedings initiated on the complaint and quash all actions taken with respect to the offences mentioned therein.

To examine the first ground raised by the appellants, the Court reproduced the relevant statutory language from Section 23 and Section 23‑D(1) of the Act. Section 23(1) provides that any person who contravenes the provisions of Sections 4, 5, 9, 10, Sub‑section (2) of Section 12, 18, 18A or 18B, or any rule, direction or order made thereunder, shall be liable either to a monetary penalty not exceeding three times the value of the foreign exchange involved or five thousand rupees, whichever is higher, as determined by the Director of Enforcement, or, if convicted by a Court, to imprisonment for a term that may extend to two years, or to a fine, or to both. Sub‑section 1A states that if a person violates any provision of the Act or any rule, direction or order for which no penalty is expressly prescribed, that person, upon conviction by a court, shall be punishable with imprisonment for a term that may extend to two years, or with a fine, or with both. Sub‑section 1B authorises any Court trying a contravention under Sub‑section (1) or (1A), as well as the authority adjudicating a contravention under Clause (a) of Sub‑section (1), to, at its discretion, in addition to any sentence or penalty imposed, order the confiscation of any currency, securities, gold, silver, goods, or other money or property involved in the contravention to the Central Government. It may further direct that any foreign exchange holdings of the offending person be either repatriated to India or retained abroad in accordance with prescribed directions. An accompanying explanation clarifies that “property in respect of which contravention has taken place” includes bank deposits where the property has been converted into such deposits. Finally, Sub‑section (2) provides that, notwithstanding any provision of Section 32 of the Criminal Procedure Code of 1898, it shall be lawful for a specially empowered first‑class magistrate, as authorized by the State Government, or a presidency magistrate, to impose a fine exceeding two thousand rupees on any person convicted of an offence punishable under this section.

It was held that a magistrate of the first class who has been specially empowered by the State Government, as well as any presidency magistrate, possessed the authority to impose a monetary penalty that exceeded two thousand rupees on any individual who had been convicted of an offence falling within the ambit of this section. Further, the judgment specified that no Court was permitted to take cognizance of certain offences except under strictly defined circumstances. Specifically, a Court could not take cognizance of any offence punishable under Sub‑section (1) unless a written complaint had been made by the Director of Enforcement. Likewise, a Court could not take cognizance of any offence punishable under Sub‑section (2) of Section 191 unless the complaint satisfied additional conditions. If the alleged offence was said to have been committed by an Enforcement officer of rank not lower than Assistant Director of Enforcement, the complaint required prior sanction from the Central Government. Conversely, if the alleged offender was an Enforcement officer of rank lower than Assistant Director, the complaint required prior sanction from the Director of Enforcement. In addition, a Court could not take cognizance of any offence punishable under Sub‑section (1A) of this section or under Section 23F unless a written complaint had been filed either by the Director of Enforcement or by any officer authorized by the Central Government or the Reserve Bank of India through a general or special order. The provision further stipulated that where the offence consisted of a contravention of any provision of this Act, or any rule, direction or order made thereunder that prohibited the performance of an act without permission, a complaint could not be made unless the person accused of the offence had fulfilled a prescribed condition, the precise nature of which was left unresolved in the text.

The judgment also clarified that the first proviso to Section 188 of the Criminal Procedure Code, 1898, could not be invoked in relation to any offence punishable under this section. In addition, Section 23D, titled “Power to adjudicate,” set out the procedure for determining whether a person had committed a contravention under Clause (a) of Sub‑section (1) of Section 23. According to this provision, the Director of Enforcement was required to conduct an inquiry in the manner prescribed by law, after providing the concerned person with a reasonable opportunity to be heard. If, after completing the inquiry, the Director was satisfied that a contravention had occurred, he was empowered to impose a penalty of his choosing, subject to the limits established by Section 23. However, the provision also contained a safeguard: if, at any point during the inquiry, the Director formed the opinion that the penalty he could impose would be inadequate in view of the circumstances, he was obliged to refrain from imposing the penalty himself and instead forward a written complaint to the Court. A plain reading of Section 23(1) revealed that the provision covered actions against any person who contravened the provisions of Sections 4, 5, 9, 10, 12(2), 18, 18A, or 18B, or any rule, direction or order made thereunder. The two clauses, (a) and (b), indicated two distinct modes of proceeding for such contraventions. Under Clause (a), liability was limited to the imposition of a monetary penalty, and that penalty could not exceed three

In this case, the Court explained that the penalty provided under Clause (a) of Section 23(1) may be either three times the value of the foreign exchange involved in the contravention or Rs 5,000/‑, whichever amount is higher, and that such penalty may be imposed through an adjudication made by the Director of Enforcement in accordance with the procedure laid down in Section 23D of the Act. By contrast, the alternative punishment described in Clause (b) is imposed only after a conviction by a Court, which is authorized to sentence the offender to imprisonment for a term that may extend to two years, to a fine, or to both imprisonment and fine. The Court observed that the punishment under Section 23(1)(b) is clearly more severe than the penalty that would arise if the proceedings were initiated under Section 23(1)(a) instead of prosecuting the offender before a Court under Section 23(1)(b). Counsel for the petitioner, Mr Sen, argued that Section 23(1) contains no guiding principles for deciding whether a particular contravention should be pursued under Clause (a) or Clause (b), and that the choice is left to the arbitrary discretion of the Director of Enforcement. He further contended that allowing the Director to determine, at his sole discretion, whether a person receives a more or less severe punishment for the same act violates the guarantee of equality before the law contained in Article 14 of the Constitution. The Court noted that this submission would have carried considerable weight if not for its own view that the effect of Section 23D is to restrain the Director’s discretion by providing a set of principles that govern the selection of the appropriate proceeding under either Section 23(1)(a) or Section 23(1)(b). In this respect, the Court pointed out that when Section 23(1) was originally enacted in 1947, it did not provide for an alternative punishment for the same contravention; it contained only a single provision authorizing the imposition of imprisonment for a term up to two years, or a fine, or both, together with a provision allowing the Court, if it deemed fit, to order confiscation of any currency, security, gold, silver, goods, or other property involved in the contravention. Consequently, at that time no issue of Article 14 arose because there was no choice between different modes of punishment. The Court further observed that Parliament, by means of the Foreign Exchange Regulation (Amendment) Act XXXIX of 1957, amended Section 23(1) and simultaneously introduced Section 23D. This amendment created the two alternative proceedings for the same contravention that are now set out in Section 23(1). By introducing these distinct avenues, Parliament placed the proceedings for administrative penalty before the Director of Enforcement at the forefront, while reserving the criminal punishment to be imposed by a Court upon conviction.

The Court observed that Section 23D(1) was divided into two distinct parts. The first part prescribed the procedure that the Director of Enforcement must follow in order to adjudge a penalty under Section 23(1)(a). The second part, which appeared in the proviso, conferred on the Director the power to file a complaint in lieu of imposing the penalty himself. The Court held that Sections 23(1) and 23D(1) had to be read together so that the procedure laid down in Section 23D(1) applied to every case in which proceedings were intended to be taken under Section 23(1). Accordingly, whenever a contravention of any provision or rule mentioned in Section 23(1) occurred, the Director of Enforcement was required first to act under the principal clause of Section 23D(1) and to initiate adjudication of a penalty. The Director could not, at that stage, exercise a discretionary choice to file a complaint in a court for prosecution of the person under Section 23(1)(b). A complaint could be filed only in accordance with the proviso to Section 23D(1), which expressly required that the Director, at any stage of the inquiry, must form the opinion that the penalty he was authorised to impose would be inadequate having regard to the circumstances of the case. Until that condition was satisfied, the Director could not approach the court for prosecution under Section 23(1)(b). Thus, the selection of the proceeding against a person liable for a contravention under Section 23(1) was not left entirely to the Director’s discretion; the criterion for making the choice was fixed by the proviso to Section 23D(1). The Court further noted that it could not be contended – and no argument was advanced by Mr Sen – that even if this interpretation were accepted, the validity of Section 23(1)(b) could still be challenged.

The Court also addressed an argument raised before it that the language of the principal clause of Section 23D(1) together with the language of the proviso did not justify an interpretation that a complaint for an offence under Section 23(1)(b) could be made by the Director of Enforcement only in accordance with the proviso. The argument contended that the principal clause merely laid down the procedure for the Director when proceeding under Section 23(1)(a) and contained no words indicating that such a proceeding must invariably be resorted to whenever he received information of a contravention mentioned in Section 23(1). The Court recognised that the statute did not contain any explicit words barring the Director from filing a complaint directly instead of first undertaking adjudication under Section 23D(1). Neither Section 23(1) nor Section 23D(1) employed specific language excluding the filing of a complaint before adjudicatory proceedings. The Court noted that, had such exclusionary language been used, the controversy before the Court would not have arisen. Nevertheless, the Court emphasized that the intention of the Legislature had to be gathered from the enactment as a whole, and that the simultaneous introduction of Section 23D(1) with the alternative proceedings under Section 23(1) indicated a legislative design that required the Director to follow the procedure in Section 23D(1) before exercising the power to file a complaint.

In this case, the Court observed that the provision in Section 23D(1) merely sets out the procedure to be followed by the Director of Enforcement when he proceeds under Section 23(1)(a). The provision contains no language that obliges the Director to resort to that procedure every time he receives information about a contravention described in Section 23(1). The wording also does not create any prohibition against the Director filing a complaint immediately, bypassing adjudication proceedings under Section 23D(1). It is correct that neither Section 23(1) nor Section 23D(1) includes specific language that excludes the filing of a complaint before adjudication proceedings are started under Section 23D(1). Had such language been present, the controversy raised before the Court in these appeals could not have arisen. Nevertheless, the Court must ascertain the Legislature’s intention from the statute as a whole. In this regard, it is significant that Section 23D(1) was enacted at the same time as the alternative provisions for proceedings under Section 23(1) in its two clauses, (a) and (b). This simultaneity indicates that Parliament intended all actions under Section 23(1) to be conducted in the manner prescribed by Section 23D(1). Parliament can be credited with understanding that a provision allowing two alternative punishments for the same act, without any limiting condition, would be void under Article 14 of the Constitution. Accordingly, Parliament introduced the procedural regime in Section 23D(1) so that the Director of Enforcement would decide whether to make a complaint to a Court and under what circumstances he may do so. The Court also keeps in view the general principle of statutory interpretation that, when a particular interpretation preserves the validity of the law, that interpretation should be preferred. Applying these principles, the Court finds no difficulty in holding that whenever a person commits a contravention punishable under either clause (a) or clause (b) of Section 23(1), the Director of Enforcement must first commence proceedings under the principal clause of Section 23D(1). The Director is empowered to lodge a complaint in Court only when he determines, in accordance with the proviso, that such a step is required. Only by invoking the proviso can the Director expose the person to the greater risk of a harsher penalty under Section 23(1)(b). The Court’s view aligns with its earlier decision in Shanti Prasad Jain v. The Director of Enforcement, where the Court examined the validity of Section 23(1)(a) and Section 23D on the ground that two alternative procedures were available for imposing punishment for the same act. The Court noted the position as follows: “It will be…”

The Court observed that whenever a contravention of Section 4(1) occurs, the first step must be taken by the Director of Enforcement. The Director may either adjudge the matter himself in accordance with Section 23(1)(a), or he may refer the matter to a Court if, in his opinion, a more severe penalty than he is authorized to impose is required. The appellant contended that when the case is referred to a Court, it will be tried under the procedure prescribed by the Criminal Procedure Code, whereas when the Director himself tries the case, the trial will follow the procedural rules framed under the Act. The appellant further argued that the existence of two substantially different procedures for the same offence, coupled with the discretionary power of an executive officer to decide which procedure applies, amounts to clear discrimination and therefore violates Article 14 of the Constitution. Consequently, the appellant submitted that Section 23(1)(a) should be declared unconstitutional and that the fine imposed on him under that provision should be set aside as illegal. The Court distinguished the provisions of the Act from the law considered in State of West Bengal v. Anwar Ali [1952] S.C.R. 284, holding that Section 23D confers authority on the very officer who has the power to try and dispose of a case to send it for trial to a Court, and that this power may be exercised only when he believes a more severe punishment than he is authorized to impose should be awarded. On this view of the effect of Section 23D, the Court concluded that the power vested in the Director of Enforcement to transfer cases to a Court is neither unguided nor arbitrary and does not offend Article 14; therefore, Section 23(1)(a) cannot be attacked as unconstitutional. In the earlier case, the argument was that Section 23(1)(a) should be struck down because its procedure, which permitted the Director of Enforcement to conduct proceedings, did not confer the same rights on the defence as the procedure prescribed for a trial when the Director filed a complaint under Section 23(1)(b). In the present matter, it is Section 23(1)(b) that is challenged on the slightly different ground that it provides for a higher punishment than that provided by Section 23(1)(a). The answer to both questions is found in the view expressed by this Court in the present case as well as in Shanti Prasad Jain, namely that although the Director of Enforcement has the power to try a case under Section 23(1)(a), he may refer the case to a Court only when he considers that a severer punishment than he is authorized to impose should be awarded.

The Court noted that it had previously accepted the principle that Section 23D entirely governed the procedure which the Director of Enforcement was required to follow when determining whether the appropriate punishment should be imposed under Section 23(1)(a) or under Section 23(1)(b). In the present matter, the Court found that the second argument presented by counsel for the appellants, namely that the respondent had failed to comply with the requirements of the proviso to Section 23D(1) when filing the complaint on 17 March 1968, possessed considerable merit. The Court reiterated that the proviso to Section 23D(1) prescribed the sole manner in which the Director of Enforcement could lodge a complaint and that this provision functioned as a safeguard. The safeguard was intended to protect any person against whom proceedings were initiated under Section 23(1) from being subjected to a harsher penalty at the discretion or whim of the Director. Because the legislature had provided this protection, the Court held that the authority initiating proceedings capable of attracting a severer punishment must strictly satisfy every condition laid down by law before proceeding. Consequently, the Court determined that it was necessary to examine whether the conditions of the proviso to Section 23D(1) had been met at the time the respondent lodged the challenged complaint on 17 March 1968.

The proviso to Section 23D(1) stipulated that a complaint could be made at any stage of the enquiry, but only if, after considering the circumstances of the case, the Director of Enforcement concluded that the penalty he was empowered to impose would be insufficient. Counsel for the appellants argued that, in this instance, the complaint had not been filed as a result of an enquiry conducted under the principal clause of Section 23D(1) and that no material had been placed before the respondent that would enable him to form the opinion that the penalty he could impose would be inadequate with respect to the amount of Sw. Krs. 88,913.09 allegedly acquired by the two accused between 1963 and 1965 and kept in deposit contrary to law. While extensive arguments were presented concerning the precise stage of the enquiry at which the Director should form his opinion and be entitled to file a complaint, the Court observed that it was unnecessary to resolve that issue in the present case. It was noted that the enquiry under Section 23D(1) had been initiated by the issuance of a show‑cause notice dated 25 August 1967, which corresponded to the notice specified in Rule 3(1) of the Adjudication Proceedings and Appeal Rules, 1957. However, the record did not indicate that any material relevant to assessing the adequacy of the penalty had been brought before the respondent after the issuance of that notice.

After the show‑cause notice dated 25 August 1967 was issued, no material was placed before the Director of Enforcement that could be used to form an opinion that the penalty he was authorised to impose for the alleged contravention involving the sum of ₹ 88,913.09 would be inadequate. Nevertheless, the Director appeared to have formed a prima facie view that a complaint should be filed against accused No. 2 when he issued a notice on 4 November 1967 under the proviso to Section 23(3) of the Act, and a similar view with respect to accused No. 1 when he issued a notice on 20 January 1968 under the same proviso. The record, however, contains no information indicating that, by the time those two notices were issued, any material had emerged in the enquiry that had been launched by the earlier notice of 25 August 1967 which could have led the Director to conclude that he would be unable to impose an adequate penalty by continuing the adjudication proceedings. Even later, when one of the accused responded to the notice, the record does not show that any such relevant material was brought before the Director.

Mr S.T. Desai, appearing for the respondent, drew the Court’s attention to paragraph 3(E) of the petition filed by accused No. 1 seeking a certificate under Article 132(1) and Article 134(1)(c) of the Constitution. That paragraph pleaded that, after the show‑cause notice dated 25‑8‑67 had been issued in respect of the subject matter of the pending prosecution, the respondent had taken various acts, taken statements, recorded statements and conducted investigations, yet had not held an enquiry for the purpose of forming an opinion that the accused was guilty of violations and that the penalty was inadequate; consequently, the prosecution filed in C.C. 8756 of 68 should be quashed on that ground. Relying on this pleading, Mr Desai argued that it amounted to an admission by accused No. 1 that, during the enquiry, various statements had been taken and investigations made, and therefore the Court should not hold that there was no material on which the Director could have formed the opinion that the case was appropriate for a complaint. The Court observed, however, that the pleading does not demonstrate that any statements were taken or recorded during the enquiry conducted under Section 23D(1) of the Act in the manner prescribed by the Adjudication Proceedings and Appeal Rules, 1957. Those Rules require that, after a notice is issued, the Director must consider the cause shown by the person in response, and if he is of the opinion that adjudication proceedings should be held, he must fix a date for the person’s appearance, either personally or through a lawyer or authorised representative, explain the alleged offence and the relevant provisions, and give the person an opportunity to produce any documents or evidence he considers relevant. It is only on the conclusion of such an inquiry that the Director may impose a penalty under Section 23(1)(a). In the present case, the record contains no material showing that any such proceedings were undertaken in accordance with the Rules. No cause was shown by either accused, nor was there any consideration by the Director to decide whether adjudication proceedings should be instituted. While some investigations were indeed carried on after the notice of 25‑8‑1967, those investigations did not fulfil the procedural requirements prescribed by the Rules.

The Director, after issuing a notice, must serve the person against whom the alleged offence is directed, or that person’s lawyer or authorised representative. The notice must indicate the specific provisions of the Act or the rules, directions, or orders that purportedly have been contravened. Following the notice, the Director must provide the notified person an opportunity to produce any documents or evidence that he considers relevant to the inquiry. A penalty under Section 23(1)(a) may be imposed by the Director only after the conclusion of such an inquiry. In the present case, the record contains no material demonstrating that any proceedings were conducted in the manner prescribed by the Adjudication Proceedings and Appeal Rules, 1957. Neither of the two accused appears to have shown any cause, nor does the respondent appear to have considered any cause to decide whether adjudication proceedings should be held. It is true that some material shows investigations were carried out by the respondent after the notice dated 25‑8‑1967, but these investigations do not constitute the inquiry required under the Rules. Before the complaint was filed, a writ petition under Article 226 of the Constitution was moved in the High Court of Madras seeking to quash the notice of 25 August 1967. The High Court, in an order on an interim application related to that notice, permitted certain investigations to continue while restraining any further penal proceedings under the notice. This indicates that any statements recorded by the respondent, as mentioned in accused No. 1’s petition, were made during investigations and not during an inquiry under Section 23D(1) of the Act. Consequently, the record before this Court does not show any material that was available to the Director in the course of an enquiry under Section 23D(1). Because of that lack, the Director could not form a reasoned opinion that filing a complaint was a proper step. The complaint therefore fails to satisfy the requirements and conditions of the proviso to Section 23D(1) of the Act and violates the legislative safeguard intended for such situations. As regards the alleged contravention of Sections 4(1), 5(1)(e) and 9 of the Act punishable under Section 23(1)(b), the complaint is invalid and any proceedings based on it must be quashed. The remaining issue for consideration is whether the proceedings may be validly continued on the complaint with respect to the charge under Rule 132A(4) of the D.I. Rules.

The complaint that was filed against the two accused relied on two specific provisions of Rule 132A of the Defence of India Rules. Clause 132A(2) prohibits any person who is not an authorised dealer from buying, acquiring, borrowing, selling, transferring, lending or exchanging foreign exchange with any person who is also not an authorised dealer. The prohibition aimed to prevent unauthorized individuals from dealing in foreign currency, which was considered a matter of national security during the period of the Defence of India regime. Clause 132A(4) provides that a person who contravenes any provision of the rule may be punished with imprisonment for a term up to two years, or with a fine, or with both. The court that tries such contravention may also order that the foreign exchange involved be forfeited to the Central Government. The forfeiture provision was intended to recover any foreign exchange obtained in contravention of the rule and to place it under governmental control. The charge alleged that the two accused had acquired foreign exchange amounting to Rs. 88,913.09 in violation of the prohibition contained in Rule 132A(2) while the rule was still operative, thereby attracting liability under Rule 132A(4). Rule 132A in its entirety ceased to exist after a notification issued by the Ministry of Home Affairs on 30 March 1955, which introduced the Defence of India (Amendment) Rules, 1965. The Ministry of Home Affairs’ notification of 30 March 1955 formally replaced the earlier rule by introducing the 1965 amendment, thereby rendering the original prohibition obsolete. Clause 2 of those Amendment Rules states that, in the Defence of India Rules, 1962, Rule 132A—relating to prohibition of dealings in foreign exchange—shall be omitted except insofar as it concerns acts done or omitted to be done under that rule.

Mr. Sen argued that, even if the accused had breached Rule 132A(2) while it was in force, such breach could not be characterized as a ‘thing done or omitted to be done under that rule.’ Consequently, after the rule had been omitted, no fresh prosecution for that breach could be launched under the law. He also conceded that a prosecution already commenced while Rule 132A was operative might be lawfully continued without violating the amendment. However, once the rule was entirely omitted, a new proceeding could not be initiated even though the alleged offence had taken place during the rule’s period of operation. Such a restriction reflects the principle that legislative repeal should not revive liability for conduct that the legislature has expressly withdrawn. The Court found Mr. Sen’s submission persuasive, observing that the wording of Clause 2 of the Defence of India (Amendment) Rules, 1965 protects only actions already taken while the rule was in effect. It does not allow the commencement of new proceedings after the rule’s omission, as the legislative intent was to close the avenue for fresh actions. Accordingly, the Court held that the complaint filed for an offence under Rule 132A(4) of the Defence of India Rules after 1 April 1965, when the rule had been omitted, was invalid. The Court noted that this view was consistent with the general principle that temporary statutes cease to have effect for pending proceedings once they are repealed, unless a specific provision preserves such proceedings. The Court’s decision therefore aligns with established jurisprudence that temporary provisions lose their operative effect once expressly repealed, unless a saving clause is clearly provided.

In the discussion, the Court referred to the decision in S. Krishnan and Ors. v. State of Madras [1951] S.C.R. 621, which dealt with temporary enactments. The judgment in that case stated that, unless a special provision indicated otherwise, the general rule for a temporary statute is that any proceedings initiated against a person under that statute will automatically cease the moment the statute expires. The Court also mentioned a decision of a learned single Judge of the Allahabad High Court in Seth Jugmendar Das and Ors. v. State, where a similar principle was applied when examining the effect of the repeal of the Defence of India Act, 1939, and of Ordinance No. XII of 1946, which had amended Section 1(4) of that Act.

Conversely, counsel for the respondent relied on the Privy Council’s decision in Wicks v. Director of Public Prosecutions [1947] A.C. 362. In that case, the appellant had been convicted for violating Regulation 2A of the Defence (General) Regulations, which were framed under the Emergency Powers (Defence) Act, 1939, as applied to British subjects abroad by Section 3(1)(b) of that Act. The Privy Council observed that at the time the acts forming the basis of the charge were committed, the relevant regulation was in force, and therefore a prosecution commenced immediately thereafter could not be challenged on the ground of the regulation’s later expiry. The Emergency Powers (Defence) Act, 1939, was a temporary statute that, after several extensions, ceased to be operative on 24 February 1945. The appellant’s trial, however, did not occur until May 1946, and he was sentenced to four years’ penal servitude on 28 May 1946. The appeal posed the question whether a person could be acquitted when it was proven that he had breached a Defence Regulation while that regulation was operative, but his trial and conviction took place after the regulation’s expiry. The Privy Council examined Sub‑section (3) of Section 11 of the Emergency Powers (Defence) Act, 1939, which provided that “the expiry of this Act shall not affect the operation thereof as respects things previously done or omitted to be done.” An argument was raised that the phrase “things previously done” did not extend to offences committed earlier, but Viscount Simon, speaking for the Privy Council, rejected this contention and held that the appellant could be convicted for the offence he committed while the regulation was in force. The Court noted, however, that this authority was distinguishable from the present matter because the saving provision in that case expressly preserved the operation of the Act itself after its expiry, applying to acts already done or omitted, a circumstance not mirrored by the present rule under consideration.

The Court observed that the earlier authority held that a statute could continue to operate with respect to acts already committed, thereby permitting a conviction even after the statutory provision had ceased to exist for offences committed before the expiry. In contrast, the present matter involved Rule 132A of the Defence of India Rules, which was not given any continuing effect after it was omitted. The wording of the notification relating to that rule was found to grant protection only to acts that had been performed while the rule was in force; it did not authorize the rule’s further application by initiating fresh prosecution for conduct that had already occurred. Consequently, the offence alleged against the accused arose from conduct that could not be characterised as conduct covered by Rule 132A. Because of this difference in language, the Court concluded that the principle articulated by the Privy Council in the earlier case could not be extended to the present notification, and therefore the notification could not support a prosecution of the accused for the alleged acts.

The judgment then turned to a decision of the Madhya Pradesh High Court in State of Madhya Pradesh v. Hiralal Sutwala, where the accused were prosecuted for an offence punishable under an Act whose repeal was covered by Section 6 of the General Clauses Act. The Court held that Section 6 could not be invoked in the present case because the omission of Rule 132A of the Defence of India Rules does not satisfy the conditions for Section 6’s operation. Specifically, Section 6 applies only to repeals, not to omissions, and it applies only when a Central Act or Regulation is repealed, not when a Rule is omitted. Had Section 6 been applicable, the complaint against the two accused for an offence under Rule 132A could have been filed even after that rule was repealed. The Court also considered the case of J.K. Gas Plant Manufacturing Company (Rampur) Ltd. and Ors. v. The King Emperor, which examined the effect of the amended Sub‑section (4) of Section 1 of the Defence of India Act, 1939 and Ordinance No. XII of 1946. The Court noted that the explicit insertion of saving clauses was prompted by the recognition that Section 6 of the General Clauses Act, 1897, applies solely to repealed statutes and not to statutes that simply expire. The Court reiterated the general rule that, unless a temporary statute contains a specific provision to the contrary, it ceases to have any further effect upon expiry, and no proceedings may be instituted thereafter.

In explaining the effect of the expiration of a temporary statute, the Court observed that once the Act ceases to be in force, any criminal proceeding that is pending against a person must terminate automatically. The Court endorsed the authority of Wicks v. Director of Public Prosecutions (1947) A.C. 362, holding that, because of Section 1(4) of the Defence of India Act, 1939 as amended by Ordinance No. XII of 1946, a prosecution for an offence committed while the Defence of India Act was operative remained valid even after that Act had ceased to operate. However, the Court distinguished that earlier case on two points. First, in the earlier case the prosecution had been instituted before the Defence of India Act expired. Second, the amendment to Sub‑section (4) of Section 1 expressly incorporated the principles of Section 6 of the General Clauses Act, thereby allowing a proceeding to be started after the repeal of the Act for an offence that had occurred during the period of its operation. The Court noted that, unlike the situation in the earlier case, the Ministry of Home Affairs notification that omitted Rule 132A of the Defence of India Regulations (D.I.Rs.) did not contain any provision comparable to Section 6 of the General Clauses Act. Consequently, after the omission of Rule 132A, no new prosecution could be launched even for conduct that had been an offence when that Rule was in force.

Addressing an argument raised by counsel, the Court recorded that, at the same time Rule 132A of the D.I.Rs. was omitted, Section 4(1) of the Defence of India Act was amended to bring the prohibition previously found in Rule 132A(2) within the ambit of Section 4(1). Counsel suggested that this simultaneous amendment demonstrated a legislative intention that offences formerly punishable under Rule 132A should not escape liability after the Rule’s removal. The Court, however, found that the amendment to Section 4(1) made no express provision that an offence committed under the now‑omitted Rule 132A would continue to be punishable as a contravention of Section 4(1), nor did it preserve the operation of Rule 132A itself to permit the institution of prosecutions for such past conduct. As a result, the present complaint was deemed legally incompetent even with respect to the alleged violation of Rule 132A(4). Accordingly, the Court concluded that the High Court ought to have entertained the applications filed under Section 561A of the Criminal Procedure Code and to have dismissed the proceedings founded on the complaint. In line with the short order dated 2 May 1969, the Court allowed the appeals and set aside the order of the lower court.

The Court set aside the High Court’s order that had refused the applications filed under Section 561A of the Criminal Procedure Code. Consequently, the Court directed that the criminal proceedings initiated against the appellants be terminated and that the prosecutions against them be dismissed.