minal Appeal No 203 of 1973
Appeal by special leave from the Judgment and Order dated the 14th March 1973 of the Calcutta High Court in Criminal Revision No 613 of 1972
L N Sinha Solicitor General
G L Sanghi and Girish Chandra for the Appellant
A K Sen Mrs Liela Seth and U K Khaitan for the Respondents
The Judgment of the Court was delivered by MATHEW J
The respondents were tried before the Presidency Magistrate 11th Court for having committed offences under sections 43 203 and 22 of the Foreign Exchange Regulation Act 1947 hereinafter called the Act  read with section 120 B of the Indian Penal Code and section 23 of the Act
The Court discharged the respondents in view of the decision of the High Court of Calcutta in Ms Serajuddin  Co and Others vs Union of India and Others1 holding that section 1 Civil Rules Nos
2183 W 2184 W of 1966 and cases Nos
1998 and 1999 of 1963 decided on 16 9 1971
804 23IA was violative of Article 14 of the Constitution
The appellant filed a revision petition against the order before the High Court
The Court concurred with the decision of the trial Court and dismissed the revision
This appeal by special leave is against that order
The question for consideration is whether section 231A of the Act violates Article 14 of the Constitution
Section 23 1 as it originally stood in the Act provided that whoever contravenes any of the provisions of the Act or of any rule direction or order made thereunder shall be punishable with imprisonment for a term which may extend to two years or with fine or with both and any Court trying any such contravention may if it thinks fit and in addition to any sentence which it may impose for such contravention direct that any currency security gold or silver or goods or other property in respect of which the contravention has taken place shall be confiscated
Section 23 was amended in 1950 and 1952
We are not concerned with those amendments
In 1957 the section was further amended by the Foreign Exchange Regulation Amendment Act 1957 Act No 39 of 1957
This amendment provided for departmental adjudication in respect of contravention of certain provisions of the Act
The section as amended read as under 231 If any person contravenes the provisions of section 4 section 5 section 9 or sub section 2 of section 12 or of any rule direction or order made thereunder he shall a be liable to such penalty not exceeding three times the value of the foreign exchange in respect of which the contravention has taken place or five thousand rupees whichever is more as may be adjudged by the Director of Enforcement in the manner hereinafter provided or b up on conviction by a Court be punishable with imprisonment for a term which may extend to two years or with fine or with both IA Whoever contravenes a any of the provisions of this Act or of any rule direction or order made thereunder other than those referred to in sub section 1 of this section and section 19 shall upon conviction by a court be punishable with imprisonment for a term which may extend to two years or with fine or with both
b any direction or order made under section 19 shall upon conviction by a Court be punishable with fine which may extend to two thousand rupees
 By section 23D it was provided that the Director of Enforcement shall for the purpose of adjudicating under clause a of sub section 1 of section 23 805 hold an inquiry after notice to the person proceeded against and impose a penalty but if at any stage of the inquiry he is of opinion that having regard to the circumstances of the case the penalty he is empowered to impose would not be adequate he shall instead of imposing a penalty file a complaint in writing to the Court
The argument of the respondents was that section 23 provides for two different procedures for dealing with contravention of the provisions of the Act that while persons contravening the provisions of the Act specified in section 231 a have to be dealt with by the Director of Enforcement in the first instance and need face trial in criminal court only if he is of opinion that having regard to circumstances of the case the penalty he is empowered to impose would not be adequate the persons contravening the other provisions of the Act are liable to be prosecuted in the first instance in criminal court without an injury by the Director of Enforcement which would give them the possibility to escape prosecution in a criminal court
In other words the argument was that persons who have contravened the provisions specified in section 23 I a anti are found guilty by the Director of Enforcement need not face prosecution in a criminal court if the Director is of opinion that the penalty he is empowered to impose would be adequate punishment whereas the persons alleged to contravene the other provisions of the Act have necessarily to face prosecution in criminal court without being given the benefit of an inquiry by the Director of Enforcement and the opportunity to the delinquents to convince him that imposition of penalty by him would be adequate punishment even if they are found guilty
The question therefore is whether persons contravening the provisions specified in section 23 I a are similarly situated with persons contravening the other provisions of the Act with respect to the purpose or object of the Act or whether by reason of the nature of the offences resulting from the contravention of the provisions specified in section 2 3 I a the persons contravening them form a class by themselves distinct from the persons contravening the other provisions of the Act and therefore the legislative judgment to deal with them under a different procedure was justified with reference to the ultimate purpose of the Act
The preamble provides the key to the general purpose of the Act
that purpose is the regulation of certain payments dealings in foreign exchange and securities and the import and export of currency and bullion in the economic and financial interest of India
The general purpose or object of the Act given in the preamble may not show the specific purpose of the classification made in section 231 a and section 231A
Supreme Court has therefore to ascribe a purpose to the statutory classification and coordinate the purpose with the more general purpose of the Act and with other relevant Acts and public policies
For achieving this the Court may not only consider the language of section 23 but also other public knowledge about the evil sought to be remedied the prior law the statement of the purpose of the change in the prior law and the internal legislative history
When the purpose of a challenged classification is in doubt the courts attribute to the classification the purpose 806 thought to be Most probable
Instead of asking what purpose or purposes the statute and other materials reflect the court may ask what constitutionally permissible objective this statute and other relevant materials could plausibly be construed to reflect
The latter approach is the proper one in economic regulation cases
The decisions dealing with economic regulation indicate that courts have used the concept of purpose  and similar situations  in a manner which give considerable leeway to the legislature
This approach of judicial restraint and presumption of constitutionality requires that the legislature is given the benefit of doubt about its purpose
How far a court will go in attributing a purpose which though perhaps not the most probable is at least conceivable and which would allow the classification to stand depends to a certain extent upon its imaginative power and its devotion to the theory of judicial restraint
At this stage it is necessary to sharpen the focus to understand the real grievance of the respondents
As already indicated their submission is that since they are similarly situated with persons contravening the provisions of the Act specified in section 23 1 a they should have been included in that class and dealt with by the Director Enforcement in the first instance so that they might also have the benefit of inquiry by him with the possible advantage of escaping with penalty even if they are found guilty of the offences
Their grievance therefore is that the classification made in section 23 1 is under inclusive and is therefore unreasonable
Often times the courts hold that under inclusion does not deny the equal protection of laws under Article 14
In strict theory this involves an abandonment of the principle that classification must include all who are similarly situated with respect to the purpose
This under inclusion is often explained by saying that the legislature is free to remedy parts of a mischief or to recognize degrees of evil and strike at the harm where it thinks it most acute
The Courts have recognised the very real difficulties under which legislatures operate difficulties arising out of both the nature of the legislative process and of the society which legislation attempts perennially to reshape and they have refused to strike down indiscriminately all legislation embodying classificatory inequality here under consideration
Mr Justice Holmes in urging tolerance of under inclusive classifications stated that such legislation should not be disturbed by the Court unless it can clearly see that there is no fair reason for the law which would not require with equal force its extension to those whom it leaves untouched
See Missouri K and T Rly
vs MayI
What then are the fair reasons for non exten sion  What should a court do when it is faced with a law making an under inclusive classification in areas relating to economic and tax matters  There are two main considerations to justify an Linder inclusive classification
First administrative necessity
Second the legislature might not be fully convinced that the particular policy which it adopts 1 at p 269
807 will be fully successful or wise
Thus to demand application of the policy to all whom it might logically encompass would restrict the opportunity of a state to make experiment
These techniques would show that some sacrifice of absolute equality may be required in order that the legal system may preserve the flexibility to evolve new solutions to social and economic problems
The gradual and piece meal change is often regarded as desirable and legitimate though in principle it is achieved at the cost of some equality
It would seem that in fiscal and regulatory matters the court not only entertains a greater presumption of constitutionality but also places the burden on the party challenging its validity to show that it has no reasonable basis for making the classification
This was the approach of this Court in State of Gujarat vs Ambica Mills1
The Court said  The piecemeal approach to a general problem permitted by under inclusive classifications appears justified when it is considered that legislative dealing with such problems is usually an experimental matter
It is impossible to tell how successful a particular approach may be what dislocations might occur what evasions might develop what new evils might be generated in the attempt
Administrative expedients must be forged and tested
Legislators recognizing these factors may wish to proceed cautiously and courts
must allow them to do so 37 California Rev 341
 The background of the amendment of section 23 of the Act will be relevant for appreciating the reason for making the distinction between the two classes of contraventions
From April 1949 to December 1952 the Reserve Bank was handling all cases including those relating to unauthorized import export of gold and silver
The Bank had an enforcement section
In 1952 the Central Government authorised the Customs and Central Excise officers to investigate and prosecute cases if import or export of gold and silver in contravention of the provisions relating to them
In May 1956 the Central Government took over the work relating to enforcement ie the residuary work done by the Reserve Bank other than those entrusted to Custom Department
A Directorate of Enforcement was set up in May 1956 with the idea that there should be a specialized agency to deal with specified categories of offences
Between April 1949 and April 1956 when the duty of enforcement was with the Reserve Bank the Bank had completed investigation in about 200 cases but prosecutions could be launched in respect of 66 cases only and out of these 60 cases ended in convictions
No prosecution could be launched in respect of other cases in view of the fact that evidence legally neces sary to secure conviction in a court was not forthcoming
When the work was transferred to the Enforcement Directorate of the Ministry of Finance its experience was also similar
From May 1956 till about 1957 the Directorate had handled 832 cases
But prosecutions could be launched only in respect of 32 cases
This Was due to the fact that legal evidence necessary for establishing the cases beyond 1  808 doubt in a court of law was not forthcoming partly because it was difficult to secure cooperation of the foreign collaborators in getting the incriminating documents against the suspects and partly because the banks in foreign countries were under no obligation to furnish statements of accounts maintained by the suspects in them
Faced with this difficulty the Government had to consider other ways of enforcing the provisions of the Act more effectively
The Government after considering the pros and cons decided to provide for departmental enquiry and adjudication of contravention of certain provisions of the Act by an authority specially constituted for that purpose
In the statement of Objects and Reasons to the Foreign Exchange Regulation Bill 1957 it was stated  
The most important of these amendments is the one providing for departmental inquiry an adjudication of foreign exchange offences by an authority constituted by Government on the Sea Customs Act
 In short the reason for the amendments made in 1957 was the experience gained in the working of the Act till then
That experience was that persons contravening the provision of the Act specified in section 23 1 a invariably escaped without punishment  firstly because successful prosecution of these offences in many cases was not possible for want of legal evidence secondly because the criminal courts were not equipped with the training expertize and experience necessary to deal with the intricate and ingenious methods adopted by the persons contravening them
The Government therefore thought that imposition of penalty by departmental adjudication would prove a more effective means if checking these types of foreign exchange offences as against the previous system of prosecution of all offences on the basis of the strict standard of proof required for criminal prosecution which proof was by and large so much within the special knowledge of the offender and so much out of the reach of the department
It may be noted that after the amendment in 1957 further amendments of section 23 were made in 1964 whereby sections 10 17 18A and 18B were also brought within the purview of section 231a
The introduction of these sections within section 231a was the result of further experience gained during the succeeding years
It was only on the basis of the experience gained by the working of the Act that a decision could be taken about the classification of offences in respect of which a trial by a court would be expedient and those in respect of which summary procedure visualized by section 231 a might be necessary
Generally speaking therefore the basis of the classification was that in cases where there was likelihood of getting sufficiently unimpeachable evidence as for instance in cases involving contravention of sections 14 132 15 18 etc where the Reserve Bank of India as a specialized agency comes into the picture and be in possession of relevant materials those cases were left to be dealt with under s231A by criminal courts
809 In paragraph 17 of the affidavit of Shri M L Sharma Under Secretary Ministry of Finance Department of Economic Affairs filed with the permission of this Court the reasons why the legislature selected the contravention of certain provisions of the Act for being dealt with by the criminal courts in the first instance have been fully stated
According to that affidavit broadly speaking the classes of offenceswhich have been brought under sections 231 and 23A are what maybe termed as primary  offences and those brought under s231Amay be termed as secondary  offences
Primary offences are those which need detection and action at executive or field level by the concerned specialized agency
There is greater need fur taking deterrent measures in respect of these offences
It is not a question of the seriousness or gravity of the offences
Both primary and secondary offences may be grave or serious and involve large amounts
But the difference is that primary offences are distinguished by the volume and areas of incidence and may need greater deterrence which sometimes may lie in large pecuniary penalty and sometimes in criminal punishment by way of imprisonment
A delinquent who has become an insolvent may not feet any deterrent effect however large the pecuniary penalty may be and such a case may call for a sentence of imprisonment
In respect of secondary offences there are heady built in institutional checks laid down by the Reserve Bank or other Government agencies
As indicated above where contraventions do take place in regard to other sections there would normally be adequate or reasonable documentary evidence etc and these will facilitate prosecution in courts of law
We do
not think that there is any merit in the contention that the classification made in s23lA is discriminatory
Even according to the respondents it is the classification made in s231a which is under inclusive and is therefore unreasonable
If this Court were_ to declare that the classification made in section 23 1 a is under inclusive and therefore unreasonable the result would be that contraventions of the provisions specified in section 231a would also fall within section 231 A and would have to be dealt with by the Criminal Court a consummation which the respondents devotedly want to avoid
We do not think that the High Court was right in holding that section 231A was bad
We set aside the order of the High Court and allow the appeal
VMK Appeal allowed


Summary:
The respondents were tried for having committed offences under section 43 203 and 22 of the Foreign Exchange Regulation Act 1947 read with section 120 B of the Indian Penal Code and section 23 of  the Act
The Court discharged the respondents in view of the decision of the High Court of Calcutta in Ms Serajuiddin  Co and Ors
vs Union of India and Ors
Civil Rules Nos
2183 W of 1966 and cases Nos
1998 and 1999 of 1963 decided on 16 9 1971 holding that section 23AI was violative of article 14 of the Constitution
The appellant filed a revision petition against the order before the High Court
The High Court concurred with the decision of the trial Court and dismissed the revision
This appeal by special leave is against that order dismissing the revision It was contended for the respondents that section 23 provides for two different procedures for dealing with contravention of the provisions of the Act
That is to say persons who have contravened the provisions specified in section 231a and are found guilty by the Director of Enforcement need not face prosecution in a criminal court if the Director is of opinion that the penalty he is empowered to impose would be adequate punishment whereas the persons alleged to contravene the other provisions of the Act have necessarily to face prosecution in criminal court without being given the benefit of an inquiry by the Director of Enforcement and the opportunity to the delinquents to convince him that imposition of penalty by him would be adequate punishment even if they are found guilty
The classification made in section 231 is under inclusive and is therefore unreasonable
Allowing the appeal HELD  i When the purpose of a challenged classification is in doubt the courts attribute to the classification the purpose thought to be most probable
Instead of asking what purpose or purposes the statute and other materials reflect the court may ask what constitutionally permissible objective this statute and other relevant materials could plausibly be construed to reflect
The latter approach is the proper one in economic regulation cases
The decisions dealing with economic regulation indicate that courts have used the concept of purpose  and similar situations  in a manner which give considerable leeway to the legislature
This approach of judicial restraint and presumption of constitutionality requires that the legislature is given the benefit of doubt about its purpose
805H 806C ii Often times the courts hold that tinder inclusion does not deny the equal protection of laws under Article 14
In strict theory this involves an 803 abandonment of the principle that classification must include all who are similarly situated with respect to the purpose
This under inclusion is often explained by saying that the legislature is free to remedy parts of a mischief or to recognize degrees of evil and strike at the harm where it thinks it most acute
There are two main considerations to justify an under inclusive classification
First administrative necessity
Second the legislature might not be fully convinced that the particular policy which it adopts will be fully successful or wise
Thus to demand application of the policy to all whom it might logically encompass would restrict the opportunity of a state to make experiment
These techniques would show that some sacrifice of absolute equality may be required in order that the legal system may preserve the flexibility to evolve new solutions to social and economic problems
806E H807B Missouri  and T Rly
vs May  at p 269 and Gujarat vs Ambica Mills  referred to
iii The experience of the Government was that persons contravening the provisions of the Act specified in section 231a invariably escaped without punishment
 firstly because successful prosecution of these offences in many cases was not possible for want of legal evidence secondly because the criminal courts were not equipped with the training expertize and experience necessary to deal with the intricate and ingenious methods adopted by the persons contravening them
The Government therefore thought that imposition of penalty by departmental adjudication would prove a more effective means of checking these types of foreign exchange offences as against the previous system of  prosecution of all offences on the basis of the strict standard of proof required for criminal prosecution which proof was by and large so much within the special knowledge of the offender and so much out of the reach of the department
808D F The basis of classification was that in cases where there was likelihood of getting sufficiently unimpeachable evidence as for instance
in cases involving contravention of sections 14 132 15 18 etc where the Reserve Bank of India as a specialized agency comes into the picture and be in possession of relevant materials those cases were left to be dealt with under section 23IA by criminal courts
The classification made in section 23IA is therefore not dis criminatory
808H 809E