Akil Kureshi, J. (Oral)
1. The petitioners have challenged an order-in-appeal dated 5-6-2016 passed by the Government of India, by which, the petitioners' appeal against the order-in-original came to be dismissed. In the result, the penalty of Rs. 2.97 crores (rounded off) on the company and personal penalties on the Directors came to be confirmed. This order the petitioners have challenged on various grounds including on the ground that imposition of penalty of Rs. 2.97 crores imposed under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 (hereinafter to be referred to as 'the said Act' for short) for customs duty involved being merely Rs. 1.91 lacs. The petitioners also contend that in the show cause notice, there is not even a proposal for imposition of penalty under Section 11(2) of the said Act.
2. In the context of such background, the petitioners have also challenged the constitutional validity of sub-sections (2) and (3) of Section 11 of the said Act. Prime contention of the petitioners is that the said provisions vest unlimited discretion in the competent authority to impose punishment without providing any guidelines for governing such discretion. In other words, according to the petitioners the discretion is unbridled, uncanalised and therefore arbitrary. Such provisions would therefore, be violative of Article 14 of the Constitution of India.
3. Learned counsel for the petitioners while elaborating this ground, submitted that the statutory provisions in question provide for a range of penalty which would be not less than Rs. 10,000/- but could be as much as five times the value of the goods or the services or technology, in respect of which, contravention i
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made or attempted to be made. He submitted that there are no guidelines in the statute as to how such discretion should be exercised. Such discretionary powers, without any statutory guidelines, would be abdicating essential legislative function by the parliament and vest it into executive, which is not permissible. In this context, counsel relied upon the following decisions : (i) In case of District Registrar and Collector, Hyderabad and Another v. Canara Bank and Others, reported in (2005) 1 SCC 496, in which, the Supreme Court in the context of the challenge to the power of inspection of documents which are in private custody and which include power for search and seizure, it was observed as under : "57. The constitutional validity of the power conferred by law came to be decided from yet another angle in the case of Air India v. Nergesh Meerza wherein it was held that a discretionary power may not necessarily be a discriminatory power but where a statute confers a power on an authority to decide matters of moment without laying down any guidelines or principles or norms, the power has to be struck down as being violative of Article 14." (ii) In case of M/s. Devi Das Gopal Krishnan, etc. v. State of Punjab and Ors. reported in AIR 1967 SC 1985, in which, the Supreme Court observed that the principle of excessive delegation is well-settled. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. It cannot abdicate its function in favour of another. (iii) In case of Om Kumar and Ors. v. Union of India reported in AIR 2000 SC 3689, in which the Supreme Court discussed the principles of proportionality and the Wednesbury principle. 4. It can thus, be seen that the principle that the legislature cannot abdicate its essential legislative function into the executive is all too well accepted principle. At the same time, looking to the wide range and complex nature of activities that a welfare State engages itself into, there is a degree of tolerance to vesting of discretionary powers in the executive within the range or boundaries laid down in the legislation. 5. In case of Union of India and Others v. M/s. Bhanamal Gulzarimal Ltd. and Others reported in AIR 1960 SC 475, Constitutional Bench of the Supreme Court upheld the validity of Iron and Steel (Control of Production) and Distribution Order, 1941 holding that there was no excessive delegation, it was observed as under : "7. It is obvious that by prescribing the maximum prices for the different categories of iron and steel clause 11B directly carries out the legislative object prescribed in Section 3 because the fixation of maximum prices would make stocks of iron and steel available for equitable distribution at fair prices. It is not difficult to appreciate how and why the Legislature must have thought that it would be inexpedient either to define or describe in detail all the relevant factors which have to be considered in fixing the fair price of an essential commodity from time-to-time. In prescribing a schedule of maximum prices the Controller has to take into account the position in respect of production of the commodities in question, the availability of the said commodities from foreign sources and the anticipated increase or decrease in the said supply or demand. Foreign prices for the said commodities may also be not irrelevant. Having regard to the fact that the decision about the maximum prices in respect of iron and steel would depend on a rational evaluation from time to time of all these varied factors the Legislature may well have thought that this problem should be left to be tackled by the delegate with enough freedom, the policy of the Legislature having been clearly indicated by Section 3 in that behalf. The object is equitable distribution of the commodity, and for achieving the object the delegate has to see that the said commodity is available in sufficient quantities to meet the demand from time-to-time at fair prices. In our opinion, therefore, if clause 11B is considered as a part of the composite scheme evidenced by the whole of the Order and its validity is examined in the light of the provisions of Sections 3 and 4 of the Act, it would be difficult to sustain the plea that it confers on the delegate uncanalised or unbridled power. We are inclined to hold that the power conferred on the Central Government by Section 3 and on the authority specified by Section 4 is canalised by the clear enunciation of the legislative policy in Section 3 and that clause 11B seeks further to canalise the exercise of the said power; and so it is not a case where the validity of the clause can be successfully challenged on the ground of excessive delegation. We have referred to this aspect of the matter at some length because it appears to have influenced the final conclusion in the judgment under appeal. As we will presently indicate the argument before us has, however, centred on the question as to whether the clause has violated Article 19 of the Constitution." 6. In case of Vasanlal Maganbhai Sanjanwala and Anr. v. The State of Bombay, reported in AIR 1961 SC 4, a Constitutional Bench of the Supreme Court observed that it is well-settled that the power of delegation is a constitutional element of the legislative power. However, in the modern times when the legislature enacts law to meet the challenge of the complex socio-economic problems, they often find it convenient and necessary to delegate subsidiary or ancillary powers to delegate the choice for carrying out the policy laid down by their Acts. The Court while recognising the approach of fair and generous and liberal consideration of a statute whether the legislature exceeded such limits, cautioned that such liberal construction should not be carried out by the Court to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power on executive authorities. 7. While we are examining the virus of an Act enacted by the Parliament, we must recognise that the same can be struck down only on the ground of legislative incompetence or the law being violative of any of the fundamental rights or the other provisions of the Constitution. In this context, it is well-settled that there is a strong presumption of constitutionality of a legislation and the duty lies on the one who contend that a certain law is ultra vires being discriminatory to produce necessary material in this respect. In case of The State of Jammu and Kashmir v. Triloki Nath Khosa and Others reported in AIR 1974 SC 1, the Constitutional Bench of the Supreme Court had observed as under : "24. This submission is erroneous in its formulation of a legal proposition governing onus of proof and it is unjustified in the charge that the record discloses no evidence to show the necessity of the new, rule. There is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. (1) A rule cannot be struck down as discriminatory on any priori reasoning. "That where a party seeks to impeach the validity of a rule made by a competent authority on the ground that the rules offend Article 14 the burden is on him to plead and prove the infirmity is too well established to need elaboration." The burden thus is on the respondents to set out facts necessary to sustain the plea of discrimination and to adduce "cogent and convincing evidence" to prove those facts for "there is a presumption that every factor which is relevant or material has been taken into account in formulating the classification"(2). In G.D. Kelkar v. Chief Controller of Imports and Exports (?), Subba Rao, C.J. speaking for the Court has cited three other decisions of the Court in support of the proposition that "unless the classification is unjust on the face of it, the onus lies-upon, the party attacking the classification to show by pleading the necessary material before the court that the said classification is unreasonable and violative of Article 16 of the Constitution." 8. With this background, we may peruse relevant provisions contained in the said Act. 9. To provide for the development and regulation of foreign trade by facilitating imports into an augmenting exports in India and the matter connected and incidental thereto, the said Act was enacted. Chapter-II of the Act pertains to power of Central Government to make order and announce foreign trade policy. Section 3 thereof empowers the Central Government by order publishing in the official gazette to make provisions for the development and regulation in the foreign trade by facilitating imports and increasing exports. Section 5 empowers the Central Government to formulate and announce by notification in the official gazette the foreign trade policy and amend the same as may be required. 10. Under sub-section (1) of Section 6 of the Act, the Central Government may appoint a person as Director General of the Foreign Trade for the purposes of the Act. As per Section 7, no person could make any import or export except under an import-export code number granted by the Director General or the officer authorised by the Director General in this behalf in accordance with the procedure specified by the Director General. Section 8 provides for suspension and cancellation of import export code number in case of certain breaches. Section 9 pertains to issuance of suspension and cancellation of licenses. Chapter IIIA includes provisions for quantitative restrictions. Chapter IV pertains to search, seizure, penalty and confiscation. Section 10 thereof empowers the Central Government to authorise a person to carry out search and seizure. Section 11 pertains to contravention of provisions of the Act, Rules, Orders and foreign trade policy. Relevant portion thereof reads as under : 11. Contravention of provisions of this Act, rules orders and foreign trade policy. - (1) No export or import shall be made by any person except in accordance with the provisions of this Act, the rules and orders made thereunder and the foreign trade policy for the time being in force. (2) Where any person makes or abets or attempts to make any export or import in contravention of any provision of this Act or any rules or orders made thereunder or the foreign trade policy, he shall be liable to a penalty of not less than ten thousand rupees or five times the value of the goods or services or technology in respect of which any contravention is made or attempted to be made, whichever is more. (3) Where any person signs or uses, or causes to be made, signed or used, any declaration, statement or document submitted to the Director-General or any officer authorised by him under this Act, knowing or having reason to believe that such declaration, statement or document is forged or tampered with or false in any material particular, he shall be liable to a penalty of not less than ten thousand rupees or more than five times the value of the goods or services or technology in respect of which such declaration, statement or document had been submitted, whichever is more. Section 13 provides that any penalty may be imposed for any confiscation, may be adjudged by the Director General or subject to such limitation as may be specified by such other officer as the Central Government may by notification in the official gazette authorise in this behalf. Section 14 envisages giving of opportunity before imposition of penalty or adjudication of confiscation. The noticee would be informed of the ground on which it is proposed to impose penalty or confiscation and he is allowed to make representation in writing, for which, reasonable time would be granted. He may also be heard in the matter if he so desires. 12. It can thus, be seen that the said Act makes detailed provisions for the Central Government to lay down a foreign policy and conditions for import and export. As noted, Section 3 empowers the Government to lay down import/export policy. Further, Section 7 provides that no person would make any import or export except under import export code number granted by the Director General. In view of the complex requirements of foreign trade and import export policy, the executive would have to have sufficient powers to control contraventions of essential conditions of import export restrictions. It is, in this respect, sub-section (1) of Section 11 provides that no import or export shall be made by any person except in accordance with the provisions of the Act, the Rules and the orders made thereunder and the foreign trade policy for the time being in force. No restriction would be effective unless contravention thereof can be visited by penal consequences. It is in this respect, sub-section (2) of Section 11 provides that where any person makes or abates or attempts to make any export or import in contravention of any provision of the Act or the Rules or orders or the foreign trade policy, he would be liable to penalty. By very nature of things, such penalty has to be discretionary with a sufficiently wide range. Sub-section (2) therefore, provides that such penalty shall not be less than Rs. 10,000/- and shall not be more than 5 times the value of goods or services or technology in respect of which, any contravention is made or attempted to be made, whichever is more. 13. We have noticed that as per Section 13 of the Act, such penalty can be imposed only by the Director General or subject to restrictions which may be provided, by any such officer as the Central Government by a notification in the official gazette authorize. However, the power of such authorised officer to impose penalty would be limited as may be specified. In other words, though the Director General himself may have the full range of discretion to impose penalty, the authorised officer would be bound by the limits as may be specified in this behalf. Again under Section 14, such penalty can be imposed only after giving opportunity to the owner of the goods by informing him of all the grounds on which, it is proposed to impose the penalty, allowing him to make representation within reasonable time and granting hearing if he so desires. 14. The whole scheme of the Act viewed thus, in our opinion, lays down sufficient guidelines and safeguards to ensure on one hand that the executive is vested with sufficient discretionary powers to deal with different kinds of cases of contraventions and at the same time, providing internal safeguards to control the discretion. The penalty itself is to be imposed making export or import or abatement or attempt in contravention of any provision of the Act, Rules or orders or foreign trade policy. By very nature of things, the contravention could be of various kinds and of range of provisions beginning with mere technical breaches of procedural provisions or could be wholly mala fide, fraudulent and with intention to evade duty. All such cases cannot be put in the same bracket. Thus, the legislature while in view of such situation has granted discretion to the executive, at the same time, provided for sufficient guidelines and safeguards so that such discretion does not convert into arbitrary or discretionary exercise of powers. 15. Under the circumstances, the petitioners' challenge to the validity of the statutory provisions must fail. 16. However, with respect to the merits of the orders in question, we find prima facie case. Let there be NOTICE, limited to this aspect, returnable on 26.8.2016. Direct service is permitted.
"2016 (341) ELT 17,"