NEW DELHI, JULY 09, 2012: CAN you put somebody under preventive detention assuming that he would violate the provisions of FEMA for which there is no imprisonment?

The central issue in this petition before the Supreme Court concerns constitutional validity of Section 3(1) of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 ('COFEPOSA') to the extent it empowers the competent authority to make an order of detention against any person "with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange".

The crux of the argument of the petitioner is this: Articles 14, 19 and 21 of the Constitution do not contemplate preventive detention for an 'act' where no punitive detention (arrest and prosecution) is even contemplated or provided under law. Such an 'act' cannot be made the basis for a preventive detention and such an 'act' could not be termed as prejudicial so as to invoke the power of preventive detention and, therefore, Section 3(1) of COFEPOSA to the extent noted above is unconstitutional.

The Additional Solicitor General stoutly defended the constitutional validity of the part of Section 3(1) of COFEPOSA put in issue in the writ petition. He extensively referred to the provisions of FERA and FEMA and the preamble of COFEPOSA and submitted that dealings in foreign exchange by a person other than authorised persons/dealers have serious and deleterious consequences. The foreign exchange is the most precious reserve for national economy and necessary for the economic security of the State and illegal and/or unaccounted transactions through hawala have vide ramifications and are definitely prejudicial to the conservation and augmentation of foreign exchange and since the need for conservation and augmentation of foreign exchange resources of the country continue to exist, preventive mechanism laid down in COFEPOSA warrants its continuance and there is nothing unconstitutional about it.

There is a consistent line of cases of the Supreme Court beginning from 1950 itself which says that preventive detention can constitutionally operate. In A.K.Gopalan v. The State of Madras, which was decided by Supreme Court within few months of coming into force of our Constitution, the Court upheld the constitutional validity of Section 3(1) of the Preventive Detention Act, 1950 on the touchstone of Articles 13, 14, 19, 21 and 22 of the Constitution.

In Atma Ram Sridhar Vaidya, Chief Justice Hari Lal Kania said that preventive detention was not by itself considered an infringement of any of the fundamental rights mentioned in Part III of the Constitution. He, however, clarified that this was, of course, subject to the limitations prescribed in clause (5) of Article 22. Echoing the same sentiment, Patanjali Sastri, J. stated, "the Constitution itself has authorised preventive detention and denied to the subject the right of trial before a court of law and of consulting or being defended by a legal practitioner of his choice, providing only certain procedural safeguards, the Court could do no more than construe the words used in that behalf in their natural sense consistently with the nature, purpose and scheme of the measure thus authorised, to ascertain what powers are still left to the court in the matter".

A Constitution Bench of the Court in Haradhan Saha was concerned with constitutional validity of Maintenance of Internal Security Act, 1971 (for short, 'MISA' ) which enabled the State and its delegated authority to order preventive detention of a person. The Court articulated the concept of preventive detention in contra- distinction to punitive action in the following words :

"19. The essential concept of preventive detention is that the detention of a person is not to punish him for something he has done but to prevent him from doing it. The basis of detention is the satisfaction of the Executive of a reasonable probability of the likelihood of the detenu acting in a manner similar to his past acts and preventing him by detention from doing the same. A criminal conviction on the other hand is for an act already done which can only be possible by a trial and legal evidence. There is no parallel between prosecution in a court of law and a detention order under the Act. One is a punitive action and the other is a preventive act. In one case a person is punished to prove his guilt and the standard is proof beyond reasonable doubt whereas in preventive detention a man is prevented from doing something which it is necessary for reasons mentioned in Section 3 of the Act to prevent."

With regard to the rights guaranteed to a detenue under Article 22(5), the Court said, Article 22(5) shows that law as to detention is necessary. The requirements of that law are to be found in Article 22. Article 22 gives the mandate as to what will happen in such circumstances'.

In the present case, the Supreme Court observed, "The Constitution recognizes preventive detention though it takes away the liberty of a person without any enquiry or trial. Preventive detention results in negation of personal liberty of an individual; it deprives an individual freedom and is not seen as compatible with rule of law, yet the framers of the Constitution placed the same in Part III of the Constitution. While giving to an individual the most valuable right 'personal liberty' and also providing for its safeguard, the Constitution has perceived preventive detention as a potential solution to prevent the danger to the state security. The security of the State being the legitimate goal, this Court has upheld the power of the Parliament and State Legislatures to enact laws of preventive detention. The Court has time and again given the expression 'personal liberty' its full significance and asserted how valuable, cherished, sacrosanct and important the right of liberty given to an individual in the Constitution was and yet legislative power to enact preventive detention laws has been upheld in the larger interest of state security".

In Amratlal Prajivandas (a nine judge Bench) constitutionality of COFEPOSA was directly in issue. The Court made the following weighty prefatory remarks highlighting the importance of regulation and control of foreign exchange:

"Till the wind of liberalisation started blowing across the Indian economic landscape over the last year or two, the Indian economy was a sheltered one. At the time of Independence, India did not have an industrial base worth the name. A firm industrial base had to be laid. Heavy industry was the crying need. All this required foreign exchange. The sterling balances built up during World War II were fast dissipating. Foreign exchange had to be conserved, which meant prohibition of import of several unessential items and close regulation of other imports. It was also found necessary to raise protective walls to nurture and encourage the nascent industries. These controls had, however, an unfortunate fall out. They gave rise to a class of smugglers and foreign exchange manipulators who were out to frustrate the regulations and restrictions - profit being their sole motive, and success in life the sole earthly judge of right and wrong. As early as 1947, the Central Legislature found it necessary to enact the Foreign Exchange Regulation Act, 1947 and Imports and Exports (Control) Act, 1947.Then came the Import (Control) Order, 1955 to place the policy regarding imports on a surer footing. In the year 1962, a new Customs Act replaced the antiquated Sea Customs Act, 1878. The menace of smuggling and foreign exchange violations, however, continued to rise unabated. Parliament then came forward with the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 ( COFEPOSA ). It provided for preventive detention of these antisocial elements".

In the above backdrop, the Court considered the question, whether Parliament was not competent to enact COFEPOSA and SAFEMA in paragraph 23 as follows:

"23. It is argued for the petitioners that COFEPOSA is not relatable to Entry 9 of List I of the Seventh Schedule to the Constitution inasmuch as the preventive detention provided therefor is not for reasons connected with defence, foreign affairs or security of India. Even Entry 3 of List III, it is submitted, does not warrant the said enactment. So far as SAFEMA is concerned, it is argued, it is not relatable to any of the Entries 1 to 96 in List I or to any of the Entries in List III. We are not prepared to agree. COFEPOSA is clearly relatable to Entry 3 of List III inasmuch as it provides for preventive detention for reasons connected with the security of the State as well as the maintenance of supplies and services essential to the community besides Entry 9 of List I. While Entry 3 of List III speaks of security of a State, Entry 9 of List I speaks of security of India.Evidently, they are two distinct and different expressions. 'Security of a State' is a much wider expression. A State with a weak and vulnerable economy cannot guard its security well. It will be an easy prey to economic colonisers.We know of countries where the economic policies are not dictated by the interest of that State but by the interest of multinationals and/or other powerful countries. A country with a weak economy is very often obliged to borrow from International Financial Institutions who in turn seek to dictate the economic priorities of the borrowing State - it is immaterial whether they do so in the interest of powerful countries who contribute substantially to their fund or in the interest of their loan. In the modern world, the security of a State is ensured not so much by physical might but by economic strength - at any rate, by economic strength as much as by armed might. It is, therefore, idle to contend that COFEPOSA is unrelated to the security of the State. Indeed in the very preamble to the Act, Parliament states that the violations of foreign exchange regulations and smuggling activities are having an increasingly deleterious effect on the national economy thereby casting serious adverse effect on the security of the State. Be that as it may, it is not necessary to pursue this line of reasoning since we are in total agreement with the approach evolved in Union of India v. H.S.Dhillon, (1971) 2 SCC 779 - a decision by a Constitution Bench of seven Judges. The test evolved in the said decision is this in short: Where the legislative competence of Parliament to enact a particular statute is questioned, one must look at the several entries in List II to find out (applying the well-known principles in this behalf) whether the said statute is relatable to any of those entries. If the statute does not relate to any of the entries in List II, no further inquiry is necessary. It must be held that Parliament is competent to enact that statute whether by virtue of the entries in List I and List III or by virtue of Article 248 read with Entry 97 of List I. In this case, it is not even suggested that either of the two enactments in question are relatable to any of the entries in List II. If so, we need not go further and enquire to which entry or entries do these Acts relate. It should be held that Parliament did have the competence to enact them."

The Court concluded that Parliament did have the competence to enact COFEPOSA and SAFEMA.

The constitutionality of COFEPOSA has been already upheld by a nine-Judge Bench of this Court. Its constitutionality is again sought to be assailed by the petitioners in the present matter on the ground that with the change of legal regime by repeal of FERA and enactment of FEMA (the provisions contained in FEMA did not regard its violation a criminal offence) the intent and object behind the enactment of preventive detention in COFEPOSA had ceased to exist and continuation of impugned provision in COFEPOSA was violative of Article 21 read with Articles 14 and 19 of the Constitution.

The Supreme Court observed,

"FERA was enacted to consolidate and amend the law regulating certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency for the conservation of the foreign exchange resources of the country and the proper utilization thereof in the interest of the economic development of the country.

FERA contained penal provisions. Section 50 provided for imposition of fiscal penalties while Section 56 made provision for prosecution and punishment. FERA stood repealed by FEMA in 1999.

FEMA was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating the external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. By Section 49, FERA has been repealed and sub-section (3) thereof provides: " Notwithstanding anything contained in any other law for the time being in force, no court shall take cognizance of an offence under the repealed Act and no adjudicating officer shall take notice of any contravention under Section 51 of the repealed Act after the expiry of a period of two years from the date of the commencement of this Act."

It is true that provisions of FERA and FEMA differ in some respects, particularly in respect of penalties. It is also true that FEMA does not have provision for prosecution and punishment like Section 56 of FERA and its enforcement for default is through civil imprisonment. However, insofar as conservation and/or augmentation of foreign exchange is concerned, the restrictions in FEMA continue to be as rigorous as they were in FERA.FEMA continues with the regime of rigorous control of foreign exchange and dealing in the foreign exchange is permitted only through authorised person. While its aim is to promote the orderly development and maintenance of foreign exchange markets in India, the Government's control in matters of foreign exchange has not been diluted. The conservation and augmentation of foreign exchange continues to be as important as it was under FERA.The restrictions on the dealings in foreign exchange continue to be as rigorous in FEMA as they were in FERA and the control of the Government over foreign exchange continues to be as complete and full as it was in FERA.

The importance of foreign exchange in the development of a country needs no emphasis. FEMA regulates the foreign exchange. The conservation and augmentation of foreign exchange continues to be its important theme. Although contravention of its provisions is not regarded as a criminal offence, yet it is an illegal activity jeopardizing the very economic fabric of the country. For violation of foreign exchange regulations, penalty can be levied and its non-compliance results in civil imprisonment of the defaulter. The whole intent and idea behind COFEPOSA is to prevent violation of foreign exchange regulations or smuggling activities which have serious and deleterious effect on the national economy. In today's world, the physical and geographical invasion may be difficult but it is easy to imperil the security of a State by disturbing its economy. The smugglers and foreign exchange manipulators by flouting the regulations and restrictions imposed by FEMA by their misdeeds and misdemeanours directly affect the national economy and thereby endanger the security of the country. In this situation, the distinction between acts where punishments are provided and the acts where arrest and prosecution are not contemplated pales into insignificance. We must remember: the person who violates foreign exchange regulations or indulges in smuggling activities succeeds in frustrating the development and growth of the country. His acts and omissions seriously affect national economy. Therefore, the relevance of provision for preventative detention of the anti-social elements indulging in smuggling and violation and manipulation of foreign exchange in COFEPOSA continues even after repeal of FERA.

The menace of smuggling and foreign exchange violations has to be curbed. Notwithstanding the many disadvantages of preventive detention, particularly in a country like ours where right to personal liberty has been placed on a very high pedestal, the Constitution has adopted preventive detention to prevent the greater evil of elements imperiling the security, the safety of State and the welfare of the Nation.

On the touchstone of constitutional jurisprudence, as reflected by Article 22 read with Articles 14, 19 and 21, we do not think that the impugned provision is rendered unconstitutional. There is no constitutional mandate that preventive detention cannot exist for an act where such act is not a criminal offence and does not provide for punishment. An act may not be declared as an offence under law but still for such an act, which is an illegal activity, the law can provide for preventive detention if such act is prejudicial to the state security. After all, the essential concept of preventive detention is not to punish a person for what he has done but to prevent him from doing an illegal activity prejudicial to the security of the State. Strictly speaking, preventive detention is not regulation (many people call it that way), it is something much more serious as it takes away the liberty of a person but it is accepted as a necessary evil to prevent danger to the community. The law of preventative detention arms the State with precautionary action and must be seen as such. Of course, the safeguards that the Constitution and preventive detention laws provide must be strictly insisted upon whenever the Court is called upon to examine the legality and validity of an order of preventive detention.

It is too naïve to suggest that in today's economic scenario of abundant foreign exchange and booming foreign trade, contravention of foreign exchange laws does not pose any threat to the national interest for which a person has to be detained "

So, the Supreme Court did not find any merit in challenge to the constitutional validity of impugned part of Section 3(1) of COFEPOSA.

Now, what happens to the petitioner whose detention was ordered? The argument of the counsel for the petitioners that the impugned order of detention was passed way back on September 23, 2009; the impugned order was preventive in nature and the maximum period of detention as per law is one year, which would have lapsed by now and, therefore, no purpose for the execution of the detention order survives, did not find favour with the Supreme Court. The Court observed, "The detention order could not be executed because of the contumacious conduct of the second petitioner and, therefore, he cannot take advantage of his own wrong."

(See 2012-TIOL-47-SC-FEMA)