Case Note & Summary
The Rayala Corporation (P) Ltd. manufactured Halda typewriters in India using materials imported from Sweden. Appellant no.1, Lennart Schussler, a Swedish national and export manager of A.B. Atvidabergs (later Facit A.B.), became a director of Rayala Corporation in 1966. Appellant no.2, M.R. Pratap, was the Managing Director of Rayala Corporation. In 1963, appellant no.2 informed appellant no.1 of a decision to import materials through Associated Swedish Steels A.B. (ASSAB) with a 40% over-invoice, the excess amount to be credited to a personal foreign bank account of appellant no.2. Appellant no.1 agreed to assist in opening and monitoring that account. At that time, such retention of foreign exchange was not illegal. However, in 1964, Rule 132-A of the Defence of India (Amendment) Rules, 1964 was enacted, and in 1965, section 4 of the Foreign Exchange Regulation Act, 1947 (FERA) was amended, making such acts offences. Despite these changes, appellant no.1 continued to provide account statements and in November 1965, during a visit to Madras, again agreed to assist. In November 1968, appellant no.1 was detained at Delhi airport. On February 16, 1969, the Director of Enforcement filed a complaint under section 120-B of the Indian Penal Code (IPC) read with sections 4(3), 5(1)(e), and 9 of FERA, alleging conspiracy to illegally acquire and retain foreign exchange abroad. The appellants filed petitions in the Madras High Court to quash the complaint, contending that section 21(1) of FERA covered the same ground as criminal conspiracy, thereby excluding section 120-B IPC, and that the agreement was entered into when the acts were not illegal. The High Court dismissed the petitions, leading to the present appeals. The legal issues before the Supreme Court were whether section 21(1) of FERA excludes the applicability of section 120-B IPC for a conspiracy to illegally acquire and retain foreign exchange, and whether an agreement that became illegal only after its formation could sustain a charge of criminal conspiracy. The appellants argued that section 21(1) comprehensively deals with agreements evading the Act and thus section 120-B IPC is inapplicable; and that since the initial agreement in 1963 was lawful, subsequent acts could not convert it into a conspiracy. The respondents contended that section 21(1) only covers agreements that themselves directly evade provisions, not future conspiracies, and that the continuing agreement and acts after the law changed constituted a conspiracy. The majority (Sikri, Ray, and Reddy JJ.) held that section 21(1) does not cover criminal conspiracy as defined in section 120-A IPC; it merely addresses agreements that directly or indirectly avoid the Act, not an agreement to commit future illegal acts. The agreement between appellant no.1 and no.2 to retain exchange abroad did not itself evade any provision but was a part of a larger conspiracy. Hence, section 120-B IPC was not excluded. On the second issue, the majority ruled that the conspiracy was a continuing one: although the 1963 agreement was not initially illegal, it became so with the subsequent legislation, and the appellants continued to act in concert. The entire agreement had to be viewed as a whole, and appellant no.1’s later acts of monitoring the account were in furtherance. The complaints under section 120-B were maintainable. The minority (Mitter and Hegde JJ.) dissented, holding that section 21(1) itself covers agreements to evade FERA, including conspiracy, and thus section 120-B IPC is excluded. They further opined that under section 23D of the Act, a complaint for substantive offences could not be filed without prior adjudication, and bypassing this by charging under section 120-B IPC was impermissible. Mitter J. held the complaint should be quashed; Hegde J. added that the facts made appellant no.1 only an accessory after the fact, not a conspirator. The majority decision dismissed the appeals, upholding the maintainability of the complaint. The minority would have allowed the appeals and quashed the complaint.
Headnote
A) Criminal Conspiracy - Applicability of Section 120-B IPC - Section 21(1) of Foreign Exchange Regulation Act, 1947 does not encompass criminal conspiracy as defined in Section 120-A IPC; it only covers agreements that directly or indirectly evade the Act’s provisions, not agreements to do future illegal acts. The agreement between the appellants was to assist in retention of foreign exchange, which did not itself evade the Act. Held that Section 120-B IPC was not excluded and the complaint was maintainable. (Paras 769 H-770 B) B) Continuing Conspiracy - Effect of Subsequent Illegality - An agreement initially not illegal can form the basis of a continuing conspiracy if the conspirators continue to act in furtherance after the act is made illegal. The agreement of 1963, though not illegal at inception, became illegal with Rule 132-A of Defence of India Rules, 1964 and amendment to Foreign Exchange Regulation Act, 1947. Appellant no.1’s continued monitoring and reporting of the foreign account constituted acts in furtherance. Held that the charge under Section 120-B IPC was valid. (Paras 770 D-F, 771 H-772 E) C) Minority Opinion - Interpretation of Section 21(1) and Procedural Bar - Section 21(1) of Foreign Exchange Regulation Act, 1947 covers agreements to evade the Act, including conspiracy to acquire and retain foreign exchange abroad, thus Section 120-B IPC is excluded. Additionally, under Section 23D, a complaint for substantive offences cannot be filed without prior adjudication, and bypassing this via Section 120-B IPC is impermissible. Held that the complaint should be quashed. (Paras 781 E-F, 782 B, 783 H)
Issue of Consideration
Whether Section 21(1) of the Foreign Exchange Regulation Act, 1947 excludes the applicability of Section 120-B of the Indian Penal Code for conspiracy to illegally acquire and retain foreign exchange? Whether the agreement entered into in 1963, which later became illegal due to subsequent legislation, could form the basis of a conspiracy charge under Section 120-B IPC?
Final Decision
By majority (Sikri, Ray, and Reddy JJ.), the appeals were dismissed. The Court held that section 21(1) of the Foreign Exchange Regulation Act, 1947 does not cover a case of criminal conspiracy as defined under section 120-A IPC, and therefore a complaint under section 120-B IPC was maintainable. The initial agreement of 1963, though not illegal at the time, became illegal with the enactment of Rule 132-A of the Defence of India Rules, 1964 and the amendment to section 4 of the Act in 1965. The conspiracy was a continuing one, and the acts of appellant no.1 in furtherance of the agreement after the law made it illegal were sufficient to sustain the charge. The minority (Mitter and Hegde JJ.) would have allowed the appeals and quashed the complaint, holding that section 21(1) covered the conspiracy and that procedural requirements under section 23D of the Act had not been met.
Law Points
- Legal points not extracted
- An agreement to commit an illegal act which amounts to a conspiracy will continue as long as the members remain in agreement and act in furtherance
- Section 21(1) of the Foreign Exchange Regulation Act
- 1947 does not cover a case of criminal conspiracy similar to Section 120-B IPC
- For the offence of conspiracy under Section 120-A IPC
- there must be agreement to do an illegal act or a legal act by illegal means
- and no overt act is necessary
- The entire agreement must be viewed as a whole to ascertain the conspirators' object
- Acts in pursuance of a conspiracy after the creation of an offence can be treated as acts in furtherance.
