Metro Exports Vs. Union of India (Uoi) and ors. - Court Judgment

T.L. Viswanatha Iyer, J.

1. Chapter 17 of the Import and Export Policy for 1984-85 provided to registered importers, by way of import replenishment, the materials required by them in the manufacture of the products exported. Paragraphs 140 and 141 in this Chapter vided that this licence described as REP licence will be issued in the name of the registered exporter only and that it will not be subject to actual user condition. A ncc holder was entitled to transfer the licence, in full or part in favour of any other on. The licence holder or the transferee may import the goods permitted therein. : transfer of the licence docs mi require any endorsement or permission from the using authority, that is, it will be governed by the ordinary law. Accordingly insurance of the goods covered by the REP licence issued under the policy will be wed by the Customs Authorities on production by the transferee, of only the document of transfer of the licence concerned in his name. But Rule 141 required that whenever an REP licence was transferred, the transfer should give a formal letter to transferee, giving full particulars regarding number, date and value of the licence transferred and the name and address of the transferee and complete description of the ort items for which the licence was transferred. A copy of the transfer letter should endorsed to the licensing authority, who issued the REP licence for record. This procedure was also to apply to subsequent transfers to the same licence.

2. Appendix 17 described the items which could be imported against various items imported. Inter alia entry G. 2 related to export of fresh fruits/vegetables/vegetable for which import entitlement of the items mentioned in column 4 of the Appen was allowed. Inter alia column 4 allowed import of chemicals appearing in Appen-3 of the Policy and used in the cultivation/growth of fruits, vegetables and flowers freshening chemicals for fruits, vegetables and flowers.

3. What was thus allowed to be imported under the REP licence against export of vegetables and flowers those chemicals which were used in the cultivation/growth of the fruits or flowers and which found a place in Appendix 3.

4. We are concerned in this original petition with an item Pentaerythritol (all) which appears as item No. 307 in part A of Appendix 3 of the Policy. Response 3 to 7 who had exported the items in entry G. 2 of Appendix 17 namely fruits and vegetables had declared that Pentaerythritol had actually been used in the cultivation/growth of fruits and vegetables and/or as freshening chemicals for fruits and vegetables exported during the period April/June 1983. They were accordingly granted REP licences for import of Pentaerythritol in various quantities as detailed in Exts. P2 to P5 which are the import licences granted to respondents 7,6, 5 and 4 respectively. These licences were transferred by these respondents to one Rekha Enterprises between 28th August and 5th September 1984 and they in turn transferred the same to the petitioner between 30th August and 5th September, 1984 respectively. The declarations made by respondents 4 to 7 as also the letters of transfer to Rekha Enterprises and to the petitioner are all seen appended to Exts. P2 to P5. However and though the licences were transferred as permitted under paragraph 141 of Chapter 17 of the Import Policy, copies of the transfer letters had not been endorsed to the licensing authority, who issued the REP licences for purposes of record, as mandated by paragraph 141.

5. It is the petitioner's case that pursuant to the transfer of the REP licences to them, they entered into contracts with an exporter in Japan on 31st August and 16th September 1984 for import of the Pentaerythritol under the licences Exts. P2 to P5. Necessary letter of credit was also opened for the purpose. The sellers shipped 103.300 MT of the chemical by a vessel which arrived at the Port of Cochin on 27th October, 1984.

6. Though the REP licence was issued by the Import Control Authorities on the basis that Pentaerythritol was a chemical used in the cultivation/growth of fruits and vegetables and/or as freshening chemicals, it would appear that the 2nd respondent discovered later that Pentaerythritol was used mostly only in the manufacture of paints and sometimes in the manufacture of explosives as well. According to them it was not used for the purposes mentioned in column 4 against entry G. 2(c) of appendix 17 to the Import Policy. The second respondent therefore, initiated proceedings for cancellation of the REP licences under Clause 9(1) of the Import (Control) Order, 1955. This clause entitled the authority concerned to cancel or render ineffective a licence if it has been granted through inadvertence or mistake or by fraud or misrepresentation. Sub-clause (3) of Clause 9 also enables the authority concerned to suspend or render ineffective the licence pending the proceeding. But such order of suspension ceases to have effect on the decision to cancel the licence after the enquiry proceedings are completed. The notice to show cause was issued to the original licensees namely respondents 4 to 7 herein, obviously for the reason that the second respondent had no information that the licence had been transferred to Rekha Enterprises and then on to the petitioner as copies of the letters of transfer had not been endorsed to the licensing authority. However, the notices issued to the licensees required respondents 4 to 7 to bring it to the notice of any other party/bank who may have interest in the licence. These notices were issued eaR1y in October, 1984. The licences were also suspended under Clause 9(3) of the Import (Control) Order on 5.10.1984, copies of the orders of suspension being Exts. R1(e) to R1(h). Respondent No. 6 abstained from the hearing and did not respond to the notice to show cause, copies of which are Exts. R1(a) to R1(d) dated 3.10.1984, Respondents 4, 5 and 7 appeared. Explanation given by them was not acceptable to the second respondent, who therefore, passed orders Exts. R1(i) to R1(l) on 11.12.1984 cancelling the licences.

7. It was the case of the second respondent that Pentaerythritol was not an item which could be used in the manufacture/growth of cultivation of fruits and vegetables. The contention raised by respondents 4,5 and 7 in that regard was overruled.

8. Respondents 4 to 7 were also informed by the orders Exts. R1(i) to R1(1) that if they were not satisfied with the decision, they may file an appeal to the Additional Chief Controller of Imports and Exports, New Delhi, under Clause 10(2) of the Imports (Control) Order.

9. Meanwhile the goods Pentaerythritol shipped from Japan had arrived at the Port of Cochin. The petitioner claims that they were not aware of the proceedings going on against respondents 4 to 7. They filed bills of entry in the Cochin Port, but they were not allowed to clear the goods. They were issued notice Ext. PI on 11.12.1984 stating that the item imported namely, Pentaerythritol was required mostly in the manufacture of paints and to some extent, in the manufacture of explosives and that it was not required for the purposes mentioned in item C in column 4 of entry G. 2 of Appendix 17 of the Import Policy. The Chief Controller of Imports and Exports, New Delhi had therefore, advised not to allow import of this item. The REP licences had been obtained by giving false and fraudulent and misleading declaration and therefore, those licences had been suspended by the second respondent namely, the Joint Chief Controller of Imports and Exports, Bombay. Ext. PI therefore, stated that the import of the items was not covered by any valid import licence.

10. On receipt of this notice, the petitioner filed this original petition for the issue of a writ of certiorari quashing the proceedings leading to Ext. PI, including the suspension of the REP licence and for the issue of a writ of mandamus to respondents 1 to 3 not to prevent the clearance of the goods allowed to be imported as per the import licences Exts. P2 to P5.

11. By an interim order passed on 3.1.1985, this Court restrained respondents 1 to 3 from implementing or enforcing the orders of suspension passed under Clause 9(3) of the Import (Control) Order and Ext. PI notice subject to the condition that the goods covered by the licences Exts. P2 to P5 will be cleared on the petitioner paying all the duties in respect of the goods, furnishing a bank guarantee for Rs. 2,00,000/- and on furnishing a bond in the prescribed manner for the value of the goods to the satisfaction of the Assistant Collector of Customs.

12. Petitioner contends inter alia that the licences in question had been operated upon by the petitioner and the goods imported. There was therefore, no power to suspend the licences and that the only remedy available to the authorities was to adjust the value of the licences against future entitlements. It is also contended that the rules of natural justice have been violated. In that there was no hearing of the petitioner before the licences were suspended under Clause 9(3) of the Import (Control) Order. Thirdly it is pointed out that there has been no fraud or misrepresentation as alleged. There has been thorough scrutiny by the Import (Control) Authorities before the licences were issued. The petitioner has acted on the representations of respondents 1 to 3 regarding the import entitlement of Pentaerythritol and therefore, respondents 1 to 3 are estopped from contending otherwise after the petitioner had acted to his detriment.

13. The second respondent has filed a counter-affidavit in which the facts and circumstances leading to the notices to show cause namely Exts. R1(a) to R1(d), the orders of suspension Exts. R1(e) to R1(h) and the ultimate orders of cancellation Exts. R1(i) to R1(l) are set forth. It is the second respondent's case that the licences had been obtained on fraudulent premises that the chemical in question was used for the purposes mentioned in column 4 against entry G.2 whereas it was actually required only in the manufacture of paints and to some extent in explosives. In any event it is stated that Exts. R1(i) to R1(l) are appealable under Clause 10(2) of the Import (Control) Order and hence this original petition may not be/entertained.

14. The 5th respondent has filed a counter-affidavit on 11th March, 1985 in which it was pointed out that the import licences issued to respondents 4 to 7 had been cancelled and that the petitioner has no cause of action so far as they are concerned. According to them, on receipt of the notices to show cause, respondents 4 to 7 immediately contacted their transferee Rekha Enterprises, but there was no response. A copy of the order of cancellation issued to the 5th respondent dated 11.12.1984 was produced as Ext. R5(a).

15. Though the petitioner knew from the counter-affidavit of the 5th respondent filed on 11th March, 1985 that the import licences Exts. P2 to P5 stood cancelled and despite the fact that a copy of the cancellation order was also produced as Ext. R5(a), the petitioner did not choose to amend the original petition seeking to quash Exts. R1(i) to R1(l). The original petition remains in its original state without any amendment seeking to quash the orders of cancellation.

16. For the reasons stated below, I shall be dealing only with the questions of violation of the principles of natural justice urged by the petitioner as a ground for entertaining the original petition. But before that I shall make a few prefatory observations.

17. I do not think that the original petition as it stands at present, is liable to be entertained. I do not think it necessary for this Court to deal with the prayer to quash Ext. PI for the reason that it is only a notice to show cause why proceedings shall not be taken against the petitioner under the various provisions mentioned. It is a notice under Section 124 of the Customs Act, 1962 and alleges violation of certain provisions of the Customs Act and of the Import and Export (Control) Act. Petitioner is called upon to submit written reply and to show cause why the action proposed shall not be taken. He is also asked to state whether he desires to be heard in person before the case is adjudicated.

18. It cannot be said that Ext. PI is a notice wholly without jurisdiction or issued wholly without any basis. The allegations contained in the annexure to Ext. PI are certainly of a grave nature which do require to be investigated, and on which action will be justified if the petitioner is not able to show cause. The petitioner has got effective remedies both under the Customs Act and under the Imports and Exports (Control) Act, 1947 in case the action proposed by Ext. PI is pursued and orders are passed against it. The remedy of appeal provided is effective and adequate. The matter requires investigation into questions of fact which may not be possible in these proceedings under Article 226. Appropriate remedy of the petitioner in relation to Ext. PI is therefore, to proceed by filing objections to Ext. PI, participating in the enquiry and taking up the matter in statutory appeal in case the conclusion is against it. So long as the issue of Ext. PI is within the jurisdiction of the 3rd respondent, this Court need not interfere at this stage by interfering under Article 226.

19. The other prayer made in the original petition is to quash the orders of suspension under Clause 9(3) of the Imports (Control) Order. The proceedings in which these orders were passed have now culminated in the orders of cancellation of the licences themselves namely Exts. R1(i) to R1(l). As per Clause 9(3), the order of suspension ensures only till the proceedings initiated under Clause 9(1) are finalised. Therefore, the orders of suspension do not continue to be in force because of the cancellation of the licences themselves and therefore, there is no question of this Court dealing with the prayer to quash those orders of suspension. Petitioner should have challenged the orders Exts. R1 (i) to R1(l) in proceedings under Clause 10(2) of the Imports (Control) Order, 1955.

20. The further prayer made is that there may be a writ of mandamus directing respondents 1 to 3 not to prevent the clearance of the goods imported by the petitioner. The issue of the writ of mandamus postulates existence of a legal right in the petitioner with corresponding duty on the part of respondents 1 to 3. Petitioner bases its import on the licences Exts. P2 to P5 which have been transferred to it. When those licences have been cancelled by Exts. R1(i) to R1(l), prima facie the right to import the goods or to clear the goods also ceases. The backing which the import had, to make it legal, has ceased to exist on the passing of Exts. R1(i) to R1(l). Thereafter, it is not competent for the petitioner to insist on the respondents clearing the goods. Such clearance will be illegal in the absence of a valid licence to support the same. This court cannot insist on the respondents to act in a manner which is not legal by the issue of a writ of mandamus.

21. Petitioner's contention in reply is that Exts. R1(i) to R1(l) are null and void for the reason that they had been passed in violation of the principles of natural justice. Notice of the proceedings had been given only to respondents 4 to 7 and not to the petitioner, who was all through in the dark. The licences are valuable ones and any cancellation of the same to the detriment of the petitioner could be had only after notice to and hearing them.

22. I am unable to accept this contention. The petitioner is a transferee of the licences from Rekha Enterprises, who themselves were transferees from respondents 4 to 7. The question of issuing notice to the petitioner will arise only if the second respondent could be visited with the knowledge that the petitioner was transferee and had an interest in the licences. Paragraph 141 of Chapter 17 of the Import and Export Control Policy specifically stipulates that copy of the letter of transfer should be endorsed to the licensing authority for its record. This requirement is done with a purpose namely that the licensing authority should have knowledge as to the persons who are having an interest in the licence and who should be given notice in case any such proceedings are initiated. No notice as envisaged by paragraph 141 of Chapter 17 has been given to the licensing authority. There is no averment in the original petition that a copy of the letter of transfer had been endorsed to that authority. In fact I repeatedly asked counsel for the petitioner whether the intimation as envisaged in paragraph 141 had been given. Counsel's only reply was that the Customs Authority in Cochin had known about the transfer to the petitioner by virtue of the bills of entry which the petitioner had presented in that Port. Counsel had no case that the requirements of paragraph 141 had been complied with.

23. If the licensing authority namely the second respondent who initiated the proceedings by sending Exts. R1(a) to R1(d), had no notice of the transfer to the petitioner, it could not be said that he has acted in violation of the principles of natural justice in not issuing notices to the petitioner. There was no obligation cast on the parties to the transfer to endorse the letter of transfer to the licensing authority. It is not merely a case where the transferor should endorse. Equally it is the responsibility of the transferee also to see that the licensing authority's records are kept properly with information about the transfer so that the transferee can have notice of any such proceedings When para 141 is not complied with, the petitioner cannot complain that the licensing authority should issue copies of Exts. R1(a) to R1(d) or any show cause notice to the petitioner. Even then the licensing authority had taken care to mention in Exts. R1(a) to R1(d) that respondents 4 to 7 may convey the information about the notice to any bank or others having an interest in the licence. It is the case of respondents 4 to 7 that they had intimated Rekha Enterprises about it, but that they did not take any interest.

24. In these circumstances I cannot find any substance in the petitioner's plea of violation of principles of natural justice when they themselves have been in default and have not complied with the basic requirement of para 141 and kept the licensing authority in ignorance of the transfer. The fact that Bills of Entry has been filed in the Cochin Port is irrelevant, and insufficient to impute knowledge of the transfer to the second respondent. The notices Exts. R1(a) to R1(d) had been issued on 3.10.1984 and the proceedings were going on apace when the Bills of Entry were filed. At best, these Bills can impute knowledge to the customs authorities in Cochin but are insufficient to fasten knowledge on the Import Control authorities particulaR1y, the second respondent in Bombay who was in seizin of the proceedings evidenced by Ext.R1 series. I overrule this contention.

25. For the very same reason the petitioner's contention that they should have been heard before the orders of suspension Exts. R1(e) to R1(h) were passed under Clause 9(3) of the Import (Control) Order is equally unsustainable. The second respondent could not be expected to issue notice to the petitioner about whose interest in the licence he was ignorant, thanks to the default of the petitioner and respondents 4 to 7 in complying with para 141 by endorsing copy of the letter of transfer to the licensing authority. This is apart from the fact that no anterior hearing is called for, for a suspension pending enquiry under Clause 9(3).

26. The petitioner has a further contention that the licence has been operated upon and that therefore, the proper procedure for the second respondent was not to cancel the licences, but only to set off the value of the licence against future imports. I am not entering into this question as this could have been made the subject of appeal, which the petitioner could have filed against Exts. R1(i) to R1(l) before the appropriate appellate authority mentioned in those orders themselves.

27. In the view that I have taken, I do not think it necessary to go into the contentions raised by the petitioner on the basis of the decisions in East India Commercial Co. Ltd. v. Collector of Customs : 1983(13)ELT1342(SC) and in Chemi Colour Agency v. Chief Controller of Imports and Exports 1986 (6) ECR 495. These matters can well be agitated in appropriate statutory appeal.

28. In any case, it is unnecessary for me to consider the various questions raised by the petitioner when there is no challenge before this Court to the orders Exts. R1(i) to R1(l). If there is no violation of the principles of natural justice, as held by me eaR1ier, these orders have to be quashed before the petitioner can be granted any relief in this original petition. It was open to the petitioner, if they had so desired to challenge the said orders. They did not choose even to amend the original petition with appropriate averments and grounds regarding Exts. R1(i) to R1(I) and with prayer to quash these orders. As it is, the original petition deals only with Ext. P1 and the orders of suspension which arc not open to challenge as stated by me in paragraphs 17, 18 and 19 herein above. Not having chosen to do so, despite their being apprised of it by the counter-affidavit of the 5th respondent filed as eaR1y as on 11th March, 1985 and by the counter-affidavit of the second respondent, filed later, this Court is not really bound to concern itself with any of the points raised in the original petition.

The original petition is, therefore, bereft of merit. It is accordingly dismissed. No costs.