Delhi High Court
M/S Shiv Nath Raj Har Narain (India vs Uoi & Ors on 19 March, 2009
Author: S.Ravindra Bhat
Bench: S.Ravindra Bhat
IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Judgment : 19.03.2009
WP(C) No.3173/1995
M/S SHIV NATH RAJ HAR NARAIN (INDIA) ...... Petitioner
Through : Mr. Rakesh Tikku, Advocate
Versus
UOI & ORS. ....... Respondents
Through : Ms. Monika Garg, Advocate CORAM HON'BLE MR. JUSTICE S.RAVINDRA BHAT
1. Whether the Reporters of local papers may be allowed to see the judgment?
2. To be referred to Reporter or not?
3. Whether the judgment should be reported in the Digest?
S.RAVINDRA BHAT, J. (OPEN COURT) %
1. By these writ proceedings, the petitioner seeks issuance of a writ of certiorari for quashing the impugned show-cause notice and the adjudication order of the second respondent (The Director General, Directorate General of Foreign Trade, Ministry of Commerce), dated 01.08.1994 and 19.07.1995. The impugned show-cause notice alleged violations of Section 11 (2) of the Foreign Trade (Development and Regulation) Act, 1972 (hereafter "the Act") and the impugned adjudication order imposed a penalty of Rs. 10 Lakhs on M/s Crown Commodities, New Delhi and their partners/proprietor/directors.
WP(C) No.3173/1995 Page 1
2. The facts giving rise to these proceedings are that the petitioner, a partnership firm engaged in the manufacture and export and import of various commodities, including rice to several countries, entered into a transaction with one M/s Crown Rice Mills (12, Failsworth Road, Allandale Pietermaritzuberg 3201, South Africa) for supply of parboiled rice with 20 to 25% broken pieces; a formal order was placed by the buyer on 02.02.1994. A pro-forma invoice was raised on the same date; the petitioner also communicated to the buyer by fax that about 0.75% to 1% black grains would be present in the supplies, as per the samples. It was agreed between the parties that the shipment was to be sent in bulk and the charter-party was to be on a "free-in/free-out" basis. The petitioner contends having made the supplies on the basis of the arrangement.
3. Subsequently, the buyer made a complaint to the respondent alleging poor quality of supplied rice and non-payment of off-loading charges by the petitioner. Based on the complaint, a show cause notice was issued to the petitioner by the respondent on 01.08.1994 alleging that it (the petitioner) had violated Section 11 (2) of the Act. A copy of the complaint was not sent to the petitioner. The petitioner was instructed to submit particulars of its branches, partners, licences, etc. The said notice was replied to on 20.08.1994, by the petitioner, who denied the allegations. The impugned adjudication order was passed on 19.07.1995, after hearing the petitioner. The respondents held the petitioner guilty for not adhering to its contractual obligations while making exports to M/s Crown Commodities.
4. The petitioner states that ordinarily an appeal would have been filed against the impugned adjudication order; however, since the very jurisdiction of the respondents to WP(C) No.3173/1995 Page 2 take any action under the said Act is under challenge, it claims that writ proceedings are the only efficacious remedy in these circumstances.
5. The petitioner's stand is that the show-cause notice as well as the impugned order are a nullity, in as much as they were issued without any authority of law. It was further contended that Section 11 (2) of the Act- contravention of which was alleged against the petitioner- contemplates taking of an action where a person makes or abets or attempts to make export or import in contravention with the provision of the said Act. However, it is contended that nowhere did the impugned show-cause notice or the adjudication order point out to any provision of the Act, contravention of which, was found against the petitioner.
6. The petitioners say that the fact of presence of black grains in the supply was specifically brought to the notice and of the respondents and as per the terms of the contact, off-loading charges were also to be paid by the importer i.e. complainant (second respondent) this was an express part of the understanding between the parties. It is urged that no provision of the Act empowers the respondent authority or any other official to initiate proceedings for alleged violation of contractual obligations of the parties. The petitioners also say that the respondent authority, under the Act, is not empowered to adjudicate rival claims and contentions of the importer and exporter. It is the task of the Courts and/or arbitration tribunal, wherever arbitration is agreed between the parties.
7. The procedure adopted by the respondents in adjudicating the dispute between the parties is contrary to the principles of natural justice as the Complainant was not even present before the adjudicating authority and the petitioner had no opportunity to confront WP(C) No.3173/1995 Page 3 the complainant on the allegations made by them also the copy of the complaint was not provided to the petitioner alongwith the show-cause notice.
8. The respondents, in their return, raise a preliminary that the petitioner has an equally efficacious remedy in terms of an appeal under Section 15 (1) of the Act and therefore, this court should desist from entertaining these proceedings. The respondents rely on Rule 11 of the Foreign Trade (Regulation) Rules, 1993, under which the exporter is required to certify the quality and specification of goods are in accordance with the terms of export contract. In the present case the quality of goods was found to be inferior, thus there is clear violation of the said rule and also violation of Para 154-A of the Export and Import Policy 1992-97.
9. It is submitted that the conduct of the petitioners in supplying sub-standard rice is also prejudicial to India's trade relations with the importer country, which brings disrepute to the trade and goods of India. Thus the petitioner's conduct also was violative of Section 8 of the Act.
10. The respondents admit to having received the fax communication by the petitioner indicating that about 0.75% to 1% black grains would be present in the final export, but aver that the goods were not in accordance with the agreed quality. The respondents allege that as the issue of presence of black grains in the supply was not found in the documents i.e. Proforma Invoice or the Purchase order or in the terms of Letter of Credit thus, there was no contractual agreement in respect of presence of black grains in the exported rice. Although the petitioner's letter dated 2.2.1994 mentioned that there would be presence of maximum 1% black grains in the rice, this fact was not indicated in the Proforma Invoice issued on the same date. The petitioner, allege the WP(C) No.3173/1995 Page 4 respondents, also failed to pay the off-loading charges to the respondent (importer) thus amounting to breach of contract.
11. As the alleged contravention of Section 11 (2) of the Act forms the root cause for filing of these proceedings, it is necessary to reproduce the same verbatim:
―11. Contravention of provisions of this Act, rules, orders and export and import 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 Export and Import 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 export and import policy, he shall be liable to a penalty not exceeding one thousand rupees or five times the value of the goods in respect of which any contravention is made or attempted to be made, whichever is more.‖ Rule 11, which is relied upon by the respondents, reads as follows:
―11.Declaration as to value and quality of imported goods. -- On the importation into, or exportation out of, any customs ports of any goods, whether liable to duty or not, the owner of such goods shall in the Bill of Entry or the Shipping Bill or any other documents prescribed under the Customs Act, 1962 (52 of 1962), state the value, quality and description of such goods to the best of his knowledge and belief and in case of exportation of goods, certify that the quality and specification of the goods as stated in those documents, are in accordance with the terms of the export contract entered into with the buyer or consignee in pursuance of which the goods are being exported and shall subscribe a declaration of the truth of such statement at the foot of such Bill of Entry or Shipping Bill or any other documents.‖
12. The operative part of the impugned order dated 19.7.1995 of the Addl. Director General of Foreign Trade, reads as follows:
―7) ..... I find that the party's submission about the presence of black grains in the exported rice is correct in so far as their letter WP(C) No.3173/1995 Page 5 to the foreign buyer communicating the same is concerned. However, this provision is nowhere in sight in the proforma invoice, /purchase order or in the terms of LC. Hence, the party's submission does not convince me since the presence of black specs, which rendered the rice sub-standard in quality, is against the terms of contract and LC.
8) In view of the foregoing I have reason to believe that the noticee firm has defaulted in respect of the quality of rice exported to M/s Crown Commodities by exporting rice with black grains which rendered the goods inferior in quality.
This action on part of the noticee firm attracts the provision of Section 11 (2) of the Foreign Trade (Development and Regulation) Act, 1992. I, therefore, in exercise of powers vested in me under the said provisions, hereby, impose a penalty of Rs. 10.00 Lakhs on M/s Crown Commodities, New Delhi and their partners/proprietors/directors.‖
13. The facts of the case do not require adjudication, since there is no dispute about the background of the export, the quantity, etc. The court has to consider and rule upon two issues. Firstly, whether the approach of the adjudicating authority in making the impugned order was in compliance with the principles of natural justice and secondly, whether the dispute in question fell within the jurisdiction of the adjudicating authority.
14. One of the cardinal principles of natural justice is the audi alteram partem rule, i.e the opportunity of a hearing. The first component of that rule is that the party likely to be visited with adverse consequences should be given a notice, containing the grounds on which action is proposed; the notice should list, fairly, the materials sought to be considered against the party, and the likely consequence or action proposed. Sans proper materials, which are proposed to be used, or a fair narrative of them, the noticee, as it were would be hard put to reply to the charges; he would be in the dark, about the allegations, and the mind of the decision maker. In Food Corpn. of India v. State of WP(C) No.3173/1995 Page 6 Punjab, (2001) 1 SCC 291, while dealing with a similar issue, it was held, by the Supreme Court, that:
―Notice to the affected person mandated in the section is not an empty formality; it is meant for a purpose. A vague and unspecific notice will not provide reasonable opportunity to the notice to file objection meeting the reasons/grounds on which the amendment of the assessment list is proposed to be made. Such a notice cannot be taken to be complying with the statutory requirement.‖ The requirement of particularizing facts and allegations, proposed to be used against the person to whom a show cause notice is issued, was earlier spelt out in Delhi Cloth and General Mills Ltd -vs- Muncipal Corporation of Delhi & Ors AIR1998 Del 348, as follows:
―we are of the considered opinion that in order to enable the notice to effectively meet the case proposed against him in the notice, the basis of arriving at the proposed figure of rateable value ought to be disclosed to the assessed specially when the assessed makes a demand for the same as in the present case. Thee is nothing secret or sacrosanct - after all the Corporation must have arrived at the proposed figure of rateable value on some basis, it cannot be that the proposed figure mentioned in the notice has dawned on some officer of the Corporation from the blue. When the proposed figure has been worked out on some basis we see nothing secret or confidential in it so as not to make it available to the assessee. The proposal in the notice has serious repercussions so far as the assessed is concerned and that is why the assessed has been given a right to file objections against the proposal. Saying that the entire facts are available with the petitioner is no answer to the requirement of disclosing the basis of the proposed figure of rateable value. In order to ensure that the right is effectively exercised and that it is not rendered illusory, we are of the view that the Corporation must disclose the basis of arriving at the figure contained in the proposal specially when the assessed has asked for the same. Setting aside the notice on this ground will mean that the petitioner will get a complete tax holiday with effect from the date of the proposed revision in the rateable value till a fresh notice is given.‖ Recently, in Commissioner of Central Excise. Bangalore v. Brindavan Beverages (P) Ltd.
and Ors. (2007) 5 SCC 388, the Supreme Court, speaking on this aspect, stated that:
WP(C) No.3173/1995 Page 7 ―12. Per contra, learned Counsel for the respondents submitted that there is no material that the respondents had ever been parties to the so called arrangement, even if it is accepted for the sake of arguments but not conceded, that such arrangement was in reality made. There was no material brought on record to show that the respondents had any role to play in such matters as alleged. Even the show cause notice did not refer to any particular material to come to such a conclusion. Therefore, the Commissioner and the CEGAT were justified in holding that the respondents were entitled to the benefits.
13. We find that in the show cause notice there was nothing specific as to the role of the respondents, if any. The arrangements as alleged have not been shown to be within the knowledge or at the behest or with the connivance of the respondents. Independent arrangements were entered into by the respondents with the franchise holder (sic franchiser). On a perusal of the show cause notice the stand of the respondents clearly gets established.
14. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents unless it is shown that they were parties to the arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted.‖
15. In this case, the notice issued to the petitioner is bereft of essential particulars; it also does not enclose complaints received against it (the petitioner) or other materials, which persuaded the respondents to conclude, as they did, that there was infraction of the provisions of the statute. It is said that where the penalty is stringent or harsh, the authority is under a greater obligation to follow a fair procedure (Prakash Kumar v. State of Gujarat ( 2005 ) 2 SCC 409). Here, the respondents proposed, and imposed a penalty of Rs. 10,00,000/-. The notice did not indicate what obligation, amounting to infraction of the substantive provisions of the Act, or the concerned rule, had occurred. It is also unclear whether the aggrieved importer sought recourse to the normal dispute resolving WP(C) No.3173/1995 Page 8 channels, under the contract, or under the municipal laws, applicable to the transaction. In these circumstances, the petitioner's grievance about adopting of an unfair procedure, is well founded. As regards the second question, the petitioner's grievance about lack of jurisdiction to adjudicate disputes appears to be well founded. The authorities have the power and jurisdiction to decide whether provisions of the Act and Rules are not complied with, and if they decide that there is a violation, impose the penalty warranted in the circumstances of the case. Yet, the Act does not authorize the determination of whether an Indian exporter acts in breach of his contractual obligations - that role is exclusively of the Courts.
17. For the above reasons, the impugned order cannot be sustained; it is hereby quashed. It is however, open to the respondents to issue a fresh notice, and after disclosing all relevant materials, to the petitioner, and granting adequate opportunity of hearing to it to issue orders, in accordance with law.
18. The writ petition is allowed in the above terms, without any order as to costs.
CM Nos.790-791/2007 No further orders are required to be passed in these writ petition in view of the disposal of the writ petition.
19th March, 2009 (S.RAVINDRA BHAT)
JUDGE
WP(C) No.3173/1995 Page 9