FEBRUARY 08, 2018

By S Murugappan, Advocate

SEEMINGLY innocuous.

But potentially far reaching.

The addition of a few words to Section 1(2) of Customs Act 1962 as per the Finance Bill 2018 will make certain provisions of the Act sail and fly beyond India's borders.

Sub-section (2) of Section 1 of the above Act reads as of now as follows:

"It extends to the whole of India".

Now, it is proposed to add the following words.

"and, save as otherwise provided in this Act, it applies also to any offence or contravention thereunder committed outside India by any person."

The changes proposed as above reveal certain attributes / assumptions.

(i) The Indian Customs Act, 1962 is recognisable as law outside the geographical limits of India.

(ii) The Act as a whole is not applied outside the geographical limits. It is only certain provisions relating to offences and contraventions that are to be extended beyond the territorial jurisdiction. Thus, this expression lacks clarity and is ambiguous as to exactly, what specific sections of Customs Act can be applied beyond India's borders.

(iii) It will be applicable to any person - which means, going by the general legal meaning, that it can cover an Indian national, a foreign national or a legal person which can be a company, a corporation etc. registered or incorporated outside India.

The traditional view of a State's jurisdiction is linked to its sovereignty and is limited to its geographical area. Or, in other words, laws of one country cannot operate in the territory of another country. Such a respect to limitation on jurisdiction based on geographical boundaries is to ensure a smooth world order and prevent chaos between nations.

But, with changes in technology, like explosion of internet traffic and increased global economic activity, nations tend to make their laws applicable beyond its borders. Examples of modern trends can be the U.S. Foreign Corrupt Practices Act and European Union's laws relating to foreign anti-competitive practices.

While international law has universal application by being made applicable to everyone and everywhere, the other laws enacted by nations cannot have such universal application unless they meet certain parameters. National laws can be applied extra territorially provided they can be justified by recognised principles of extra territorial jurisdiction under public international law. These can be broadly categorized as i) "universality principle" relating to overseas conduct that is dangerous to a State and their nationals, ii) "protective principle" where a State can exercise jurisdiction over overseas conduct that may threaten its security, iii) "active personality principle" where a State can exercise jurisdiction over its nationals and their conduct when they are outside their State and iv) "passive personality principle" where the State can exercise jurisdiction over non-nationals when the victim of such non-national's action / inaction is its national. Some of the legislations which are broadly accepted based on such principles relate to anti-terrorism laws, anti-drug trafficking laws, laws against war crimes, genocide etc.

Any other law which does not meet these basic principles can cause international friction or discord among States. In respect of such cases, each State may have its own notion of jurisdiction, including the notion as to, whether in a given case, it is extra territorial or not. The proposed amendment does not appear to meet these basic principles.

The classic example with regard to competing jurisdictions is 'A' shooting across the border of another country and accidentally killing 'B'. In this case, jurisdiction can be claimed based on cause of action (which originated in the State where 'A' is located) or based on where the effect of the same action is felt (in the State where 'B' is located). To quote a modern example, we can consider the case of certain nationals of countries 'A' and 'B', meeting and formulating in country 'C', a price fixing cartel for a product and where the effect of such price fixing is felt in country 'D'. The question can be where the action can be initiated; in country 'A' or 'B' or 'C' or 'D'. Such multi-state claims or overlapping jurisdictions can pose tough challenges to individual nations.

As far as contraventions of Customs Act are concerned, there can be any number of permutations and combinations in the course of imports or exports. We can visualise, for example, the following situations (purely hypothetical) -

(a) A company in Sweden exporting biscuits to India where such biscuits have less than 60% of their declared shelf life remaining. In India, import of food items with less than 60% of their shelf life is not permitted and is a violation. In Sweden it may be lawful to sell biscuits with less than 60% of their shelf life remaining.

(b) A multi national corporation with headquarters in U.S. and manufacturing units in Australia and Argentina exporting goods to its subsidiary in India by adopting a transfer pricing policy under which values are adjusted for saving customs duty in India.

(c) Poppy seeds exported from Pakistan to an Indian importer with a certificate to the effect that these are out of legally permitted poppy cultivation, which upon investigation is found to be not true.

(d) An exporter from India smuggling red sanders out of the country by misdeclaring them as granite blocks through an intermediary in Singapore to a buyer in China.

(e) Seizure of cocaine by customs officials at an Indian Airport where the drug was shipped from Brazil based on a conspiracy between two Argentine nationals in Mexico for ultimate shipment to Bangladesh via India.

Like these examples, there are numerous possibilities of contraventions of varying gravity and practically for any import or export violation, the foreign supplier or the foreign buyer respectively can be hauled up as an accomplice, abettor or a co-conspirator.

Can India take effective action against the persons located outside the country in respect of examples quoted above?

Jurisdiction or for that matter extra territorial jurisdiction is not a monolithic concept but is composed of different elements. One part is prescriptive jurisdiction where usually the nation's legislature passes laws and applies them to persons located within its territory or outside. The second part is adjudicatory jurisdiction which deals the power, usually exercised by quasi-judicial authorities or courts to subject a person or things to their judicial process. The third component is enforcement jurisdiction where the nation can compel compliance or in the absence of such a compliance, punish for non-compliance. If all these components are not tuned together for a coordinated effort, then, assertion of power by a State outside its territory will not be effective. Or, in other words, its extra territorial jurisdiction will lack teeth.

In the examples quoted above, the Indian Customs authorities and the Indian courts should be able to compel persons and companies to subject themselves to the judicial process in India and award punishments and execute such punishments if the provisions are to be really put into practice.

In the present circumstances, how effective will be such an assertion of extra territorial power is not clear. Bilateral arrangements with other Countries (as envisaged in the proposed section 151B of Customs Act) and extradition treaties will be of some help.

Another key element which is to be kept in mind will be the rights of those persons located outside against whom the Indian customs authorities want to initiate proceedings. What rights they will have as per their national laws and what defense they will be permitted to take, can alter the course of a case. In the example quoted against (a), in Sweden it may be perfectly legal to sell biscuits with below 60% of their shelf life remaining. Thus it will be a case of one nation's law in conflict with another nation's law.

Under such circumstances, it remains to be seen whether we have the machinery and infrastructure and willingness to implement the extra territorial powers effectively or will it be a dead letter, or will it be a selective application of the provisions on the meek and the submissive. Or is it a case where further drafting is required?

Long back, the Permanent Court of International Justice in the case of "SS Lotus" involving a dispute between France and Turkey, held that "States are not entitled to enforce their laws outside their territory except by virtue of a permissive rule derived from international custom or from a convention".

Today, cyberspace and cyber crime have obliterated the geographical boundaries of nations. Transnational corporations having the roots in one country and branches in several countries have cast a shadow on the economic independence of individual nations. So, in the changed circumstances, nations may feel it attractive to apply their laws beyond their geographical limits.

How far such exercises will be successful without creating international discord and disputes? One should wait and watch.

(The views expressed are strictly personal.)