By TIOL News Service

MUMBAI, AUG 02, 2018: THE petitioner is transferee of the licence and had undertaken imports in accordance with the licence.

A show cause notice was issued to the exporter, M/s. Praful Kamdar and Sons and the petitioner calling upon them to show cause as to why the licence should not be cancelled and also penalty should not be imposed for violation of Rule 10 of the Foreign Trade (FTR) Rules and Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992.

By the impugned order dated 30th June 1999 the respondent No.5 cancelled the licence in terms of Section 9(4) of the FTDR Act and Rule 10(3) of the FTR Rules. Further, the respondent No.5 imposed penalty of Rs.2.50 crores each on both the Transferees.

This Writ Petition under Article 226 of the Constitution of India, therefore, seeks to challenge all these actions.

It is inter alia submitted that there is no question of cancellation of the licence with retrospective effect. Moreover, the imports being already made are not nullified as well.

The petitioner also emphasised, without prejudice, on the following -

+ Petitioner dealt with the impugned licence only after it was transferred in its favour in May, 1998, much after the issuance of the licence by the DGFT. The petitioner cannot be held guilty of abetment in issuing the licence with the old norms in October, 1997. Indeed, there is no material on record to show that the Petitioner was involved in the original licence holder applying for the licence. In fact, the Petitioner has no direct dealing with the original licence holder. The Petitioner purchased the licence from the first transferee and hence charge of abetting in issuance of the license with old norms cannot be sustained.

+ Show cause notice called upon the original licence holder and its Directors to show cause against the proposed cancellation or licence and imposition of penalty. The show cause never required the Petitioner to show cause against the cancellation of license and imposition of penalty. The imposition of the penalty is beyond the proposal in the show cause notice.

The petitioner also relies on the decision in Collector of Customs V/s.Sneha Sales Corporation - 2002-TIOL-440-SC-CUS wherein it is held that - in a case where the licence is obtained by misrepresentation or fraud it is not rendered non est as a result of its cancellation so as to result in the goods that were imported on the basis of the said licences as goods imported without a licence in contravention of the order passed under section3 of the Import and Export Act. That fraud or misrepresentation only renders a licence voidable and it becomes inoperative before it is cancelled.

The counsel for the Revenue submitted that the view taken by the adjudicating authority is correct and requires no interference; that this was a case of a clear violation of the law justifying the imposition of penalty and, therefore, the petition should be dismissed.

The High Court considered the submissions and inter alia observed -

++ The order in original refers to all the arguments and submissions of the parties but beyond stating that the authorities have gone through the facts of case carefully what we find is that the findings and conclusions in the impugned order are based only on the allegations in the show cause notice . They are but a reiteration of the same.

++ Paragraph Nos.13 and 14 of the impugned order and right upto paragraph 18 thus say nothing beyond noting the contentions. However, all that is observed at the end of of paragraph 14 is that the application for licence on the basis of old norms would reveal that there is a possibility of violation of the provisions of the policy by means of fraud, suppression of facts and misrepresentation.

++ A prima facie finding is rendered that the licence has been issued on the basis of forged and incorrect documents. If there were forged and incorrect documents then, the exporters' stand as reflected in his representation and reiterated from time to time should have been noted and appropriately dealt with at that stage itself. The parties who have been responsible for the alleged fraud, suppression of facts and representation should have been proceeded against at that time.

++ We find that the conclusion is not resting on fraud but fraud, suppression of facts or misrepresentation. We do not find any scope for such a mixed conclusion. Either of the acts have to be held as established and proved.

++ This Court cannot be left to guess as to whether the authority concluded that either fraud is proved or that parties like the petitioner is guilty of suppression of facts or misrepresentation.

++ We do not wish to go into niceties for a fraud could be said to be established and proved if there was suppression of facts. However, when the finding also refers to misrepresentation, then, we are left wondering as to what are the acts attributed to the present petitioner. They are essentially proceeded against for having abetted the Exporter.

++ In the facts peculiar to this case and when the impugned order does not deal with the without prejudice arguments, ignores the mitigating factors, they, all the more we are disinclined to allow the respondents to enforce such an order.

The impugned order is quashed and set aside for having not based on cogent and satisfactory reasons. The Writ Petitions are allowed.

(See 2018-TIOL-1513-HC-MUM-CUS)

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