TMI Blog2008 (4) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... the Customs Act, if the goods are not prohibited, then the adjudicating officer shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the officer thinks it fit. It is only when it is a prohibited goods that the officer has the discretion and it is open to him not to give the option to pay fine in lieu of confiscation. Therefore, the finding of the learned Judge that the goods are prohibited is not correct - We only hold that the question whether there was suppression and fraud must be proved by one who alleges fraud; the question of collusion and conspiracy must also be proved by the one who alleges it. These are questions which have to be proved by adducing evidence. - 1488, 1502 and 1562 of 2007 - - - Dated:- 1-4-2008 - A.P. Shah, CJ. and Prabha Sridevan , J. REPRESENTED BY : S/Shri N.A.K. Sarma, Counsel, G.L. Rawal, Sr. Counsel and K.S. Vasan for M/s. Murthy Vasan, V.T. Gopalan, Sr. Counsel for P. Wilson, ASG, D. Roy Choudhuri, Sr. Counsel for S. Umapathy , A.L. Somayaji, Sr. Counsel for F.B. Benjamin George, for the Appearing Parties. [Judgment per : Prabha Sridevan, J.]. - The writ petition was filed by the first responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. On 7-6-2004, the Superintendent of Central Excise, Virudhachalam sought certain clarifications and also visited the fertilizer plant. On 30-6-2006, NLC replied to the Central Excise authorities that the machineries were imported for revamping the fertilizer plant after payment of Customs/Excise duty as applicable and furnished all the necessary details. On 2-7-2004, the Superintendent, Central Excise asked for details of machineries imported with partial/full exemption of Customs Duty and Bills of Entry for the same. On 10-7-2004, NLC gave full details of the equipment imported by the fertilizer plant along with copies of Bills of Entries and the copies of the relevant Customs Duty Exemption Notifications of the Government of India. 3. About seven months thereafter, on 25-2-2005, NLC conducted through MSTC, the e-auction for the disposal of the disbanded fertilizer plant. Metro Machinery Traders (MMT), the writ petitioner (appellant in W.A. No. 1562 of 2007) offered Rs. 132 crores and was the highest bidder. It furnished demand drafts for a sum of Rs. 13.2 crores in favour of NLC as a security deposit. MSTC, as the selling agent of NLC, issued the Sale order/Acceptance Letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LC to permit them to dispatch the materials to their buyers with immediate effect. On 23-8-2006, NLC intimated the order of the Delhi High court to the DRI and on 24-8-2006, the DRI instructed NLC to strictly adhere to their letter dated 20-6-2006, by which they were asked not to remove or dispose of the goods imported under concessional rate of Customs Duty and used in the revamping of the fertilizer plant until investigation by the DRI is complete. On 25-8-2006, NLC permitted MMT to take delivery of the materials under the control of the Court Receiver. On 26-8-2006, MMT through STC removed 38 truckloads of dismantled materials from 26-8-2006 to 2-9-2006. On 29-8-2006, NLC asked MMT to remove without any delay, all the materials, except the imported materials. On 1-9-2006, MMT sent a legal notice to NLC demanding refund of the EMD. On 2-9-2006, NLC reiterated its request to MMT to remove the indigenous machineries and loose items, except the imported materials, without any delay. On 13-9-2006, NLC granted MMT, extension of delivery period by 75 days. On 14-9-2006, the DRI seized the imported materials alone out of the materials not yet removed by MMT and prepared a mahazar. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive clutches of law and that concealment is evident and having come to the above conclusions, answered the question regarding whether the contract was void ab initio and whether there was fraud in favour of MMT. But, as regards the remedy that MMT claimed, the learned Judge, while referring to Clause 59 of the agreement, which is the arbitration clause, held that when the contract is prohibited by law, even if there was an independent arbitration clause, no one can derive benefit from the void contract. Therefore, according to the learned Judge, the parties cannot invoke the arbitration clause. As far as quantification of the monetary relief is concerned, the learned Judge had considered the facts relating to the dismantling and removal of the goods and held that a perusal of these details would clearly reveal all the facts "except the value of the materials removed". Therefore, the learned Judge held that in a case like this, "Where the petitioner wants to have the entire amount to be refunded, unless and until facts regarding the value of the machineries removed are not certain, the court cannot grant the relief sought for". Therefore, the learned Judge held that the Court is un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able, and whatever clarifications were sought for by the Department had been given by NLC and it was several months thereafter that the e-auction was held and during that period, there was no intimation from the DRI, which could in any way have inhibited NLC from proceeding with the e-auction. In these circumstances, there was nothing to be concealed and nothing was in fact concealed. (d) Learned counsel submitted that as far as NLC is concerned, the sale had been effected. As per the contract, no re-selling was permitted within the premises of NLC. According to the learned counsel, contrary to the terms of the contract between MMT and NLC, MMT had entered into an agreement with STC, by which a sum of Rs. 150 crores had been advanced by STC to MMT, part of which sum was apparently utilised by MMT for making the deposit to NLC. Learned counsel also submitted that it is surprising that STC advanced the money on the basis of no security, apart from the letters from the valuers. (e) Even assuming the argument that the contract is void ab initio, the contract between the parties contained an arbitration clause and this question as to whether the contract was void is an arbitrable is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of which Rs. 13.70 crores were deposited with NLC and this investment was made almost three years ago. It was submitted that the condition that the entire dismantling work had to be carried out within 370 days is an unworkable condition since the activities could not be carried out without complying with the requirements of law. It was submitted that it was not correct to state that 75% of the dismantled goods have been removed; actually 75% of the dismantling work alone has been carried out. Learned counsel submitted that the issue relating to two bank cheques of Rs. 75 Crores given to STC is not relevant to this controversy. The issue between MMT and STC is an arbitrable one and it is before the Arbitral Tribunal headed by the former Chief Justice of India and therefore, that will be decided in accordance with law. It was explained by the learned senior counsel as to how the scrap was removed and sold, and all the delivery cum gate passes which have been issued would show the quantity of subject goods which have been removed from the premises and from this, the value can be ascertained and this cannot be a disputed question of fact. Learned senior counsel submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC, MMT had committed breach of the MoU and all the cheques were dishonoured by the bankers of MMT. Since as per Section 126 of the Customs Act, goods confiscated vest in favour of the Government of India, NLC had no title to sell the goods. STC has also alleged that NLC and MMT had committed fraud and that the contract was void ab initio and that NLC had unjustly enriched itself. 14. Learned senior counsel relied on L.S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd., (2004) 1 S.C.C. 456, Allahabad Bank v. Bengal Paper Mills Co. Ltd., (2004) 8 SCC 236, Naihati Jute Mills v. Khyaliram, AIR 1968 SC 522, Bhaurao Paralkar v. State of Maharashtra, (2005) 7 SCC 605, I.T.C. Limited v. George Joseph Fernandes, (1989) 2 SCC 1, Suwalal Jain v. Clive Mills Co., 2003 AIR SCW 3041 and Union of India v. Kishorilal Gupta, AIR 1959 SC 1362. 15. The relevant Sections and Notifications are discussed hereunder. Section 23 of the Contract Act, 1872 reads as follows: "23. What considerations and objects are lawful and what not. - The consideration or object of an agreement is lawful, unless- it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff Act, as is in excess of the rate specified in the corresponding entry in column (5) of the said Table, subject to any of the conditions, specified in the Annexure to this notification, the condition No. of which is mentioned in the corresponding entry in column (6) of the said Table : Provided that nothing contained in this notification shall apply to goods specified against serial Nos. 174, 175, 176, 177, 178 and 179 of the said Table on or after the 1st day of April, 2000. Explanation. - For the purposes of this notification, the rate specified in column (4) or column (5), is ad valorem rate, unless otherwise specified." TABLE S. No. Chapter or heading No. or sub-heading No. Description of goods Standard rate Additional duty Condition No. (1) (2) (3) (4) (5) (6) … … … … … … 142 Any Chapter (A) Machinery, instruments, appliances, as well as parts (whether finished or not) or raw materials for the manufacture of aforesaid items and their parts, required for renovation or modernisation of a fertiliser plant; and (B) Spare parts, other raw materials (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court has held as follows : "A writ petition under Art. 226, is essentially different from a suit and it would be incorrect to assimilate the incorporate the procedure of a suit into the proceedings of a petition under Article 226. The High court is not deprived of its jurisdiction to entertain a petition under Article 226 merely because in considering the petitioner's right of relief, questions of fact may fall to be determined. In a petition under Article 226 the High Court has jurisdiction to try issues both of fact and law. When the petition raises complex questions of fact, which may for their determination require oral evidence to be taken, and on that account the High Court is of the view that the dispute should not appropriately be tried in writ petition, the High Court may decline to try a petition. If, however, on consideration of the nature of the controversy, the High Court decides, that it should go into a disputed question of fact and the discretion exercised by the High Court appears to be sound and in conformity with judicial principles, the supreme Court would not interfere in appeal with the order made by the High Court in this respect." 20. There a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the jurisdiction of the court to issue writ, but ordinarily that would be a good ground in refusing to exercise the discretion under Article 226. …….. Such seriously disputed questions or rival claims of the parties with regard to breach of contract are to be investigated and determined on the basis of evidence which may be led by the parties in a properly instituted civil suit rather than by a court exercising prerogative of issuing writs." 21. Now, what are the questions that are disputed here? It is not possible to go into all the issues which are disputed between the parties, but we will list some of them. 22. According to MMT, Condition No. 50, which is contained in the Annexure to Notification No. 20 of 1999, under Serial Number 240, describes the goods as recorded magnetic tapes, CD-ROMs and floppy diskettes imported by the University Grants Commission and that these goods shall not be sold or parted with without prior permission of the Commissioner of Customs. On the other hand, the goods in question are described under serial Number 142 as machinery, instruments, apparatus and appliances, etc. and the condition applicable to them as per the Annexure is Condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tling work on 19-5-2005 and ought to have completed the entire delivery process within 370 days, i.e. on or before 23-5-2006 and in spite of repeated extension of time, MMT had not dismantled the entire plant and machineries. 25. Next, according to NLC, the entire disbanded fertilizer plant had been sold in situ by STC to MMT and this conduct would show that there was collusion and conspiracy. This is denied by MMT and STC. 26. Next, a question was raised as to how STC decided to advance Rs. 150 Crores based on two valuation reports, both of which indicated that the value was above Rs. 350 Crores and thus proved the allegation of collusion and conspiracy between STC and MMT. Both these contentions are denied by STC. 27. Even with regard to the quantity of goods removed, there is dispute between the parties. 28. Therefore, right from the fact whether there was anything to suppress at all, there is a dispute amongst the three parties. 29. According to NLC, since there was no condition barring sale, there could be no suppression of such a condition. Further, all the facts were brought to the notice of the DRI at the earliest juncture and since there was no action, NLC proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olated, then they become prohibited; if these conditions are complied with, then the import of goods would not be something impermissible in law. Whereas, the goods in question are goods which are imported subject to conditions. They were given exemption from duty as per Section 25(1) of the Act, but subject to conditions. If the conditions were violated, they become dutiable goods. It is clear from a reading of the various sections of the Customs Act, as for example, Section 111 that the Act deals with "prohibited goods" and "dutiable goods" as two identifiable and separate categories. Goods which are dutiable but which are exempted from duty subject to conditions cannot become prohibited if these conditions are violated; they only become dutiable. Therefore, when it is accepted by both parties that the goods were imported as per Notification No. 20 of 1999, we are unable to see anything in the relevant clause in the said Notification which persuades us to come to the conclusion that the goods were prohibited. In fact, Mr. V.T. Gopalan and Mr. P. Wilson would only submit that the authorities be permitted to proceed with the adjudication. In this case, NLC has in fact given a bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. They may be entitled to some relief, but it has to be established before a forum where evidence is let in and issues of facts are decided. In (1996) 5 SCC 740 (supra), it was held as follows : "The approach adopted in this decision has to be borne in mind in every such case. It is also to be kept in mind that while the decisions referred to hereinbefore are by smaller Benches, this decision is by a constitution Bench. A person who enters into certain contractual obligations with his eyes open and works the entire contract, cannot be allowed to turn round, according to this decision, and question the validity of those obligations or the validity of the Rules which constitute the terms of the contract. The extraordinary jurisdiction of the High Court under Article 226, which is of a discretionary nature and is exercised only to advance the interests of justice, cannot certainly be employed in aid of such persons. Neither justice nor equity is in their favour." In J.T. 2000 (8) SC 167 (supra), it was held thus : "The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subordinate to him or of MSTC being not below the rank of General Manager/Director in the Government Department/General Manager in Defence Forces, who shall act as the Sole Arbitrator. The provision of the Arbitration and Conciliation Act, 1996, and the Rules thereunder shall apply to such Arbitration. The award passed by such sole Arbitrator shall be final and shall conclusively bind all the parties." 37. It was contended on behalf of MMT that though the decisions relied on by them, as for instance AIR 1962 SC 1810 (Khardah Co. v. Rajunooh Co.) etc., arose out of the old Arbitration Act, the principle that once the contract is void, all clauses are void ab initio is a principle that still holds good, we are afraid, this is not the present position of law and this is seen from the following judgments. 38. In 2002 (3) Arb. LR 60 (supra), a Division Bench of the Karnataka High Court held thus : "The Supreme Court in the case of Waverly Jute Mills Company Limited (supra), relied on by the petitioner's counsel in support of his first contention, has held as under : '17. ... if a contract is illegal and void, an arbitration clause which is one of the terms thereof, must also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents/plaintiffs have challenged the validity of the agreement on the ground that a fraud was played on them, the same also can be gone into by the arbitrator in view of powers given under Sec.16 of the Act. This aspect was not considered by the learned Judge while rejecting the Application filed under Sec. 8 of the Act by the appellant/defendant. Hence, we are inclined to interfere with the order passed by the learned Judge." 39. In 2001 (6) Supreme 265 (supra), it was held that the arbitral tribunal under the Arbitration and Conciliation Act has the power to rule on its own jurisdiction even when no objection with respect to the existence or validity of the arbitration agreement is raised. In (2007) 4 SCC 599 (supra), it was held thus : "Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an agreement independent of the other terms of the contract. It also clarifies that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. …….. When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled." 40. (2004) 11 SCC 456 (supra) was relied on by the learned senior counsel appearing for STC to contend that the Court had the responsibility to direct restoration and recovery of properties or money. This was to show that even in the writ petition, the learned single Judge could have granted the monetary relief. (2004) 8 SCC 236 (supra) was relied on to show that the law of restitution must be invoked when there is unjust enrichment. AIR 1968 SC 522 (supra) was relied on and this deals with the impossibility of performance of a contract. (2005) 7 SCC 605 (supra) was relied on to show the effect of fraud on proceedings and (1989) 2 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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