2013 (10) TMI 64 - HC - Customs

Attachment and Recovery of Customs duties - Scope of the Definition Defaulter - Whether, for dues of the defaulter , the appellants, i.e; wife and children of the defaulter, were entitled to be proceeded against and the properties standing in their name, applied to the satisfaction of such dues of the defaulter Held that - The defaulter was the person who was conducting the business and the notice of default under the Rules was also served only on him - While invoking Rule 9, which prohibits alienation of properties in any manner, the properties of the wife and children were sought to be distrained - there was no power conferred on the officer to adjudicate on the ownership of a property held by another, deeming it to be ostensible ownership and find the defaulter to be the real owner - the Directors of a Company were sought to be proceeded against Relying upon Sunil Parmeshwar Mittal v. Deputy Commissioner (Recovery Cell) 2005 (8) TMI 116 - HIGH COURT OF JUDICATURE AT BOMBAY and Vandana Bidyut Chaterjee v. Union of India 2012 (4) TMI 42 - BOMBAY HIGH COURT - The distinct legal status of a Company, apart from its Directors and shareholders were rightly noticed and the Directors were absolved from being proceeded with for recovery of dues from the Company to the Government and this was on a specific finding that the Statute and the Rules framed thereunder provided only for recovery from the defaulter and for proceedings against the property of the defaulter . Benami Transactions - The transaction between the husband and wife cannot, going by the declaration of law, be ever termed as a benami transaction, since the Benami Act itself saves such transaction entered into for the benefit of the wife, even if the consideration is paid by the husband - To prove otherwise was the burden of the Department. Recovery Rules - Sustainability of Notices and Proceedings - neither the Act nor the Rules provide for any such proceeding to be taken against the wife or the sons and recovery to be made from the properties owned and possessed by such other persons - the judgment of the learned Single Judge is not liable to be interfered with, at all. The provision under Rule 9 making any transfer or delivery of a property attached as void would in any event be only effective from the date of notice under Rule 4, that too applicable only to the defaulter s properties. The transactions said to have been made by the defaulter in the name of the wife and children are all before such notice was served on the defaulter . The transaction with respect to the property which was the subject matter of the suit, we notice, was long before even the transaction which led to the short-levy. - Appeal Dismissed.

Summary

Issues Involved:
1. Whether the wife and children of the defaulter can be proceeded against for the recovery of dues under the Customs Act, 1962.
2. Validity of the attachment and sale of properties standing in the name of the wife and children of the defaulter.
3. Applicability of the Benami Transactions (Prohibition) Act, 1988, and the fiduciary relationship between the husband and wife.
4. Procedural adherence to the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995.
5. The authority of the Department to proceed against properties not in the name of the defaulter.

Issue-wise Detailed Analysis:

1. Whether the wife and children of the defaulter can be proceeded against for the recovery of dues under the Customs Act, 1962:
The court examined whether the appellants (wife and children) could be held liable for the defaulter's dues. The Department contended that properties in their names were purchased with the defaulter's funds to defeat recovery. The court emphasized that the statute does not permit taking over properties in the name of the defaulter's dependents without proper adjudication. The learned Single Judge concluded that the Department has no vested right to attach properties owned by dependents unless proven otherwise through appropriate legal proceedings.

2. Validity of the attachment and sale of properties standing in the name of the wife and children of the defaulter:
The court scrutinized the procedural adherence under the Customs Act and the Rules. It was found that the Department issued a notice under Rule 4 only to the defaulter and not to his wife and children. Rule 9 was invoked to restrain transactions of properties owned by the wife and children, which the court found improper. The Rules define "defaulter" as the person from whom dues are recoverable, and no provision allows attachment of properties not in the defaulter's name without proper adjudication.

3. Applicability of the Benami Transactions (Prohibition) Act, 1988, and the fiduciary relationship between the husband and wife:
The Department argued that the transactions were benami and the wife held the property in a fiduciary capacity. However, the court noted that the Benami Act saves transactions in favor of the wife if the purchase is for her benefit, even if funded by the husband. The Department failed to establish that the properties were not for the wife's benefit. The court also clarified that the fiduciary relationship does not automatically allow the Department to step into the husband's shoes to claim recovery from the wife's property.

4. Procedural adherence to the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995:
The court highlighted the lack of procedural compliance by the Department. The Rules necessitate a Certificate specifying the amount due and a notice under Rule 4 to the defaulter. The Department only issued a notice to the defaulter and not to the wife and children. The attachment of properties under Rule 9 without prior adjudication was deemed improper. The court emphasized that any such adjudication must be conducted by a court of law, not by the Department.

5. The authority of the Department to proceed against properties not in the name of the defaulter:
The court referenced similar cases from the High Court of Bombay, which held that proceedings under the Customs Act and Rules could only be pursued against the defaulter. Properties owned by others, even if related to the defaulter, cannot be attached without proper legal proceedings establishing the defaulter's interest in those properties. The court affirmed that the Department lacks the authority to adjudicate ownership and must seek judicial determination.

Conclusion:
The court upheld the judgment of the learned Single Judge, dismissing the Department's appeals. It was held that the Department could not proceed against the properties owned by the wife and children of the defaulter without proper adjudication. The Writ Appeals were dismissed with no costs.