2016 (7) TMI 589 - HC - Customs

Attachment of property to recover dues - Personal property belongs to the Director and wife of the directors of the company - company failed to fulfill the conditions of export obligation under the EPCG licence - The contention raised by the petitioner is that the bond was executed by the company, however, due to torrential rains in 2003, water entered the petitioners factory premises, all the records documents were completely destroyed and the petitioners have no documents relating to the subject transaction. On account of financial crisis faced by the company, they had to sell the factory on outright sale during March 2006 to clear the loans payable to various institutions. It is submitted that the impugned proceedings is in violation of principles of natural justice, as no notice of proceedings was issued to the petitioner prior to serving impugned notice of attachment. Held that - in the absence of any specific provision under the Customs Act for recovery of the dues of the company from the Directors in their personal capacity, the impugned notice of attachment should be held to be bad in law. Therefore, the respondents having admitted that the dues are payable by the company, then it goes without saying that the recovery could be made only against the company and not against the Directors in their personal capacity. - Decided in favor of petitioners.

Summary

Issues:
Challenge to notice of attachment under Customs Rules, 1995.

Analysis:
The petitioners challenged a notice of attachment under Rule 9 and 10 of the Customs (Attachment of Property of Defaulters for recovery of Government Dues) Rules, 1995. The notice stated that the first petitioner owed a sum of ?5,44,291 along with interest as government dues per an order-in-original passed by the second respondent under the Customs Act, 1962. The petitioners, as Directors of a company, imported goods under an EPCG scheme but failed to fulfill the export obligation, leading to the order for recovery of dues through property attachment.

The petitioners argued that the company, not the individuals, was liable for the dues. They contended that the proceedings violated natural justice principles and that attaching personal properties was beyond jurisdiction. The petitioners emphasized that the company was a separate legal entity, and the liability should not transfer to them personally. They also highlighted the lack of notice prior to the attachment.

The respondents argued that the petitioners, as importers, failed to respond to show cause notices and were bound by the bond executed for duty payment in case of obligation non-fulfillment. They asserted that recovery actions were within the purview of Section 140 of the Customs Act, holding Directors liable for company offenses. The respondents cited a relevant case supporting their position.

The court noted that the attachment concerned personal property of the petitioners, not the company's assets. It emphasized that recovery could only be made against the defaulter, defined as a person from whom government dues are recoverable under the Act. Since the company was the defaulter, recovery from the Directors' personal property was deemed legally incorrect.

The judgment allowed the writ petition, quashing the attachment notice and directing recovery proceedings against the company. It clarified that recovery could only be pursued against the company, not the Directors personally. The court differentiated the cited case's circumstances from the present case, emphasizing the specific legal provisions applicable.

In conclusion, the court ruled in favor of the petitioners, highlighting the legal distinction between the company and its Directors in terms of liability for government dues under the Customs Act.