2009 (4) TMI 95 - HC - Customs

HDFC Bank has opted for legal recourse and approached the Supreme Court against the order of the Department for encashment of bank guarantee issued by the bank - Department issued the circular stating that Bank Guarantees issued by M/s.HDFC Bank Ltd. on behalf of any importers/exporters/persons may not be accepted at Air Cargo Complex Mumbai until further orders - Respondents in answer to the various challenges raised by the petitioner by their affidavits sought to contend that the Circular was issued not because the petitioner moved the Hon ble Supreme Court but it was in the view of the petitioner no.1 dishonouring the bank guarantee. - Held that circular is illegal and must be struck down

Issues Involved:
1. Legality of Circular No. 02/2008 issued by the Commissioner of Customs (Export), A.C.C., Mumbai.
2. Allegations of coercion and improper conduct by the Customs Department.
3. Violation of Article 14 of the Constitution of India.
4. Impact on the petitioner's right to carry on business.
5. Procedural fairness and opportunity to be heard before issuing the circular.

Issue-wise Detailed Analysis:

1. Legality of Circular No. 02/2008:
The petitioner challenged Circular No. 02/2008, which directed that bank guarantees issued by the petitioner bank should not be accepted at the Air Cargo Complex, Mumbai. The petitioners argued that this circular was an attempt by the Customs Department to coerce them into withdrawing their Special Leave Petition (SLP) pending before the Supreme Court. The petitioners contended that the circular was illegal and punitive, as it sought to prevent them from pursuing their legal remedies. The court found that the circular was arbitrary and had civil consequences for the petitioner, as it barred them from providing bank guarantees without giving them an opportunity to be heard. Consequently, the court held that the circular was liable to be set aside.

2. Allegations of Coercion and Improper Conduct by the Customs Department:
The petitioners argued that the circular was an improper attempt by the Customs Department to coerce them into withdrawing their SLP. They contended that the observation in the circular that the petitioner was not honoring bank guarantees was unfounded, as they had already complied with the invocation of the guarantees by the Customs authorities. The court noted that the circular did not reflect any dishonoring of bank guarantees by the petitioner and that the Customs Department's actions were arbitrary. The court held that the circular was an improper exercise of administrative power and was liable to be struck down.

3. Violation of Article 14 of the Constitution of India:
The petitioners argued that the circular violated Article 14 of the Constitution of India, as it discriminated against them by not accepting their bank guarantees while accepting those from other similarly placed banks. The court agreed with the petitioners, noting that the circular denied the petitioner equal opportunity to furnish bank guarantees like any other commercial bank. The court held that the circular was arbitrary and discriminatory, thus violating Article 14.

4. Impact on the Petitioner's Right to Carry on Business:
The petitioners contended that the circular adversely affected their right to carry on business, as it prevented them from issuing bank guarantees on behalf of their customers. The court found that the circular had civil consequences for the petitioner and their customers, causing hardship and inconvenience. The court held that the circular was issued without giving the petitioner an opportunity to be heard, thus affecting their right to carry on business. The court set aside the circular on this ground as well.

5. Procedural Fairness and Opportunity to be Heard:
The court emphasized that the Customs Department, while dealing with commercial banks, has a duty to act fairly and provide an opportunity to be heard before passing any order with civil consequences. The court noted that the petitioner was not given any notice or hearing before the issuance of the circular, which barred them from providing bank guarantees. The court held that the lack of procedural fairness rendered the circular arbitrary and liable to be struck down.

Conclusion:
The court allowed the petition and quashed Circular No. 02/2008. The court directed the respondents to issue necessary instructions to accept bank guarantees issued by the petitioner and take action against the issuance of the circular. The court clarified that the Customs Department could take a policy decision regarding the acceptance of bank guarantees, provided it did not infringe Article 14 of the Constitution of India.

← Previous Next →