2009 (10) TMI 64 - HC - Customs

Attachment of property third party - recovery of sum due to government - Appellate Tribunal had recorded a finding of fact that at the time the money was paid by way of any earnest money deposit, the applicants themselves were not aware of the fraud and as such the respondent would not be aware that the money received was a part of the fraud. The money must have been paid by cheque or draft as the law requires such payment to be so done. Considering the ratio of the Supreme Court in State Bank of India (supra), it is thus material to show that the respondent had knowledge of the fraud and, therefore, that money could be recoverable in the hands of the respondent. Even otherwise, what is attached is not the money but the immovable property of the respondent - property admittedly belongs to the respondent and would not be the subject matter of attachment under section 142(1)(c)(ii) on that. - the money could not be recovered from the respondent

Summary

Issues Involved:
1. Whether the earnest money received before 15th June 1998 falls within the scope of Rule 4 of the Customs Attachment of Property of Defaulters for Recovery of Government Dues Rules, 1995.
2. Jurisdiction of the Appellate Tribunal under Section 129A of the Customs Act.
3. Legality of attachment of property and recovery of money from the respondent.

Issue-wise Detailed Analysis:

1. Whether the earnest money received before 15th June 1998 falls within the scope of Rule 4 of the Customs Attachment of Property of Defaulters for Recovery of Government Dues Rules, 1995:

The Tribunal observed that the earnest money received by the respondent on 17th July 1997 could not fall within the scope of Rule 4 as the respondent was unaware of the fraudulent nature of the money at that time. The Tribunal noted that the applicant became aware of the fraud only on 16th October 1997, and thus, the money received by the respondent prior to this date could not be considered tainted or illegally obtained. Consequently, the Tribunal held that the sum received by the respondent before the order of 15th June 1998 was not recoverable under Rule 4.

2. Jurisdiction of the Appellate Tribunal under Section 129A of the Customs Act:

The respondent argued that the order of attachment was without authority of law and that the Tribunal had jurisdiction to entertain the appeal under Section 129A of the Customs Act. The High Court referred to a previous case (Writ Petition No. 231 of 2006) where it was held that an appeal would lie under Section 129A of the Customs Act. The Court concluded that the matter of jurisdiction was settled, and the Tribunal had the authority to entertain the appeal.

3. Legality of attachment of property and recovery of money from the respondent:

The High Court examined whether the money received by the respondent could be attached and recovered. The Court noted that the respondent had terminated the agreement and forfeited the earnest money on 10th January 1998, well before the notice of attachment dated 10th December 1998. The Court emphasized that the respondent was not a defaulter and had no knowledge of the fraudulent nature of the money at the time of receipt. The Court referred to the Supreme Court judgment in State Bank of India v. Rajendra Kumar Singh, which held that property in currency notes passes by delivery if taken in good faith for value without notice of a defect in the title of the transferor.

The High Court concluded that since the respondent had appropriated the money as a penalty for breach of contract and there was no decree holding the transaction fraudulent, the money could not be recovered from the respondent. The Court held that the respondent's property could not be attached under Section 142(1)(c)(ii) of the Customs Act as the respondent was not a defaulter.

Conclusion:

The High Court declined to direct the Tribunal to make a reference, holding that no substantial question of law arose and the matter was self-evident. The Tribunal's conclusion that the money could not be recovered from the respondent was upheld, and the property belonging to the respondent was not subject to attachment under Section 142(1)(c)(ii) of the Customs Act.