2019 (5) TMI 1363 - HC - Customs

Clandestine removal - malpractice in the duty free shops - huge malpractice of selling of Foreign made Foreign Liquor( FMFL) which were allotted to the DFS Trivandrum were diverted and sold to others - non-submission of returns under various statutes - HELD THAT - It is an admitted fact that there were several malpractices in the DFS. It seems that in the search conducted, discrepancies were found out and several records were seized. Even the petitioners herein in his bail application has pleaded that, to defeat the interest of the company, the employees in connivance with M/s.Flemingo have committed various irregularities. It is surprising that the petitioners who were regularly verifying the accounts and details of sale did not notice this. The petitioners have a specific pleading that computer system was hacked. This is demolished by the report obtained by the customs authorities that there was no hacking. The allegations against the petitioners are serious. Apart from the allegations of misuse of licence, allegations under the Official Secret Act, Passports Act, Money Laundering Act are also now raised. There is another allegation that the entire records were not produced. Though the first petitioner was questioned under summons, thereafter, he did not report in spite of issuance of repeated summons. There is a further allegation that he did not produce the entire records for the purpose of investigation. All the above allegations are the offshoot of the main allegation of malpractice in the DFS. Considering the facts, specific allegation of bias and considering the fact that allegation of prosecution is serious which need to be pleaded and also considering the fact that all most all the transactions are covered by documentary evidence, I am inclined to direct the petitioners to surrender before the investigating officers - The petitioners shall surrender before the investigating officers within ten days from today. If they so surrender, after interrogation, if they are proposed to be arrested, Petitioners shall be released on bail on each of the petitioner executing a bond for a sum of ₹ 5,00,000/- with two sureties for the like sum each. Anticipatory Bail application disposed off.

Summary

Issues Involved:
1. Allegations of malpractice in the Duty Free Shop (DFS) operations.
2. Accusations of hacking and data corruption.
3. Alleged misconduct and bias by customs authorities.
4. Legal proceedings and criminal cases against both petitioners and customs officials.
5. Serious allegations including financial fraud, violation of various acts, and national security threats.
6. Petitioners' request for anticipatory bail.

Detailed Analysis:

1. Allegations of Malpractice in DFS Operations:
The customs authority conducted a raid on the Duty Free Shop (DFS) in Trivandrum on 21/12/2017, alleging significant malpractice involving the sale of Foreign Made Foreign Liquor (FMFL). It was claimed that FMFL bottles allotted to the DFS were diverted and sold to others, leading to malpractice running into crores of rupees. The petitioners contended that only 65 bottles were short, equating to a discrepancy of ?1.25 lakhs or less, which was exaggerated by customs authorities. The customs authority, however, reported malpractices to the tune of ?6 Crores initially, which later increased to ?16 Crores. The investigation revealed discrepancies in foreign currency collected and deposited, stock received and sales done, and repeated misuse of passport numbers.

2. Accusations of Hacking and Data Corruption:
The petitioners alleged that their company's computer system was hacked, leading to data corruption and a Ransomware virus attack. An IT report confirmed hacking, and a complaint was filed under the IT Act. However, the customs authority, with the help of the Centre for Development of Advanced Computing (CDAC), found no evidence of hacking and stated that the licensee had taken regular backups of the systems.

3. Alleged Misconduct and Bias by Customs Authorities:
The petitioners accused customs officials of conspiring with M/s. Flemingo to sabotage their business. They alleged that customs officials threatened and forced their officers to give false statements. The petitioners also claimed that the then Commissioner of Customs, Kochi, had a special interest in damaging their business. During the investigation, an employee named Madan was allegedly assaulted by customs officials, leading to serious injuries and a registered crime against the customs authorities. Conversely, customs officials claimed that Madan attacked a Superintendent and tried to escape, resulting in injuries.

4. Legal Proceedings and Criminal Cases:
Several criminal cases and counter cases were registered. The customs authority alleged that the petitioners abducted a crucial witness and forced him to give a false complaint against the investigating team. FIR No.152/2018 was registered against the management of the petitioners' company. The customs authority also found violations of the Special Warehouse (Custody & Handling of Goods) Regulation 2016 and license conditions. Additionally, the Directorate of Enforcement and the Central Bureau of Investigation initiated investigations into alleged duty evasion and violations of the Foreign Exchange Management Act 1999 and Prevention of Money Laundering Act 2002.

5. Serious Allegations Including Financial Fraud and National Security Threats:
The customs authority alleged serious financial fraud, including a shortage of foreign currency equivalent to ?2.1 Crores and duty evasion to the tune of ?16.81 Crores. They also claimed that the petitioners' company obtained passport details of approximately 13,000 passengers to cover up illegal sales, posing a national security threat.

6. Petitioners' Request for Anticipatory Bail:
The petitioners sought anticipatory bail, arguing that custodial interrogation was unnecessary as all transactions were documented. The customs authority opposed the bail, citing the petitioners' non-cooperation with the investigation and failure to produce all required records. The court acknowledged the serious allegations but noted the specific bias allegations and the fact that the investigation was largely document-based. The court directed the petitioners to surrender before the investigating officers within ten days and granted bail on the condition of executing a bond for ?5,00,000/- each with two sureties. The petitioners were also required to cooperate with the investigation, produce all necessary records, and refrain from threatening or intimidating witnesses.

Conclusion:
The anticipatory bail application was disposed of with conditions, allowing the petitioners to participate in the investigation while ensuring safeguards against potential misuse of power by the investigating authorities. The court emphasized the seriousness of the allegations and the need for a thorough investigation, while also considering the petitioners' claims of bias and misconduct by customs officials.