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TMI Blog2003 (1) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of these petitions. 3.Brief background facts sketched from the above petition are as under: Background facts : The petitioners had acquired 2 licences both dated 2nd March, 1987 issued under the provisions of Import (Control) Order, 1955 (the 'Order' for short) in favour of one M/s. Suraj Textiles Traders, New Delhi, in terms of Appendix 21 of Import/Export Policy, Vol. I, 1985-88 by the Deputy Chief Controller of Import/Export, New Delhi, for import of 'Polyster Filament Yarn'. It had been acquired by the petitioners in terms of paras 225 and 226 of the Import Export Policy 1985-88 ('the import export Policy' for short). 4.The petitioners before acquiring these two licences had written a letter dated 9th April, 1987 furnishing full particulars to the Joint Chief Controller of Import and Export, Delhi and informing him that they have negotiated for the purchase of the same and sought confirmation as to whether the licences were issued as per ITC regulations. It was also made clear that in the event of no reply within 7 days they would finalise transactions and proceed to open letter of credit. The correspondence made in this behalf is not in dispute. 5.The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners holding a view that the import was without valid licence. The aforesaid action on the part of the Custom Authorities withholding clearance of goods imported by the petitioners resulted in invoking writ jurisdiction of this Court under Article 226 of the Constitution of India, contending that the goods having been validly imported under validly issued licences could not affect the imports made by them much before the suspension of the licences in question; since suspension would only operate prospectively. 11.This Court whilst granting rule, relying upon para (35) of the judgment of the Apex Court in the case of East India Commercial Co. v. Collector of Customs - 1983 (13) E.L.T. 1342 (S.C.) = AIR 1962 SC 1893 and Chemicolour Agency v. Chief Controller of I.E. 1987 (30) E.L.T. 175 (Cal.) = 1986 6 ECR 495 (Calcutta), prima facie finding that the licences were good till the date of suspension and imports being prior to the date of suspension permitted by interim order dated 29-10-1987 clearance of the goods imported by the petitioners subject to petitioners furnishing bank guarantee for CIF value of the goods. The goods were accordingly allowed to be cleared on the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1987 as such their imports cannot be said to be without licence. In his submission, suspension cannot be retroactive. Reliance was placed on Clauses (9) and (10) of the Order in support of his contention. 15.Clause (9) thereof provides that the Central Government and Chief Controller of I. E. may cancel licence if the same is found to have been obtained by fraud or misrepresentation. Clause 10 of the said Order provides that no such action of cancellation can be taken against importer or any other person unless he has been given a reasonable opportunity of being heard. In his submission, the Joint Chief Controller ought to have given an opportunity of being heard since he was well aware that the Petitioners were transferees of the licences, in view of the two letters addressed by the Petitioner to the office of the Joint Chief Controller on 9th July, 1987 and their reply vide their letters dated 29th June, 1987 and 31st July, 1987 confirming the genuineness of the licences in question. The copy of the order of suspension issued by the Deputy Chief Controller of I. E., New Delhi was marked to the petitioners who were transferees. In the wake of these facts, learned Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt observed that whether licencee himself or some other party is responsible for fraud or misrepresentation, the facts remains that basis of grant of licence disappears. In that light the observation was made that it would be unreasonable to allow such licences to continue. In other words, continuation thereof was snapped by the Supreme Court but till the date, it was snapped, it was allowed to operate. The submission is that the judgment of Fedco (P) Ltd. cannot be read out of context. 19.On bahalf of the Petitioners, it was pointed out that in judgment of Fedco (P) Ltd. (supra), the Apex Court has categorically ruled that if reasonable opportunity against proposed cancellation of licence has not been given, the order would be an unjustified interference with the petitioner's right. He further pointed out that Fedco's judgment (para 9) specifies how an action has to be reasonable and how the fair chance is to be given to the concerned affected party. In the instant case, none of these principles were followed. Admittedly, no notice was given to the petitioners despite knowledge of the respondents that petitioners were the transferees of the licences in question. In his submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Handbook of Import Export Procedure which provides that a transfer of a licence does not require any endorsement or permission from the licensing authority i.e. such transfer is to govern by the ordinary law. He further pointed out that imports against replenishment were governed by Handbook on Import Export Procedure 1985-88, which were in the nature of administrative instructions issued by the Central Government. As such transfer of the licence was not to be governed by any statutory provisions but it was to be governed by Common Law. It was thus pointed out that as a fact the principles of Law of Contract were applied by the Apex Court in the case of East India Commercial Co. (supra). In that view of the matter, the submission is that the licences were good till they were avoided. He, therefore, submitted that a contract or other transaction induced or tainted by fraud is ipso facto not void, but only voidable at the election of the party defrauded. Until it is avoided, the transaction is valid, so that third party without notice of the fraud may in the meantime acquire rights and interest in the matter which would be enforceable in accordance with law. 22.The learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be issued not only for confiscating goods but also for levying penalty under section 112. He, therefore, submitted that although there is no time limit stipulated, but, it is expected that order is to be passed within a reasonable time. In this case, since at the time when the goods were imported and the import was complete, that too of the goods of which the import was not prohibited, as such a subsequent cancellation of the licence could not make the import bad. 25.The learned Counsel for the petitioners at the cost of repetition submitted that for want of show cause notice or an opportunity of hearing to the transferees, the petitioners, order cancelling licence will have to be treated as ab initio void being in breach of principles of natural justice. Though, he fairly conceded that said issue could be of no relevance in the present case as the order of cancellation was made much after the import, but in his submission, at any rate, order ab initio cancelling of licences which is clearly in breach of principles of natural justice cannot be allowed to be put in defence. He placed reliance on the judgment of the Apex Court in Sinha Govindji v. Deputy Collector of Imports and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e licence will not226. require any endorsement or permission from the licensing authority i.e., it will be governed by the ordinary law. Accordingly, clearance of the goods covered by a REP licence issued under this policy, will be allowed by the customs authorities on production by the transferee of only the document of transfer of the licence concerned in his name. Whenever a REP licence is transferred, the transferor should give a formal letter to the transferee, giving full particulars regarding number, date and value of the licence transferred and the name and address of the transferee, and complete description of the import items for which the licence is transferred. A copy of the transfer letter should be endorsed to the licensing authority who issued the REP licence, for record. This procedure will also apply to subsequent transfers of the same licence." The bare conjoint reading of the above clauses makes it clear that the licences were allowed to be transferred freely without any endorsement or permission from the licensing authority. Such transfers were to be governed by common law subject to the compliance of the conditions laid down under clause 226 referred to above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraud has been practised, having notice of the fraud, elected not to avoid the contract?, or, has he elected to avoid it? or, has he made no election? As long as he has made no election he retains the right to determine it either way, subject to this that if in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or if in consequence of his delay the position even of the wrongdoer is affected, he will lose his right to rescind." 30.The aforesaid well settled principle of law of Contract was applied to the licence obtained by fraud or misrepresentation by the Apex Court in the case of East India Commercial case (supra) in the following words : "A licence obtained by misrepresentation does not make the licence non est, with the result that the goods should deemed to have been imported without licence in contravention of the order issued under S. 3 of the Act so as to bring the case within Cl. (8) of S. 167 of the Sea Customs Act. Assuming that the principles of law of contract apply to the issue of a licence under the Act, a licence obtained by fraud is only voidable; it is good till avoided in the manner prescribed by law." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Collector regarding confiscation of the goods as well as the imposition of penalty. As regards confiscation under section 111(d) of the Act the submission of the learned Counsel is that since the licences have been cancelled by Deputy Controller of Imports and Exports ab initio the Collector was right in holding that there was no valid authorisation for the import of goods and goods have been imported in contravention of the provisions of the Import (Control) Order, 1955 read with Imports and Exports (Control) Act, 1947. We are unable to accept this contention of the learned Counsel in view of the law laid down by this Court in East India Commercial Company Ltd. v. Collector of Customs, Calcutta (supra)." On the above canvas of settled law; recognised by the Apex Court and catena of decisions of the various High Courts including of this Court, it is clear that a licence obtained by fraud is not void ab initio and is merely voidable. It is good till avoided in the manner prescribed by law. 32.With the aforesaid backdrop, let us now turn to another judgment of the Apex Court in Fedco (P) Ltd. v. S.N. Bilgrami (supra) upon which heavy reliance was placed by Mr. M.I. Set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fide contract or transaction with others. As a matter of fact, this question did not gerame in the case of Fedco (P) Ltd. (supra). That was a case between the Licensing Authority and the licence holder and the grant of licence was governed by the provisions of the statute. No transfer of licence in favour of third person was involved. The person holding the licence itself had fraudulently obtained licences. In other words the person holding licence itself was a party to the fraud and such person could not have been allowed to rely upon principles of Law of Contract, because no contract was involved. The grant was to be governed by Statute since the fraud practised was a legal fraud, consequently, the Apex Court rightly held that once the fraud is established, whether the licensee himself or some other party is responsible for the fraud or misrepresentation is immaterial but the fact remains that in such cases the basis of grant of licence disappears. 33.The question involved in the present petitions did not arise for consideration in Fedco's case. The issue whether or not the licence was ab initio void or was voidable was neither raised nor considered by the Apex Court. It is wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either by the express act of the parties, or by the operation of law, we may observe, generally, the maxim assignatus utitur jure auctoris, i.e. an assignee is clothed with the rights of his assignor is subject to many restrictions, shortly enumerated hereinbelow. (See Broom's Legal Maxiims, tenth Edition, p. 302) Assignatus utitur jure auctoris (Hal. Max, p.14) - An Assignee is clothed with the rights of his assignor. "This maxim applies generally to all property, real and personal, and refers to assigns by act of parties, as where the assignment is by deed; and to assigns by operation of law, as in the case of an executor. All rights of the assignor in the thing assigned must pass from him to the assignee by virtue of the assignment, for duo non possunt in solido unam rem possidere. It should be observed, also that the thing assigned takes with it all the liabilities attached to it in the hands of the assignor at the time of the assignment, except in cases for the encouragement of commerce, such as sales in market overt, negotiation of promissory notes, bills of exchange, etc., and, in the case of equities, where the assignee is a bona fide purchaser for value without notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es themselves we must not forget figurative language of Lord Chief Justice Wilmot, who said that "that statute law is like a tyrant; where he comes he makes all void; but a common law is like a nursing father, and makes void only that part where the fault is, and preserves the rest." On the above canvas, having examined the well settled, established and well recognised concept of law that the effect of fraud is not to render the transaction void ab initio but renders it voidable at the instance of the party defrauded and transaction continues valid until the party defrauded has decided to avoid it. 37.Alternatively, let us consider it from another angle assuming that licence comes to an end upon it is suspension and/or cancellation, in catena of cases, it is laid down that the date of import of goods would be the date on which the Bill of Entry was presented under section 46. This legal position is clear from the decision of the Apex Court as laid down in Union of India v. Apar Ltd. 1999 (112) E.L.T. 3 (S.C.) and Garden Silk Mills v. Union of India - 1999 (113) E.L.T. 358 (S.C.). The same is the view taken by the Apex Court in Sampat Raj Durgar case (cited supra). Imports again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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