M/S Laxman Overseas vs Union Of India & Anr.
2010 Latest Caselaw 392 Del

         IN THE HIGH COURT OF DELHI AT NEW DELHI

                                    W.P.(C) No. 7992 of 2008

         M/s. LAXMAN OVERSEAS                   ..... Petitioner
                      Through: Mr. Deepak Gandhi with Mr. Amit
                      Kumar, Advocates.

                           versus

         UNION OF INDIA & ANR.              ..... Respondents
                       Through: Mr. Ravinder Agarwal, Advocate.

         CORAM:
         HON'BLE DR. JUSTICE S.MURALIDHAR

1. Whether the reporters of local papers may be allowed
   to see the judgment?                                            No
2. To be referred to reporter or not?                              Yes
3. Whether the judgment should be reported in the Digest?          Yes


                                     ORDER

25.01.2010

1. This writ petition under Article 226 of the Constitution challenges the

action of the Respondent Directorate Revenue Intelligence („DRI‟) in

continuing to keep the bank accounts of the Petitioner frozen.

2. According to the Respondents, as stated in their counter affidavit in

the present case, on the evening of 7th September 2005 certain

consignments of imported duty free high value computer parts imported

in the name of M/s. Everest Exports were taken delivery of at the Air

Cargo complex, IGI Airport, New Delhi. They are alleged to have been

taken to the residence of Shri Bhuvan Aggarwal the proprietor of the

Petitioner M/s. Laxman Overseas, the petitioner herein, and unloaded

there. During a subsequent search of the Petitioner‟s premises the

imported goods were found to be high value computer parts. Their

W.P.(C) No. 7992 of 2008 page 1 of 9 present market value was estimated at Rs.1.80 crores whereas the

description of the goods declared in the Bill of Entry was "mounted PCB

for digital data recorder" and their value was declared as Rs.6,76,060

(C.I.F. value). It is alleged that during the search of the petitioner‟s

premises a few days later, PCBs of inferior quality/junk old PCBs were

apparently stored for being to the factory premises at Noida for

substitution in place of duty free imported goods in future. A reference is

made in the counter affidavit to certain other transactions involving the

Petitioner which led to the conclusion that the Petitioner was exporting

junk material by declaring it as "mounted PCBs for telecommunication,

plastic grating and sewing needles."

3. In relation the petitioner‟s bank accounts which were frozen, it is

stated in para 9(d) of the counter affidavit as under:

"The money lying in the EEFC Account No. 3004042934 are sale proceeds of goods exported by the present Petitioner. The investigation conducted so far including interception of live export consignments revealed that the present Petitioner was indulging export of junk goods declaring the same as high value goods. Therefore, the bank accounts of the Petitioner and its proprietor are subject to seizure under Section 110(3) of the Customs Act, 1962 and the money lying in those accounts is liable for confiscation under Section 121 ibid. Further, the provisions of Section 110 (2) of the Customs Act, 1962 which lay down that in case of seizure of goods as per provisions of Section 110(1) of the Act ibid, in case no notice is given under Section 124 of the Act

W.P.(C) No. 7992 of 2008 page 2 of 9 ibid, then the goods shall be returned to the persons from whom they were seized. In this case, however, the bank accounts have been frozen in terms of Section 110(3) of the Act ibid, to which the limitation laid down under Section 110(2) is not applicable [Judgment of Hon‟ble High Court of Calcutta in case of Rohit Kumar v. Union of India, as discussed above refers]."

4. Further in para 10 of the counter affidavit it is stated as under:

"Thus it is observed that there is a proclivity on part of the accused to not only evade duties, but also to dishonor the legal processes that have been initiated by the Government, such as, summons etc. In these circumstances, without prejudice to our argument above, there is a strong likelihood of the accused withdrawing the money in these bank accounts, which is otherwise liable for confiscation being sale proceeds of smuggling. Therefore, on this count too, the accounts should continue to remain frozen."

5. As can be noticed from the above averments the Respondents refer to

Section 110 (3) of the Customs Act, 1962 („Act‟) to justify the freezing

of the petitioner‟s bank accounts. In addition, learned counsel for the

Respondents relies upon Section 121 of the Act to justify the continued

freezing of the petitioner‟s bank accounts.

6. Learned counsel for the Petitioner points out that the sole proprietor of

the Petitioner concern, Shri Vipul Aggarwal, was placed under

preventive detention by an order dated 3rd January 2006 under the

W.P.(C) No. 7992 of 2008 page 3 of 9 Conservation of Foreign Exchange and Prevention of Smuggling Act

(COFEPOSA). The said detention came to be quashed by the order

passed by the Division Bench of this Court on 1 st December 2006 by

allowing Writ Petition (C) No. 1485 of 2006 filed by his mother Smt.

Suman Aggarwal. The above orders have been challenged by the

Respondents by filing SLPs which are stated to be pending in the

Supreme Court.

7. The fact of the matter is that after the detention of the sole proprietor

of the Petitioner was quashed, the Respondent No.1 DRI has returned to

the Petitioner the goods and things seized from it. Learned counsel for

the petitioner points out that this fact is not denied by the Respondents

and therefore he questions the purpose of keeping the Petitioner‟s bank

accounts frozen for over four years. He assails the said action as being

totally unjustified particularly since till date no show cause notice has

been issued by the Petitioner and therefore no explanation has been

sought from it. No criminal case has been filed and the sole proprietor of

the Petitioner has never been arrested. It is submitted that there is no

legal basis for the bank accounts to remain frozen indefinitely.

8. Since learned counsel for the Respondents has placed considerable

reliance on both Section 110 (3) and Section 121 of the Act, the said

provisions need to be examined. Section 110 (3) reads as under:

"Section 110 (3):-The proper officer may seize any documents or things which, in his opinion, will be useful for, or relevant to, any proceedings under this

W.P.(C) No. 7992 of 2008 page 4 of 9 Act."

It is plain from Section 110 (3) that the formation of a prima facie

opinion by the proper officer is a pre-requisite for the exercise of the

power to seize any goods, documents or things. The opinion to be

formed is that they would be "useful for, or relevant to, any proceeding

under this Act." This does not mean that once this power has been

exercised there is nothing to be done thereafter by the officer for any

number of years. The said power is coupled with a responsibility to act

fairly and reasonably for only then can the abuse of such power be

checked. The interpretation of Section 110 (3) of the Act has to be

consistent with this understanding of statutory powers of public

authorities, which have to conform to the requirement of non-

arbitrariness implicit in Article 14 of the Constitution. If the power of

seizure under Section 110 (3) were to be seen as permitting a „proper

officer‟ to neither take the next logical step of proceeding with and

completing his enquiries/investigation nor return the seized

articles/goods to the person from whom they have been seized, then it

would render the provision arbitrary and susceptible to misuse. Section

110 (3) of the Act by necessary implication requires the power

thereunder to be exercised in the course of the investigation by an officer

and to act as an aid to the in the continuation and completion of the

investigation within a reasonable period thereafter. It implies that as part

of the investigation the officer will have to make enquiry and form an

opinion whether the goods or things seized by him are relevant to the

investigation. For instance in the present case, the officer is expected to

W.P.(C) No. 7992 of 2008 page 5 of 9 have by now made enquiries to satisfy himself that the amount in the

petitioner‟s bank accounts has a causal connection with the illegal

exports allegedly made by the petitioner in contravention of the Act.

Also, if the officer forms such opinion it would have to be reduced to

writing and the Petitioner would be required to be confronted with it by

issuing to it a show cause notice. And again, all of this has to happen

within a reasonable time. Merely because Section 110(3) does not itself

prescribe a time limit cannot possibly mean that it is open-ended to

permit the Respondents to continue to keep the goods and things

confiscated for an indefinite time period without any further step being

taken during the course of such investigation.

9. Now we turn to Section 121 of the Act which reads as under:

Section 121:- Where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods, the sale-proceeds thereof shall be liable to confiscation."

The above provision presupposes at least a prima facie determination

prior to the confiscation that the goods which have been sold are indeed

"smuggled goods" and that the bank accounts frozen contain the sale

proceeds of such smuggled goods. Any other interpretation would

encourage a misuse of the power to indefinitely keep the accounts of a

person frozen on the mere suspicion that they contain the sale proceeds

of goods which are again only suspected of being smuggled goods. To

justify the continued freezing of a bank account on this basis, the

authorities must show that there is some material on record, which has W.P.(C) No. 7992 of 2008 page 6 of 9 been put to the person in whose name the account stands, which shows

the causal link between the monies in the accounts and the sale proceeds

of goods which are believed to be smuggled. This can happen only if a

show cause notice is issued to the person whose goods and things

including bank accounts have been seized and such person is afforded an

opportunity of giving an explanation.

10. In response to a query from the Court as to what steps have been

taken by the Respondents to issue a show cause notice to the petitioner,

learned counsel for the Respondents candidly states that investigations

are still in progress and despite over four years having elapsed since the

raid on the petitioner‟s premises, no show cause notice has yet been

issued. He states on instructions that investigations are expected to

conclude shortly and it is possible that a show cause notice may be

issued to the Petitioner in the near future. He accordingly submits that

the bank accounts should not be de-freezed at this point in time.

11. This Court is unable to accept the above submission of the learned

counsel for the Respondents. The fact that even now the Respondents

are unable to commit themselves to a definite time period within which

they will complete the investigations pursuant to a seizure made more

than four years ago is itself sufficient to indicate the unreasonableness of

the action. If the Respondent public authority, which exercises

extensive statutory and coercive powers is unable to ensure that the

investigation is completed within a reasonable period, it would be unfair

to make the Petitioner, whose bank accounts remain frozen for over four

W.P.(C) No. 7992 of 2008 page 7 of 9 years to wait indefinitely. There must be some convincing explanation

and legal justification for the Respondents continuing to keep the

Petitioner‟s bank account frozen particularly since they have returned all

other seized goods and things after the detention order was quashed.

There is none offered by the Respondents.

12. It was submitted that the petitioner did not turn up for inquiry despite

being issued summons several times. He was convicted by the learned

Metropolitan Magistrate (MM) on 11.12.2006 for the offences under

Sections 172,174 and 175 IPC. In the rejoinder, while denying that the

sole proprietor of the petitioner disobeyed any summons, it is pointed

out that on the dates he was summoned he was under preventive

detention. The learned MM held him guilty because he had by then

already undergone the maximum punishment prescribed for those

offences. The undisputed fact is that for over four years now the

investigation is still incomplete. Till date there is no show cause notice

issued, no criminal case filed and no arrest made. In the circumstances,

this Court finds, even with reference to Sections 110 (3) and 121 of the

Act, no legal justification for the continued freezing of the Petitioner‟s

accounts. The allegation in para 10 of the counter affidavit that "there is

a proclivity" on the part of the petitioner (who is also labelled without

legal basis as "an accused") to „not only evade duties, but also dishonour

the legal processes that have been initiated‟ is not based on any material

that has been placed on record or disclosed to the petitioner even after

four years after the seizure. Such surmise to justify the continued

freezing of the petitioner‟s bank accounts cannot therefore be W.P.(C) No. 7992 of 2008 page 8 of 9 countenanced.

13. Consequently, it is directed that the Respondents will de-freeze the

Petitioners bank accounts forthwith by passing appropriate orders and

issuing necessary instructions to the banks concerned. The writ petition

is accordingly allowed with costs of Rs.5,000/- which will be paid by the

Respondents to the Petitioner within four weeks.

S. MURALIDHAR, J.

JANUARY 25, 2010
dn




W.P.(C) No. 7992 of 2008                                      page 9 of 9