Kashmiri Lal vs Union Of India & Ors
2010 Latest Caselaw 4775 Del

       IN THE HIGH COURT OF DELHI AT NEW DELHI

                      W.P.(C) 3897/1998 & CM 8206/1998

                                        Reserved on: 23rd September 2010
                                        Decision on: 8th October 2010

       KASHMIRI LAL                                         ..... Petitioner
                           Through : Mr. G.L. Rawal, Sr. Advocate with
                           Mr. Rajesh Rawal, Advocate.

                       Versus

       UNION OF INDIA & ORS                    ..... Respondents
                     Through : Mr. Neeraj Chaudhari CGSC with
                     Mr. Khalid Arshad, Advocates for UOI.

       CORAM: JUSTICE S. MURALIDHAR
       1. Whether reporters of the local news papers
          be allowed to see the judgment?                              No
       2. To be referred to the Reporter or not?                       Yes
       3. Whether the judgment should be reported in the Digest? Yes

                            JUDGMENT

08.10.2010

1. The challenge in this petition is to an order dated 4 th June 1997 passed

by the Additional Director General of Foreign Trade (`ADGFT') under

Section 4-K of the Imports and Exports (Control) Act, 1947 [`IEC Act']

read with Section 20(2) of the Foreign Trade (Development & Regulation)

Act, 1992 [the `FTDR Act'] imposing a penalty of Rs.1 crore on the

Petitioner for utilizing material imported duty free "for a value of

Rs. 48,07,561/- otherwise than in accordance with the conditions of the

said licence." The petition also challenges an order dated 1 st May 1998

passed by the Appellate Committee dismissing the Petitioner's appeal and

the consequential order dated 31st July 1998 issued by the Foreign Trade

Development Officer asking the Petitioner to deposit the penalty amount

within 20 days.

2. While directing notice to issue in the petition on 12th August 1998, this

Court restrained the Respondents from encashing the bank guarantee

furnished by the Petitioner to the Respondents as a condition for grant of

licence.

3. The Petitioner states that M/s Anil International made an application for

grant of duty free licence and pursuant thereto a Duty Free Licence dated

30th October 1989 was issued to the said firm enabling it to import CRCA

coils secondary grade restricted both by value and quantity. The

maximum value that could be imported was Rs.50,00,000/- and the

maximum quantity was 895.400 metric tonnes (MTs). The export

obligation was that the Petitioner should export 814 MTs diesel engine

parts and accessories of the value of Rs.75,00,000/-.

4. On 7th September 1993 a notice was issued to M/s Anil International

having its address at 236, Industrial Area, Ludhiana under Section 4 (L) of

the IEC Act asking it to show cause why penalty should not be imposed

on the firm and its partners under Section 4(1)(i)(a) of the IEC Act read

with Section 20(2) of the FTDR Act on the ground that the firm had failed

to fulfil its export obligations in terms of the advance licence dated 30th

October 1989. The notice stated that the Adjudicating Authority had

reason to believe that the duty free imported goods valued at Rs. 50 lakhs

had been utilized by the firm otherwise than in accordance with the

conditions of the advance licence.

5. The firm replied on 6th October 1993 stating that its entire records of

imports and exports with reference to the licence in question were in the

custody of the Central Bureau of Investigation (CBI), New Delhi and,

therefore, it was not possible for the firm to reply to the show cause

notice. It requested that the notice be kept in abeyance and undertook to

send a reply as soon as the records were received back from the CBI.

6. Further letters dated 24th January 1994, 28th November 1994 and 22nd

July 1996 were sent to the firm asking it to reply to the show cause notice.

The adjudication order dated 4th June 1997 of the ADGFT notes the fact

that the last two mentioned letters dated 28 th November 1994 and 22nd

July 1996 sent to the firm were received back with the remarks "No such

person was available at the address." The subsequent communication

dated 17th January 1997 requiring the firm to appear before the ADGFT

for a personal hearing on 10th March 1997 "was also received back with

similar remarks of the postal authority."

7. It appears that in the absence of any one appearing on behalf of the

firm, the ADGFT proceeded to pass the adjudication order dated 4th June

1997 on the basis of the records. It was noticed that the firm has been

utilizing the licence almost in full as far as its imports were concerned

leaving a balance of only Rs.1,92,439/- in terms of cif value and 10.780

MTs in terms of weight. It was observed that the firm had failed to

intimate the date of clearance of the first consignment which was a

mandatory condition of the licence. Further the firm had exported only

one consignment for free on board (fob) value of Rs. 1,35,000/- as on 12th

December 1989. In the above circumstances, it was concluded that the

firm had utilized the material imported duty free for a cif value of Rs.

48,07,561/- without fulfilling the export obligations. By the adjudication

order dated 4th June 1997 the ADGFT imposed a penalty of Rs. 2 crores

on the firm and Rs. 1 crore each on its partners, viz., the Petitioner herein

and Smt. Neelam Handa, Delhi and required such amount to be deposited

within six weeks.

8. The Petitioner states that he came to know of the above order only

when it was served upon him on 7th June 1997. It is pointed out that at no

point in time was any separate show cause notice issued to the Petitioner.

The Petitioner then appealed to the Appellate Committee Cell. In his

appeal, the Petitioner pointed out that a deed of partnership of the firm

M/s. Anil International was executed on 9th August 1985 in which profit

sharing ratio between Mrs. Neelam Handa and the Petitioner was 25:75.

Prior to being inducted as a partner in M/s. Anil International, the

Petitioner was serving M/s Sona Steel Industries, a sole proprietorship

concern of Mr. R.P. Handa, the husband of Mrs. Neelam Handa. It is

stated that the entire funds for the partnership including the share of the

Petitioner were arranged by Mr. R.P. Handa. The premises of the firm at

236, Industrial Area-1, Ludhiana was also owned by Mr. R.P. Handa. The

Petitioner claims to have been trapped by Mr. Handa into becoming a

partner of M/s Anil International. He stated that his retainership charges

continued to be paid by M/s Sona Steel Industries. Since the Petitioner

was an employee with Mr. Handa he was signing all papers under the

direction of Mr. Handa.

9. In his appeal, the Petitioner stated that another partnership deed was

executed on 2nd April 1991 and the constitution of the firm was changed.

Mr. R.P. Hnada became one of the partners and the profit sharing ratio

was as under:

       1. Petitioner                          20%
       2. Mrs. Neelam Handa                   40%
       3. Mr. R.P. Handa                      40%

10. Ultimately the Petitioner was removed from the partnership and a deed

of dissolution of partnership dated 9th August 1991 was executed. Apart

from enclosing the above documents with the memorandum of appeal, the

Petitioner pointed out that he had never received any notice from the

ADGFT and that in any event he was not a partner of the firm after 9 th

August 1991. He submitted that the time for meeting the export

obligations was extended by the DGFT up to 31st December 1992.

Consequently no proceedings could have been initiated even against the

firm prior to that date. Long prior to that date the Petitioner had ceased to

be a partner of M/s. Anil International.

11. It may be mentioned that as a pre-condition to his appeal being

considered the Petitioner was asked to furnish a bank guarantee in the sum

of Rs. 1 crore. This was complied with. The Appellate Committee, by a

cryptic order dated 1st May 1998, rejected the Petitioner's appeal with the

following reasoning:

"We have gone through the appeal in great detail and have also examined the findings of the Adjudicating Officer. The findings regarding violation of the licence conditions are clearly

established. It emerges that the defaulting persons have been deft in manipulating the facility of import licence almost bordering on a criminal intent. There is no point of law or facts which deserved fresh scrutiny and the guilty parties must suffer the consequences of serious misuse of import licence. The appeal is rejected. The financial bond offered should be forfeited against the recovery amount. The office of the DGFT should take further steps for recovery of the amount without delay."

12. Thereafter the Petitioner was issued the impugned recovery notice

dated 31st July 1998.

13. Mr. G.L. Rawal, the learned Senior counsel appearing for the

Petitioner points out that the fact that no prior show cause notice was

issued to the Petitioner before the adjudication order was passed, is not in

dispute. He referred to the judgments in S.L. Kapoor v. Jagmohan AIR

1981 SC 136 and J.T. (India) Exports v. Union of India 2001 (78) ECC

677 (Del) to urge that without a show cause notice and an opportunity of

being heard, no adjudication order could have been passed against the

Petitioner. He further points out that since the time for fulfilling the export

obligation had been extended up to 31st December 1992, no action could

have been taken against the firm itself till the expiry of that time limit.

The Petitioner admittedly had retired from the partnership firm on 9 th

August 2001 itself. Consequently when the liability accrued to the firm,

the Petitioner was no longer a partner and, therefore, even in terms of

Section 32(3) read with Section 72 of the Partnership Act, 1932 (`PA') no

liability could be fastened on the Petitioner.

14. Appearing for the Respondents, Mr. Khalid Arshad, the learned

Advocate submitted that the liability under Section 32 PA of a retired

partner would cease only if there was a public notice of the retirement

given by such partner. In the instant case, there was no such public notice

given by the Petitioner of the date on which he ceased to be a partner in

M/s Anil International. It is submitted that in the absence of such notice

the Petitioner's liability as a partner of Anil International continued even

after his retirement. Reliance is placed on the judgments in Syndicate

Bank v. R.S.R. Engineering Works 2003 (6) SCC 265; Income Tax

Officer v. Arunagiri Chettiar (1996) 9 SCC 33 and DCM Shriram

Industries v. Indo Organics 2003 (67) DRJ 256.

15. As regards the issuance of show cause notices to the Petitioner as a

partner of Anil International, the impugned adjudication order dated 4th

June 1998 itself reveals that all notices were issued only to the firm and

not to the individual partners. Given the context in which the firm got

reconstituted and the Petitioner admittedly ceased to be a partner with

effect from 9th August 1991, there was no question of the service of notice

on the firm being construed to be a sufficient service of notice on its

partners. With the last two communications dated 28th November 1994

and 22nd July 1996 being received back in the office of the ADGFT with

the remarks "no such person was available at the address" it was plain that

not only the firm but none of its former partners were served notices. The

subsequent notice of hearing dated 17th January 1997 was also returned

unserved. There is no satisfactory explanation for the non-service of show

cause notices upon the Petitioner before the impugned adjudication order

dated 4th June 1997 was passed. On this short ground the impugned

adjudication order dated 4th June 1997 should be held to be unsustainable

in law. The Appellate Committee seems to have completely overlooked

the above position which was squarely raised by the Petitioner in the

memorandum of appeal.

16. As regards the liability of the partner continuing in terms of Section 32

PA, it requires to be noticed that the liability of the firm arising out of its

failure to meet its export obligations got attracted only after 31st December

1992. This was because the time for fulfilling the export obligations was

extended till that date. In other words, if the firm had been able to fulfil its

export obligations between 9th August 1991 when the Petitioner ceased to

be a partner of M/s Anil International and 31st December 1992, the

extended date, there would be no continuing liability attached to the firm,

much less to its partners. Therefore, the crucial date for determining as to

when the liability accrued to the firm for failure to meet its export

obligations was not earlier than 31st December 1992. Consequently, it

cannot be held that with reference to the failure by the firm to meet its

export obligation, there was a continuing liability attached even to the

Petitioner who ceased to be a partner of the firm with effect from 9th

August 1991. No liability with the firm having been accrued as of that

date, there was no question of fastening on the Petitioner any continuing

liability in terms of Section 32 PA.

17. The decision in Income Tax Officer v. Arunagiri Chettiar is

distinguishable on facts. There a communication was sent on 23rd

February 1972 by the Income Tax Officer to the Respondent that he was

jointly and severally liable for the arrears due from the firm for the

assessment years 1962-63 and 1963-64. The defence of the Respondent

was that he ceased to be a partner of the firm on 19th April 1963 and was

therefore not liable. Negativing this contention, it was held that Section

25 PA did not make distinction between a continuing partner and an

erstwhile partner and, therefore, the liability of the firm which was already

accrued while the Respondent was still a partner would attach to him even

after he retired as partner. In the present case no liability accrued to the

firm during the time the Petitioner was its partner. Therefore, the above

decision is of no assistance to the Respondents. The facts in Syndicate

Bank as well as in DCM Shriram Industries v. Indo Organics were also

different and those decisions are also of no help to the Respondents.

18. The Appellate Committee does not appear to have considered any of

the submissions made by the Petitioner in his appeal. However,

considering that the present petition has been pending in this Court for

twelve years, little purpose would be served in remanding the matter to

the Appellate Committee at this stage. The Petitioner has been able to

satisfactorily demonstrate that the impugned order dated 4th June 1997 of

the ADGFT is bad in law for want of prior show cause notice to him and

further that the Petitioner having ceased to be a partner in M/s Anil

International with effect from 9th August 1991 and with no liability having

accrued as of date to the partnership firm in respect of the non-fulfillment

of export obligation, no penalty could possibly be imposed on the

Petitioner.

19. For the aforementioned reasons, the impugned order dated 4th June

1997 passed by the ADGFT and the order dated 1 st May 1998 of the

Appellate Committee are hereby set aside. The bank guarantee furnished

by the Petitioner will stand cancelled.

20. The writ petition is disposed of in the above terms with costs of

Rs. 5,000/- which will be paid to the Petitioner by Respondent No.1

within four weeks. Pending application also stands disposed of.

S. MURALIDHAR, J.

OCTOBER 8, 2010 akg