1. The 5th respondent is an Export House and held 18 import licences. The Import Policy for 1979-80 provided that import of items appearing in Appendix 9 thereto would be governed by the connected policy of Government in the respective Ministries, as detailed therein; no other person would be eligible to import them unless specifically licensed by the Chief Controller of Imports and Exports, New Delhi. On 18th July, 1980 the 5th respondent sent the licences to the Chief Controller and asked for endorsement thereon to enable them to import the drugs mentioned in Appendix 9. On 19th September, 1980 Miss S.K. Grewal, Joint Chief Controller of Imports and Exports, wrote to the 5th respondent enclosing therewith the licences. She stated that she had endorsed thereon : 'The drugs appearing in Appendix 9', as desired by the 5th respondent and that the drugs could be imported without any restriction in respect of value or quantity. Alongside her endorsements upon the licences were her signature and the security seal of the Department. On 10th October, 1980 the 5th respondent wrote to the Chief Controller and asked for confirmation that the Import Policy applicable was the Import Policy, April 1980-March 1981. This was confirmed on 23rd October, 1980.
2. On 29th September, 1980 the 5th respondent executed letters of authority in favour of the Petitioners in respect of the licences. The letters of authority irrevocably authorised the Petitioners to operate upon the licences for import of the drugs appearing in Appendix 9. The letters of authority stated that the functions of their holder were to place orders, to open letters of credit, to make remittances in payment for the goods, to arrange movement and to clear the same through Customs having regard to Section 147 of the Customs Act, 1962, on behalf of the 5th Respondent and other related matters connected with the operation of the licences. The letters of authority were stated to be given under the terms of Para 382 of the Hand Book of Import-Export Procedures, 1980-81.
3. On 20th and 27th December 1980 two summonses were issued to the partners of the Petitioners alleging that drugs had been smuggled into the country. The drugs were those which had been imported and cleared on the strength of the licences. Raids were thereafter carried out by the Customs authorities and the imported drugs seized in the hands of the buyers thereof. Uncleared drugs were detained.
4. At this stage, the Petitioners filed Writ Petition No. 421 of 1981 and sought the quashing of the seizure Memos and a restraint of further proceedings thereon.
5. By two orders dated 15th January, 1981 and orders dated 31st January, 1981 and 7th February 1981 made by the Deputy Chief Controller of Import and Export all the licences were cancelled. It is an admitted position that the Petitioners were not served with any notice to show cause and that the orders were passed without hearing them. In the orders the Deputy Chief Controller recorded that notices had been issued on 14th January, 1981 to the 5th respondent asking it to show cause why the licences should not be cancelled on the ground that they had been forged by the 5th respondent itself or through its abetment. The 5th respondent was alleged therein to have committed a breach of the conditions of the licences and the rules and regulations relating to the import of goods. It was stated therein that the licences would not, therefore, serve the purpose for which they were issued. The 5th respondent's reply to the show cause notices was set out. The 5th respondent denied the allegation of forgery. It stated that the licences were given to V. R. Parikh of M/s. V. Parikh and Co. Calvetty, Cochin, who had represented that he had obtained the endorsements on the licences and collected the licences personally to avoid delay and that 'after endorsement the licences were given to the letter of authority holder M/s. Kantilal Manilal and Co., Princess Street, Bombay for import of materials'. The operative portion of the Deputy Chief Controller's order reads thus :-
'From the photo copy of the forwarding memo and licence produced before me it is seen that the same was purported to be signed by Miss S. K. Grewal, Joint Chief Controller of Imports and Exports with Security Seal and rubber stamp. As these are functions performed by junior officers like Controller/Asstt. Chief Controller, this endorsement cannot be accepted as genuine. The undersigned therefore has come to the conclusion that the above licence No. 29/0070 dated1-1-80 has been forged by the licensee himself or through his abetment and that the licensee has committed a breach of the conditions of the licence and rules and regulations relating to import of goods and therefore, the licence will not serve the purpose for which it has issued. It is, therefore, necessary to ensure that the licence is rendered ineffective immediately.'
The Deputy Chief Controller ordered cancellation of the licences.
6. The Petitioners then filed Writ Petition No. 1131 of 1981 to quash and set aside the orders of the Deputy Chief Controller cancelling the licences.
7. A few provisions must be noticed. Section 2(h) of the Imports and Exports (Control) Act, 1947, (as amended up to 30th April, 1979) defined a letter of authority to mean 'a letter authorising the licensee to permit another person, named in the said letter, to import goods against the licence granted to the licensee'. Paragraph 382 of the Hand Book of Import-Export Procedures, 1980-81, deals with letters of authority. It states that a licence-holder was thereby given the authority to appoint any person as his agent for arranging the imports permitted by the licence. The licence would, however, continue to be in the name of the licence-holder and the other provisions of the Imports and Exports (Control) Act, 1947, and the Imports (Control) Order, 1955, in regard to the duties and obligations of the licence-holder or letter of authority holder would continue to apply. Subject to these conditions and legal requirements, it was open to the licence-holder to decide upon his own form of letter of authority. The functions of the holder of the letter of authority were to be limited to the placing of orders, to the opening of letters of credit, to the making of remittances in payment for importing the goods, to arranging movements and to clearing the goods through the Customs having regard to Section 147 of the Customs Act, 1962, on behalf of the licensee and any other related matters connected with the operation of the licence in question, but not its ownership. Clause 10 of the Imports (Control) Order, 1955 deals with the opportunity of being heard. It states that no action shall be taken under, inter alia, clause 9(1) against a licensee or an importer or any other person unless he has been given a reasonable opportunity of being heard. Clause 9(1) deals with the power of the Central Government or the Chief Controller of Imports and Exports to cancel any licence.
8. Section 147 of the Customs Act states that where the Customs Act requires anything to be done by the owner or importer of any goods, it may be done on his behalf by his agent; when any person is expressly or impliedly authorised by the owner or importer of any goods to be his agent in respect of such goods for all or any of the purposes of this Act, such person shall, without prejudice to the liability of the owner or importer, be deemed to be the owner or importer of such goods for such purposes. Section 111(d) provides that any goods which are imported or attempted to be imported contrary to any prohibition imposed by or under the Customs Act or any other law for the time being in force shall be liable to confiscation. Section 112 makes provision for the imposition of a penalty upon any person who, in relation to any goods, does or omits to do any act which act or omission would render such liable to confiscation.
9. Mr. Hidaytullah learned Counsel for the petitioners, cited the judgment of this Court in Dena Bank v. G. S. Sawhney - : AIR1981Bom161 . The Petitioner bank had opened a letter of credit on half of the importer of goods. The importer failed to clear the goods which were imported. The Customs authorities issued a notice to the importer alleging that the goods had been imported without licence and asking the importer to show cause why the goods should not be confiscated. The Petitioner bank contended that, in the circumstances, it was a joint-holder of the import licence and entitled to be heard before any order of cancellation of the licence could be passed. The learned Single Judge held that the provisions clearly spelt out that, in the circumstances, the Petitioners bank had become a joint owner of the licence and if its rights in respect of such licence were to be abrogated or the licence were to be cancelled, it was entitled to a show cause notice. Its property right must be held to have been directly affected when the licence was cancelled without calling upon it to show cause.
10. Mr. Deodhar, learned Counsel for the respondents, submitted that it was clear from para 382 that the holder of the letter of authority was no more than an agent of the licence-holder and that where the only question in issue was the cancellation of the import licence, the letter of authority holder was not affected and the authority was not obliged to give him a show cause notice or to hear him before an order of cancellation was passed.
11. It is relevant to note that para 382 itself authorises the letter of authority holder to open letters of credit and to make remittances in payment. The definition of letter of authority in the Imports and Exports (Control) Act placed the letter of authority holder almost on a par with the licence-holder when it stated that another person named in the letter may be authorised to import goods against the licence granted to the licensee. The definition suggested that this was a letter to be issued by the authorities to the licensee but the provisions of para 382 make it clear that the letter of authority is now to be issued by the licensee to the person to whom the authority is given.
12. These provisions sufficiently indicate that considerable and adverse civil consequences could result to the letter of authority holder by cancellation of the import licence in respect of which the authority had been given to him.
13. This is also apparent from the show cause notice under Section 124 of the Customs Act issued to the Petitioners (which is annexed to the affidavit in reply of the respondents in Writ Petition No. 421 of 1981). It requires the Petitioners to show cause why the imported goods should not be confiscated under Section 111 and why, which is more relevant, a penalty should not be imposed upon them under Section 112. The body of this show cause notice states that the licences had been cancelled. This had been done without notice to or hearing the Petitioners. In showing cause the Petitioners would be unable to contend that the licences were valid and not obtained by fraud or forgery. A penalty is patently a civil consequence. It is an indication that the Petitioners, as holders of the letters of authority, were parties likely to be adversely affected by the cancellation of the licences and were entitled to be heard before orders of cancellation were passed. Orders of cancellation passed without hearing the Petitioners are orders passed in breach of the rules of elementary natural justice and cannot stand.
14. Before I close, I must record that the impugned orders are, even otherwise, unsatisfactory. The show cause notices issued to the 5th respondent alleged that the licences had been forged. The 5th respondent denied this. The only basis upon which the Deputy Chief Controller came to the conclusion in the impugned orders that the 5th respondent had forged the licences or had abetted such forging was that it was seen that the licences were 'purported to be signed by Miss S. K. Grewal, Joint Chief Controller of Import to and Exports, with Security Seal and rubber stamp. As these are functions performed by junior officers like Controller/Asstt. Chief Controller, this endorsement cannot be accepted as genuine.' This is an assumption impermissible to a quasi-judicial authority. The proper course was to examine Miss Grewal and permit those to whom the show cause notices had been issued to cross-examine her. I trust that this is the procedure which will be followed after fresh show cause notices have been issued, to the 5th respondent and the Petitioners.
15. In Writ Petition No. 1131 of 1981 : The two orders dated 15th January, 1981 and the Orders dated 31st January and 7th February, 1981 passed by the Deputy Chief Controller of Imports and Exports are quashed and set aside. The Chief Controller of Imports and Exports shall be entitled to issue fresh show cause notices to the 5th respondent and the Petitioners and to decide whether or not the licences should be cancelled after giving the 5th respondent and the Petitioners an opportunity of being heard. In view of the fact that Miss Grewal, even now Joint Chief Controller of Imports and Exports, will be a crucial witness, it is desirable that the inquiry be conducted by the Chief Controller of Imports and Exports himself.
16. In Writ Petition No. 1131 of 1981 : The drugs have, upon the basis of an interim order dated 15th October, 1981, been cleared upon the Petitioners furnishing bank guarantees. The bank guarantees cannot be discharged at this stage, but shall be kept alive until the Chief Controller decides whether or not the licences should be cancelled. In this regard, the Petitioners have liberty to apply to this Court for further orders.
17. No order as to costs. Rule accordingly.