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Bank of India and anr. Vs. the National Iron and Steel Co. Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtKolkata High Court
Decided On
Case NumberSuit No. 241 of 1968
Judge
Reported inAIR1973Cal354
ActsImports and Exports (Control) Act, 1947 - Section 5; ;Imports (Control) Order, 1955 - Rule 3(1)
AppellantBank of India and anr.
RespondentThe National Iron and Steel Co. Ltd. and ors.
Appellant AdvocateAdv. General
Respondent AdvocateSen
Cases ReferredGanjhu Upendra Singh v. Ganjhu Meghnath Singh
Excerpt:
- orderramendra mohan datta, j.1. the defendant company (hereinafter culled nisco) hypothecated with the plaintiff bank about 4500 pieces of special graphite stopper heads imported from west germany with intent to create security for the repayment of a sum of rupees 28,85,978.16 p. due on an overdraft account. for the recovery thereof the plaintiff filed the suit herein in this court.2. on february 26, 1968, on the application of the plaintiff bank mr. b, k.chakravarty, barrister-at-law was appointed the receiver, inter alia, over the whole of the stocks of iron and stores of nisco whether then manufactured or in the process of manufacture and goods or moveablc properties of any kind stored in the premises and/or godown of nisco or whereever situate or in transit as mentioned in the deed of.....
Judgment:
ORDER

Ramendra Mohan Datta, J.

1. The defendant company (hereinafter culled NISCO) hypothecated with the plaintiff bank about 4500 pieces of Special Graphite Stopper Heads imported from West Germany with intent to create security for the repayment of a sum of Rupees 28,85,978.16 p. due on an overdraft account. For the recovery thereof the plaintiff filed the suit herein in this Court.

2. On February 26, 1968, on the application of the plaintiff Bank Mr. B, K.Chakravarty, Barrister-at-Law was appointed the Receiver, inter alia, over the whole of the stocks of iron and stores of NISCO whether then manufactured or in the process of manufacture and goods or moveablc properties of any kind stored in the premises and/or godown of NISCO or whereever situate or in transit as mentioned in the deed of hypothecation dated September 21, 1959. Mr. Chakravarty took possession thereof. He was directed by an order of this Court to sell the hypothecated goods which included the said about 4500 pieces of Special Graphite Stopper-heads imported from West Germany. Notification for sale was issued and the same was advertised in the newspapers. The conditions of sale were also settled. The offer of Messrs. Modi Steels, owned by Modi Industries Limited was the highest and at the meeting of the parties it was decided that the said offer should be accepted. Accordingly, the Receiver accepted the said offer by his letter dated April 27, 1971. The price was payable within 10 days from the said date of acceptance. On May 12, 1971 this Court ordered: 'Let the payment be made in course of tomorrow and the cheque be made over to Messrs. Khaitan and Co., in the name of the Receiver. Such cheque is to be drawn by Mr. B. M. Bagaria and delivery would be effected after the cheque would be encashed. All parties to act on a signed copy of the minutes.'

3. A cheque for Rs. 1,27,508.85 by Mr. B. M. Bagaria was sent to Messrs Khaitan & Co. in terms of the order dated May 12, 1971. The cheque was encashed. The Receiver bv his letter dated May 17, 1971 asked Messrs. Jecna & Co. the clearing agents, with whom the goods were stored, to allow Messrs. Modi Steels to take delivery of the said goods immediately upon receipt of intimation about the encashment of the said cheque. A copy of the letter was sent to Mr. B. M. Bagaria, Solicitor for Modi Steels and also to Messrs. Khaitan & Co. Solicitors for the Bank for their information and necessary action.

4. At that stage the Bank realised that the goods having been imported against the actual user's licence, the sale of the goods could not legally be effected without the prior permission of the Chief Controller of Imports & Exports who was the licensing authority. The position was explained to the Receiver. It was found that the goods in question were imported under an Import Licence dated October 31, 1964 and any sale against the terms of the said licence was punishable under the Imports and Exports (Control) Act, 1947 read with the Imports (Control) Order, 1955. The Receiver informed all the parties about it by his letter dated May 28, 1971. Messrs. Modi Steels by their letter dated May 21, 1971, inter alia, asked the Receiver to do the needful in the matter for the purpose of effecting deliveryof the goods forthwith. The Receiver by his letter dated May 22, 1971 intimated Mr. B. M. Bagaria that he was willing to do all that was possible to obtain the permission of the said Chief Controller in order to effect delivery and for that purpose he asked for the purchaser's co-operation and intimated that if Messrs. Modi Steels would so desire the said Receiver was prepared to refund the money paid by Messrs. Modi Steels so that Messrs. Modi Steels would be in a position to make the payment after the requisite permission had been obtained.

5. The Receiver by way of abundant caution asked for the directions of this Court and upon hearing the parties this Court made an order on June 2, 1971 as follows:

'In effecting sale, the Receiver will act in compliance with all provisions of law. He will apply in this behalf to the C. C. I. E., New Delhi and take all steps necessary. He will keep Mr. B. M. Bagaria, Solicitor, for Modi Steels informed of the steps taken. No order as to costs except that the Receiver will keep in his hand his costs of this application out of the funds in his hands. This order is made in the presence of Mr. K. P. Bagaria of Messrs. B. M. Bagaria, Solicitor. All parties to act on signed copy of the minutes of the order. This application is disposed of on the above terms. This order is to be incorporated in the order dated 12-5-1971.'

Thereafter correspondence was exchanged between the Chief Controller of Imports and Exports and the Receiver. Ultimately the Receiver being intimated that such permission could not be granted, wrote to Mr. Bagaria by his letter dated May 12, 1972 that permission for sale of the said goods had not been given. Thereupon NISCO demanded delivery of the said goods for the purpose of consumption thereof in its own factory.

6. The present application has been made by the Bank, inter alia, for stay of the settlement and engrossment and filing of the said order dated May 12, 1971 and the order dated June 2, 1971 and for recalling and/or setting aside or for modifying or for varying the said orders in such manner as this Court might think fit and proper and for directions, inter alia, for return of the purchase money by the Receiver to Messrs. Modi Steels and for delivery of the goods by the Receiver to NISCO and for payment of the money to the Bank after receiving the same from NISCO as value of the said goods in pro tanto satisfaction of the Bank's dues. On June 14, 1972 this Court made an ad interim order in terms of prayer (a) of the petition by staying the operation of the said order pending the disposal of this application.

7. The main point which arises in the facts and circumstances of this case, is, whether the sale in favour of Modi Steels shouldbe directed to be completed or not in view of the various provisions of Imports and Exports (Control) Act, 1947 read with Imports Control Order 1955. The determination of the question would depend on the construction and interpretation and the applicability of the various provisions of the said Act of 1947 and the said Imports Control Order of 1955 and also the terms and conditions of the licence under which the goods had been imported.

8. The learned Advocate General has argued that the provisions of the Imports Exports (Control) Act, 1947 and the Imports (Control) Order, 1955 are directed only against the licensee and not to a purchaser such as the Modi Steels whom the Receiver is going to sell the said goods pursuant to an order of this Court. He has further argued that this is an involuntary sale in which NISCO has no hand. According to him, even assuming that there are restrictions in the matter of the sale thereof without tbe permission of the authorities concerned, yet in certain cases such goods could be sold even without such permission. He has cited examples in which cases, according to him, sales might have to be effected even though the licensee does not want it; e.g., when these goods would become the subject-matter of attachment in execution of a decree and would be liable to be sold thereby. Similarly in case of liquidation of the licensee company the liquidator would be justified in taking possession of the goods and to sell the same in course of the legal proceedings. Under such circumstances, nothing could stand in the way of the Court's dealing with the said properties pursuant to an order passed by it.

9. Mr. Sen appearing on behalf of NISCO, on the other hand, has contended that the goods could only be imported under the actual user's licence which was granted in favour of NISCO with the sole object of NISCO's consuming the same in their own factory. On that basis alone the goods were permitted to be imported. He has referred to me clause (c) of the said Import Licence which provides as follows:

'(c) All items of goods imported under it shall be used in the licence holders' factory, or be processed in the factory of another manufacturing unit but no portion thereof will be sold to any other party. The goods so processed in another factory will, however, be utilised in the manufacturing processes undertaken by the Scheduled unit to whom the licence has been issued.'

It is argued firstly, that the only way the goods could be utilised was by using the same in the licence holders' factory and secondly, that no portion of the goods would be sold to any other party. This prohibition restricts not only the licence holders but also any person or body to whom the goods are sought to be transferred or sold.

10. Incidentally, it should be mentioned here that NISCO has also made another application herein for an order, inter alia, that the sale of the said Special Graphite Stopper heads to Messrs. Modi Industries Ltd., and/or Modi Steels be set aside and the Receiver be directed to refund all the amounts received by him from them on account of the price of the said goods and for a direction upon the Receiver directing him to forthwith make over the said articles to the petitioners viz. to NISCO.

11. From the letter dated May 3, 1972 written by the Deputy Chief Controller of Imports and Exports and addressed to the Receiver it appears that the authority concerned could not accord permission for the sale of the said goods in view of the conditions of the licence and in view of the further fact that NISCO was in a position now to utilise the imported goods in their own factory. The said authority requested the Receiver to deliver the said goods to the said licensee on settlement of their outstanding dues if there was no objection from this Court's side.

12. To appreciate the position more fully it is necessary here to consider the nature of the actual user's licence which has been defined in the Hand Book of Rules and Procedure of the Import Trade Control under the Government of India Ministry of Commerce.

'Rule 69 (1) Definition. -- Actual users are those who require raw materials, accessories, machinery and spare parts for their own use in an industrial manufacturing process.'

13. Rule 83 of the said Hand Book provides for conditions of actual user licences as follows:

'(1) Licences granted to Scheduled industries will be issued subject to the following condition endorsed on them:-- 'This licence is issued subject to the condition that all items of goods imported under it shall be used in the licence holders factory, or may be processed in the factory of another manufacturing unit but no portion thereof will be sold to any other party. The goods so processed in another factory will, however, be utilised in the manufacturing processes undertaken by the Scheduled unit to whom the licence has been issued. The licensee shall maintain a proper account of consumption and utilisation of the goods imported against the licence.'

14. Rule 91 thereof provides for the procedure for transfer of imported goods from one actual user to another. The substance of the said Rule is that if for any reason such goods cannot be utilised by the licensee then in such event the same are to be transferred to another licensee with the permission of the licensing authority and such buyer will be required to utilise the said goods in his industrial unit.

15. The sum and substance of these Rules is that restrictions have been imposed in respect of the sale of the goods by the actual user's licence holders and such sale can take place only with the permission of the authority. The obligation is that the actual user's licence holders must utilise the goods in their own industrial unit in manufacturing the processed goods.

16. The learned Advocate-General contends that it creates a personal obligation in so far as the said actual user's license holders are concerned. Neither these rules nor the conditions of the licence can create any obligation so far as the third parties are concerned. The learned Advocate-General has relied on the case of Abdul Aziz v. State of Maharashtra, : 1963CriLJ403 and has particularly referred to the observation of Supreme Court at p. 1474 as follows:--

'We accept the fourth contention that it is the Association, the licensee, which alone could contravene the conditions of the licence and thus contravene the order * * *' The fourth contention referred to above was to the effect that the Association was the licensee and therefore a contravention of the condition of the licence would be committed only by the Association and not by its Chairman and consequently, it would be the Association which should have been tried for the alleged offence under Section 5 of the said Act of 1947 and not the Chairman. From the facts of the case before the Supreme Court it appears that altogether seven members who were powerloom weavers formed an Association. The Chairman of the Association applied for and obtained a licence for the import of certain quantity of art silk yarn by the Association. There were similar restrictions regarding the users of the goods in the licence holders factory only and the said goods were not to be sold to any other party. The goods were imported through Warden and Co. who financed the transaction. For want of necessary finances the Association would not take delivery of the entire quantity of the said yarn with the result that the balance quantity were sold by the said Warden and Co. The Chairman of the Association requested Warden and Co. to dispose of the goods in such a manner that the Association might not suffer any loss but might get a net profit of at least 4% on those goods. Warden and Co., disposed of the goods and paid certain amount by way of profit to the Association. The result was that the Chairman and the other members of the Association were prosecuted for committing the offence under Section 5 of the Imports and Exports (Control) Act, 1947. The High Court, on appeal, having convicted the Chairman under Section 5 of the said Act, an appeal was preferred to the Supreme Court.

17. From the facts of that case it would appear that the question before the Supreme Court was whether the Associationwas the licensee or the Chairman was the licensee. The above observation of the Supreme Court on which the Advocate-General relies, cannot be read to mean that besides the licensee no other party could contravene the conditions of the licence and thus contravene the provisions of the Imports (Control) Order 1955. In fact, the Supreme Court upheld the finding of the High Court and held that the Chairman was guilty of the offence under Section 5 of the said Imports and Exports (Control) Act, 1947 on the ground that the Chairman intentionally aided the Association being the licensee in committing the offence under Section 5 of the said Act and thus abetted the contravention of the offence by the Association.

18. The learned Advocate General next contends that in the matter of the sale by the Receiver in favour of Modi Steels the actual user licence holders viz., NISCO did not take any direct part. The Receiver was appointed at the instance of the plaintiff bank. By the order dated February 26, 1968 the Court directed the Receiver to sell the hypothecated and/or pledged goods. By another order dated August 27, 1969 liberty was given to the Receiver by this Court to release a portion or portions of the hypothecated goods to the defendant No. 1 upon payment of such price and with such rate or rates and on such terms and conditions to which the parties thereto might agree subject to the approval of the Receiver. Thereafter the parties at the meeting of the Receiver decided that the goods be sold and on the basis thereof notification of sale was issued and advertised. Pursuant thereto by letter dated April 5, 1971 Modi Steels made an offer for the purchase of the said imported Special Graphite Stopper heads at the rate of Rs. 27.51 per piece. The parties considered the position and at their instance the Receiver sought to accept the said offer. The price was payable within 10 days from the date of the acceptance of the offer. Thereafter the matter was mentioned on behalf of Modi Steels and the time for payment was extended till May 13, 1971 by this Court. It was further directed that delivery would be effected after the cheque would be encashed. At that stage the question of seeking permission of the relative authorities came up for consideration and the Receiver by way of abundant caution sought for the directions of this Court. By another order dated June 2, 1971 this Court ordered that in effecting sale the Receiver would act in compliance with all the provisions of law. He would apply in this behalf to the C. C. I. E. New Delhi and take all necessary steps. He will keep the solicitors for the Modi Steels informed of the steps taken.

19. On the basis of the aforesaid facts it is argued that no liability in respect of the said sale could be foisted on the Receiver since the sale was being held pursuant to an order .of this Court and the Receiverwas merely carrying out such order. According to the learned Advocate-General, in effect, this is a sale by the Court and as such the provision of Section 5 of the Imports and Exports (Control) Act, 1947 wherein punishment has been provided for any person contravening any condition of licence, would not apply because the expression 'any person' in that section cannot include the 'Court'. The said section provides as follows:

'5. Penalty.-- If any person contravenes or attempts to contravene, or abets a contravention of, any order made or deemed to have been made under this Act or any condition of a licence granted under any such order, he shall, without prejudice to any confiscation or penalty to which he may be liable under the provisions of the Customs Act, 52 of 1962, be punishable with imprisonment for a term which may extend to two years and also with fine:

Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, such imprisonment shall not be for less than six months.'

20. On the basis of the above Section 5 of the Act of 1947 it is argued that if the sale is held by the Court then there would be no contravention. If there would be no contravention then there would be no question of anybody abetting a contravention. An offence must be committed in order that any question of abetment thereof may arise. In of her words, since the goods are being sold by the Court, NISCO cannot be said to have any hand in it. Therefore, under such circumstances NISCO would not be said to have contravened the said provision and accordingly NISCO should not be penalised if such a sale by Court is directed to be effected,

21. In my opinion in the facts and circumstances of this case it cannot be held that this is a case of a sale by the Court. It is nothing but a case of a sale by the receiver under the authority of the Court. There is a good deal of distinction between the said two kinds of sale. The said distinction has been recognised in a series of decided cases. In the case Jogamaya Dassee v. Akhoy Koomar Das, (1913) ILR 40 Cal 140 at p. 146, the question arose whether the sale by a Commissioner of Partition of immovable properties was a sale by the Court. In that case the Commissioner of Partition advertised the sale after setting the notification and the conditions of sale. Clause 18 of the conditions of sale provided that the sale was to be deemed and treated for all purposes as a sale by the court. A dispute arose as to the title of the properties. Fletcher, J., in delivering the judgment discussed about the distinction between a sale by the Court and a sale under the authority of the court and at page 146 observed 'In one case the court makes the title to the purchaser; in the other case the court authorises either of the partiesto the suit or the persons having the carriage of proceedings to sell the properties and to make a title to the purchaser'. It was held by Fletcher, J., that in spite of said Clause 18 of the conditions of sale, such a sale did not become a sale by the court but was one made by the Commissioner of Partition under the authority of the court.

22. In my opinion, under condition (c) of the licence, as set out hereinabove NISCO is under an obligation to comply with the same. If NISCO will not use the goods in its factory then NISCO will not comply with the first part of the condition. That would amount to contravention by NISCO of the condition of the licence. It may be that NISCO's contention would be that it had no hand in the matter but even under such circumstances NISCO cannot avoid contravention which is bound to take place as soon as the goods are not utilised in the said factory in terms of the said licence and the same would be alienated. Under such circumstances the person or persons who would be involved in such alienation or transfer or sale of such goods will be abetting the contravention. Anybody connected with such contravention will become an abettor. In an appropriate trial under Section 5 of the said 1947 Act the licensee may contend that the goods were taken away from its custody completely without its volition but that would be of no excuse because that would amount to contravention all the same. Under such circumstances, if he is found innocent of the offence then that would be taken into account in imposing penalty or punishment upon him. One is a question of contravention and the other is a question of penalty. Under such circumstances, if NISCO is found to have acted without any bad motive then the punishment or penalty to be imposed on NISCO would be the minimum and whoever would be found guilty of abetting the said contravention by reason of such transfer or sale might be liable to the maximum penalty provided under that section as a person who has intentionally committed the offence.

23. In my opinion, Rule 3 (1) of the Imports (Control) Order, 1955 also forbids the sale of the said goods which were imported under the licence granted in favour of NISCO and that being the position if the said goods are sold by the Receiver then the Receiver will be selling the said goods which the Receiver is forbidden by law to sell and he will be committing an unlawful act and would be forbidden under Section 23 of the Indian Contract Act. If such an agreement for sale is enforced by the Court then it will defeat the provision of Section 5 of the Act of 1947 read with Rule 3 (1) of the Imports (Control) Order 1955. Under such circumstances, the Court will never be a party to such a transaction and will never allow the Receiver to enter into such a transaction which ultimately would be unlawful andwould defeat the provisions of law. The Court must take into account the policy of the Import Control Authorities that if such authorities had been of the opinion that these goods ultimately would not be used in the factory of NISCO then they might not have issued the licence in favour of NISCO at all. If the Court will now pass an order directing the Receiver to effect the sale in favour of Modi Steels, the Court will, in effect, encourage the parties to defeat the said provisions of law.

24. The second part of condition (c) of the licence is that no portion of the goods will be sold to any other party. The prohibition is on the licensee that he will not sell his goods to any other party. If the goods would be sold that would amount to passing of NISCO's title from NISCO to the purchaser. The Receiver has merely taken possession of the goods. The title, however, remains vested in NISCO and not in the Receiver by virtue of his possession. The Receiver's possession over the said goods is no better than that of the parties and as such he will be holding the goods as one having the same title as that of NISCO and not with any higher title. He will have the same rights over the said goods as that of NISCO. If NISCO cannot sell the goods the Receiver likewise will not be able to sell the goods. If the Receiver will sell the goods to Modi Steels that would amount to NISCO's selling the goods to Modi Steels. The Receiver is a mere machinery by which the title of NISCO is sought to be conveyed to Modi Steels. The Receiver never acquired the title and as such never possessed the title. If title will go from NISCO to Modi Steels then there will be a sale in contravention of condition (c) of the licence. Almost a similar situation arises in the case of a decree for specific performance when the Court directs that if the vendor is unwilling to sell or execute the conveyance then the Registrar of the Court will sign and register the conveyance in favour of the purchaser. This is done not because the Registrar has any title to the property but because the signature of the Registrar has the effect of passing the title of the vendor to the purchaser. Here also what the Receiver will be selling is NISCO's goods to Modi Steels. The effect of such sale if allowed, will be that NISCO's title will be extinguished and Modi Steels will acquire title over the goods.

25. On the question as to whether the sale has been concluded or not, in my opinion, it cannot be so because had it been so, the parties including Modi Steels would not have sought for the further order from this Court on June 12, 1971 to the effect that in effecting sale, the Receiver would act in compliance with all the provisions of law and that he would apply in that behalf to the C. C. I. E. New Delhi and take all necessary steps. Everybody including Modi Steels knew that the said sale could not havebeen concluded until such permission was obtained from the said authority and all the parties including Modi Steels proceeded on that basis. Moreover, Section 23 of the Contract Act stood in the way and as such it was not a concluded sale and no rights had been acquired by Modi Steels in respect of the said transaction until such permission was obtained.

26. Having come to the finding that there has not been any concluded sale in favour of Modi Steels the question as to whether it was a voluntary or an involuntary alienation can no longer be of any relevant consideration. The learned Standing Counsel appearing on behalf of the bank referred to the case of Ganjhu Upendra Singh v. Ganjhu Meghnath Singh, AIR 1939 Pat 598 where the rule laid down by Macpherson, J., in ILR 10 Pat 582 = (AIR 1931 Pat 364) was quoted with approval. Macpherson, J., observed :

'The measure of liability to involuntary alienation is the power of voluntary transfer. The latter is taken away from the holder by the statute so far as sale or attempted sale of the property is concerned and the exercise of it, is rendered void. Full ownership is cut down -- the holder's power of disposition for his own benefits is restricted to the profit accruing within his lifetime.'

The learned Standing Counsel has also referred to Section 60 of the Code of Civil Procedure which, inter alia, contemplates that such property of the judgment-debtor will be liable to sale only if he has a disposing power over such property. On that basis he argues that the Receiver having no such disposing power in this case, the sale cannot be put through. The Receiver has no title in himself and in the matter of such negotiation for the sale he has merely been acting as the agent of the bank and of NISCO and has been carrying out the order of this Court. As such he may be in difficulty if he is directed to complete the sale at this stage. In fact, up till now neither any transfer nor any alienation of the said goods has taken place by reason of the Receiver's taking possession thereof and negotiating the said sale but it may amount to an offence if he completes the sale. The position of the bank is almost similar to that of the Receiver, and more so, when the bank is the joint holder of the said licence along with NISCO and at its instance the Receiver had been appointed over the said goods. In my opinion, the bank's possession and consequently the Receiver's possession are no doubt up till now lawful but it may amount to contravention of the provisions of the said statute and the rules framed thereunder if the goods are sold without the permission of the relevant authority.

27. The learned Advocate-General has argued with reference to Section 3 of the Imports and Exports (Control) Act, 1947 that the powers conferred on the authority con-cerned by the said statute and the rules framed thereunder were limited to the cases of prohibition or restriction or of controlling imports and exports of goods and such powers could be exercised in respect of the goods only upto the stage of the clearance thereof from the Port and not thereafter. The said point was later on abandoned and conceded by the learned Advocate-General in view of the decision of the Supreme Court which negatived such contention.

28. The learned Advocate-General however, laid great stress on the point that the liability under the said statute is restricted to the licence holder only and not to the third party. I have already dealt with the Supreme Court case in : 1963CriLJ403 . I have already discussed in what context that observation was made and that the said observation has a restricted meaning and cannot apply as a general rule and must be restricted to the special facts and circumstances of that case before the Supreme Court.

29. The learned Standing Counsel has particularly drawn my attention to Rules 3 and 5 of the Imports (Control) Order 1955 and on the basis thereof he has argued that the conditions of the licence do, in fact, attach to the goods and not to the licence holder alone. They are not really referable to the licensee alone. Again, under Section 3 (1) and Section 3 (2) of the said Act of 1947 the provisions of Section 11 of the Customs Act 1962 and all the provisions of the said Act have been made applicable in respect of all goods which are covered by Sub-section (1) of Section 3 of the said Act of 1947. On this point, on behalf of Modi Steels the Advocate-General argues that the language of Section 11 of the Customs Act, 1962 is such that the same cannot be attracted or applied in respect of goods which are mentioned in Section 3 (1) and (2) of the Imports and Exports (Control) Act, 1947. It is contended that the purposes mentioned in Sub-section (2) are the only purposes by virtue whereof the powers conferred by Sub-section (1) of Section 11 can be exercised and if such purposes are absent then Section 11 will not be applicable at all.

30. In my opinion, that argument suffers from the following defects. Section 3 (1) and (2) of the Act of 1947 is a deeming provision and by fiction of law Section 11 of the Customs Act, 1962 is made applicable to the same even though, taking the section by itself, it does not seem to be made applicable.

31. To appreciate the point it is necessary here to set out Section 3 (1) and (2) of the Imports and Exports (Control) Act. 1947, Section 11(1) and (2) of the Customs Act, 1962 and Rule 3 (1) and Rule 5 (1) of the Imports (Control) Order, 1955 which have been enacted pursuant to the powers conferred on the Central Government by Section 3 of the Imports and Exports (Control) Act 1947.

'Section 3. Powers to prohibit or restrict imports and exports -

(1) The Central Government may, by order published in the Official Gazette, make provision or prohibiting, restricting or otherwise controlling, in all cases or in specified classes of cases, and subject to such exceptions, if any, as may be made by or under the order:

(a) * * *

(b) * * *

All goods to which any order under Sub-section (1) applies shall be deemed to be goods of which the import or export has been prohibited under Section 11 of the Customs Act, 62, (52 of 1962) and all the provisions of that Act shall have effect accordingly.

(3) x x x x

'Section 11. Power to prohibit importation or exportation of goods.-

(1) If the Central Government is satisfied that it is necessary so to do for any of the purposes specified in Sub-section (2), it may, by notification in the Official Gazette, prohibit either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification, the import or export of goods of any specified description.

(2) The purposes referred to in Sub-section (1) are the following:

X X X X X X

'Rule 3. Restriction of import of certain goods.-- (1) Save as otherwise provided in this Order, no person shall import any goods of the description specified in Schedule 1, except under, and in accordance with, a licence or a customs clearance permit granted by the Central Government or by any officer specified in Schedule 11. (2) x x x x x 5. Conditions of Licences.-- (1) The licensing authority issuing a licence under this Order may issue the same subject to one or more of the conditions stated below:--

(i) that the goods covered by the licence shall not be disposed of, except in the manner prescribed by the licensing authority, or otherwise dealt with, without the written permission of the licensing authority or any person duly authorised by it;

(ii) that the goods covered by the licence on importation shall not be sold or distributed at a price exceeding that which may be specified in any directions attached to the licence;

(iii) that the applicant for a licence shall execute a bond for complying with the terms subject to which a licence may be granted.

(2) A licence granted under this Order may contain such other conditions, not inconsistent with the Act or this order, as the licensing authority may deem fit.

(3) It shall be deemed to be a condition of every such licence that:--

(i) no person shall transfer and no person shall acquire by transfer any licence issued by the licensing authority except under and in accordance with the written permission of the authority which granted the licence or of any other person empowered in this behalf by such authority.

(ii) that the goods for the import of which a licence is granted shall be the property of the licensee at the time of import and thereafter up to the time of clearance through customs:

Provided that the conditions under items (i) and (it) of this sub-clause shall not apply in relation to licences issued to the State Trading Corporation of India, the Minerals and Metals Trading Corporation of India and other similar institutions or agencies owned or controlled by the Government. (iii) the goods for the import, of which a licence is granted shall be new goods unless otherwise stated in the licence.

(4) The licensee shall comply with all conditions imposed or deemed to be imposed under this clause.'

32. In my opinion, if in Section 3 (1) of the Imports and Exports (Control) Act, 1947, Rule 3 (1) of Imports (Control) Order, 1955 is incorporated and read then the meaning of the said Sub-section (1) of Section 3 of the Act of 1947 would be that no one can import goods specified in Schedule 1 except under and in accordance with a licence. Now if Sub-section (2) is read along with Sub-section (1) of the Act of 1947 then such goods as are mentioned in Schedule 1 of the Imports (Control) Order, 1955 would be deemed to be goods of which the imports and exports have been prohibited under Section 11 of the Customs Act, 1962 and not only that all the provisions of the Customs Act, 1962 will be attracted accordingly. In my opinion Section 11 of the Customs Act provides that the Central Government by notification in the Official Gazette may prohibit either absolutely, or subject to such conditions as may be specified in the notification, the imports or exports of goods. The power is to prohibit. Such notification may be absolute or may be subject to conditions. In either event it is nevertheless a prohibition, as the section suggests. In other words, a prohibition absolute is a prohibition and so also the prohibition subject to conditions is all the same a prohibition within the meaning of Section 11 of the Customs Act. The learned Advocate-General's argument that if conditions are imposed regarding imports under the Imports and Exports (Control) Act, 1947, those conditions do not come under the Customs Act, in my opinion, suffers from the following defects. Supposing the Act of 1947 permits import of an article subject to conditions because that article becomes an article to which Section 3 (1) applies, will such an article become a prohibited article under Section 11 of the Customs Act withoutthe conditions? The result will be, what is permitted to be imported under one statute becomes a total prohibition under another statute. Supposing under the Act of 1947 import is permitted of an article subject to certain restrictions. Then according to Section 3 (2) that article becomes an article of which import has been prohibited under Section 11 of the Customs Act. Then what is the effect of the restriction? In short, the argument boils down to this, that no such case of restriction can come under Section 11 of the Customs Act even though the Act of 1947 contemplates that such an article can be imported subject to those restrictions, but when Section 11 of the Customs Act comes into play such an article becomes an article of which import has been prohibited under the Customs Act,

33. In my opinion, Section 3 (1) of the Act of 1947 contemplates also cases of import which is permitted subject to the restrictions imposed on it. When Section 11 of the Customs Act comes into play the said goods are not totally prohibited. A permission to import under the Act of 1947 does not become a prohibition under the Customs Act of 1962. Section 3 (2) of the Act of 1947 provides that it is deemed to be a prohibition under Section 11 of the Customs Act. A fiction once created must be given its full effect. The Court must give all logical conclusion which follows from the fiction. The fiction is, if there is a prohibition under Section 3 (1) it becomes a prohibition under Section 11 and if prohibition under Section 3 (1) is subject to conditions, similarly, it becomes prohibition subject to conditions under Section 11 of the Customs Act. If there is an import subject to restriction under Section 3 (1) of the Imports and Exports (Control) Act of 1947 it becomes a prohibition within the meaning of the deeming clause viz., that it shall be deemed to be goods of which import has been prohibited under Section 11 of the Customs Act. It is to be considered as if it is prohibition under Section 11. The Act of 1947 enjoins, as if there has been a notification under Section 11, as if there has been a prohibition imposed under Section 11. It does not stop there. The 1947 Act further stipulates 'and all the provisions of that Act shall have effect accordingly'. One of the provisions of the Customs Act is that the prohibition may be absolute or subject to conditions.

34. Hence the next question that has to be considered is whether such an article with such restriction comes within the meaning of total prohibition subject to conditions. In my opinion, the restriction or conditions, if any, of the import under Section 3 (1) of the Act of 1947 will automatically become restriction or condition of the prohibition within the meaning of Section 11 of the Customs Act. Otherwise the result would be absurd. If it is permitted under the 1947 Act it cannot be totally prohibited under theCustoms Act. Once Section 11 and all other provisions of the Customs Act are attracted, the goods covered by the said licence become tainted and wherever the goods will be, the restrictions will be along with them. Accordingly, the argument that the third party is not liable under such circumstances, is unacceptable by me and I reject the same.

35. Even apart from Section 11 of the Customs Act, the provision of Section 111 of the Customs Act applies in the facts and circumstances of this case. Even assuming Section 11 is not attracted a liability is imposed by Section 111 of the Customs Act independently of Section 11.

36. The provision of Section 111 of the Customs Act and item (o) thereof are as follows:--

'111. Confiscation of improperly imported goods, etc. The following goods brought from a place outside India shall beliable to confiscation:

***** (O) any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer.' In Item (o) the expression 'or any other law for the time being in force, in respect of which the condition is not observed', would attract the 1947 Act which imposes prohibition on the import of goods and which Act also gives the exemption viz., that goods can be imported under a licence. There is an exemption from the prohibition and that exemption is subject to conditions. The condition of the licence is, the goods have to be used in the factory of the licensee viz., National Iron & Steel Co. If the condition is not fulfilled it is liable to confiscation on the strength of the above Section 111 item (o) by itself. It may be that NISCO is not to be blamed for not using goods in their factory but that would not be of any excuse. The condition subject to which exemption was granted will nevertheless not be fulfilled if the goods will not be used in their factory. If such goods are to be found anywhere else in the custody of any other person then the same are tainted and are liable to confiscation.

37. By the letter dated May 3, 1972 the Deputy Chief Controller of Imports and Exports for and on behalf of Chief Controller Imports and Exports intimated the Receiver expressing regret that it was not possible for him to accord permission for the sale of the goods in view of the conditions of the licence and further for the reasons that the licensee NISCO were in a position to utilise the imported goods in their own factory. On that basis he requested the Receiver to deliver the goods to the licensee on settlement of the outstanding duesif there would be no objection from the side of this Court. It appears from the said letter that a representative of Messrs. Modi Industries had an interview with the said authority when the matter was explained to him.

38. The position shortly now is this. The permission was sought for. It was considered by the authorities concerned and they have refused it. Under those circumstances, the Court finds no reason why such a decision should be disturbed.

39. That being the position I shall make an order in the application made by the bank as follows: The ad-interim order made herein is confirmed. There will be an order in terms of prayer (c) of the notice of motion recalling the order dated May 12, 1971 and June 2, 1971. The Receiver is directed not to effect or complete the sale in favour of or to deliver the said goods to Messrs. Modi Steels. The Receiver is also directed to release and deliver the goods to the defendant No: 1 National Iron and Steel Co. to enable it to use the same in its factory upon payment of such value by the defendant No. 1 to the bank through the Receiver as would be agreed at a meeting of the Receiver with the defendant No. 1 and the plaintiff bank. There will be an order in terms of prayers (f) and (g).

40. A prayer was made on behalf of Modi Steels that if the money is to be refunded to them then the same should carry interest at the rate of 6% per annum. In my opinion, in view of the fact that the Receiver offered Modi Steels the return of the entire purchase money so that the same might be paid after the same would be confirmed, and Modi Steels having refused to do so, they are not entitled to any interest with the result that such a prayer is refused. In any event, the costs of the Modi Steels will be paid by the petitioner Bank in the first instance and such cost is to be added to the petitioner's claim against the defendant No. 1. The petitioner's cost will also be paid by the defendant No. 1 and the same be added to its costs.

41. In this application the Receiver will retain costs out of the funds in his hands as between attorney and client.

42. Certified for two counsel.

43. There will be stay of operation of this order passed herein for a fortnight.


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