Customs(Preventive) Vs. M/S. Aafloat Textiles (I) P.Ltd.&Ors.  INSC
332 (16 February 2009)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APEPAL NO. 2447 OF 2007 Commnr. of
Customs (Preventive) ...Appellant Versus M/s Aafloat Textiles (I) Pvt.Ltd. and
Dr. ARIJIT PASAYAT,
in this appeal is to the order passed by the Customs, Excise and Service Tax
Appellate Tribunal, West Zonal Bench at Mumbai (in short the `CESTAT').
Challenge before the CESTAT was to the order of Commissioner of Customs who
confirmed the duty demand of Rs.6,69,40,149/- on 9 consignments of gold and
silver imported by M/s Aafloat Textiles (India) Ltd. (Formerly known as M/s
Akai Impex Ltd.) under Section 28 alongwith appropriate interest under Section
28AB of the Customs Act, 1962 (in short the `Act'). The benefit of exemption in
terms of Notification No.117/94-Cus. Dated 27.4.1997 was denied and liability
of the goods to confiscation under Section 111(d) and (o) of the Act was
upheld. But since the goods were not available, confiscation was not ordered.
Penalty equal to duty amount on the importer under Section 114A of the Act was
imposed and Rs.50 lakhs was imposed on Shri Mahendra Shah and Rs.25 lakhs each
on four other appellants before the CESTAT.
of the department that the Special Import License (in short `SIL') purchased by
the importer from brokers for clearance of gold and silver was forged and,
therefore, was not valid for the consignments in question.
facts as emerging from the Commissioner's order are that the office premises of
one M/s. Gazebo and M/s. Mahavir Corporation, were searched by officers of DRI
and copy of SIL No.3536539 dated 6.8.1997 issued to M/s. Track Industries,
Kanpur, was recovered. The Joint Director General of Foreign Trade, Kanpur
informed that no such licence had been issued and that the signature and
security seal of their Foreign Trade Development Officer had been forged. The
proprietor of M/s Gazebo, Shri R.T. Shah stated on 19.1.1998 that he had
purchased the above bogus SIL from one Shri Sushil Kumar Lohia who, in turn
admitted that the SIL was given to him by one Shri Manoj Kumar Jain and that he
had obtained several bogus SILs from one Naresh Sheth and Shri Dinesh Buchasia,
whose residential premises were searched and certain documents were recovered
and his statement was recorded, wherein he stated that he had only dealt in 7
SILs which he bought at low premium from one Rajesh Chopra and that the SILs
were forged. Shri Shinivas Pannalal Kalantri, General Manager of the importer
company stated that gold/silver had been imported under SIL during the year
1996-97 and 1997-98, that one M/s. Lalbhai Trading Co. and two others were the
clearing agents; that Shri Prakash Mohta of Finance Department looked after the
purchase of SILs.
The Chairman of the
importer company stated that he looked after negotiation and purchase of
bullion and sale of bullion; that Shri Prakash Mohta looked after purchase of
licences, clearance of goods, delivery, payment to supplier etc. and that
licence brokers through whom SILs were purchased and whom he knew, were Mr.
Pachisia and Mr. Ketan Shah. The statement of Shri Prakash Mohta, was also
recorded in which he confirmed that he was looking after purchase of SILs for
import of bullion and subsequently selling them in the local market. Shri
Mahendra Shah stated that he had sold bogus SILs to the importer company. Shri
Rasiklal Mehta stated that he and one AtuI Garodia met one Shri D.R. Gulati in
Bombay who told that he could provide bogus SIL for which he would charge 3% to
4% premium, that Shri Gulati used to provide bogus SILs and Shri Garodia used
to sell them in market and give them a premium of 3%.
demand was confirmed under the proviso to Section 28(1) of the Act. The stand
of the revenue that since the licenses were forged and were void, the buyer
cannot have better title than the seller. CESTAT in appeal was of the view that
the appeal could be disposed only on the ground of limitation without going
into the merits of the matter. It was observed that there was no evidence to
show that the importer had knowledge about the SIL being non- genuine.
was also stated that the period of limitation is not to be reckoned from the
date of discovery of the forgery. Accordingly, the demands including the
penalty imposed were cancelled.
support of the appeal, learned counsel for the appellant submitted that since
the SIL involved was established to be forged there was no question of denying
the extended period of limitation.
counsel for the respondents on the other hand submitted that the department has
not established that the buyer had knowledge about the forgery. The mens rea
being one of the ingredients to avail extended period of limitation the CESTAT
was justified in its conclusions.
noted above, the CESTAT has not gone into the question whether the SIL involved
was genuine or not. It was of the view that the department has not established
that buyer had knowledge that there was any forgery involved.
means an intention to deceive; whether it is from any expectation of advantage
to the party himself or from the ill will towards the other is immaterial. The
expression "fraud" involves two elements, deceit and injury to the
person deceived. Injury is something other than economic loss, that is,
deprivation of property, whether movable or immovable or of money and it will
include and any harm whatever caused to any person in body, mind, reputation or
such others. In short, it is a non- economic or non-pecuniary loss. A benefit
or advantage to the deceiver, will almost always call loss or detriment to the
deceived. Even in those rare cases where there is a benefit or advantage to the
deceiver, but no corresponding loss to the deceived, the second condition is
satisfied. (See Dr. Vimla v. Delhi Administration (1963 Supp. 2 SCR 585) and
Indian Bank v. Satyam Febres (India) Pvt. Ltd. (1996 (5) SCC 550).
"fraud" is an act of deliberate deception with the design of securing
something by taking unfair advantage of another. It is a deception in order to
gain by another's loss. It is a cheating intended to get an advantage. (See
S.P. Changalvaraya Naidu v. Jagannath (1994 (1) SCC 1).
as is well known vitiates every solemn act. Fraud and justice never dwell
together. Fraud is a conduct either by letter or words, which includes the
other person or authority to take a definite determinative stand as a response
to the conduct of the former either by words or letter. It is also well settled
that misrepresentation itself amounts to fraud. Indeed, innocent
misrepresentation may also give reason to claim relief against fraud. A
fraudulent misrepresentation is called deceit and consists in leading a man
into damage by willfully or recklessly causing him to believe and act on
falsehood. It is a fraud in law if a party makes representations, which he
knows to be false, and injury ensues therefrom although the motive from which
the representations proceeded may not have been bad.
An act of fraud on
court is always viewed seriously. A collusion or conspiracy with a view to
deprive the rights of the others in relation to a property would render the
transaction void ab initio. Fraud and deception are synonymous. Although in a
given case a deception may not amount to fraud, fraud is anathema to all
equitable principles and any affair tainted with fraud cannot be perpetuated or
saved by the application of any equitable doctrine including res judicata. (See
Ram Chandra Singh v. Savitri Devi and Ors. (2003 (8) SCC 319).
and collusion vitiate even the most solemn proceedings in any civilized system
of jurisprudence. It is a concept descriptive of human conduct. Michael Levi
likens a fraudster to Milton's sorcerer, Comus, who exulted in his ability to,
`wing me into the easy hearted man and trap him into snares'. It has been
defined as an act of trickery or deceit. In Webster's Third New International
Dictionary "fraud" in equity has been defined as an act or omission
to act or concealment by which one person obtains an advantage against conscience
over another or which equity or public policy forbids as being prejudicial to
another. In Black's Legal Dictionary, "fraud" is defined as an
intentional perversion of truth for the purpose of inducing another in reliance
upon it to part with some valuable thing belonging to him or surrender a legal
right; a false representation of a matter of fact whether by words or by
conduct, by false or misleading allegations, or by concealment of that which
should have been disclosed, which deceives and is intended to deceive another
so that he shall act upon it to his legal injury. In Concise Oxford Dictionary,
it has been defined as criminal deception, use of false representation to gain
dishonest artifice or
trick. According to Halsbury's Laws of England, a representation is deemed to
have been false, and therefore a misrepresentation, if it was at the material
date false in substance and in fact. Section 17 of the Indian Contract Act,
1872 defines "fraud" as act committed by a party to a contract with
intent to deceive another. From dictionary meaning or even otherwise fraud
arises out of deliberate active role of representator about a fact, which he
knows to be untrue yet he succeeds in misleading the representee by making him
believe it to be true.
The representation to
become fraudulent must be of fact with knowledge that it was false. In a
leading English case i.e. Derry and Ors. v. Peek (1886- 90) All ER 1 what
constitutes "fraud" was described thus: (All ER p. 22 B- C)
"fraud" is proved when it is shown that a false representation has
been made (i) knowingly, or (ii) without belief in its truth, or (iii)
recklessly, careless whether it be true or false". But "fraud"
in public law is not the same as "fraud" in private law. Nor can the
ingredients, which establish "fraud" in commercial transaction, be of
assistance in determining fraud in Administrative Law. It has been aptly
observed by Lord Bridge in Khawaja v. Secretary of State for Home Deptt. (1983)
1 All ER 765, that it is dangerous to introduce maxims of common law as to
effect of fraud while determining fraud in relation of statutory law.
"Fraud" in relation to statute must be a colourable transaction to
evade the provisions of a statute. "If a statute has been passed for some
one particular purpose, a court of law will not countenance any attempt which
may be made to extend the operation of the Act to something else which is quite
foreign to its object and beyond its scope. Present day concept of fraud on
statute has veered round abuse of power or mala fide exercise of power. It may
arise due to overstepping the limits of power or defeating the provision of
statute by adopting subterfuge or the power may be exercised for extraneous or
The colour of fraud
in public law or administration law, as it is developing, is assuming different
shades. It arises from a deception committed by disclosure of incorrect facts
knowingly and deliberately to invoke exercise of power and procure an order
from an authority or tribunal. It must result in exercise of jurisdiction which
otherwise would not have been exercised.
must be in relation to the conditions provided in a section on existence or
non-existence of which the power can be exercised.
But non-disclosure of
a fact not required by a statute to be disclosed may not amount to fraud. Even
in commercial transactions non-disclosure of every fact does not vitiate the
agreement. "In a contract every person must look for himself and ensures
that he acquires the information necessary to avoid bad bargain. In public law
the duty is not to deceive. (See Shrisht Dhawan (Smt.) v. M/s. Shaw Brothers,
(1992 (1) SCC 534).
that case it was observed as follows:
collusion vitiate even the most solemn proceedings in any civilized system of
jurisprudence. It is a concept descriptive of human conduct. Michael levi
likens a fraudster to Milton's sorcerer, Comus, who exulted in his ability to,
'wing me into the easy-hearted man and trap him into snares'.
It has been defined
as an act of trickery or deceit. In Webster's Third New International
Dictionary fraud in equity has been defined as an act or omission to act or
concealment by which one person obtains an advantage against conscience over another
or which equity or public policy forbids as being prejudicial to another. In
Black's Legal Dictionary, fraud is defined as an intentional perversion of
truth for the purpose of inducing another in reliance upon it to part with some
valuable thing belonging to him or surrender a legal right; a false
representation of a matter of fact whether by words or by conduct, by false or
misleading allegations, or by concealment of that which should have been
disclosed, which deceives and is intended to deceive another so that he shall
act upon it to his legal injury. In Concise Oxford Dictionary, it has been
defined 10 as criminal deception, use of false representation to gain unjust
advantage; dishonest artifice or trick. According to Halsbury's Laws of England,
a representation is deemed to have been false, and therefore a
misrepresentation, if it was at the material date false in substance and in
fact. Section 17 of the Contract Act defines fraud as act committed by a party
to a contract with intent to deceive another. From dictionary meaning or even
otherwise fraud arises out of deliberate active role of representator about a
fact which he knows to be untrue yet he succeeds in misleading the representee
by making him believe it to be true. The representation to become fraudulent
must be of the fact with knowledge that it was false. In a leading English case
Derry v. Peek [(1886-90) ALL ER Rep 1: (1889) 14 AC 337 (HL)] what constitutes
fraud was described thus:
(All Er p. 22 B-C)
`Fraud is proved when it is shown that a false representation has been made (i)
knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless
whether it be true or false'."
aspect of the matter has been considered by this Court in Roshan Deen v. Preeti
Lal (2002 (1) SCC 100) Ram Preeti Yadav v. U.P. Board of High School and
Intermediate Education (2003 (8) SCC 311), Ram Chandra Singh's case (supra) and
Ashok Leyland Ltd. v. State of T.N. and Another (2004 (3) SCC 1).
of a material document would also amount to a fraud on the court. (see
Gowrishankar v. Joshi Amba Shankar Family Trust (1996 (3) SCC 310) and S.P.
Chengalvaraya Naidu's case (supra).
is a conduct either by letter or words, which induces the other person or
authority to take a definite determinative stand as a response to the conduct
of the former either by words or letter. Although negligence is not fraud but
it can be evidence on fraud; as observed in Ram Preeti Yadav's case (supra).
Lazarus Estate Ltd. v. Beasley (1956) 1 QB 702, Lord Denning observed at pages
712 & 713, "No judgment of a Court, no order of a Minister can be
allowed to stand if it has been obtained by fraud. Fraud unravels
everything." In the same judgment Lord Parker LJ observed that fraud
vitiates all transactions known to the law of however high a degree of
solemnity. (page 722)
aspects were highlighted in the State of Andhra Pradesh and Anr. v. T.
Suryachandr Rao (2005 (5) SCALE 621) and Bhaurao Dagdu Paralkar v. State of
Maharashtra and Ors. (2005 (7) SCC 605)
was for the buyer to establish that he had no knowledge about the genuineness
or otherwise of the SIL in question.
maxim caveat emptor is clearly applicable to a case of this nature. As per
Advanced Law Lexicon by P. Ramanatha Aiyar, 3rd Edn. 2005 at page 721: Caveat
emptor means "Let the purchaser beware." It is one of the settled
maxims, applying to a purchaser who is bound by actual as well as constructive
knowledge of any defect in the thing purchased, which is obvious, or which
might have been known by proper diligence.
emptor does not mean either in law or in Latin that the buyer must take
chances. It means that the buyer must take care." (See Wallis v. Russell
(1902) 21 R 585, 615).
emptor is the ordinary rule in contract. A vendor is under no duty to
communicate the existence even of latent defects in his wares unless by act or
implication he represents such defects not to exist." (See William R.
Anson, Principles of the Law of Contract 245 (Arthur L. Corbin Ed.3d.
Am. ed.1919) Applying
the maxim, it was held that it is the bounden duty of the purchaser to make all
such necessary enquiries and to ascertain all the facts relating to the
property to be purchased prior to committing in any manner.
emptor, qui ignorare non debuit quod jus alienum emit. A maxim meaning
"Let a purchaser beware; who ought not to be ignorant that he is
purchasing the rights of another. Hob. 99; Broom; Co., Litl. 102 a: 3 Taunt.
the maxim applies, with certain specific restrictions, not only to the quality
of, but also to the title to, land which is sold, the purchaser is generally
bound to view the land and to enquire after and inspect the title- deeds; at
his peril if he does not.
a sale of goods the general rule with regard to their nature or quality is
caveat emptor, so that in the absence of fraud, the buyer has no remedy against
the seller for any defect in the goods not covered by some condition or warranty,
expressed or implied. It is beyond all doubt that, by the general rules of law
there is no warranty of quality arising from the bare contract of sale of
goods, and that where there has been no fraud, a buyer who has not obtained an
express warranty, takes all risk of defect in the goods, unless there are
circumstances beyond the mere fact of sale from which a warranty may be
implied. (Bottomley v. Bannister,  1 KB 458 : Ward v. Hobbs, 4 App Cas
13}. (Latin for Lawyers) 26. No one ought in ignorance to buy that which is the
right of another.
The buyer according
to the maxim has to be cautious, as the risk is his and not that of the seller.
the buyer had made any enquiry as to the genuineness of the license within his
special knowledge. He has to establish that he made enquiry and took requisite
precautions to find out about the genuineness of the SIL which he was
purchasing. If he has not done that consequences have to follow. These aspects
do not appear to have been considered by the CESTAT in coming to the abrupt
conclusion that even if one or all the respondents had knowledge that the SIL
was forged or fake that was not sufficient to hold that there was no omission
or commission on his part so as to render silver or gold liable for
noted above, SILs were not genuine documents and were forged.
Since fraud was
involved, in the eye of law such documents had no existence. Since the
documents have been established to be forged or fake, obviously fraud was involved
and that was sufficient to extend the period of limitation.
view of this finding the other issues raised by the respondent are of academic
appeal is allowed. There shall be no order as to costs.
(Dr. ARIJIT PASAYAT)
Pages: 1 2 3