Bank of Madura Ltd. vs Union of India

Pendse, J.—The Petitioner No. 1 is a Banking Corporation and claims that in the month of October 1981, respondent No. 5 M/s. Hansons Enterprises approached the Bank with a request to open an irrevocable letter of credit in favour of M/s. Metal Import Export, Romania. The petitioner Bank opened letter of credit and thereafter M/s. Hansons Enterprises filed an indent for purchase of quantity of about 1300 Metric tonnes of hot rolled mild steel plates. The letter of credit opened by the petitioner No. 1 Bank was of a value of Rs. 35,75,000/-. The consignment arrived in Bombay in March 1982 and the bills of entries for home consumption were filed on March 3, 1982. The Customs authorities declined to clear the consignment as it was noticed that the import of the goods was not permissible. On enquiry, the Customs authorities realised that M/s. Hansons Enterprises is a non-existing Company and the entire transaction was shrouded in mystery.

The Customs authorities received information that one Vinod Kumar was importing consignments in the name of different firms including M/s. Hansons Enterprises against forged documents. On realisation that M/s. Hansons Enterprises was not in existence and one Harnam Singh was conducting business as proprietor and Harnam Singh had stated before the Income Tax authorities that his name was lent nominally and in fact the business was carried on by Vinod Kumar, after completion of investigation the Additional Collector of Customs, Bombay commenced proceedings for confiscation of the consignment in accordance with provisions of Section 111(d) of the Customs Act read with Section 3(2) of Imports and Exports (Control) Act.

In the proceedings commenced by the Additional Collector of Customs, Bombay, the petitioner No. 1 Bank appeared claiming that the title to the goods vests in the Bank as M/s. Hansons Enterprises had opened letters of credit after depositing S. S. I. U. registration certificate with the Bank. The Bank of Madura claimed that the transaction was an International one and as the title in the goods vested in the Bank, the confiscation was not permissible. The Additional Collector of Customs by order dated November 16, 1984 turned down the contention and directed confiscation of the consignment but permitted the Petitioner No. 1 Bank to redeem the goods on payment of fine of Rs. 6,00,000/- The order of the Additional Collector is under challenge in this petition filed under Article 226 of the Constitution of India. Before adverting to the claim urged on behalf of the petitioner, it must be stated that the Income Tax authorities had issued an order of attachment in respect of the consignment as the Income Tax authorities had to recover a sum of about Rs. 34 crores from Vinod Kumar and his alleged firms.

On admission of the petition, this Court on February 4, 1986 appointed the Commissioner of Income Tax (Recovery) Bombay and Collector of Customs as joint Receiver for sale of consignment subject to result of the petition. It was further directed that the joint Receiver should sell the consignment and the sale proceeds should be deposited with the Prothonotary and Senior Master who was directed to invest the said amount. In pursuance of the order, the consignment was sold in auction on October 23, 1986 and the auction price received is Rs. 71,10,510.34. Shri Vyas, learned counsel appearing on behalf of Customs authorities, submitted that the Customs duty payable for import of consignment in Rs. 33,81,070.10 and the auction charges were Rs. 22,042.58. In addition to this, the Customs authorities are entitled to receive a sum of Rs. 1,13,216/- towards warehousing charges. Shri Vyas submitted that the said amount should be directed to be paid over to the Customs authorities. Shri Jetly, learned counsel appearing on behalf of the Income Tax authorities, claimed that the balance amount should be paid over with interest accrued, if any, to the Income Tax authorities towards the claim of Income Tax dues.

Shri Deshpande, learned counsel appearing on behalf of the petitioner No. 1 Bank, submitted that the title to the goods vested in petitioner No. 1 Bank and, therefore, the order of confiscation cannot be sustained. The learned counsel urged that as the Bank had opened irrevocable letter of credit and paid the amount to the sender of the goods from Romania, unless the opener of letter of credit retires the document and reimburses the amount, the title to the goods vests in the Bank. Shri Deshpande submitted that it is not open for the Income Tax authorities to attach the consignment, the title of which vests in the petitioner No. 1 Bank. Shri Jetly controverts the submission by pointing out that the Income Tax authorities do not accept the claim because the Bank had opened letters of credit on the basis of forged documents. Shri Jetly submitted and, in our judgment, with considerable merit that the question of title to the consignment cannot be determined in exercise of writ jurisdiction and in case the Bank desires to establish the title, it can be done only in a suit which may be instituted by the Bank. In our judgment, the petitioner No. 1 Bank is not entitled to get the determination of the title to the consignment in the present petition and the remedy, if any, of the Bank is to file substantive suit.

Accordingly, petition fails and rule is discharged. There will be no order as to costs. Out of the amount of auction sale proceeds deposited with the Prothonotary and Senior Master, the following amounts shall be paid over to respondents Nos. 3 and 4 :

(i) Customs duty :

Rs. 33,81,070.10

(ii) Charges for holding auction :

Rs. 22,042.58

(iii) Rent for warehousing :

Rs. 1,13,216.00

The balance amount shall be paid over to respondent No. 2 along with interest accrued. In case, the petitioner No. 1 Bank files a suit and established the title to the consignment, the Income Tax authorities shall reimburse the amount which may be due to the Bank towards the claim arising out of letters of credit.