Proportionality and Innocent Purchaser Protection in Cancellation of Motor Vehicle Registration Obtained on Forged Import Documents

Case Commentary on Imran Humayun Chandiwala v. State of Maharashtra, Motor Vehicles Department
Bombay High Court, Writ Petition No. 12921 of 2025 (Decided on 2 December 2025)

1. Introduction

This judgment of the Bombay High Court (per N.J. Jamadar, J.) establishes an important principle at the intersection of customs law and motor vehicle regulation: where a vehicle has been fraudulently imported (including by misuse of diplomatic exemptions), but is subsequently purchased by an innocent buyer who has regularised the customs position through the Customs Settlement Commission, the registering authority cannot mechanically cancel the vehicle’s registration under Section 55(5) of the Motor Vehicles Act, 1988 solely on the basis of the original forgery.

The decision recognises:

the conclusive effect of a Settlement Commission order under Section 127J of the Customs Act, 1962, even in proceedings under other laws;
the protection owed to an innocent purchaser who has exercised due diligence and paid all customs dues, interest and fine; and
the need to apply the doctrine of proportionality when exercising statutory power to cancel a motor vehicle registration.

At a broader level, the judgment is a strong statement that regulatory bodies must not use a “sledge-hammer to crack a nut” by visiting severe consequences on a person whom another statutory forum has expressly found to be free from culpability.

2. Factual and Procedural Background

2.1 The vehicle and its initial import

The vehicle involved is a Nissan petrol car, with Chassis No. JNITANY62A0120339 and Engine No. VK56VD397632A.
It was initially imported in the name of one Mr. Jong Yong Ryong, a diplomatic officer, by falsely availing customs duty exemption under Customs Notification No. 03/1957-Cus., dated 8 January 1957.
Under this diplomatic import cover, the car was registered in Manipur in the name of Ms. Meenarani Devi on 12 February 2020.

2.2 Transfer to Mumbai and then to the petitioner

On 28 February 2020, the State Transport Department, Senapati (Manipur) issued a No Objection Certificate (NOC) for transfer of the vehicle to RTO, Mumbai.
The car was then registered in Mumbai as MH-02/FL-8055 in the name of Meenarani Devi.
The petitioner, Imran Humayun Chandiwala, claims to have purchased the car from Meenarani for a consideration of ₹1,22,50,000, acting through an agent, Rehman Shaikh.
On 1 December 2020, transfer of ownership was notified to RTO Mumbai, and the car came to be registered in the petitioner’s name.

2.3 Discovery of fraudulent import and DRI proceedings

Subsequently, it surfaced that the car had been fraudulently imported using forged documents to claim diplomatic exemption.
The Directorate of Revenue Intelligence (DRI) seized the vehicle in August 2021.
By order dated 31 January 2022, the Deputy Commissioner of Customs (Import), Chennai granted provisional release of the car against:
- a bond of ₹32,35,50,000; and
- a bank guarantee of ₹70,85,745.

2.4 Settlement Commission proceedings under the Customs Act

The petitioner approached the Central Excise and Service Tax Settlement Commission under Section 127C(5) of the Customs Act, 1962.
By order dated 8 May 2024, the Commission:
- settled the customs duty at ₹66,00,420;
- determined interest of ₹35,77,789;
- confiscated the vehicle, but gave the petitioner an option to redeem it on payment of a fine of ₹5,00,000;
- granted immunity to the petitioner from penalty and prosecution under Section 127H of the Customs Act, subject to payment of duty, interest and fine.
The petitioner complied and paid the duty, interest and fine. The car was released.

2.5 ACB criminal case regarding registration

Independently, the Anti-Corruption Bureau (ACB) registered C.R. No. 18 of 2023 concerning irregularities in the vehicle’s registration on the basis of a forged bill of entry.
Accused persons include the then Sub-Regional Transport Officer and others.
The ACB seized the vehicle again on 20 June 2024.
The petitioner applied under Section 457 CrPC before the Special Judge; on 29 June 2024, the car was ordered to be returned to him upon execution of a bond of ₹75,00,000.

2.6 Initiation of cancellation proceedings by RTO

On 30 January 2025, the Deputy Regional Transport Officer, Mumbai (W), issued a show-cause notice to the petitioner under Section 55(5) of the Motor Vehicles Act, 1988.
The notice proposed cancellation of the certificate of registration on the ground that it was obtained on the basis of forged or false documents.
The petitioner responded to the notice, asserting his bona fides and reliance on the Settlement Commission’s exoneration.

2.7 Orders of the registering and appellate authorities

27 March 2025: The Registering Authority/Deputy RTO cancelled the registration, observing that the petitioner had “indirectly conceded” that the car was registered on a bogus bill of entry.
Appeal: The petitioner appealed under the Motor Vehicles Act.
9 September 2025: The Appellate Authority & Joint Transport Commissioner (Enforcement-I) dismissed the appeal, holding that:
- even if the petitioner’s conduct was not blameworthy,
- the registration undeniably rested on forged documents, justifying cancellation under Section 55(5).

2.8 Writ petition before the High Court

The petitioner filed the present writ petition under Article 227 of the Constitution challenging:
- the appellate order dated 9 September 2025, and
- the original cancellation order dated 27 March 2025.
The State defended the orders and, in its affidavit, attempted to suggest that the petitioner was not entirely innocent, citing the use of his address by Meenarani Devi when seeking transfer of registration to Mumbai.

3. Issues Before the Court

The High Court had to address several interlinked issues:

Scope of Section 55(5) of the Motor Vehicles Act, 1988
Whether the registering authority was justified in cancelling the certificate of registration on the ground that the original import and prior registration were based on forged documents, even though:
- the petitioner was a later purchaser;
- the Customs Settlement Commission found him to be innocent of any smuggling conspiracy; and
- he had paid all customs dues, interest and fine and redeemed the confiscated vehicle.
Effect of the Settlement Commission’s order under the Customs Act
Whether the findings and order of the Settlement Commission, particularly the exoneration of the petitioner and the regularisation of customs liabilities, were:
- conclusive under Section 127J of the Customs Act, and
- binding or at least highly relevant for the motor vehicle authorities in deciding on cancellation of registration.
Applicability of the doctrine of proportionality
Whether, in the circumstances, cancellation of the registration was a proportionate response, or whether it amounted to an excessive and unjust burden on an innocent purchaser who had already borne substantial financial consequences.
Supervisory jurisdiction under Article 227
Whether the High Court, in exercising supervisory jurisdiction, could interfere with concurrent findings of the registering and appellate authorities, especially where those findings were alleged to be legally flawed or disproportionate.

4. Summary of the Judgment

The Bombay High Court allowed the writ petition, set aside both the appellate and original cancellation orders, and restored the certificate of registration of the vehicle in the petitioner’s name.

Key holdings:

The authorities were wrong in cancelling the registration solely because the initial import and registration were based on forged documents, without properly considering:
- the innocent status of the petitioner as found by the Settlement Commission;
- the petitioner’s payment of customs duty, interest and fine and redemption of the confiscated car; and
- the proportionality of the measure of cancellation.
Under Section 127J of the Customs Act, the Settlement Commission’s order is conclusive as to matters stated therein and cannot be reopened in proceedings under any other law, including the Motor Vehicles Act. The exoneration of the petitioner from involvement in smuggling must therefore be accepted.
Section 42(2) of the Motor Vehicles Act, dealing with vehicles of diplomatic officers, contemplates that when such vehicles cease to be the property of a diplomatic officer, their special registration becomes ineffective, and they are to be registered afresh under Sections 39 and 40. By analogy, once the fraud in import is discovered and rectified (with duties paid) and the vehicle is in the hands of an innocent purchaser, the vehicle should be registered in the ordinary manner rather than the registration being cancelled to his detriment.
Applying the doctrine of proportionality, the Court held that punishing the petitioner by cancelling registration, despite his innocence and compliance with the Settlement Commission’s directions, was disproportionate and unjust.

5. Detailed Analysis

5.1 Statutory Framework

5.1.1 Motor Vehicles Act, 1988 and Central Motor Vehicles Rules, 1989

Section 39 – Prohibits driving an unregistered motor vehicle; it underscores that once registration is cancelled, the vehicle cannot be lawfully used on the road.
Section 40 – Requires the owner to have the vehicle registered in the State where he resides or keeps the vehicle.
Section 41 – Governs the process of registration.
Section 42 – Special provision for vehicles of diplomatic officers:
- Sub-section (1) directs special registration and a special registration mark for such vehicles.
- Section 42(2) provides that:
  - if such a vehicle ceases to be the property of a diplomatic or consular officer,
  - its special certificate of registration ceases to be effective,
  - and the general provisions of Sections 39 and 40 apply (i.e., it must be registered like any normal vehicle).
Section 55(5) – Cancellation of registration:
- Empowers (indeed, directs) the registering authority to cancel a registration if:
  - it was obtained on the basis of documents that were false in any material particular, or
  - it was obtained by representation of facts that were false in any material particular, or
  - the engine or chassis number embossed on the vehicle differs from that in the registration certificate.
- The authority must:
  - give the owner an opportunity of being heard, and
  - record reasons in writing for cancellation.
Rule 47 of the Central Motor Vehicles Rules, 1989 – Lists documents required for registration of a motor vehicle.
- For imported vehicles, a customs clearance certificate along with licence/bond must be produced (Rule 47(1)(h)).
- The fraudulent bill of entry in this case functioned as the false customs clearance document.

5.1.2 Customs Act, 1962 – Settlement Commission and conclusiveness of its orders

Section 127C(5) – Empowers the Settlement Commission to pass orders settling the case, including determining:
- the duty and interest payable,
- confiscation or option to redeem, and
- other terms and conditions.
Section 127H – Allows the Settlement Commission to grant:
- immunity from prosecution, and
- immunity from imposition of penalty,
- wholly or in part, subject to compliance with its order.
Section 127J – Gives conclusive effect to settlement orders:
“Every order of settlement passed under sub-section (5) of section 127C shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.”

This “conclusive as to matters stated” clause is central: it prevents other forums (including motor vehicle authorities) from re-examining issues already settled—such as the petitioner’s role and liability.

5.2 Court’s Legal Reasoning

5.2.1 Treatment of the Settlement Commission’s findings

The Court attached significant weight to the Settlement Commission’s detailed findings, especially paragraphs 7.14 and 7.15 of its order, which concluded:

All documents regarding ownership were forged by Rehman Iqbal Shaikh to sell the vehicle to the petitioner.
The petitioner purchased the car in the bona fide belief that the documents were genuine.
The DRI’s own investigation could not establish any connection between the petitioner and the smuggling syndicate responsible for the fraudulent import.
The petitioner had taken the “normal precautions by way of prudence within means of any ordinary citizen” before purchase.
The Commission held that the petitioner was not liable to penalty under the Customs Act.

Building on Section 127J, the High Court held that:

The Settlement Commission’s order is conclusive about the petitioner’s status as an innocent purchaser and non-participant in smuggling.
Such determination cannot be ignored or implicitly reversed by motor vehicle authorities while dealing with the same factual matrix.
Therefore, in the eyes of the law, the petitioner:
- was not part of the fraud at the import stage, and
- had regularised the customs position by paying duty, interest and fine and redeeming the confiscated vehicle.

The Court expressly rejected the idea that the Commission’s order was “of no consequence” in motor vehicle proceedings. To the contrary, it was highly material and, to the extent of matters it decided, legally conclusive.

5.2.2 Application of Section 55(5) to an innocent purchaser

Section 55(5) allows cancellation where registration has been obtained on the basis of false documents or misrepresentations. The authorities used this provision to cancel the petitioner’s registration on the theory that:

the car, at its origin, was imported based on forged customs documents, and
subsequent registrations and transfers flowed from that initial illegality.

The Court did not dispute that the original import was fraudulent. However, it asked a different question:

In light of the petitioner’s innocence and subsequent payment of customs dues, is cancellation of his registration justified and legally sustainable?

Key strands of reasoning:

The petitioner was the registered owner at the time of cancellation and had not himself submitted forged documents.
He acquired the vehicle in a market transaction, relying on:
- a valid registration in Meenarani’s name, and
- a duly issued NOC from RTO Manipur to RTO Mumbai.
Once customs duty, interest and fine were paid, the financial prejudice to the revenue was cured; the State had, in effect, been compensated for past evasion.
The Commission’s finding that he had taken “normal precautions” meant that no culpable negligence could fairly be attributed to him.

Therefore, the Court held that the registration could not be cancelled merely because the original import and earlier registration were tainted, when:

the petitioner was neither a participant in nor a beneficiary of that fraud; and
he had fully complied with the Settlement Commission’s order.

In other words, Section 55(5) cannot be used in a rigid, mechanical fashion to penalise an innocent subsequent owner once the underlying customs violation has been regularised and the specialised customs forum has exonerated that owner.

5.2.3 Use of Section 42(2) as an analogy

Section 42 governs vehicles of diplomatic officers. Under Section 42(2):

when a vehicle ceases to be the property of a diplomatic officer,
its special registration becomes ineffective, and
the standard registration regime under Sections 39 and 40 applies.

The Court treated this as a legislative acknowledgment that:

vehicles of diplomatic origin can legitimately pass into civilian hands; and
once they do, they are to be integrated into the normal registration system, not left in some legal limbo.

Applying this logic to the present case:

Although the diplomatic status and customs exemption were misused in the fraudulent import,
once the vehicle:
- passed into the petitioner’s hands,
- was found to be held by an innocent purchaser,
- and had its customs position regularised through settlement,
it ought to be treated as a vehicle registered under the ordinary provisions (Section 40), not subject to cancellation on the strength of prior fraud for which the petitioner was not responsible.

Thus, Section 42(2) supports the idea that the law contemplates transition from special (or misused) regimes to the normal regime once the vehicle leaves the special category and its irregularities are cured.

5.2.4 Doctrine of proportionality

The judgment expressly invokes the doctrine of proportionality, quoting extensively from Coimbatore District Central cooperative Bank v. Coimbatore District Central cooperative Bank Employees Assn, (2007) 4 SCC 669.

Proportionality, as applied here, involves:

a balancing test – assessing whether the measure (cancellation of registration) is excessively onerous relative to:
- the wrongdoing involved (committed by others, not the petitioner), and
- the legitimate aim pursued (ensuring no benefit from fraud and maintaining integrity of registration records);
a necessity test – asking whether the legitimate aim could be achieved by less restrictive means than cancellation.

The Court highlighted the classic proportionality metaphor that where a paring knife is sufficient, a battle axe is precluded. In this context:

The State’s objectives of deterring fraud and protecting revenue had already been achieved by:
- confiscation and redemption fine,
- payment of duty and interest, and
- criminal proceedings against those allegedly involved in the fraud (including RTO officials).
Cancelling the petitioner’s registration would:
- inflict an additional and severe penalty on someone found to be innocent,
- cripple his ability to use a high-value asset he had purchased in good faith, and
- effectively “punish” him for others’ wrongdoing.

On this reasoning, cancellation was disproportionate—the wrong tool for the problem once the petitioner’s innocence and remedial actions were recognised.

5.2.5 Supervisory jurisdiction under Article 227 and interference with concurrent findings

The State relied on Ajay Singh v. Khacheru & Ors. (2025) 3 SCC 266 (as cited by counsel) to argue that:

the High Court, in writ jurisdiction, should not reappreciate evidence or disturb concurrent findings of fact unless there is perversity or jurisdictional error.

The High Court accepted that there was no procedural irregularity—the petitioner had been heard. The interference was not based on a re-evaluation of disputed facts but on:

undisputed facts:
- fraudulent import by others,
- petitioner’s subsequent purchase,
- Settlement Commission’s exoneration and settlement, and
- payment of duty, interest and fine; and
the authorities’ failure to consider relevant legal factors—notably:
- Section 127J of the Customs Act,
- the findings of the Settlement Commission, and
- the principle of proportionality.

Thus, the error was essentially legal, not merely factual. The Court held that such a legal misdirection justified interference under Article 227, notwithstanding concurrent findings.

5.3 Precedents Cited and Their Role

5.3.1 Central Bureau of Investigation v. V.C. Shukla, (1998) 3 SCC 410

This case was cited by the petitioner’s counsel to argue that, in the absence of cogent material, one cannot be found to be part of a criminal conspiracy. The relevance here was to bolster the claim that the petitioner was not a confederate in the smuggling syndicate that imported the car fraudulently.

However, the High Court did not need to engage deeply with V.C. Shukla because:

the Settlement Commission had already factually determined, after DRI investigation, that no link between the petitioner and the syndicate was established; and
that factual exoneration was made conclusive by Section 127J.

Thus, the case supports the general evidentiary principle, but the decisive basis was the Commission’s findings rather than independent application of V.C. Shukla.

5.3.2 Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405

The petitioner relied on Mohinder Singh Gill for the principle that an administrative or quasi-judicial order must stand or fall on the reasons recorded in it, and that fresh reasons cannot be supplied for the first time in an affidavit in court.

The State’s affidavit in the High Court attempted to suggest that:

because Meenarani Devi had given the petitioner’s address when seeking transfer of registration to Mumbai,
the petitioner was not “completely unaware” of the fraud.

This allegation was:

neither mentioned in the show-cause notice, nor
relied on in the impugned cancellation or appellate orders.

Though the judgment does not explicitly cite Mohinder Singh Gill, it effectively adheres to its principle by:

not treating the new factual allegation in the affidavit as a valid basis to uphold the cancellation; and
basing its analysis strictly on the grounds actually invoked by the authorities and the legal framework.

5.3.3 Ajay Singh v. Khacheru & Ors., (2025) 3 SCC 266

Relied on by the State to argue that:

the High Court in writ jurisdiction should not act as an appellate court on facts, and
should not reappreciate evidence when authorities have recorded concurrent findings.

The Bombay High Court distinguished the present case on the ground that:

the core facts were largely undisputed;
the error lay in misapplication of law and failure to apply proportionality and Section 127J; and
interference was therefore justified as a correction of legal error within supervisory jurisdiction.

5.3.4 Coimbatore District Central cooperative Bank v. Coimbatore District Central cooperative Bank Employees Assn., (2007) 4 SCC 669

This decision was directly relied upon and quoted at length by the High Court to explain:

the arrival and entrenchment of the doctrine of proportionality in Indian administrative law;
the need to balance:
- the purpose sought to be achieved by a decision, and
- the severity of its impact on affected individuals;
that proportionality involves both a balancing test and a necessity test; and
that it is impermissible to use a “sledge-hammer to crack a nut” when a less drastic measure would suffice.

By applying this doctrine, the Court transformed what could have been a purely technical application of Section 55(5) into a rights-sensitive, justice-oriented exercise, taking due account of the petitioner’s innocence and prior compliance with the Settlement Commission’s order.

6. Complex Concepts Simplified

6.1 Customs Settlement Commission

The Settlement Commission is a special body under the Customs Act that allows persons to:

make a full and true disclosure of their unpaid customs dues;
have the matter “settled” — that is, the Commission determines the duty, interest and sometimes fine payable; and
seek immunity from prosecution and penalties if they comply with its order.

Its orders are intended to be:

final and conclusive as to the matters they decide (Section 127J); and
not ordinarily open to challenge in other forums, ensuring legal certainty and closure.

6.2 Confiscation with option to redeem

“Confiscation” means that the goods (here, the car) legally become the property of the State. However, in many customs cases, the law permits the person concerned to:

“redeem” the confiscated goods by paying a redemption fine (here, ₹5,00,000), in addition to:
- the duty, and
- interest.

Once redeemed upon payment of all dues, the person regains full ownership and possession of the goods, free from customs claims.

6.3 Cancellation of registration under Section 55(5)

Section 55(5) empowers the RTO to cancel a motor vehicle’s registration if it was obtained by:

using false documents (for example, forged customs papers), or
false statements about material facts (such as falsely stating the owner’s identity).

The usual scenario is that the person facing cancellation is the one who committed or knowingly benefited from the fraud. In this case, however, the petitioner was a later purchaser whom the Customs Settlement Commission had found to be innocent, creating a special situation.

6.4 Doctrine of proportionality

In simple terms, proportionality means:

The action taken by a public authority should not be more drastic than necessary to achieve a legitimate objective.
Courts examine:
- the legitimacy of the objective (e.g., maintaining clean registration records, deterring fraud);
- whether the chosen measure is suitable to achieve that objective; and
- whether a less restrictive measure could achieve the same objective with less harm to the individual.

Here, while the objective of preventing fraudulent registrations was legitimate, penalising an innocent buyer who had already paid all dues was not a necessary or fair way to achieve that objective.

6.5 Writ jurisdiction under Article 227

Article 227 of the Constitution gives High Courts supervisory jurisdiction over lower courts and tribunals. It is:

not an appeal on merits; rather,
a control mechanism to ensure that:
- authorities act within their jurisdiction,
- follow the law, and
- do not commit gross errors of law or procedure.

In this case, the High Court used Article 227 to correct what it saw as:

a misapplication of Section 55(5), and
a failure to consider binding legal consequences of the Settlement Commission’s order and the principle of proportionality.

7. Implications and Impact

7.1 For Motor Vehicle Authorities

RTOs and appellate authorities must:
- consider the full legal context, including orders under other laws (like customs), before cancelling registration;
- distinguish between:
  - original wrongdoers who procured registration by fraud, and
  - innocent subsequent purchasers who have regularised the position; and
- apply the doctrine of proportionality rather than mechanically invoking Section 55(5).
The decision signals that if a specialised body (such as the Settlement Commission) has:
- factually exonerated a person, and
- settled the financial liabilities,
motor vehicle authorities should not ignore that outcome when exercising their statutory powers.

7.2 For innocent purchasers of imported or high-risk vehicles

The judgment offers significant protection to bona fide purchasers of vehicles that turn out to have a problematic import or registration history.
Where such purchasers:
- have taken “normal precautions” expected of a prudent buyer, and
- have complied with any subsequent orders of specialised tribunals (e.g., payment of customs duty and fines),
they can argue that:
- they should not be doubly penalised by losing the right to use the vehicle through cancellation of registration.
That said, the case also underscores the need for:
- careful due diligence when buying expensive or imported vehicles, including:
  - verifying prior registration records,
  - insisting on proper documentation, and
  - checking for any customs-related issues.

7.3 For inter-agency coordination and cross-statute effects

The judgment reinforces that decisions of specialised statutory forums (like the Settlement Commission) have consequences beyond their parent statute.
Section 127J’s phrase “or under any other law for the time being in force” is given full effect, meaning that other authorities (such as RTOs) must accept the Commission’s factual findings about:
- who was involved in the fraud, and
- what liabilities remain outstanding.
This encourages:
- better coordination between customs, transport, and criminal investigative agencies, and
- avoidance of contradictory outcomes against the same individual.

7.4 For criminal investigations and regulatory enforcement

The judgment does not prevent:
- criminal prosecutions against those involved in the fraudulent import or corrupt registration; or
- disciplinary or criminal action against errant public officials.
Instead, it:
- differentiates between wrongdoers and innocent third parties caught up in the aftermath; and
- insists that enforcement measures must be targeted and proportionate.
Authorities are reminded that they cannot rely on fraud committed by others as a catch-all justification to impose severe collateral consequences on those whom a specialised tribunal has found to be innocent.

8. Conclusion: Key Takeaways

The Bombay High Court’s decision in Imran Humayun Chandiwala v. State of Maharashtra, Motor Vehicles Dept. is a noteworthy precedent that:

Affirms the conclusive effect of Customs Settlement Commission orders under Section 127J, even in proceedings under other laws such as the Motor Vehicles Act.
Recognises that an innocent purchaser of a vehicle, once he has:
- duly paid customs duty, interest and fine, and
- redeemed a confiscated vehicle under a settlement order,
should not be deprived of the right to use the vehicle through cancellation of registration based solely on fraud committed by others.
Applies the doctrine of proportionality to motor vehicle registration decisions, holding that punitive measures must be:
- necessary to achieve a legitimate aim, and
- not excessively harsh where less drastic alternatives suffice.
Uses Section 42(2) of the Motor Vehicles Act to underscore that vehicles connected with diplomats or special regimes are meant, upon transfer, to transition into the ordinary registration framework, not be rendered unusable for innocent buyers.
Clarifies that, even under the restrained lens of Article 227 supervisory jurisdiction, the High Court can and will intervene when:
- authorities ignore relevant statutory provisions and binding determinations, or
- adopt a disproportionately harsh approach towards an innocent party.

In sum, the judgment prevents motor vehicle registration law from being used as an instrument of collateral punishment against bona fide purchasers. It insists that when specialised fora like the Settlement Commission have drawn a clear line between wrongdoers and innocent third parties, other regulatory authorities must respect that line and calibrate their responses accordingly.