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  • D. Falshaw, C.J
  • A.N Grover, J.
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Smart Summary

Judicial Opinion Summary — Falshaw, C.J.

Factual and Procedural Background

Om Parkash (petitioner) filed a petition under Article 226 of the Constitution challenging an order dated 25 August 1958 of Mr. B.D. Deshmukh, I.R.S., Collector of the Central Excise and Land Customs, New Delhi. The Collector's order confiscated about 174½ tolas of gold under Section 167(8) of the Sea Customs Act, 1878 read with Section 19 as made applicable by Section 23-A of the Foreign Exchange Regulation Act, 1947, and imposed a penalty of Rs. 5,000 on Om Parkash.

Before the High Court, Dulat, J. dismissed Om Parkash's petition on the ground that, relying on a Division Bench decision in Gian Chand v. State of Punjab, no penalty in excess of Rs. 1,000 could be lawfully imposed; Dulat, J. also observed that Om Parkash had an appeal pending before the Central Board of Revenue which refused to hear the appeal until the penalty was paid and concluded Om Parkash should pursue his ordinary remedy first.

Cross‑appeals were filed by the Union of India and the Collector of Customs (contending the Rs. 5,000 penalty was lawful) and by Om Parkash (contending the High Court should have interfered with the Collector's order notwithstanding limits on the penalty).

On the merits, the factual narrative as found in the opinion is that Customs received information Om Parkash would travel to Delhi by the Frontier Mail on 13 October 1956 carrying contraband gold; he was identified at the station, followed to the refinery of Messrs R.R. Chander Bhan, Kacha Bagh, Delhi, and apprehended; about 1748 tolas (as recorded in the order) were seized on the reasonable belief they had been imported in violation of law. On 16 October 1956 a notice under Section 178‑A of the Sea Customs Act called on him to prove the gold was not smuggled, failing which show‑cause proceedings for confiscation and penalty under Section 167(8) read with Section 19 as applied by Section 23‑A were initiated.

Om Parkash produced account‑books and oral evidence at a personal hearing on 15 April 1957 asserting the gold formed part of normal business stock; the Collector did not accept this evidence and passed the impugned order in August 1958 (about one year and four months after the hearing).

Legal Issues Presented

  1. Whether a penalty of Rs. 5,000 lawfully could be imposed under Section 167(8) of the Sea Customs Act as applied by Section 23‑A of the Foreign Exchange Regulation Act, having regard to the then‑governing authorities on the permissible quantum of penalty.
  2. Whether the Collector, in adjudicating confiscation and penalty proceedings under the Sea Customs Act, violated the principles of natural justice by relying on information obtained by “discreet enquiries” and “detailed investigations” that were not disclosed to or tested by the petitioner.
  3. Whether the High Court was justified in refusing to interfere on the ground that the petitioner should first exhaust his remedy before the Central Board of Revenue when, in light of higher appellate authority, the restriction on penalty was incorrect.

Arguments of the Parties

Union of India / Collector of Customs (Respondents)

  • The imposition of a penalty of Rs. 5,000 was lawful and within the Collector's powers.
  • The Department possessed material to establish the gold had been smuggled; a show‑cause notice was issued and the petitioner was given adequate opportunity to reply and to be heard through counsel.
  • The account‑books produced by Om Parkash were examined and on verification were found to contain fictitious entries; that verification need not be conducted in the petitioner's presence under the Sea Customs Act.
  • The proceedings under the Sea Customs Act are not governed by the Code of Criminal Procedure; therefore it was not necessary to put all evidence or circumstances to the petitioner in the manner of a criminal trial.

Om Parkash (Petitioner)

  • The Collector's order was, on its face, a bad order and the High Court should have intervened despite any contention about the maximum penalty.
  • The gold was part of his firm’s regular stock; he produced account‑books and other evidence to show bona fides.
  • The Department relied upon material obtained by “discreet enquiries” and “detailed investigations” conducted secretly and not disclosed to him; he was not given an opportunity to meet or contradict the results of those enquiries.
  • The Collector did not lead evidence in the petitioner's presence nor indicate the circumstances or evidence relied upon in the impugned order; thus, the norms of judicial procedure and principles of natural justice were not followed.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Gian Chand v. State of Punjab (Criminal Revn. No. 1566 of 1958, DA 2‑3‑1960 (Punj)) Support for the proposition (as applied by Dulat, J.) that no penalty in excess of Rs. 1,000 could be lawfully imposed (as understood by that Division Bench decision). The Court noted Dulat, J. relied on this decision to limit the penalty; the present Court held that subsequent authoritative law (Ranchhoddas Atmaram) changed the position, rendering the Dulat approach incorrect to refuse intervention on that basis.
Ranchhoddas Atmaram v. Union of India, AIR 1961 SC 935 Held that under item 8 in Section 167 a penalty in excess of Rs. 1,000 can be imposed and that an order imposing such penalty is not open to challenge where the penalty does not exceed three times the value of the goods concerned. The Court treated this Supreme Court decision as settling the question of permissible quantum of penalty and observed that Rs. 5,000 was not contended to exceed three times the value of the gold (indeed was much less), so the penalty quantum was legally supportable.
Amba Lal v. Union of India, AIR 1961 SC 264 Authority for the proposition that although CrPC and Evidence Act may not apply except as made applicable, fundamental principles of criminal jurisprudence and natural justice must apply to adjudicatory proceedings by a Collector. The Court relied on this decision to support the view that a Collector must observe fundamental principles of natural justice in such adjudications and noted the Collector himself conceded that necessity by asserting compliance with those canons.
Dhakeshwan Cotton Mills Ltd. v. Commissioner of Income‑tax, West Bengal, 1954‑26 ITR 775; AIR 1955 SC 65 Principle (drawn from Income‑tax jurisprudence) that if an officer proposes to disregard evidence produced by an assessee or to use results of private inquiries, fairness requires disclosure of the material so that the affected person can have particulars and an opportunity to meet it. The Court cited observations from this case to analogise and to endorse the requirement that where a decision is based on private inquiries or verification, the substance should be disclosed so the person affected can meet the case against him.
Gurmukh Singh v. Commissioner of Income‑tax (Lahore) (1944) 12 ITR 393; AIR 1944 Lah 353 (Full Bench) Held that where an officer proposes to disregard the assessee's evidence or use private inquiries, he should disclose the material to the assessee and give opportunity to meet it. The Court treated this Full Bench statement (as adopted by Dhakeshwan) as the correct articulation of the fairness requirement which the Collector's procedure in the present case failed to meet.

Court's Reasoning and Analysis

The Court's reasoning proceeds in two linked strands: (A) the legal permissibility of the quantum of penalty; and (B) whether the Collector's procedure complied with the fundamental requirements of natural justice.

A. Quantum of Penalty

The Court observed that the law on the permissible amount of penalty had been settled by the Supreme Court in Ranchhoddas Atmaram v. Union of India, which held that under item 8 in Section 167 a penalty exceeding Rs. 1,000 can lawfully be imposed and that an order imposing such a penalty is not open to challenge provided the penalty does not exceed three times the value of the goods. The present case did not contest that Rs. 5,000 exceeded that limit; indeed Rs. 5,000 was much less than three times the value of the seized gold. Accordingly, the Court concluded there was no legal objection to a Rs. 5,000 penalty on the ground relied upon by the learned Single Judge (i.e., that penalties could not exceed Rs. 1,000).

B. Natural Justice and Procedure of the Collector

The Court then examined the Collector's adjudicatory process. The Collector's order contained a passage rejecting the petitioner's account‑books on the basis of results of “discreet enquiry” and “detailed investigation,” stating that many purchases were shown against near relatives and friends who were active in the smuggling business and thus the accounts were not credible.

The petitioner asserted those enquiries were conducted secretly and the material thus obtained was never put to him or otherwise disclosed so he could meet it. The Collector's initial reply characterised the petitioner's allegation as too vague; subsequently the Collector maintained that the Sea Customs Act proceedings are not governed by the Criminal Procedure Code and that verification need not be in the petitioner's presence. The Collector repeatedly asserted that he had given the petitioner all reasonable opportunity and had complied with canons of natural justice.

The Court accepted the general legal principle (relying on Amba Lal) that fundamental principles of criminal jurisprudence and natural justice must apply even where the CrPC and Evidence Act are not statutorily applied. The Court found the Collector's notion of compliance to be defective: the Collector apparently relied to a considerable extent on information and enquiries conducted after the hearing and without informing or putting the material to the petitioner. The Court inferred, from the language of the order and the delay of one year and four months between the hearing and the final order, that secret inquiries were made after the hearing.

While acknowledging the legal onus is on the person from whom seized goods are taken to prove they are not smuggled, the Court held that where the evidence produced by that person cannot fairly be characterized as wholly flimsy or summarily rejectable, the authority should not dispose of that evidence by relying on one‑sided and undisclosed private enquiries. The Court relied on the principle articulated in Dhakeshwan Cotton Mills (and the Full Bench in Gurmukh Singh) that if an adjudicating officer proposes to make use of private inquiries to disregard an affected person's evidence, the substance of such inquiries should be disclosed so the person can meet them.

Applying these principles, the Court concluded that although the Collector's ultimate conclusion might conceivably have been correct on the facts, the manner in which that conclusion was reached — i.e., to a considerable extent on secret information not disclosed to the petitioner and not put to him for rebuttal — involved a violation of a fundamental principle of natural justice.

Holding and Implications

Core Ruling: The Court made the following dispositive orders:

  • The Court accepted the appeal of the authorities to the limited extent of setting aside the decision of the learned Single Judge that had restricted the penalty to Rs. 1,000 (recognizing the Supreme Court authority that allows a larger penalty where it does not exceed three times the value of the goods).
  • The Court accepted Om Parkash's appeal against the Collector's adjudication and set aside the order of the Collector on the ground of procedural unfairness (violation of natural justice in relying on undisclosed secret enquiries).
  • The Collector was permitted to take up the matter and decide it afresh in the light of the Court's observations on natural justice; the parties were to bear their own costs.

Implications: The direct effect on the parties is that the Collector's August 1958 order is quashed and the Collector may rehear or reconsider the matter in conformity with the principles explained by the Court (i.e., ensuring disclosure of material relied upon so the affected person can meet it). The opinion does not purport to lay down a novel rule beyond applying and reaffirming existing Supreme Court authorities (notably Ranchhoddas Atmaram for penalty quantum and Amba Lal/Dhakeshwan/Gurmukh Singh for natural‑justice principles); the decision therefore remedies procedural unfairness in the individual case and directs a fresh adjudication rather than announcing a new legal precedent.

Bench note in the opinion: Grover, J. concurred. The order was issued accordingly.

Show full summary ...

    Union Of India And Another v. Om Parkash Ram Dass Khatri .

    Falshaw, C.J:— These cross appeals filed under Clause 10 of the Letters Patent have arisen in the following manner.

    2. Om Parkash, one of the appellants, filed a petition under Article 226 of the Constitution challenging the order of Mr. B.D Deshmukh, I.R.S, Collector of the Central Excise and Land Customs. New Delhi, dated the 25th of August, 1958, by which about 174½ to as of gold was confiscated under Section 167(8) of the Sea Customs Act of 1878 read with Section 19 as made applicable by Section 23-A of the Foreign Exchange Regulation Act of 1947 and also a penalty of Rs. 5,000/- was imposed on Om Parkash. The case came up for hearing before Dulat, J. wove held on the strength of the decision of a Division Bench of this Court in Gian Chand v. State of Punjab, Criminal Revn. No. 1566 of 1958, DA 2-3-1960 (Punj), that no penalty in excess of Rs. 1,000/- could be lawfully imposed. He found that Om Parkash had filed an appeal against the order of the Collector before the Central Board of Revenue, which had refused to hear the appeal until the penalty was paid, and in the circumstances he was of the opinion that Om Parkash should pursue his normal remedy before coming to this Court, the hardship involved in such a course being greatly reduced in consequence of the subsequent reduction which was necessary in the) amount of the penalty. He consequently declined to interfere at that stage and dismissed the petition.

    3. Against this order appeals have been filed by both the Union of India and the Collector of Customs on the one hand and by Om Parkash on the other. The case of the former is that the imposition of a penalty of Rs. 5,000/- was perfectly legal. The contention of Om Parkash is that this Court ought to have interfered with what was on the face of it a bad order even in spite of holding that the penalty imposed could not exceed Rs. 1,000/-.

    4. The question regarding what amount of penalty can lawfully be imposed in a case of this kind is now settled by the decision of the Supreme Court in Ranchhoddas Atmaram v. Union of India, AIR 1961 SC 935, in which it has been held that under item 8 in Section 167 a penalty in excess of Rs. 1,000/- can be imposed and an order imposing such a penalty is not open to any challenge where the penalty does not exceed three times the value of the goods concerned. It is not contended in the present case that a sum of Rs. 5,000/- exceeds three times the value of the gold. In fact it is obviously much less.

    5. Such being the case there was clearly no justification for this Court refusing to interfere simply on the round that the hardship involved in the petitioner's pursuing his normal remedy was reduced by the decision that the penalty, which had to be deposited as a precondition to the hearing of his appeal, could not exceed Rs. 1,000/-.

    6. On the merits the facts are that Om Parkash is the proprietor of a firm Messrs Jawindamal Ramdas of Jullundur and the Customs authorities received information that he would be travelling to Delhi by the Frontier Mail Which arrived on the morning of the 13th of October 1956, and that he would be carrying contraband gold with him. A party was organised to keep watch at the Station at Delhi and when the train arrived Om Parkash was pointed ??? by an informer. He was followed from the Railway Station to the refinery of Messrs R.R Chander Bhan, Kacha Bagh, Delhi, where he was apprehended and the quantity of gold amounting to about 1748 tolas which he was handing over to the refinery was seized under the alleged reasonable belief that it had been imported into India in violation of law.

    7. Thereafter on the 16th of October 1956 a notice was issued to Om Parkash calling on him under Section 178-A of the Sea Customs Act to prove that the seized gold was not smuggled, failing which he was asked to show cause why the gold should not be confiscated and why further penal action should not be taken against him under Section 167(8) read with Section 19 as made applicable by Section 23-A of the Foreign Exchange Regulation Act.

    8. In reply to this notice Om Parkash alleged that the gold was not smuggled and that it was part of the stock lying with his firm and purchased from various sons in the course of his regular and longstanding business of dealing in gold. A personal hearing was granted and on the 15th of April 1957 he produced his evidence including account-books in an effort to establish that the gold ad been purchased by him in the normal course of his business and that it was not smuggled. His evidence was not accepted by the Collector who passed the impugned order one year and four months later in August 1958.

    9. One passage in the impugned order is particularly assailed as in flagrant contravention of the principles of natural justice which are bound to be followed by a quasi-Judicial tribunal such as a Collector adjudicating on a matter of this kind. This passage furnishes the main reason why the accounts produced by Om Parkash were rejected as a piece of evidence in support of his allegation that the gold was not smuggled. The passage reads why the accounts produced by om parkash were rejected as a piece of evidence in support of his allegation that the gold was not smuggled. The passage reads—

    “Another device with which the smugglers try to prove their bona fides is to keep some accounts to show V the genuine character of the sale and purchase of the gold. They make entries of some names of persons from whom the purchases are said to have been made and likewise in the sales also. On a discreet enquiry by the Department it was revealed that the account-books are fictitious and are calculated to mislead the authority. In this case also detailed investigation has been made which revealed that most of the purchases have been shown against the near relatives of the partners of the firm and other near friends who are active members of gold smuggling business. This shows that their account-books are not worthy of placing any credence.”

    10. The petitioner's case of that the so-called discreet enquiry and detailed investigations were carried out by the Department entirely behind his back and without his knowledge, that he was not given any opportunity to meet or contradict the report of the person or persona who conducted these investigations. This allegation is contained in paragraph 6 of the petition as follows:

    “That the Department had no evidence to show that the gold was smuggled and in rejecting the books of account have relied upon material collected at his and not put to him at the time of the enquiry.” The reply to this in the affidavit of the Collector cannot be regarded as very satisfactory. It reads:”

    2. “As regards paragraph No. 6 of the petition it is submitted that the Department had in its possession (sic) to establish to their satisfaction that the gold which was seized from the petitioner had been sumuggled. On that basis the show cause notice was issued to the petitioner on the 16th of October 1958, a copy of which is annexure ‘A’. The petitioner entered his explanation to the show cause notice, a copy of that is annexure ‘B’. The petitioner was thereafter afforded all reasonable an adequate opportunity to produce evidence in support of his case. The counsel who appeared on his behalf was also heard. The account-books produced by the petitioner were duly examined. Ultimately on the assessment of the evidence it was found that the petitioner had smuggled the gold and was consequently liable for the action which was taken against him. The allegation that the material collected at the back was used against him is vague and cannot be therefore answered”.

    11. A replication was filed in this case by Om Parkash of which paragraph 6 reads—

    “That at no stage of the enjuiry the Department or the respondent — Collector of Customs, put any evidence in his possession or circumstances to the petitioner to meet and show that on the basis of that evidence or circumstance the gold was not smuggled that evidence W circumstance has not been indicated in the written statement or the impugned order. There has been no assessment of evidence for no evidence of any kind on behalf of the Department was led before the Collector in the presence of the petitioner nor put to him. Even the norms of judicial procedure have not been followed, for reliance as the show cause notice shows was on Section 178-A of the Sea Customs Act. This is wholly illegal and the respondent has not conducted himself as a judicial tribunal.”

    12. This plea was further amplified in paragraph 9.

    13. A further reply was also filed by The Collector of which paragraph 6 reads—

    “Regarding paragraph No. 6 it is stated that the proceedings under the Sea Customs Act are not governed by the Code of Criminal Procedure. It is not necessary that the evidence or circumstances be put to the petitioner. The impugned order was made after giving thorough consideration to the merits of the case. The petitioner was given full opportunity to defend his case in accordance with the principles of natural justice, that is, a show cause memo was issued, reply to the show cause memo was received, the petitioner through his counsel was afforded an opportunity to be heard in person and an order was passed after giving full consideration to the merits of the case.”

    14. The following passage occurs in paragraph 9:

    “The observations in the adjudication order referred to by the petitioner are based on evidence with the Department. The petitioner was given full opportunity to defend his case. The petitioner placed reliance on his account-books which on verification were found to contain fictitious entries to the satisfaction of respondent. There is no provision under the Sea Customs Act that such verification be conducted in the presence of the petitioner. As already submitted in para 6 above all the canons of natural justice were complied with before passing the order.”

    15. If any authority is needed for the proposition that a Collector of Customs in an enquiry of this kind must comply with the fundamental principles of natural justice it is to be found in Amba Lal v. Union of India, AIR 1961 SC 264, in which it has been held that in such a situation, though the provisions of the Code of Criminal Procedure and the Evidence Act may not apply except so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. However, no such authority appears to be really necessary since it has been repeatedly asserted by the Collector in the present case that he has complied with all the canons of natural justice before he passed the order, thereby conceding the necessity for him to do so.

    16. It would seem, however, that his idea of what constitutes natural justice is somewhat strange. He at first evaded answering the allegation that the material on the strength of which he rejected the petitioner's account books was obtained behind the petitioner's back by saying that the allegation was too vague to be capable of being answered, and then at a later stage he adapted the position that it was not necessary to disclose to the person who was called on to show cause against confiscation of the gold and imposition of a penalty the material on which he was proposing to base his decision, namely the information obtained by “discreet enquiries” and “detailed investigation” which showed that the persons from whom the petitioner ostensibly purchased the gold as shown in his account-books were not only friends and relations, but also persons themselves connected in the business of smuggling gold. It seems to me that it is a legitimate inference from the terms in which the offending passage in the order is couched, together with the fact that there was a lapse of a year and four months between the hearing of which the petitioner was allowed to produce his evidence and his counsel was heard and the passing of the order, the these investigations were secretly carried out sometime-between the actual hearing and the date of the final order.

    17. Of course the onus of proving that gold which has been seized in circumstances similar to those in the-present case lies on the person from whom the gold is seized to prove that it is not smuggled, and if he fails to produce any evidence or produces only flimsy evidence which can be summarily rejected, the confiscation of the gold and the imposition of the penalty can be ordered 1 forthwith. This is not so in the present case however, and it is clear that the oral and documentary evidence produced by Om Parkash was of such a nature that it could not be summarily brushed aside by the Collector, who felt it necessary to have secret, which I take to ae the real meaning of the word ‘discreet’ used by the Collector, and detailed investigations carried out before he could come to the conclusion that Om Parkash had not die-charged the onus laid on him. In other words, the decision of the Collector was based to a considerable extent on information secretly obtained without either the knowledge of Om Parkash, that any such information was being obtained, or any intimation of what that was when it had been collected. I do not for a moment mean to suggest that the ultimate conclusion of the Collector was not justified, but it seems to me that the manner in which it was reached involved the violation of a fundamental principle of natural justice.

    18. There does not appear to be any reported decision in a case exactly of this kind, but there are certain observations of the Supreme Court in an Income-tax casein which the principle involved is somewhat similar. This is the decision in Dhakeshwan Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal, 1954-26 ITR 775 : ((S) AIR 1955 SC 65). in which five learned Judge heard an appeal under Article 136 of the Constitution against the dismissal by the High Court of an application under Section 66(2) of the Income-Tax Act. The learned Judges held that the correct rule of law had been state by a Full Bench of the Lahore High Court in Gurmukh Singh v. Commissioner of Income-tax, Lahore, (1944) 12 ITR 393 : (AIR 1944 Lah 353 (2) (FB). In that case it was held.

    “While proceeding under sub-section (3) of Section 23) the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to fouruth that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilize to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it.”

    19. As I have said the underlying principle in the present case is somewhat similar. It seems to me that the danger of allowing these matters to be decided in the manner in which the Collector has decided the present case is that although the evidence produced by the perse involved in the present case may not have been part convincing, it is quite conceivable that perfect good evidence produced by some other person in similar circumstances might be thrown out by a Collector on the basis of similar secret and one sided inquiries made after the conclusion of the presentation of the case of the person affected, and in my opinion it is necessary such cases that if the evidence of the person affected is not to be summarily rejected, it should only be rejected after he has been given at least some inkling of the strength and nature of the case against him.

    20. In the circumstances while technically accepting the appeal of the authorities to the extent of setting aside the decision of the learned Single Judge restricting the penalty to Rs. 1,000/-, I would accept the appeal of Om Parkash and set aside the order of the Collector, who may, however, take up the matter against and decide it afresh in the light of the above remarks. The parties may be left to bear their own costs.

    21. Grover, J.:— I agree.

    JG/R.G.D

    22. Order accordingly.

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    Comments

    Union Of India And Another v. Om Parkash Ram Dass Khatri .
    (Aug 27, 1963)