- Bookmark
- Share
- CaseIQ
Deputy Director Of Inspection (Intelligence) And Others v. Vinod Kumar Didwania And Another
Factual and Procedural Background
Three prohibitory orders under Section 132(3) of the Income-tax Act, 1961 were issued against the first respondent covering goods stored in three Madras godowns located at (a) No. 1 Krishnan Koil Street, (b) No. 143 Mannarswamy Koil Street, Royapuram and (c) Old No. 9/143 Mount Road, Guindy. The first respondent challenged these orders in the Calcutta High Court and, on 12 April 1984, obtained an ex parte interim injunction restraining the tax authorities from enforcing the prohibitions. Relying on that injunction, the respondent removed the goods from all three locations and then withdrew the writ petition.
The Deputy Director of Inspection, Madras, thereafter filed a special-leave petition before the Supreme Court seeking relief against the ex parte injunction and the respondent’s actions. On 17 December 1984, the Supreme Court found prima facie abuse of process and ordered an inquiry, to be conducted by an Inspecting Assistant Commissioner nominated by the Central Board of Direct Taxes, to ascertain the quantity and value of the removed goods. The inquiry report, submitted to the Court, fixed the removed stock at 235 MT valued at Rs 14 lakhs. The matter was finally decided by the Supreme Court on 15 April 1985.
Legal Issues Presented
- Whether the first respondent, having removed goods under cover of an ex parte injunction subsequently withdrawn, must make restitution of the value of those goods to the tax authorities.
- Whether the Supreme Court should order an evidentiary inquiry to quantify the value of goods removed in abuse of court process.
Arguments of the Parties
Petitioner's Arguments (Deputy Director of Inspection)
- The ex parte injunction was procured and used solely to defeat the prohibitory orders; therefore, the respondent must restore the value of the removed goods.
- An inquiry should be directed to determine the precise quantity and value of the goods so that restitution can be ordered.
The opinion does not record any detailed arguments advanced by the respondent.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court characterised the respondent’s conduct as a “stratagem” and “abuse of the process of the Court,” noting that the injunction was obtained solely to nullify the prohibitory orders and remove the goods. It emphasised that, irrespective of the ultimate validity of the prohibitory orders, the respondent could not be allowed to retain an unfair advantage gained through misuse of judicial process.
To ensure equitable restitution, the Court ordered an independent factual inquiry by an Inspecting Assistant Commissioner to determine the quantity and value of the removed stock. After reviewing the officer’s report—235 MT worth Rs 14 lakhs—the Court accepted these findings as a fair approximation. It reiterated that the burden would remain on the respondent, in any future tax proceedings, to prove a lower value if claimed.
Holding and Implications
The special-leave petition is DISPOSED OF with a direction that the first respondent pay Rs 14 lakhs to the petitioner within six weeks as restitution for the goods removed.
Immediate consequence: the respondent must refund the quantified value of the stock, thereby restoring the position that existed prior to the misuse of the injunction. The Court expressly allows the respondent to contest this valuation in subsequent assessment or tax proceedings, but places the evidentiary burden on the respondent. No wider legal precedent on Section 132(3) validity is set; the decision is confined to rectifying an abuse of court process.
Order dated 17-12-1984
1. This is one of those rare cases where we find that the process of law has been completely abused for the purpose of gaining an undeserved advantage. Three prohibitory orders under Section 132(3) of the Income Tax Act, 1961, were issued to the first respondent with respect to the goods in the following three godowns by the Income Tax Authorities:
(a) No. 1, Krishnan Koil Street, Madras 600 001;
(b) No. 143, Mannarswamy Koil Street, Royapuram, and;
(c) Old No. 9/143, Mount Road, Guindy, Madras.
2. The first respondent thereupon filed a writ petition in the Calcutta High Court challenging the validity of these three prohibitory orders and obtained an ex parte interim injunction prohibiting the petitioners and each of them and their servants and agents from interfering with the operation of the said godowns of the respondent and from interfering with the operation of the said godown of the first respondent and from interfering with the removal of and/or parting with and/or handling with and/or disposal of the materials stored in the said godowns situated at (1) No. 1, Krishnan Koil Street, Madras, and (2) No. 143, Mannarswamy Koil Street, Royapuram, Madras and the stocks lying at the shop of the first respondent at 77, Sembudoss Street, Madras and the stock lying in the open yard godown belonging to Shri Bajijnath Gupta at Guindy, Madras in any manner whatsoever and also restraining the petitioners from giving effect to any of the said three prohibitory orders. This ex parte order of injunction was passed by the Single Judge of the Calcutta High Court on 12-4-1984 and on the strength of this ex parte order of injunction, the first respondent removed the goods lying in the aforesaid three godowns.
3. The purpose of filing the writ petition having been accomplished by the removal of the goods from the aforesaid three godowns, the first respondent withdrew the writ petition in the Calcutta High Court. But before that the Deputy Director of Inspection, Madras filed a petition in this Court for special leave to appeal against the ex parte order of injunction which enabled the first respondent to remove the goods from the three godowns. It is this special leave petition which has come up for hearing before us today.
4. It is obvious from the above narration of facts that the strategy of obtaining an ex parte order of injunction from the Court and thereafter removing the goods from the three godowns on the strength of this ex parte order of injunction and then withdrawing the writ petition was adopted by the first respondent with a view to defeating the prohibitory orders issued against the first respondent and taking the goods out of the reach of the Income Tax Authorities.
5. We are not concerned whether the prohibitory orders issued by the Income Tax Department were valid or not. It is enough that the prohibitory orders were there and by using this stratagem the goods were removed from the three godowns and the prohibitory orders were set at naught.
6. The learned Attorney General appearing on behalf of the Deputy Director of Inspection submitted before us that the amount representing the value of the goods removed from the three godowns should be restituted by the first respondent since the goods were removed by him under an ex parte order of injunction obtained from the High Court of Calcutta in the writ petition filed by him and the nefarious purpose of filing the writ petition having been accomplished by removal of the goods, the writ petition was withdrawn. There is great force in his submission of the learned Attorney General.
7. There is no doubt that the first respondent has abused the process of the Court for securing removal of the goods from the three godowns and he cannot be allowed to retain that advantage. However, before we make any order in this respect, it would have to be ascertained as to what was the value of the goods which were removed from the three godowns.
8. The Deputy Director of Inspection Madras has filed an affidavit stating what according to him were the goods removed by the first respondent from the three godowns and what was the value of those goods. This is, however, a matter which will have to be enquired into and we would, therefore, direct that an inquiry be held for determining the value of the goods removed by the first respondent from the three godowns after obtaining an ex parte order of injunction from the Calcutta High Court. Such inquiry shall be held by an Inspecting Assistant Commissioner to be nominated by the Chairman of the Central Board of Direct Taxes and the Inspecting Assistant Commissioner so nominated will hold an inquiry after giving notice to the first respondent as also to the Income Tax Officer concerned and submit his report to this Court on or before 25-2-1985.
9. The first respondent is directed to place before the inquiry officer whatever material there is to show what were the goods removed by him from the three godowns and the Income Tax Officer concerned will also be given an opportunity of placing the necessary material before the inquiry officer. The inquiry officer will not entertain any application for adjournment of the inquiry proceedings and complete the inquiry as early as possible so that he is able to make his report on or before 25-2-1985. As soon as the report is received, copies thereof shall be supplied immediately to the learned advocates appearing on behalf of the parties.
10. The case will stand adjourned to 28-2-1985. The text of this order shall be communicated immediately to the Chairman of the Central Board of Direct Taxes.
Order dated 15-4-1985
11. Pursuant to the order made by us on 17-12-1984, the Inspecting Assistant Commissioner of Income Tax nominated by the Chairman of the Central Board of Direct Taxes after holding an inquiry submitted his report to the Court stating on the basis of the material produced before him as to what was the quantity of stock removed by the first respondent from the three godowns mentioned in our order dated 17-12-1984, and what was the value of such quantity of stock so removed.
12. The report of the Inspecting Assistant Commissioner on an analysis of the material which was placed before him, has determined the quantity of stock removed from the three godowns at 235 MT and the value thereof at Rs 14 lakhs.
13. We would, therefore, direct the first respondent to pay to the petitioner a sum of Rs 14 lakhs within six weeks from today by way of restitution for the quantity of the goods removed from the three godowns so that the position as it obtained prior to the removal of the goods from the three godowns is restored as far as practicable.
14. We may, however, make it clear that it would be open to the first respondent to the contend in the assessment proceedings or in the course of any other proceedings before the Tax Authority that the value of the goods removed by him from the three godowns taking advantage of the ex parte order of injunction obtained by him was less than Rs 14 lakhs but the burden of proving so will be on the first respondent.
15. The special leave petition will stand disposed of in these terms.
Alert