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2001 Supreme(Cal) 283
High Court Of Calcutta
Kalyan Jyoti Sengupta
STONE INDIA LTD. - Appellant
Versus
UNION OF INDIA (UOI) - Respondent
W. P. 1997 Of 2000
Decided On : 05/16/2001
Jayanta Kumar Mitra, PRANAB KUMAR DUTTA, Sarkar
1. A bank guarantee is a separate agreement providing mutual rights and obligation between the beneficiary and the banker, and the bank is not supposed to perform unless the conditions stipulated therein are fulfilled. 2. An order having civil consequence, passed in violation of the principle of natural justice cannot stand.
Headnote:
CUSTOMS - DUTY EXEMPTION - IMPORT LICENCE - CANCELLATION - BANK GUARANTEE - INVOCATION - LEGALITY - PRINCIPLES OF NATURAL JUSTICE - VIOLATION.
Fact of the Case:
The petitioner, a company, was granted a license to import capital goods at a concessional rate of customs duty subject to an export obligation. The petitioner could not discharge the export obligation due to reasons beyond its control and applied for conversion of its DTA unit to a 100% EOU. The Development Commissioner granted permission for the conversion, with a validity period of 3 years and an export turnover target to be achieved within 5 years. However, the license was canceled by the customs authorities before the expiry of the validity period. The petitioner challenged the cancellation of the license and the invocation of the bank guarantee furnished as security for the export obligation.
Finding of the Court:
The court held that the invocation of the bank guarantee was illegal and invalid as it was not made by the appropriate person and the conditions stipulated in the bank guarantee were not fulfilled. The court also held that the cancellation of the license was premature and in violation of the principles of natural justice as no notice or opportunity was given to the petitioner before the cancellation. The court set aside the cancellation of the license and directed the petitioner to keep the bank guarantee renewed till the license remains subsisting and valid.
Issues: 1. Whether the invocation of the bank guarantee was legal and valid? 2. Whether the cancellation of the license was premature and in violation of the principles of natural justice?
Ratio Decidendi: 1. The court held that the invocation of the bank guarantee was illegal and invalid as it was not made by the appropriate person and the conditions stipulated in the bank guarantee were not fulfilled. The court relied on the Supreme Court decision in Hindusthan Construction Company Ltd. v. State of Bihar, which held that a bank guarantee is a separate agreement providing mutual rights and obligation between the beneficiary and the banker, and the bank is not supposed to perform unless the conditions stipulated therein are fulfilled. 2. The court held that the cancellation of the license was premature and in violation of the principles of natural justice as no notice or opportunity was given to the petitioner before the cancellation. The court relied on the principle that an order having civil consequence, passed in violation of the principle of natural justice cannot stand.
Final Decision: The court set aside the cancellation of the license and directed the petitioner to keep the bank guarantee renewed till the license remains subsisting and valid.
( 1 ) BY this writ petition originally the letter of demand dated 2nd August, 2000 asking the petitioner to make payment of the duty saved amount along with 24% interest and to surrender special Import Licence to the extent of five times the value of the licence in Annexure 's' and also the letter dated 2nd August, 2000 addressed to ANZ Grindlays Bank Limited (now Standard Chartered Grindlays Bank Limited) asking to make payment a sum of Rs. 56,05,000/- being the secured amount by the bank guarantee for alleged non-fulfilment of export obligation were challenged. During pendency of the writ petition because of subsequent event the petitioner got the petition amended whereby the petitioner challenged the letter dated 5th September, 2000 intimating cancellation of LOP. In spite of direction being given on several times no affidavit-in-opposition has been filed. However, opportunity was given to produce the records. The fact of the case is recorded in short as follows :
( 2 ) THE petitioner company undertook a project with approval of Reserve Bank of India for manufacturing of Colour Computer Monitor Terminals in collaboration with a foreign firm i. e. , M/s. Winny Electron Enterprise Co. Ltd. of Taiwan. Pursuant to the said approval and consequent to the application of the petitioner Director General of Foreign Trade (hereinafter referred to as the DGFT), EPOG-III Section, New Delhi granted a licence being No. P/cg/213777, dated 25th February, 1994 for GIF value of Rs. 1,57,59,2257-! issued under para 38 of Exim Policy 1992-97 @ 15% concessional rate of Customs Duty.
( 3 ) IN terms of grant of licence an agreement was entered into by the petitioner and the DGFT, Ministry of Commerce, New Delhi on 19th August, 1994. In terms of the agreement the petitioner furnished a Bank Guarantee for Rs. 56,05,000/- being 50% value of duty saving of import of capital goods. The said Bank Guarantee was furnished in favour of the President of India through the DGFT as a security against any loss or damage caused to or suffered by the Government by reason of any failure or condition contained in the said licence including the export obligation mentioned therein. For the reasons beyond the control the petitioner could not discharge export obligation in terms of the aforesaid licence. So, on 5th March, 1997 the petitioner applied to Controller of Import and Export, New Delhi requesting for an amendment of the period for discharging export obligation. On 24th November, 1999 an order of demand being No. F. No. S 60 (MISC) 95a-19/99a X EPOG was issued from the office of the Assistant Commissioner of Customs, Group-5a for a sum of Rs. 1,12,09,6597- i. e. , the duty saved amount along with 24% interest thereon. Both paragraph 9. 28 of the Exim Policy 1997-2002 and the Handbook of Procedures at para 9. 3 contemplate conversion for existing D. T. A units to 100% E. O. U. By the aforesaid policies it was provided that existing D. T. A. units might also apply for conversion into an E. O. U. The existing D. T. A. units having an export commitment under EPOG Scheme may apply for conversion into E. O. U. unit. For such conversion the export commitment under EPOG Scheme will be subsumed in its export as an E. O. U.
( 4 ) ON application being made for conversion as above the Development Commissioner granted permission for conversion of the petitioner's D. T. A. unit to 100% E. O. U. The letter of permission stipulates 3 years for the validity thereof but at the same time 5 years time has been given for achieving export turnover of US $ 2294000. Therefore, on reasonable interpretation it will appear that the validity of the aforesaid licence will be extended up to 5 years otherwise performance period would not have been envisaged for 5 years. Obviously LOP cannot be cancelled before the expiry of 3 years from the date of issue dated 12th January, 2000. However, the aforesaid LOP was cancelled by the impugned letter and against which a
