Recovery of government dues from a third party, who is not the defaulter, without authority of law is illegal and violates constitutional rights.

MR. JUSTICE S.RAVINDRA BHAT

1. In this writ petition, the petitioner impugns the notices dated 3.8.2012 and 8.8.2012 issued by the second Respondent, and notice dated 7.8.2012 issued by the third Respondent.

2. The relevant facts are that the petitioner was a director in the company “Shri Ram Casting P. Ltd” (hereafter “the company”), and she resigned from the Board of the company on 2.4.1993. The petitioner was the owner of 3 properties viz. (i) Pitam Pura property, (ii) Wazirpur property and (iii) Mukherjee Nagar property. She first received the impugned notice dated 3.8.2012 (addressed to the company, copy sent to her) wherein she was informed that government dues under the Customs Act, 1962 (hereafter “the Act”) amounting to Rs. 74,78,225/- along with interest were to be recovered from the company, and that if the amount was not paid within prescribed period, steps would be taken in accordance with the provisions of the Customs (Attachment of Property Defaulters for the Recovery of Government Dues) Rules 1995 (hereafter “the Rules”). By the second notice dated 7.8.2012, the Sub-Register concerned in respect of the three abovementioned properties was directed that the said properties which belonged to the company may not be allowed to be disposed of/transferred without the consent of the Respondent. The third notice dated 8.8.2012 (this time addressed to the petitioner) mainly repeated the contents of the first notice. In the meanwhile, the petitioner, out of had sought to transfer by way of gift the Wazirpur property in favour of her sons, but she was informed by the sub-registrar that since certain proceedings for recovery of government dues were pending against the said property, the same could not be allowed to be transferred/disposed of. The petitioner has therefore filed the present petition praying for quashing of the three notices.

3. The case of the petitioner was that she, and not the company, is the owner of the three properties. She resigned from the company in 1993. The properties were incorrectly described in the notice dated 7.8.2012 as belonging to the company. It was argued that after her resignation from the Board of the company, there is no question of any proceedings being started against her property for attachment of amounts due from the company.

Petitioner’s counsel relied on the definition of “defaulter” as provided in the Act to contend that in the present case, the recovery of pending dues can only be from the company. It was also submitted that in the absence of any provision enabling recovery of the amounts due from a customs duty defaulter, from a third party, and in the absence of any proper proceeding putting such third party to notice about the proposed adverse order, and fair opportunity to respond to it, the recovery of such amounts is illegal and without authority of law.

4. Counsel for the Customs authorities did not dispute that the Petitioner is owner of the properties, and that the tax defaulter in this case was the company. However, it was argued that as director, the petitioner could not distance herself from the company’s acts and omissions; she had to shoulder its liabilities. It was in furtherance of such obligation that the authorities acted within their jurisdiction in issuing the impugned notice, and informing the Sub-Registrar not to register any transfer or alienation of the petitioner’s properties, which could satisfy the duty liability of the company.

5. The provisions from the Act and the Rules relevant for addressing the issue are extracted hereunder:

Section 142

“(1) Where any sum payable by any person under this Act including the amount required to be paid to the credit of the Central Government under section 28B is not paid —

(c) if the amount cannot be recovered from such person in the manner provided in clause (a) or clause (b) –

(ii) the proper officer may, on an authorisation by a Commissioner of Customs and in accordance with the rules made in this behalf,