By Somesh Arora & C. K. Mandal, Advocates (Amicus Rarus)
Published In: 2022(382) E.L.T. Part 2 (A27) – 15th October, 2022

The proposition under Customs law, has been engaging most High Courts in India including the apex court with different views emerging especially in relation to frauds and forgeries committed in licenses. Before a detailed examination of the legal propositions is conducted, it is important to dissect various situations in which a forgery especially in licenses used in relation to various imports are concerned. Such licenses were generally issued by Ministry of Commerce and are presently issued by the office of Director General of Foreign Trade (DGFT). There can be situations, where a forgery or fraud has been committed by misrepresenting and even misleading the office of licensing authority or the DGFT Office. This could arise by falsification of export figures, export remittance certificates or even forging Bills of Entry etc. The net result is that the license issuing DGFT authorities are cheated, and the forged licenses start floating in the market and there are bonafide purchasers who buy and use such licenses till the time they are not cancelled by the DGFT Authorities.

Second situation could be, that a license is forged or a document like Transfer Release Advice (TRA) is forged, without even Ministry of Commerce or DGFT Authorities knowing about it. It is because the forged paper was never examined by them, till the forgery is detected. There can be another situation, when blank forms duly printed by the Nasik Press were stolen either from the custody or possession of DGFT Authorities and such stolen forms were duly printed on authentic licensing Forms after forging and putting stamps of exporter/ importer. Same were sold in the market and were purchased by various persons. The DGFT by not cancelling such forms despite knowledge contributed to the negligence of the purchasers and custom authorities involved who cleared the imported goods.

Coming on to the legal propositions emanating from the Supreme Court, the significant decision in this regard is reported in 2009 (235) E. L. T. 587 (S. C.) in the matter of Commissioner of Customs (Preventive) Vs. Aafloat Textiles (I) Pvt. Ltd., which laid down the principle that the fraud and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. Same flowed from Para 28 which read as follows;

Para “28 As noted above, SILs were not genuine documents and were forged. Since fraud was involved, in the eye of law such documents had no existence. Since the documents have been established to be forged or fake, obviously fraud was involved and that was sufficient to extend the period of limitation.”

The ruling had the effect of providing extended period of limitation to the Department as per Section 28(1) even in those cases when the forgery fraud was committed by some third person, as the decision was propounded on the maxim of ‘caveat emptor’ which meant and was noted by the apex court as a maxim meaning stating that “Let a purchaser beware; who ought not to be ignorant that he is purchasing the rights of another” – [Para 23 of the decision refers]. The maxim was followed to state that no one can have better title than the one from whom he purchased and that the defects in the title of the seller passed on to the buyer also. The decision which was by a double member bench, construed Section 28(1) of the Customs Act, 1962 to provide that willful misstatement, collusion and suppression got attributed to the buyer even if forgery or fraud was committed by the seller. The decision however, did not consider the earlier proposition laid down by three Member Bench of the Supreme Court in the matter of East India Commercial Co. Ltd., Calcutta Vs. Collector of Customs, Calcutta, as reported in 1983 (13) E.L.T. 1342 (S. C.) which while dealing with proposition of License obtained by misrepresentation, held the same as voidable but otherwise good. Relevant Para of the decision is Para -35 which is as follows:

“35. Nor is there any legal basis for the contention that licence obtained by misrepresentation makes the licence non est, with the result that the goods should be deemed to have been imported without licence in contravention of the order issued under Section 3 of the Act so as to bring the case within Clause. (8) of Section 167 of the Sea Customs Act. Assuming that the principles of law of contract apply to the issue of a licence under the Act, a licence obtained by fraud is only voidable: it is good till avoided in the manner prescribed by law. On May 1, 1948, the Central Government issued an order in exercise of the power conferred on it by Section 3 of the Act to provide for licences obtained by misrepresentation, among others, and it reads: “The authorities mentioned in the Schedule hereto annexed may under one or other of the following circumstances cancel licences issued by any officer authorised to do so under clauses (viii) to (xiv) of the notification of the Government of India in the late Department of Commerce, No. 23-ITC/43, dated July1, 1943, or take such action as is considered necessary to ensure that the same is made ineffective, namely :-

(i) When it is found subsequent to the issue of a licence that the same had been issued inadvertently, irregularly or contrary to rules, fraudulently or through misleading statement on the part of the importer concerned; or

(ii) when it is found that the licensee has not complied with any one or more of the conditions subject to which the licence may have been issued.

SCHEDULE

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This order, therefore, authorised the Government of India or the Chief Controller of Imports to cancel such licences and make them ineffective. The specified authority has not cancelled the licence issued in this case on the ground that the condition has been infringed. We need not consider the question whether the Chief Controller of Imports or the Government of India, as the case may be, can cancel a licence after the term of the licence has expired, for no such cancellation has been made in this case. In the circumstances, we must hold that when the goods were imported, they were imported under a valid licence and therefore it is not possible to say that the goods imported were those prohibited or restricted by or under Chapter IV of the Act within the meaning of Clause (8) of Section 167 of the Sea Customs Act.”

Thus the apex court in its earlier decision had held the misrepresented or fraudulent licenses as voidable and same to be avoided by the License issuing authorities by cancellation of the same
by the due notification or prescribed process. It also held that till the time the license was valid and not cancelled and if the goods were imported under it, the imports will be valid.

Though in the later decision of Commissioner of Customs (Preventive) Vs. Aafloat Textiles (I) Pvt. Ltd., it had not considered the above decision of East India Commercial Co. Ltd.

Yet, it is to be seen, as to whether there could be any common meeting ground between the two decisions or they are in conflict with each other. Lack of bonafides, it is very clear will vitiate any underlying transaction. However, if the purchaser is bonafide and fraud or forgery committed is such which could deceive even the DGFT or customs authorities, and the purchaser was the purchaser in good faith and for consideration, then whether the underlying transaction will be void ab-initio or voidable. It is clear that willful misrepresentation, collusion and suppression in Section 28(1) will refer to the same being of the person who makes the import and is liable to pay duty as per Section 28(1), therefore, a fraud which deceives even the DGFT authorities, who fail to withdraw the same in time by cancelling the same cannot get attributed to a bonafide purchaser. However, the situation can be different if forgery is committed in the market itself by making a forged stamp paper, printing it with language of license and giving it look and feel of original license and thereby selling it in the market, even when DGFT authorities are not on the loop. Such a situation, may not require a license to be cancelled by DGFT authorities, as they were never privity to any contract and therefore, same remains void being nonest. In such a situation, one can legitimately claim that forgery has vitiated everything and that the license used by the importer was non-est and therefore, void. It appears that given the facts of various situations, in which forgeries are committed, there is not any conflict between the above two decisions of the Apex Court and either can be validly apply in their own domain of facts. The proposition of forgery making a license void or voidable, therefore, will depend upon the facts of each matter. And none of the above legal principle is absolute and can be solely applied in every situation. Bonafides therefore, can be relevant and should mitigate the impact of fraud provided a reasonable diligence is not avoided by the user/ purchaser.

[The views expressed by the authors are personal.]