REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APEPAL NO. 2447 OF 2007
Commnr. of Customs (Preventive) ...Appellant
Versus
M/s Aafloat Textiles (I) Pvt.Ltd. and Ors. ...Respondents
JUDGMENT
Dr. ARIJIT PASAYAT, J.
1. Challenge in this appeal is to the order passed by the Customs, Excise
and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai (in short
the `CESTAT’). Challenge before the CESTAT was to the order of
Commissioner of Customs who confirmed the duty demand of
Rs.6,69,40,149/- on 9 consignments of gold and silver imported by M/s
Aafloat Textiles (India) Ltd. (Formerly known as M/s Akai Impex Ltd.)
under Section 28 alongwith appropriate interest under Section 28AB of the
Customs Act, 1962 (in short the `Act’). The benefit of exemption in terms
of Notification No.117/94-Cus. Dated 27.4.1997 was denied and liability of
the goods to confiscation under Section 111(d) and (o) of the Act was
upheld. But since the goods were not available, confiscation was not
ordered. Penalty equal to duty amount on the importer under Section 114A
of the Act was imposed and Rs.50 lakhs was imposed on Shri Mahendra
Shah and Rs.25 lakhs each on four other appellants before the CESTAT.
2. Case of the department that the Special Import License (in short
`SIL’) purchased by the importer from brokers for clearance of gold and
silver was forged and, therefore, was not valid for the consignments in
question.
3. Background facts as emerging from the Commissioner’s order are that
the office premises of one M/s. Gazebo and M/s. Mahavir Corporation, were
searched by officers of DRI and copy of SIL No.3536539 dated 6.8.1997
issued to M/s. Track Industries, Kanpur, was recovered. The Joint Director
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General of Foreign Trade, Kanpur informed that no such licence had been
issued and that the signature and security seal of their Foreign Trade
Development Officer had been forged. The proprietor of M/s Gazebo, Shri
R.T. Shah stated on 19.1.1998 that he had purchased the above bogus SIL
from one Shri Sushil Kumar Lohia who, in turn admitted that the SIL was
given to him by one Shri Manoj Kumar Jain and that he had obtained
several bogus SILs from one Naresh Sheth and Shri Dinesh Buchasia,
whose residential premises were searched and certain documents were
recovered and his statement was recorded, wherein he stated that he had
only dealt in 7 SILs which he bought at low premium from one Rajesh
Chopra and that the SILs were forged. Shri Shinivas Pannalal Kalantri,
General Manager of the importer company stated that gold/silver had been
imported under SIL during the year 1996-97 and 1997-98, that one M/s.
Lalbhai Trading Co. and two others were the clearing agents; that Shri
Prakash Mohta of Finance Department looked after the purchase of SILs.
The Chairman of the importer company stated that he looked after
negotiation and purchase of bullion and sale of bullion; that Shri Prakash
Mohta looked after purchase of licences, clearance of goods, delivery,
payment to supplier etc. and that licence brokers through whom SILs were
purchased and whom he knew, were Mr. Pachisia and Mr. Ketan Shah. The
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statement of Shri Prakash Mohta, was also recorded in which he confirmed
that he was looking after purchase of SILs for import of bullion and
subsequently selling them in the local market. Shri Mahendra Shah stated
that he had sold bogus SILs to the importer company. Shri Rasiklal Mehta
stated that he and one AtuI Garodia met one Shri D.R. Gulati in Bombay
who told that he could provide bogus SIL for which he would charge 3% to
4% premium, that Shri Gulati used to provide bogus SILs and Shri Garodia
used to sell them in market and give them a premium of 3%.
4. The demand was confirmed under the proviso to Section 28(1) of the
Act. The stand of the revenue that since the licenses were forged and were
void, the buyer cannot have better title than the seller. CESTAT in appeal
was of the view that the appeal could be disposed only on the ground of
limitation without going into the merits of the matter. It was observed that
there was no evidence to show that the importer had knowledge about the
SIL being non- genuine.
5. It was also stated that the period of limitation is not to be reckoned
from the date of discovery of the forgery. Accordingly, the demands
including the penalty imposed were cancelled.
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6. In support of the appeal, learned counsel for the appellant submitted
that since the SIL involved was established to be forged there was no
question of denying the extended period of limitation.
7. Learned counsel for the respondents on the other hand submitted that
the department has not established that the buyer had knowledge about the
forgery. The mens rea being one of the ingredients to avail extended period
of limitation the CESTAT was justified in its conclusions.
8. As noted above, the CESTAT has not gone into the question whether
the SIL involved was genuine or not. It was of the view that the department
has not established that buyer had knowledge that there was any forgery
involved.
9. “fraud” means an intention to deceive; whether it is from any
expectation of advantage to the party himself or from the ill will towards
the other is immaterial. The expression “fraud” involves two elements,
deceit and injury to the person deceived. Injury is something other than
economic loss, that is, deprivation of property, whether movable or
immovable or of money and it will include and any harm whatever caused
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to any person in body, mind, reputation or such others. In short, it is a non-
economic or non-pecuniary loss. A benefit or advantage to the deceiver,
will almost always call loss or detriment to the deceived. Even in those rare
cases where there is a benefit or advantage to the deceiver, but no
corresponding loss to the deceived, the second condition is satisfied. (See
Dr. Vimla v. Delhi Administration (1963 Supp. 2 SCR 585) and Indian
Bank v. Satyam Febres (India) Pvt. Ltd. (1996 (5) SCC 550).
10. A “fraud” is an act of deliberate deception with the design of
securing something by taking unfair advantage of another. It is a deception
in order to gain by another’s loss. It is a cheating intended to get an
advantage. (See S.P. Changalvaraya Naidu v. Jagannath (1994 (1) SCC 1).
11. “Fraud” as is well known vitiates every solemn act. Fraud and justice
never dwell together. Fraud is a conduct either by letter or words, which
includes the other person or authority to take a definite determinative stand
as a response to the conduct of the former either by words or letter. It is
also well settled that misrepresentation itself amounts to fraud. Indeed,
innocent misrepresentation may also give reason to claim relief against
fraud. A fraudulent misrepresentation is called deceit and consists in
leading a man into damage by willfully or recklessly causing him to believe
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and act on falsehood. It is a fraud in law if a party makes representations,
which he knows to be false, and injury ensues therefrom although the
motive from which the representations proceeded may not have been bad.
An act of fraud on court is always viewed seriously. A collusion or
conspiracy with a view to deprive the rights of the others in relation to a
property would render the transaction void ab initio. Fraud and deception
are synonymous. Although in a given case a deception may not amount to
fraud, fraud is anathema to all equitable principles and any affair tainted
with fraud cannot be perpetuated or saved by the application of any
equitable doctrine including res judicata. (See Ram Chandra Singh v.
Savitri Devi and Ors. (2003 (8) SCC 319).
12. “Fraud” and collusion vitiate even the most solemn proceedings in
any civilized system of jurisprudence. It is a concept descriptive of human
conduct. Michael Levi likens a fraudster to Milton’s sorcerer, Comus, who
exulted in his ability to, `wing me into the easy hearted man and trap him
into snares’. It has been defined as an act of trickery or deceit. In Webster’s
Third New International Dictionary “fraud” in equity has been defined as an
act or omission to act or concealment by which one person obtains an
advantage against conscience over another or which equity or public policy
forbids as being prejudicial to another. In Black’s Legal Dictionary,
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“fraud” is defined as an intentional perversion of truth for the purpose of
inducing another in reliance upon it to part with some valuable thing
belonging to him or surrender a legal right; a false representation of a
matter of fact whether by words or by conduct, by false or misleading
allegations, or by concealment of that which should have been disclosed,
which deceives and is intended to deceive another so that he shall act upon
it to his legal injury. In Concise Oxford Dictionary, it has been defined as
criminal deception, use of false representation to gain unjust advantage;
dishonest artifice or trick. According to Halsbury’s Laws of England, a
representation is deemed to have been false, and therefore a
misrepresentation, if it was at the material date false in substance and in
fact. Section 17 of the Indian Contract Act, 1872 defines “fraud” as act
committed by a party to a contract with intent to deceive another. From
dictionary meaning or even otherwise fraud arises out of deliberate active
role of representator about a fact, which he knows to be untrue yet he
succeeds in misleading the representee by making him believe it to be true.
The representation to become fraudulent must be of fact with knowledge
that it was false. In a leading English case i.e. Derry and Ors. v. Peek (1886-
90) All ER 1 what constitutes “fraud” was described thus: (All ER p. 22 B-
C) “fraud” is proved when it is shown that a false representation has been
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made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly,
careless whether it be true or false”. But “fraud” in public law is not the
same as “fraud” in private law. Nor can the ingredients, which establish
“fraud” in commercial transaction, be of assistance in determining fraud in
Administrative Law. It has been aptly observed by Lord Bridge in Khawaja
v. Secretary of State for Home Deptt. (1983) 1 All ER 765, that it is
dangerous to introduce maxims of common law as to effect of fraud while
determining fraud in relation of statutory law. “Fraud” in relation to statute
must be a colourable transaction to evade the provisions of a statute. “If a
statute has been passed for some one particular purpose, a court of law will
not countenance any attempt which may be made to extend the operation of
the Act to something else which is quite foreign to its object and beyond its
scope. Present day concept of fraud on statute has veered round abuse of
power or mala fide exercise of power. It may arise due to overstepping the
limits of power or defeating the provision of statute by adopting subterfuge
or the power may be exercised for extraneous or irrelevant considerations.
The colour of fraud in public law or administration law, as it is developing,
is assuming different shades. It arises from a deception committed by
disclosure of incorrect facts knowingly and deliberately to invoke exercise
of power and procure an order from an authority or tribunal. It must result
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in exercise of jurisdiction which otherwise would not have been exercised.
The misrepresentation must be in relation to the conditions provided in a
section on existence or non-existence of which the power can be exercised.
But non-disclosure of a fact not required by a statute to be disclosed may
not amount to fraud. Even in commercial transactions non-disclosure of
every fact does not vitiate the agreement. “In a contract every person must
look for himself and ensures that he acquires the information necessary to
avoid bad bargain. In public law the duty is not to deceive. (See Shrisht
Dhawan (Smt.) v. M/s. Shaw Brothers, (1992 (1) SCC 534).
13. In that case it was observed as follows:
“Fraud and collusion vitiate even the most solemn proceedings
in any civilized system of jurisprudence. It is a concept
descriptive of human conduct. Michael levi likens a fraudster
to Milton’s sorcerer, Comus, who exulted in his ability to,
‘wing me into the easy-hearted man and trap him into snares’.
It has been defined as an act of trickery or deceit. In Webster’s
Third New International Dictionary fraud in equity has been
defined as an act or omission to act or concealment by which
one person obtains an advantage against conscience over
another or which equity or public policy forbids as being
prejudicial to another. In Black’s Legal Dictionary, fraud is
defined as an intentional perversion of truth for the purpose of
inducing another in reliance upon it to part with some valuable
thing belonging to him or surrender a legal right; a false
representation of a matter of fact whether by words or by
conduct, by false or misleading allegations, or by concealment
of that which should have been disclosed, which deceives and
is intended to deceive another so that he shall act upon it to his
legal injury. In Concise Oxford Dictionary, it has been defined
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as criminal deception, use of false representation to gain unjust
advantage; dishonest artifice or trick. According to Halsbury’s
Laws of England, a representation is deemed to have been
false, and therefore a misrepresentation, if it was at the material
date false in substance and in fact. Section 17 of the Contract
Act defines fraud as act committed by a party to a contract with
intent to deceive another. From dictionary meaning or even
otherwise fraud arises out of deliberate active role of
representator about a fact which he knows to be untrue yet he
succeeds in misleading the representee by making him believe
it to be true. The representation to become fraudulent must be
of the fact with knowledge that it was false. In a leading
English case Derry v. Peek [(1886-90) ALL ER Rep 1: (1889)
14 AC 337 (HL)] what constitutes fraud was described thus:
(All Er p. 22 B-C)
`Fraud is proved when it is shown that a false
representation has been made (i) knowingly, or (ii)
without belief in its truth, or (iii) recklessly, careless
whether it be true or false’.”
14. This aspect of the matter has been considered by this Court in Roshan
Deen v. Preeti Lal (2002 (1) SCC 100) Ram Preeti Yadav v. U.P. Board of
High School and Intermediate Education (2003 (8) SCC 311), Ram Chandra
Singh’s case (supra) and Ashok Leyland Ltd. v. State of T.N. and Another
(2004 (3) SCC 1).
15. Suppression of a material document would also amount to a fraud on
the court. (see Gowrishankar v. Joshi Amba Shankar Family Trust (1996 (3)
SCC 310) and S.P. Chengalvaraya Naidu’s case (supra).
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16. “Fraud” is a conduct either by letter or words, which induces the
other person or authority to take a definite determinative stand as a response
to the conduct of the former either by words or letter. Although negligence
is not fraud but it can be evidence on fraud; as observed in Ram Preeti
Yadav’s case (supra).
17. In Lazarus Estate Ltd. v. Beasley (1956) 1 QB 702, Lord Denning
observed at pages 712 & 713, “No judgment of a Court, no order of a
Minister can be allowed to stand if it has been obtained by fraud. Fraud
unravels everything.” In the same judgment Lord Parker LJ observed that
fraud vitiates all transactions known to the law of however high a degree of
solemnity. (page 722)
18. These aspects were highlighted in the State of Andhra Pradesh and
Anr. v. T. Suryachandr Rao (2005 (5) SCALE 621) and Bhaurao Dagdu
Paralkar v. State of Maharashtra and Ors. (2005 (7) SCC 605)
19. It was for the buyer to establish that he had no knowledge about the
genuineness or otherwise of the SIL in question.
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20. The maxim caveat emptor is clearly applicable to a case of this
nature. As per Advanced Law Lexicon by P. Ramanatha Aiyar, 3rd Edn.
2005 at page 721: Caveat emptor means “Let the purchaser beware.” It is
one of the settled maxims, applying to a purchaser who is bound by actual
as well as constructive knowledge of any defect in the thing purchased,
which is obvious, or which might have been known by proper diligence.
21. “Caveat emptor does not mean either in law or in Latin that the buyer
must take chances. It means that the buyer must take care.” (See Wallis v.
Russell (1902) 21 R 585, 615).
22. “Caveat emptor is the ordinary rule in contract. A vendor is under no
duty to communicate the existence even of latent defects in his wares unless
by act or implication he represents such defects not to exist.” (See William
R. Anson, Principles of the Law of Contract 245 (Arthur L. Corbin Ed.3d.
Am. ed.1919) Applying the maxim, it was held that it is the bounden duty of
the purchaser to make all such necessary enquiries and to ascertain all the
facts relating to the property to be purchased prior to committing in any
manner.
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23. Caveat emptor, qui ignorare non debuit quod jus alienum emit. A
maxim meaning “Let a purchaser beware; who ought not to be ignorant that
he is purchasing the rights of another. Hob. 99; Broom; Co., Litl. 102 a: 3
Taunt. 439.
24. As the maxim applies, with certain specific restrictions, not only to
the quality of, but also to the title to, land which is sold, the purchaser is
generally bound to view the land and to enquire after and inspect the title-
deeds; at his peril if he does not.
25. Upon a sale of goods the general rule with regard to their nature or
quality is caveat emptor, so that in the absence of fraud, the buyer has no
remedy against the seller for any defect in the goods not covered by some
condition or warranty, expressed or implied. It is beyond all doubt that, by
the general rules of law there is no warranty of quality arising from the bare
contract of sale of goods, and that where there has been no fraud, a buyer
who has not obtained an express warranty, takes all risk of defect in the
goods, unless there are circumstances beyond the mere fact of sale from
which a warranty may be implied. (Bottomley v. Bannister, [1932] 1 KB
458 : Ward v. Hobbs, 4 App Cas 13}. (Latin for Lawyers)
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26. No one ought in ignorance to buy that which is the right of another.
The buyer according to the maxim has to be cautious, as the risk is his and
not that of the seller.
27. Whether the buyer had made any enquiry as to the genuineness of the
license within his special knowledge. He has to establish that he made
enquiry and took requisite precautions to find out about the genuineness of
the SIL which he was purchasing. If he has not done that consequences have
to follow. These aspects do not appear to have been considered by the
CESTAT in coming to the abrupt conclusion that even if one or all the
respondents had knowledge that the SIL was forged or fake that was not
sufficient to hold that there was no omission or commission on his part so as
to render silver or gold liable for confiscation.
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.
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29. In view of this finding the other issues raised by the respondent are of
academic interest.
30. The appeal is allowed. There shall be no order as to costs.
……………………………………J.
(Dr. ARIJIT PASAYAT)
……………………………………J.
(Dr. MUKUNDAKAM SHARMA)
New Delhi,
February 16, 2009
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