http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: A.KUMAR

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       11/10/1996

BENCH: B.P. JEEVAN  REDDY, K.S.  PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      B.P.JEEVAN REDDY,J.      These writ  petitions and  appeals unfold a curious set of events.      On or  about May  11,1982, Bills of Entry were filed by Indian Steel  Corporation, 19,  Sembudoss Street,  Madras-1, for the  clearance of  "stainless steel  circles defective". Indian Steel  Corporation was said to be proprietary concern of "A.Kumar’.  On examination by customs authorities, it was found that  the imported goods were of prime quality and not defective as  declared by  the importer.  The licence of the importer  was  in  respect  of  "defective  stainless  steel circles" only. It was also found that the import licence was not validly  transferred in  favour of  A.Kumar/Indian Steel Corporation. A show-cause notice dated 15/16th October, 1983 was issued  under Section  124  of  the  Customs  Act,  1962 proposing confiscation  of the  said goods  and for  levy of penalty. Soon after receiving the show-cause notice, A.Kumar filed  Writ   Petition  (C)  No.2  of  1983  in  this  Court challenging its validity.      Another Writ  Petition (C)  No.8168 of  1982  was  also filed by  A.Kumar in  this Court  for a declaration that the "scale of  rates" prescribed  by the  Madras Port  Trust are unconstitutional  and   to  restrain  the  Port  Trust  from collecting the  charges in accordance with the said scale of rates and also for issuance of detention certificate.      A.Kumar also filed Writ Petition (C) No.2689 of 1982 in the Delhi  High Court  challenging the  order dated June 19, 1982 passed  under Section  132-A  of  the  Income  Tax  Act proposing  to   seize  the  goods  lying  with  the  customs authorities at  Madras. The  writ petition  was dismissed on August 16,  1982 against  which he  preferred  Civil  Appeal No.1693 of 1984.      A.Kumar filed  yet another  writ petition  in the Delhi High  Court   being  Writ   Petition  (C)  No.1812  of  1982 questioning the  rate of customs duty and valuation of goods imported by  him. This  writ petition  was also dismissed by the Delhi  High Court  against which civil Appeal No.1694 of 1984 has been preferred by him.      It appears  that a  number of  demands and  proceedings

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

were pending  or being taken against A.Kumar. The Income Tax department had  a huge  claim for arrears of income tax. The Madras Fort  Trust had  a claim  for its  demurrage  charges which too were substantial. Lakshmi Vilas also put forward a claim contending  that inasmuch  as it had financed the said import it  is entitled  to be  repaid. In  the face of these rival claims  this Court  passed orders  on  June  21,  1983 directing the  sale of the imported goods. For that purpose, it appointed  three joint  receivers,  viz.  Sri  Jayaraman, Additional Collector  of  Customs,  Madras,  Sri  Sridharan, Deputy General  Manager, Lakshmi  Vilas Bank. Madras and Sri Rajsekharan, Deputy Traffic Manager [Commercial] Madras Port Trust. The Joint receivers sold the goods by auction on July 27,1983 and  deposited the sale proceeds [in a sum of Rupees one crore  and twenty  seven lakhs]  in the  State  Bank  of India, Main  Branch, Madras, as a fixed deposit, as directed by this  Court. The  amount has been lying in the Bank since then. As  on May  8, 1986, the amount together with interest came to  Rs.3,88,44,929/-. As on today, it is certainly more than Rupees four crores.      When these  matters came  up  for  hearing  on  October 8,1996, it was stated by Sri P.H.Parekh, learned counsel for the petitioner-appellant  that inspite  of repeated  letters and  reminders,  A.Kumar  is  not  responding  to  him  and, therefore, he  has no  option but  report no instructions in all these  matters. We  have heard  learned counsel  for the customs department,  for the  Madras Port Trust, for Lakshmi Vilas Bank  and M/s. Madras Agencies, who are the purchasers of the said goods in public auction aforementioned.      Three statements  of A.Kumar  have been  brought to our notice. One  is the  statement recorded under Section 131 of the Income  Tax Act on June 10,1983. This statement is filed as an  annexure to  C.M.P. No.27299  of 1983  filed  by  the Income Tax  department in  Civil Appeal  No.1693 of 1984. In this statement,  A.Kumar stated  that he is only an employee of Vinod  Kumar Didwania  on a salary of Rupees one thousand and that he is a man of humble origins and practically of no means. He  is a national of Sri Lanka. He stated that he has no connection  with lndian  Steel Corporation and that he is not concerned  with its  business in any capacity. He stated that  he   signed  various   affidavits,  applications   and documents as directed by his employers, Vinod Kumar Didwania and Deen Dayal Didwania. He denied that he is the proprietor of the  concern, Indian  Steel Corporation.  He  denied  any knowledge of  certain accounts  maintained in  his  name  in Lakshmi Vilas  Bank.  He  denied  signing  any  document  in connection with  import of  any goods.  In short,  he denied that he has anything to do with the said concern or with the said import  or with  the  said  goods.  According  to  him, everything was  done by  Vinod Kumar Didwania and Deen Dayal Didwania using  his name.  The  second  statement  is  dated December 2,  1983 recorded at the Income Tax office, Madras. In this  statement also,  he denied  being the proprietor of the said concern. He disowned any connection with the import of the  said goods  and stated  that he  has no claim to the said  goods.   The  third  statement  is  contained  in  his affidavit dated February 24, 1984 in which again he repeated the very same averments. He denied engaging any advocate and stated that  whatever affidavits  he had  signed were all at the instance  of his employers, Didwanias. He stated that he was merely  a helpless  tool in  the hands  of Didwanias and that they  did everything  in his  name and also resorted to forgeries on some occasions.      In the  counter-affidavit filed  on behalf of the Union of India [sworn to by Ranjana Jha, Under Secretary, Ministry

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

of Finance,  Department of Revenue, New Delhi], it is stated that the  petitioner-appellant in  these matters is "Prahlad Rai Ashok  Kumar Goenka",  that  he  is  merely  a  salaried employee and  did not  have the means to import the goods in question and  that he  signed the  relevant  papers  at  the instance of  his employer,  Vinod Kumar Didwania. In view of the fraud  played by Didwanias, it is stated, the Income Tax department had  filed C.M.P.  No.27299 of  1983  in  Special Leave Petition  (C) No.8780  of 1982 [which was subsequently re-numbered as Civil Appeal No.1693 of 1984] for prosecuting the  members   of  Didwania   group  together  with  certain officials of  Lakshmi Vilas  Bank for various offences under Indian Penal  Code. It  is also  stated that pursuant to the show-cause notice,  A.Kumar has categorically stated that he is not  the proprietor  of Indian Steel Corporation and that he was  in no  way connected  with the  import in  question. Annexure-C to the said affidavit contains the particulars of claims of  several departments against A.Kumar. It is stated that the  claim of  the Income Tax department is in a sum of Rs.1,23,86,591/-.      Sri Balakrishnan,  learned counsel  for the Madras Port Trust, stated  that the  Madras Port  Trust is entitled to a sum  of   Rs.32,72,626/-  towards   demurrage  charges.  Sri A.T.M.Sampath, learned  counsel for  the Lakshmi Vilas Bank. stated that  the Bank  has filed  a suit against Ashok Kumar Didwanias customs  authorities and Income Tax department for recovery of the amount due to it.      Sri N.D.Garg,  learned counsel  for the Madras Agencies [purchaser of  the said  imported goods in auction] also put forward a  claim on  three counts,  viz., (1) that after his bid was  accepted, he  deposited a part of the consideration by way  of earnest  money but  there was inordinate delay in confirming the  sale and  delivering the goods to him. He is entitled to  interest on  the said  earnest  money  for  the period it  was locked  up; (2)  that  he  was  made  to  pay demurrage charges  in a  sum of  Rs.52,582/-,  which  he  is entitled to  be reimbursed;  and (3) that he was made to pay sales tax of Rs.5,47,719/- which he is not liable to pay and which amount also should be reimbursed to him.      We may  first deal with the claim of Madras Agencies We do not  think that  any of  the claims  are acceptable.  Sri N.D.Garg could  not tell  us whether  the goods  in question were taxable  at sale  point or purchase point. He could not also bring  to our  notice the  terms and  conditions of the auction sale.  He could  not satisfy  us why  the burden  of sales  tax   could  not   be  passed   on  to  him.  In  the circumstances, his  claim for  reimbursement of sales tax is rejected. His claim for interest on earnest money is equally unsustainable in law . There is no basis for the said claim. It is  also not  explained in what circumstances he was made to pay  the demurrage  charges. The  claim of the said party [Madras Agencies] is accordingly rejected.      So far  as the claim of Lakshmi Vilas Bank [a Scheduled Bank] is  concerned, we  see no reason to pass any orders on the said claim. The Bank has already filed a suit and it has to work  out its rights in that suit. There are also charges of collusion  and fraud  against the  officials of  the Bank upon which  allegations  also  we  express  no  opinion.  We express no  opinion on  the maintainability or merits of the Bank’s claim  either. It  is for  the Bank  to work  out its rights in that suit.      So far  as the claim of Madras Port Trust is concerned, we think  it just  and proper  to  honour  the  said  claim. Accordingly, a  sum of  Rs.32,72,626/- shall be paid over to the Madras  Port Trust  out of the aforesaid amount [auction

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

sale proceeds  of imported  goods] now  lying with the State Bank of India, Madras.      We see  no reason not to accept the claim of the Income Tax department. Accordingly, a sum of Rs.1,23,86,591/- shall be paid  over to  the Commissioner  of Income  Tax,  Madras, towards the  claim of  the tax  arrears due from A.Kumar for the Assessment  Years 1982-83 and 1983-84. [The above figure is taken  from the  record of  the discussions  between  the Commissioner    of     Income    Tax/Inspecting    Assistant Commissioner,  Central   Range  (I)  and  the  Collector  of Customs/Assistant Collector of Customs/Appraiser (SIB) which is appended as Annexure-C to the affidavit of Union of India filed in these matters on September 24, 1996 - Page 105 of Writ Petition  No.8168 of  1982.] The  balance amount  shall continue to lie with the State Bank of India, Madras.      The customs  authorities shall  be free  to pass  final orders forthwith  pursuant to  the show-cause  notice  dated 15/16th October,  1982. It  shall be  open to  them to  pass confiscation  orders   notwithstanding  the  fact  that  the imported goods  have been  sold under  the  orders  of  this Court. In  case, the  customs authorities  pass confiscation orders of  the imported  goods and  produce  the  orders  of confiscation before  the State  Bank of  India, Main Branch, Madras, the  balance of the amount lying with the State Bank of  India,  Madras,  shall  be  paid  over  to  the  customs authorities.      During the  course of  hearing  of  these  matters,  it appeared rather  strange to us that Lakshmi Vilas Bank chose to issue  letters of credit on behalf of A.Kumar, a mere low paid employee  and a  person of  no means.  There  are  also allegations of collusion and fraud against certain officials of the  Bank in  this matter  levelled  by  the  Income  Tax department. In the circumstances, we called upon Sri Sampath to indicate  to us in what circumstances were the letters of credit issued  by the bank in favour of A.Kumar. Sri Sampath has placed  before us  the following fax message sent by the Deputy General  Manager of  the Bank  through the Manager of its New Delhi Branch. The fax message reads as follows:      "Ref:                 R&L/L/8/96-97      Dt. 08.10.1996      THE MANAGER      NEW DELHI BRANCH      REF    :INDIAN  STEEL CORPORATION--      SUPREME COURT CASE      Ref : Your fax dt.8.10.1996.      A current  account  and  L.C.  were      opened   on   03.02.1982   on   the      mistaken identity  and  A.Kumar  is      Anil Kumar,  Brother of Vinod kumar      Didwania.      The account was introduced by Vinod      kumar Didwania who was our customer      at that time.      The L.C.  was guaranteed  by  Vinod      kumar   Didwania    and   Deendayal      Didwania.      The goods  received under L.C. were      also     securities     for     the      transaction.      The account  was open  and L.C. was      extended in  normal course  and the      only mistake  which  came  to  know      after  a   long  period   regarding      identity of the person.      The Bank was not aware that A.Kumar

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

    was  a   different  person  with  a      Ceylon citizenship.  This was found      out after  a long  time  when  I.T.      authorities took  action.  At  that      time the  guarantors  came  to  the      branch one  day  and  misusing  the      confidence of the bank had in them,      took the  file on  the  pretext  of      verifying   and    cancelled    the      guarantee documents.      The bank  acted only  bonafide  and      the bank was not aware of the fraud      played by Didwanias.      The bank  has in  the end  to  rely      upon  the  security  of  the  goods      imported.      From the sale of the goods imported      a  substantial   amount  has   been      realised and  the same  has been in      the form  of bank  deposits as  per      the orders of the Court.      If further  details  are  required,      you may  request your  advocate  to      pray for further time.      sd/-      Dy.General Manager"      All we can say is, the matter appears to be strange and unusual. However, we cannot ourselves express any opinion on the question  whether the  bank acted  in  a  business  like fashion in  extending the  letters of  credit or not. It may have been  an error of judgment or a deliberate act. That is a matter  which the  Reserve Bank  of India should look into since it  involves loss  of depositors‘  monies. Sri Sampath told us  that the  Reserve Bank  of India is already looking into the  matter but  he could not tell us with definiteness what is  the stage  of enquiry and what orders, if any, have been passed  by the  Reserve Bank  of India. Accordingly, we request the  Reserve Bank  of India  to look  into the  said matter, if  they have  not already  enquired  into  it,  and determine whether  any irregularities have been committed in the matter  and if  so, identify  the officials’ responsible therefor. In  case it  finds that  any officials  had  acted outside their  authority or  adverse to  the interest of the Bank, it  shall direct  the management  of the  bank to take necessary disciplinary proceedings against them.      Respondents Nos.2,3 and 4 [Director of Inspection (INV) Mayur Bhavan,  New Delhi,  Deputy  Director  of  Inspection, Madras and Sri K.Sundaram, Assistant Director of Inspection, Madras] in  Civil Appeal  No.1693 of  1984 have filed C.M.P. No.27299 of  1983 for certain directions against the persons named in  Para 29  thereof. We  are of  the opinion that the interests of  justice demand  that we  should hear  the said persons to  decide whether  any direction  is need  be  made against them  or any of them for the alleged fraud, cheating and other  offences said  to have  been committed  by  them. Accordingly, we  issue notices  to the  following persons in the said C.M.P.:      "1. Sri  Prahlad  Rai  Ashok  Kumar      alias P.Ashok alias A.Kumar       2. Shri Vinod Kumar       3. Shri Anil Kumar       4. Shri Pawan Kumar       5. Shri Deen Dayal       6. Shri Ram Gopal Didwania"      The  petitioners  in  C.M.P.  No.27299  of  1983  shall

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

furnish the address of the abovestated persons.      We are  not issuing notices to the officials of Lakshmi Vilas Bank in the C.M.P. for the reason that we have already directed the  Reserve Bank  of lndia  to enquire  into their conduct.      The writ  petitions and  civil appeals  are disposed of with the aforesaid directions.      Post C.M.P.  No.27299  of  1983  after  notice  to  the respondents.