CHA licence revocation requires proof of connivance or supervisory failure; post-clearance employee misconduct alone is insufficient.

A CHA cannot be penalised with licence revocation or forfeiture of security merely on suspicion or on the basis of an employee's or third party's post-clearance misconduct. The Tribunal held that liability must be supported by reliable evidence of knowledge, connivance, active participation, or actionable failure of supervision in the course of the CHA's agency business; mere introduction of persons or the use of forged documents without the CHA's knowledge was insufficient. On that footing, cancellation of the CHA licence was set aside, and the associated forfeiture of the security deposit was also held unsustainable.

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Issues: (i) Whether the CHA could be held liable for the alleged fraud and employee misconduct so as to justify cancellation of the CHA licence; (ii) Whether forfeiture of the security deposit could be sustained.

Issue (i): Whether the CHA could be held liable for the alleged fraud and employee misconduct so as to justify cancellation of the CHA licence.

Analysis: The allegations rested mainly on the introduction of one person to another and on the conduct of an employee after clearance of the goods. The Tribunal found that mere introduction did not establish pre-concert, knowledge, or participation in the fraudulent diversion of the imported goods. The relevant regulations were read as confining the CHA's responsibility to acts done in the course of agency business and not extending it to private or post-clearance misconduct of an employee or to forged documents obtained without the CHA's knowledge. In the absence of reliable evidence showing connivance, active participation, or failure of supervision in the transaction of business, revocation of the licence was held to be disproportionate.

Conclusion: The cancellation of the CHA licence was not justified and was set aside, in favour of the assessee.

Issue (ii): Whether forfeiture of the security deposit could be sustained.

Analysis: The Tribunal held that under the governing regulatory framework, forfeiture of security was tied to the same misconduct-based grounds as suspension or revocation. Once the foundation for revocation was not made out, the independent retention of the security amount could not be supported on the facts of the case. The majority therefore rejected the view that forfeiture could survive separately.

Conclusion: Forfeiture of the security deposit was also not sustainable and was set aside, in favour of the assessee.

Final Conclusion: The appeal succeeded in full and the impugned order of cancellation and forfeiture did not survive.

Ratio Decidendi: A CHA cannot be visited with revocation or forfeiture merely on suspicion or on the basis of an employee's or third party's post-clearance misconduct unless knowledge, connivance, or actionable failure of supervision in the course of the CHA's agency business is proved.

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