1965 (7) TMI 56 - SC - Customs

Division of Quota Rights: Approval Relates Back to Agreement Date

The Supreme Court upheld the Madras High Court's decision that the Chief Controller's approval for the division of quota rights relates back to the date ... Whether the constitution of the firm has undergone any change after the issue of the quota certificate to the firm ? If so, quote No. and date of orders issued by the appropriate authority sanctioning transfer of quota rights in favour of the applicant? Held that:- the approval of the Chief Controller under Instruction 71 is a mere recognition of the division made by the partners of a dissolved firm by agreement between themselves and in that view the recognition must clearly relate back to the date of the agreement. Further when the Chief Controller says in his letter that in future the division would be recognised in a certain ratio based on the agreement, it only means that the Chief Controller has approved of the division made by the parties and such approval then must relate back to the date of the agreement between the parties. We therefore hold that the view taken by the Madras High Court that the approval by the Chief Controller relates back to the date of agreement is correct. The view taken by the Madras High Court is correct as the grant of approval in accordance with the agreement is obligatory on the Chief Controller if the evidence required under Instruction 72 has been produced to his satisfaction. The High Court has found that no such order under S. 3 of the Act has been published. Nor has any such order by the Central Government been brought to our notice. All that has been said is that in the declaration of policy as to import, the word 'nil' appears against fountain pens. That necessarily does not amount to prohibition of import of fountain pens unless there is an order of the Central Government to that effect published in the official gazette. We therefore agree with the High Court that unless such an order is produced it would be open to the licensing authority to issue a licence for the period of January-June 1957 even after October 1, 1957. The appeals therefore fail and are hereby dismissed with costs. Issues Involved:1. Division of quota rights upon dissolution of a partnership firm.2. The effect of the Chief Controller's approval on the division of quota rights.3. The timing and validity of applications for import licenses.4. The legal nature of quotas and licenses.5. The impact of changes in government policy on import licenses.Detailed Analysis:1. Division of Quota Rights Upon Dissolution of a Partnership Firm:The primary issue revolves around the division of quota rights when a partnership firm is dissolved. According to Instruction 71(b) of the Red Book, when a firm is dissolved and the partners agree to divide its business, assets, and liabilities, the partners shall get their respective share in the quota rights according to the provision of the agreement. The Supreme Court held that the Chief Controller must divide the quota rights in accordance with the agreement between the partners, provided the evidence required under Instruction 72 is produced. The function of the Chief Controller is more or less ministerial, and he is bound to accord approval to the division of quota rights according to the agreement.2. The Effect of the Chief Controller's Approval on the Division of Quota Rights:The Court addressed whether the Chief Controller's approval of the division of quota rights relates back to the date of the agreement between the partners. The Madras High Court had held that the approval relates back to the date of the agreement. The Supreme Court agreed, stating that if the Chief Controller's approval did not date back, the partners might lose the advantage due to delays in the Chief Controller's office. Thus, the approval must relate back to the date of the agreement to ensure fairness.3. The Timing and Validity of Applications for Import Licenses:Another issue was whether an application for an import license, made before the Chief Controller's approval, was valid. The Supreme Court noted that the application was defective as it did not mention the specific quota of the partner. However, the Joint Chief Controller did not reject the application on this ground initially. The Court observed that it is not unusual for licenses to be granted after the import period is over, and it is within the Chief Controller's discretion to recognize the division of quota rights from the date of the agreement.4. The Legal Nature of Quotas and Licenses:The Court clarified that quotas are not transferable or heritable in law and are merely for the purpose of guiding the licensing authority. Quotas inform the licensing authority that a particular person is recognized as an established importer. The approval of the Chief Controller is a recognition of the division made by the partners and must relate back to the date of the agreement. The distinction between quotas and licenses is crucial; quotas do not guarantee the issuance of a license, which depends on the licensing policy for the relevant period.5. The Impact of Changes in Government Policy on Import Licenses:The final issue was whether changes in government policy, such as a ban on the import of certain goods, affected the issuance of licenses. The Court held that unless there is an order by the Central Government under Section 3 of the Imports and Exports (Control) Act, published in the official gazette, prohibiting the import of specific goods, the licensing authority can issue licenses for the relevant period. The High Court found no such order, and the Supreme Court agreed, allowing the issuance of licenses for the period January-June 1957 even after October 1, 1957.Conclusion:The Supreme Court upheld the Madras High Court's decision that the approval of the Chief Controller for the division of quota rights relates back to the date of the agreement between the partners. The applications for import licenses, although initially defective, were valid, and the licensing authority could issue licenses for the relevant period. The appeals were dismissed with costs.