2016 (1) TMI 11 - HC - Customs

Court declares freezing bank accounts without adjudication illegal; upholds Petitioner's rights under Constitution

The Court held that freezing bank accounts and attaching properties without adjudication was illegal. The Petitioner's involvement in smuggling was ... Constitutional right to do business - powers under Customs Act to stop business, search and seizure - Allegation of smuggling of red sanders and certain endangerous species of wild flora and fauna - Article 226 of the Constitution of India discloses as to how the Respondents, despite clear legal pronouncements, go on insisting that they can stop the running business activities by freezing the bank accounts of the concerned persons and attaching their movable and immovable properties - Held that:- Confiscation of smuggled goods notwithstanding any change in form is permissible in terms of section 120 reproduced above. By section 121, confiscation of sale proceeds of smuggled goods is permissible. We have no doubt about the legal provisions and the powers vested in the authorities under the Customs Act, 1962. We have referred to the very provisions to which the Hon'ble Supreme Court makes reference. The amount was seized and upon the satisfaction arrived at by the DRI. That should not have been released pending adjudication was the order passed and that too unconditional release of the sum was found to be unsustainable. None prevented the authorities from August, 2015 or at least from the date the Petitioner requested to issue the letter or notice calling upon him to remain present and answer the allegations. The statements now made by Mr. Jetly, on instructions, are after a copy of this Petition was served on the Respondents. We are mindful of the seriousness of the allegations and the rampant smuggling of red sanders. However, we are not directing that the immovable properties which are attached shall stand released from attachment. All that we are taking care of is the grievance of the Petitioner that by these coercive measures his business has come to a standstill. He is unable to make payments nor the act of the Respondents enables the workers and staff of the Petitioner and duly employed by him to earn their livelihood. In these circumstances, we continue the freezing and attachment of the immovable properties subject however to a limited liberty to the Petitioner to deal with the said properties in his ordinary and usual course of business. There will be no transfer, alienation or parting with possession thereof in any manner until an adjudication order in accordance with law is passed. Similarly, the Petitioner is free to operate his bank accounts and the sums therein can be released by the banks so as to enable the Petitioner to meet the liabilities in his business activities and in relation to the deals, which are disclosed in para 10 of the Writ Petition. The Petitioner, therefore, will be able to carry on his day to day business activities and for that purpose, the bank accounts shall be permitted to be operated. Save and except this limited permission and liberty, we are not inclined to accept all the requests as made in the prayer clauses of the Petition. We are mindful of the fact that in such matters an early adjudication serves the larger interest of public. Issues Involved:1. Legality of freezing bank accounts and attaching properties without adjudication.2. Petitioner's involvement in smuggling activities.3. Validity of the Respondents' actions under the Customs Act, 1962.4. Petitioner's rights under Articles 14 and 19(1)(g) of the Constitution of India.5. Request for de-freezing bank accounts to continue business operations.6. Legal precedents and their applicability to the current case.7. Requirement for adjudication and issuance of a show cause notice.Issue-Wise Detailed Analysis:1. Legality of Freezing Bank Accounts and Attaching Properties Without Adjudication:The Petitioner challenged the legality and validity of the proceedings initiated by the second Respondent, which included freezing his bank accounts and attaching his movable and immovable properties. The Court observed that the Respondents, despite clear legal pronouncements, insisted on stopping the business activities by such coercive measures. The Court noted that the Petitioner had not been issued any show cause notice nor had any penalty been adjudged or imposed. The Court emphasized that without any formal adjudication or crystallization of the penalty, the coercive measures could not continue.2. Petitioner's Involvement in Smuggling Activities:The Petitioner was accused of being involved in smuggling red sanders and other endangered species. He was arrested and later enlarged on bail. The Respondents seized a consignment of 7.12 metric tons of red sanders concealed in cement blocks and bricks for export. The Court acknowledged the seriousness of the allegations but emphasized that the Petitioner must be proceeded against in accordance with the law.3. Validity of the Respondents' Actions Under the Customs Act, 1962:The Respondents relied on the provisions of the Customs Act, 1962, particularly sections 110, 119, 120, 121, and 122, to justify their actions. The Court examined these provisions and noted that they authorize the seizure and confiscation of goods, documents, and things if they are liable to confiscation under the Act. However, the Court stressed the need for adjudication and formal judgment before taking coercive measures.4. Petitioner's Rights Under Articles 14 and 19(1)(g) of the Constitution of India:The Petitioner argued that the freezing of his bank accounts and attachment of properties violated his rights under Articles 14 and 19(1)(g) of the Constitution, which guarantee equality before the law and the right to practice any profession, respectively. The Court recognized that the coercive measures hindered the Petitioner's ability to carry on his lawful business activities and affected the livelihood of his employees.5. Request for De-Freezing Bank Accounts to Continue Business Operations:The Petitioner requested the de-freezing of his bank accounts to continue his business operations and meet his liabilities. The Court allowed the Petitioner to operate his bank accounts to carry on his day-to-day business activities. The Court permitted the release of sums from the bank accounts to enable the Petitioner to meet business liabilities but maintained the attachment of immovable properties, allowing the Petitioner to deal with them in the ordinary course of business without transferring or alienating them.6. Legal Precedents and Their Applicability to the Current Case:The Respondents cited several judgments to support their actions, including cases like Nitin Shirsat vs. Union of India, Shri Krishna Chaitanya Enterprises vs. Union of India, and Commissioner of Customs, New Delhi vs. Euroasia Global. The Court distinguished these cases based on their specific facts and circumstances, noting that the current case involved the absence of adjudication and the need for a formal judgment before continuing coercive measures.7. Requirement for Adjudication and Issuance of a Show Cause Notice:The Court directed the Respondents to issue a show cause notice and pass an adjudication order within three months. The Court emphasized the importance of adjudication in determining the penalty and ensuring that coercive measures are justified. The Court rejected the Respondents' request to impose a condition for furnishing a bank guarantee, stating that in the absence of adjudication, such a condition would amount to an indirect attachment of bank accounts.Conclusion:The Writ Petition was disposed of with the Court allowing the Petitioner to operate his bank accounts for business activities while maintaining the attachment of immovable properties with limited liberty. The Court directed the Respondents to issue a show cause notice and complete the adjudication process within three months, ensuring compliance with legal procedures and protecting the Petitioner's constitutional rights. There would be no order as to costs.