Good-faith DEPB transferees protected where valid licences were used before cancellation; later fraud by original holder did not invalidate imports.

Bona fide transferees of DEPB licences were protected where they purchased the scrips for value and used them for import before any cancellation or adverse action. The Tribunal applied the principle that a licence obtained by fraud is voidable, not void, and remains effective until avoided in law; it also treated the transferees as good-faith purchasers without notice. Because the licences were valid at the time of clearance, the later discovery of fraud by the original holders did not retrospectively invalidate the imports. The demand of customs duty, confiscation and penalties against the transferees was therefore not sustainable and was set aside.

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Issues: Whether customs duty, confiscation and penalties could be sustained against bona fide transferees of DEPB licences which had been obtained fraudulently by third parties, when the licences were valid at the time of import and the goods had already been cleared.

Analysis: The appellants purchased DEPB licences from the market for value and imported goods against those licences before any cancellation or adverse action. The governing notifications placed the relevant condition on production of a valid transferable licence at the time of clearance, and the Tribunal held that the transferees were not responsible for the fraud committed by the original licence holders. Relying on the settled line of authority that a licence obtained by fraud is voidable and remains effective until avoided in the manner known to law, the Tribunal treated the DEPB scrips as goods capable of transfer for value. It applied the principle that a transferee in good faith without notice acquires a protected title, and held that the subsequent discovery of fraud in the hands of the original holders did not retrospectively invalidate imports already made under valid licences in the hands of the appellants. The Tribunal also noted that the later introduction of Section 28AAA of the Customs Act, 1962 supported the view that recovery in such cases is to be made from the original holder, not the transferee.

Conclusion: The demand of duty, confiscation and penalties against the appellants was not sustainable and was set aside.

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