2023 (7) TMI 1134 - HC - Customs

Customs Overreach: Court Limits Search Powers, Orders Unsealing of Office Premises to Protect Property Rights.

M/s. Narayan Power Solutions Versus Union of India & Anr.

The HC ruled that the Customs authorities did not have the authority to seal office premises under Section 105 of the Customs Act, 1962, without notice, ... Authority and jurisdiction - Power to search versus Power to seal u/s 105 - Power of Assistant Commissioner of Customs to seal the office premises of the petitioner in exercising powers under Section 105 of the Customs Act, 1962, without any notice to petitioner - HELD THAT:- The power to search cannot mean a power to seal. A power to seal the premises is a drastic power. In our opinion, such powers cannot be exercised unless the same is expressly conferred by law. Also the respondents have not supported their contention of such power being vested with the Customs Officers citing any authority on such proposition. As to how Section 105 of the Customs Act has been considered and interpreted by the Supreme Court in upholding its validity can be seen from the observations of the Supreme Court in R. S. Seth Gopikisan Agarwal Vs. R. N. Sen, Assistant Collector of Customs and Central Excise, Raipur & Ors. [1967 (1) TMI 39 - SUPREME COURT]. The Supreme Court interpreting Section 105 of the Customs Act, observed that the object of the section is to make search for the goods liable to be confiscated or the documents secreted in any place which are relevant to any proceeding under the Act. It was observed that the legislative policy reflected in the section is that the search must be in regard to the two categories mentioned therein, namely, goods liable to be confiscated and documents relevant to the proceedings under the Act. The customs authorities would not have an explicit power under Section 105 of the Customs Act to seal the premises. This also for the reason that sealing of premises, is a drastic action. It results in tinkering with substantive rights of a person to hold, use and occupy any immovable property. The property may be used for the business purposes or otherwise, hence, any action to seal the premises would have a direct bearing and effect on legal rights of the person to use and occupy the premises as guaranteed by Article 300A of the Constitution - Once the sealing of the premises is of business premises, it would adversely affect the right to carry on business which is a fundamental right as guaranteed under Section 19(1)(g) of the Constitution. It is for such reasons in providing for powers under Section 105 of the Customs Act of search, the legislature has kept out and/or has not included within its purview a power to seal, and has confined the power only to search the premises. In the present case, it does not appear that the premises of the petitioner were not available for the purpose of search and it appears that the customs authorities had straightaway resorted to take a drastic action against the petitioner to seal the premises for the purpose of searching the premises. This is certainly not permissible under the provisions of Section 105 of the Customs Act - the petitioner has shown willingness to co-operate in the search action to be undertaken by the customs authorities. The customs authorities need to unseal the office premises of the petitioner in the presence of the representatives of the petitioner, so that the customs authorities can undertake search of the office premises in regard to the relevant material only - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether powers conferred by Section 105 of the Customs Act include the power to seal premises, or are limited to search only. 2. Whether sealing of premises without notice or opportunity to be heard (and as a result impacting possession/use of immovable property and business operations) is permissible under Section 105 or otherwise without express statutory authority. 3. Whether, on the facts, immediate unsealing and a confined search in the presence of the petitioner's representatives is appropriate when the petitioner offers cooperation and the asserted investigation concerns transactions traceable to a third party. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether Section 105 confers power to seal premises or is confined to power to search only. Legal framework: Section 105 authorizes customs officers to make searches for goods liable to confiscation or documents relevant to proceedings under the Act. Penal and supervisory provisions (analogous to s. 136(2) of the Act and related safeguards) operate to check arbitrary searches. Precedent treatment: The Supreme Court's interpretation of Section 105 has held that the section's object is to permit searches for goods liable to confiscation or documents relevant to proceedings, and that the provision embeds a legislative policy limiting searches to those two categories while providing controls against abuse. That precedent was cited and treated as guiding the construction of Section 105 here (precedent followed, not distinguished or overruled). Interpretation and reasoning: The Court reasoned that the statutory scheme confines powers to search premises and materials falling within the two categories identified in Section 105. The power to seal is qualitatively different and far more drastic than the power to search: sealing affects substantive proprietary and business rights (possession, use, occupation, carrying on business). Because sealing is a drastic interference with rights, it requires explicit conferral by statute. Absent express language vesting a sealing power in Section 105, that section must be construed as not including the power to seal. Ratio vs. Obiter: Ratio - Section 105 does not implicitly include a power to seal premises; sealing is a distinct, drastic action requiring explicit statutory authority. Obiter - observations about potential criminal liability of officers for wrongful searches and reference to supervisory mechanisms (while relevant) further support limiting interpretation of search powers. Conclusion: The power to search under Section 105 cannot be read as a power to seal; customs officers lack explicit statutory authority under Section 105 to seal premises. Issue 2: Whether sealing of premises without notice/opportunity to be heard or other prescribed procedure is permissible, having regard to constitutional and statutory rights. Legal framework: Fundamental rights implicated include the right to hold, use and occupy property (Article 300A analogue in the reasoning) and rights to carry on business (recognised in the judgment with reference to Section 19(1)(g) principles). Principles of legality require that interference with such rights be sanctioned by clear statutory authority and, where relevant, be subject to procedural safeguards such as notice and opportunity to be heard. Precedent treatment: The Court relied on established constitutional and statutory principles (as reflected in higher court reasoning) to require explicit legislative authority for drastic measures that suspend or take away legal rights; such authorities are to be construed narrowly. Interpretation and reasoning: Sealing a premises interrupts possession and business activity and thus engages property and commercial liberty interests. Because Section 105 is framed as a search provision and omits any express sealing power, the legislature is taken to have excluded sealing from its ambit. If sealing were permissible without prescribed procedure or statutory authority, it would amount to suspension of legal rights without due process. Consequently, sealing cannot be effected under Section 105 without express statutory empowerment and procedural safeguards such as notice or opportunity to be heard, unless another provision expressly permits it. Ratio vs. Obiter: Ratio - Drastic interference with property and business rights (sealing) requires express statutory authority and cannot be effected under the general search power of Section 105; procedural safeguards are necessary. Obiter - comparative remarks on how sealing affects business and property rights and references to constitutional guarantees adding weight to the narrow construction. Conclusion: Sealing of premises without express statutory sanction and without adoption of prescribed procedure (including opportunity of hearing where required) is impermissible; Section 105 does not supply such authority. Issue 3: Remedies and appropriate immediate relief where premises were sealed but the affected party offers cooperation and the investigative interest relates to transactions traceable to a third party. Legal framework: Remedies are to be tailored to protect statutory investigative interests while safeguarding individual rights. Courts may direct unsealing and regulated search where sealing lacks statutory basis and where the party offers cooperation, subject to preservation of the respondents' rights to pursue lawful action. Precedent treatment: The Court applied established supervisory jurisdiction to fashion interim directions balancing investigatory needs and private rights; prior authority on the limited scope of search powers under Section 105 informs that balancing (prior authority followed in reasoning). Interpretation and reasoning: Given the absence of power to seal under Section 105 and the petitioner's willingness to cooperate, the appropriate course is to unseal and permit a confined, specific search focused on materials relevant to the alleged transactions (traceable to the third party supplier chain). The Court emphasized that searches must not be fishing expeditions and must be confined to documents/goods relevant to the categories in Section 105. Practical measures ordered include unsealing in the presence of petitioner's representatives and conducting the search limited to relevant material; all contentions on further lawful action remain open. Ratio vs. Obiter: Ratio - Where sealing lacks statutory basis and the affected person offers cooperation, the court may direct unsealing and supervise a confined search limited to relevant materials. Obiter - guidance that searches must be specific and not fishing expeditions; procedural direction regarding presence of representatives is pragmatic supervisory guidance. Conclusion: The appropriate remedy was to order immediate unsealing and a confined search in the presence of the petitioner's representatives, with the petitioner required to cooperate; larger contentions and further lawful actions of the respondents were left open for later adjudication. Cross-references and operative synthesis Issues 1 and 2 are interlinked: the construction of Section 105 as a search-only provision (Issue 1) is reinforced by constitutional and procedural considerations (Issue 2) that preclude reading in a sealing power absent express statutory language. Issue 3 flows from Issues 1-2 in that, when sealing has been effected without lawful authority and the affected party offers cooperation, the court may order unsealing and supervise a limited search to protect investigatory interests while safeguarding rights.