Bona fide transferees under transferable REP licences are protected when later cancellation of the original licence occurs.

REP licences transferable under the Import Export Policy, 1985-88 were governed by ordinary law, and a licence procured by fraud was treated as voidable rather than void ab initio. Bona fide transferees for value without notice were protected under the East India Commercial line of authority, so later suspension or cancellation of the original licence did not retrospectively invalidate imports already made or bills of entry already filed. Fedco was distinguished because it concerned the fraudulent licence-holder, not an innocent transferee. On the facts, the goods were imported while the licences remained operative, and Customs could not withhold clearance.

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Issues: Whether imported goods covered by REP licences, transferred for value to bona fide transferees without notice of any fraud, could be denied clearance on the basis of later suspension or cancellation of the original licences on allegations of fraud.

Analysis: The licences were transferable under clauses 225 and 226 of the Import Export Policy, 1985-88 and the transfer was governed by ordinary law. The Court applied the settled distinction between a licence or transaction procured by fraud being voidable rather than void ab initio. It held that the principle in East India Commercial and later decisions protected bona fide transferees for value without notice, and that subsequent suspension or cancellation of the original licence did not retrospectively invalidate imports already made and bills of entry already filed. The Court distinguished Fedco on the ground that it concerned the fraudulent licence-holder itself and not an innocent transferee. The Court also held that, on the facts, the goods were imported when the licences were still operative and the Customs authorities could not withhold clearance.

Conclusion: The imports were held valid and the Customs authorities were not justified in withholding clearance on the basis of the later suspension or cancellation of the licences.

Ratio Decidendi: A licence obtained by fraud is voidable and remains effective until lawfully avoided; where a transferee acquires the licence for value without notice and imports the goods before suspension or cancellation, the subsequent invalidation of the original licence does not retrospectively render the import illegal.

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