2008 (4) TMI 432 - HC - Customs

Appellate Court Rules in Favor of Appeal Over Fraud and Contract Voidance

The appellate court allowed the appeal, setting aside findings of fraud and the contract being void ab initio. Appeals seeking monetary relief were ... Prohibited goods vis-avis Dutiable goods vis-à-vis Exempted goods - violation of the provisions of the Customs Act - Section 111 that the Act deals with “prohibited goods” and “dutiable goods” as two identifiable and separate categories. Goods which are dutiable but which are exempted from duty subject to conditions cannot become prohibited if these conditions are violated; they only become dutiable. Therefore, when it is accepted by both parties that the goods were imported as per Notification No. 20 of 1999, we are unable to see anything in the relevant clause in the said Notification which persuades us to come to the conclusion that the goods were prohibited – the goods in question are exempt from duty wholly or partially subject to certain conditions – The fact that subsequently a decision was taken because of the policy of the Government, which rendered the fertilizer plant unviable, would not justify a conclusion that the condition subject to which exemption from duty was granted had been violated - As per Section 125 of the Customs Act, if the goods are not prohibited, then the adjudicating officer shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the officer thinks it fit. It is only when it is a prohibited goods that the officer has the discretion and it is open to him not to give the option to pay fine in lieu of confiscation. Therefore, the finding of the learned Judge that the goods are prohibited is not correct - We only hold that the question whether there was suppression and fraud must be proved by one who alleges fraud; the question of collusion and conspiracy must also be proved by the one who alleges it. These are questions which have to be proved by adducing evidence. Issues Involved:1. Disputed facts and maintainability of the writ petition.2. Allegation of fraud and whether the contract was void ab initio.3. Arbitration clause and its applicability.4. Monetary relief and restitution.Issue-wise Analysis:1. Disputed Facts and Maintainability of the Writ Petition:The writ petition was filed to quash the Sale Order/Acceptance Letter and for the return of a substantial amount with interest. The court dismissed the writ petition on the grounds that the facts were disputed and needed to be established before a court of law by adducing sufficient proof. The court emphasized that the writ jurisdiction under Article 226 is not intended for adjudicating complex factual disputes that require evidence. The learned single Judge's decision to dismiss the writ petition was based on the principle that disputes involving factual determinations are better suited for civil courts or arbitration.2. Allegation of Fraud and Whether the Contract was Void Ab Initio:The learned single Judge found that the contract was void ab initio due to fraud committed by NLC. However, this finding was challenged. The appellate court noted that fraud must be proven by the party alleging it and that fraud makes a contract voidable, not void ab initio. The court set aside the finding of fraud, stating that it requires evidence and cannot be presumed. The court also clarified that the goods in question were not prohibited but dutiable, and any violation of conditions would make them dutiable, not prohibited. The appellate court concluded that the question of fraud and the nature of the goods must be determined by a fact-finding authority, not in writ jurisdiction.3. Arbitration Clause and Its Applicability:The contract contained an arbitration clause for resolving disputes. The learned single Judge held that the arbitration clause could not be invoked if the contract was void ab initio. However, the appellate court disagreed, citing Section 16 of the Arbitration and Conciliation Act, which states that an arbitration clause is independent of the other terms of the contract. Even if the contract is declared void, the arbitration clause remains valid, and the arbitrator has the jurisdiction to rule on the validity of the contract. The appellate court directed the parties to invoke the arbitration clause to resolve their disputes.4. Monetary Relief and Restitution:The writ petitioner sought monetary relief for the refund of the amount paid. The learned single Judge refused to grant this relief, citing the need for factual determinations regarding the value of the materials removed. The appellate court confirmed this decision, emphasizing that monetary relief involving disputed facts should be sought in civil court or arbitration. The court noted that the petitioner, being a business entity, should pursue its claims through appropriate legal channels where evidence can be presented and evaluated.Conclusion:The appellate court allowed the appeal filed by NLC, setting aside the findings of fraud and the contract being void ab initio. The court dismissed the appeals seeking monetary relief and restitution, directing the parties to resolve their disputes through arbitration as per the contract's arbitration clause. The court reiterated that complex factual disputes and claims for monetary relief should be adjudicated by a fact-finding authority or through arbitration, not in writ jurisdiction.