Natural justice bars penalty under the Customs Act where directors received no notice or hearing before adverse action.

Penalty under Section 114AA of the Customs Act could not be sustained against company directors where the show cause notice was issued only to the company, was not served on them, and no opportunity of hearing was given. The Bombay HC treated this as a breach of natural justice because the petitioners were not put to notice before the adverse order was passed. The Order-in-Original was therefore quashed and set aside insofar as it concerned the petitioners, while the respondents were left free to proceed afresh in accordance with law by issuing a proper show cause notice.

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Issues: Whether the penalty imposed on the petitioners under Section 114AA of the Customs Act, 1962 could be sustained when no show cause notice was served on them and no opportunity of hearing was granted.

Analysis: The impugned order imposed a substantial penalty on the petitioners, who were directors, although the show cause notice had been issued only to the company and was neither addressed to nor served upon the petitioners. No opportunity was afforded to them to answer the proposed action before the order was passed. The absence of notice and hearing constituted a clear breach of the principles of natural justice, and the Court followed its earlier view in a similar matter involving an independent director.

Conclusion: The impugned Order-in-Original was quashed and set aside insofar as it concerned the petitioners. The respondents were left free to proceed in accordance with law by issuing a show cause notice.

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