2025 (10) TMI 511 - SCH - Customs

Seized vessel to be released on indemnity bond of Rs.110 crore and specified solvent and Indian sureties

The SC affirmed that the seized vessel should be released subject to conditions, finding no illegality in the lower courts' orders and noting continued ... Direction for release of the vessel subject to fulfilment of conditions imposed - reproduction of vessel before the Customs Authorities in the event of its confiscation - Terms and conditions on which the vessel should be released - HELD THAT:- In the facts and circumstances of the case, keeping the vessel seized docked at a particular port is likely to cause huge loss to the owner of the vessel. In addition to that, he has to bear heavy docking charges. Additionally, if the vessel is not used, it is likely to deteriorate and would be of no use by the end of the trial which is likely to consume sufficient time - there is no illegality on part of either of the Courts below in directing for the release of the vessel subject to appropriate conditions. Terms and conditions on which the vessel should be released - HELD THAT:- The first condition imposed by the Trial Court is of furnishing bank guarantee of Rs. 10 Crore - The Bank Guarantee is a security measure and the said financial security would be fulfilled by furnishing two Indian sureties of the like amount of Rs.10 Crore each. In respect to the second condition imposed by the Trial Court of furnishing indemnity bond of Rs. 100 Crore, we are of the view that basing upon the Insurance Declaration, the value of the vessel had been assessed as Rs. 100 Crore and since there is no contrary material on valuation of the vessel, we do not find any justification for the High Court to have reduced the amount of the indemnity to Rs. 75 Crore - for the purposes of release of the vehicle, the respondent ought to furnish indemnity bond of Rs. 100 Crore equivalent to the value of the vessel assessed. Thus, considering that no fruitful purpose will be served if the vessel is allowed to remain seized and docked in custody of the Customs Authority till its confiscation, which may take time, we dispose of the present criminal appeals with the direction that the seized vessel shall be released forthwith by the appellant subject to the respondent furnishing indemnity bond of Rs. 110 Crore, two solvent sureties of Rs. 75 Crore as directed by the High Court and upon furnishing two Indian sureties of Rs. 10 Crore each in place of the bank guarantee of Rs. 10 Crore. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a vessel seized by Customs for carrying contraband can be released pending trial. 2. What security conditions are appropriate for release of a seized foreign-owned vessel when the owner lacks an Indian bank account. 3. Whether the amount of an indemnity bond imposed as condition for release may be reduced below the assessed value of the vessel. 4. Whether alternative securities (Indian sureties and solvent sureties) may substitute for a bank guarantee and how such substitution affects overall security. 5. Whether additional conditions are required to ensure reproduction of the vessel before Customs authorities and to secure notification of departure and arrival if the vessel leaves Indian waters. ISSUE-WISE DETAILED ANALYSIS Issue 1: Release of a vessel seized by Customs pending trial Legal framework: Courts have discretion to order release of seized property subject to conditions to balance custodial interests of enforcement agencies and rights of owners; prolonged detention may cause loss, deterioration and economic prejudice. Precedent treatment: No precedents were cited or applied in the judgment; the Court relied on principles of balancing equities and practical consequences of continued custody. Interpretation and reasoning: The Court observed that keeping a seized vessel docked for the duration of trial is likely to cause substantial loss, docking charges and physical deterioration, rendering the asset valueless by trial end. Given these harms and absence of illegality in the orders below permitting conditional release, the Court found no basis to prohibit release outright. Ratio vs. Obiter: Ratio - A seized vessel may be released pending trial where appropriate securities and conditions sufficiently protect the enforcement interest and risk of absconding or non-reproduction; the Court's decision that release was permissible under conditions is dispositive. Conclusion: The Court affirmed that release of the seized vessel was permissible in the facts and circumstances, subject to appropriate conditions to safeguard governmental interest. Issue 2: Appropriate security conditions when owner lacks an Indian bank account - substitution of Indian sureties for bank guarantee Legal framework: Security for release may be provided in forms other than a bank guarantee, provided they afford equivalent financial assurance and are acceptable to the authority charged with safeguarding the state's interest. Precedent treatment: No specific precedent cited; treated as a question of equivalence of security instruments and practicality when a foreign owner lacks domestic banking facilities. Interpretation and reasoning: The Trial Court required a bank guarantee of Rs.10 Crore. The respondent, being a foreign company without Indian bank accounts, offered instead two Indian sureties of Rs.10 Crore each to satisfy the same financial security purpose. The Court accepted that a bank guarantee is a security measure and that two solvent Indian sureties of equivalent amounts would fulfil the same financial security objective. Ratio vs. Obiter: Ratio - Where a foreign entity cannot furnish the prescribed bank guarantee due to absence of domestic banking relations, substitution by adequate Indian sureties of equivalent monetary value is permissible if they provide equivalent security to the satisfaction of the relevant authority. Conclusion: Two Indian sureties of Rs.10 Crore each were accepted in lieu of the Rs.10 Crore bank guarantee as adequate security for release. Issue 3: Validity of reducing indemnity bond below assessed value of the vessel Legal framework: Indemnity bonds are intended to secure costs, loss, damage or value of the property in event of confiscation; courts should base indemnity amounts on available valuation evidence. Precedent treatment: No precedent applied; Court relied on documentary valuation (Insurance Declaration) as basis for the indemnity amount. Interpretation and reasoning: The Trial Court fixed an indemnity bond of Rs.100 Crore based on the Insurance Declaration assessing the vessel's value at Rs.100 Crore. The High Court reduced it to Rs.75 Crore without contradictory valuation material. The Supreme Court found no justification to reduce below the assessed value where the record contained an insurance-based valuation and there was no contrary material challenging that figure. Ratio vs. Obiter: Ratio - Indemnity bond for release should ordinarily be set at least equal to the assessed value of the seized vessel where the valuation is supported by the record (e.g., Insurance Declaration), and absent contrary valuation evidence a reduction is not justified. Conclusion: The indemnity bond must be fixed at Rs.100 Crore, equivalent to the assessed value of the vessel; the High Court's reduction to Rs.75 Crore was not supported by the valuation evidence. Issue 4: Consolidated security package - acceptance of an increased indemnity in lieu of separate bank guarantee and fixing of solvent sureties Legal framework: Courts may structure composite security arrangements and accept consolidated instruments if total security adequately protects the public interest and enforcement objectives. Precedent treatment: No precedential authority was relied upon; the Court addressed acceptability on pragmatic and equivalence grounds. Interpretation and reasoning: The respondent offered to furnish an indemnity bond of Rs.110 Crore, thereby covering the Rs.100 Crore indemnity and the Rs.10 Crore bank guarantee requirement in a single instrument. The Court considered this offer fair and acceptable in the totality of circumstances. Additionally, the High Court's direction for two solvent sureties of Rs.75 Crore was retained as part of the security matrix. The Court thus fashioned a composite security: indemnity bond Rs.110 Crore, two solvent sureties of Rs.75 Crore (as directed by the High Court), and two Indian sureties of Rs.10 Crore each in place of the bank guarantee. Ratio vs. Obiter: Ratio - Courts may accept an increased indemnity bond to subsume other prescribed financial securities (such as a bank guarantee) if the aggregate security adequately secures the state's interest; courts may concurrently require solvent sureties to reinforce enforceability. Conclusion: The Court directed release upon furnishing an indemnity bond of Rs.110 Crore, two solvent sureties of Rs.75 Crore each (as per High Court), and two Indian sureties of Rs.10 Crore each in lieu of the bank guarantee. Issue 5: Ensuring reproduction and monitoring - departure/arrival notifications to Customs and Port Authorities Legal framework: Conditions of release may include obligations on the released property or owner to provide information and submit to monitoring to prevent absconding and secure reproduction for trial or enforcement. Precedent treatment: No precedent cited; the condition is framed as a practical safeguard. Interpretation and reasoning: The Court emphasized that allowing the vessel to leave Indian waters without monitoring would undermine the protective purpose of the security. To mitigate this risk, the Court imposed a condition that the vessel must inform the Customs Authority and Port Authorities of departure from and arrival to Indian ports. This condition aims to preserve the ability of authorities to exercise control if confiscation or reproduction becomes necessary. Ratio vs. Obiter: Ratio - Release may be made conditional upon express obligations of notification to Customs and Port Authorities regarding departure and arrival to maintain enforceability and facilitate reproduction if required. Conclusion: The Court mandated explicit notification obligations on the vessel for departure and arrival to Customs and Port Authorities as part of the release conditions. Interrelations and Cross-References 1. Issues 2-4 are interrelated: substitution of sureties for a bank guarantee (Issue 2) and fixing the indemnity at the assessed value (Issue 3) combine into a consolidated security package (Issue 4) that the Court approved as sufficient protection for release ordered under Issue 1. 2. Issue 5 is a complementary condition intended to operationalize the security objectives addressed in Issues 2-4 by ensuring oversight and reproduction capability despite the vessel's release. Final Dispositive Conclusion (Ratio) The Court allowed conditional release of the seized vessel, holding that release is permissible where adequate securities and monitoring conditions are imposed. The appropriate conditions in this case are: an indemnity bond equal to assessed value (fixed at Rs.100 Crore and accepted as Rs.110 Crore to subsume other requirements), two solvent sureties of Rs.75 Crore as previously directed, and two Indian sureties of Rs.10 Crore each in place of the bank guarantee; further, the vessel must notify Customs and Port Authorities of departure and arrival. These directions are ratio and determinative of the appeals.