2026 (1) TMI 257 - HC - GST

Seized silver and cash lost in state custody after seizure; compensation ordered for negligent safeguarding, limited to 23.44 kg shortfall.

The dominant issue was whether a writ claim for compensation/return was maintainable where seized property was lost while in State custody. Holding that ... Confiscation of silver and cas with an option to pay remedemption fine - maintainability of claim of compensation - seizure of silver by the officials of the 2nd respondent was in exercise of the sovereign power of the State - HELD THAT:- There have been a number of judgments, of the Hon’ble Supreme Court, wherein the concept of “Constitutional tort” was invoked and compensation had been granted, even in cases where the interests of private persons had been affected. A Constitution bench, of the Hon’ble Supreme Court in Kaushal Kishor v. State of U.P. [2023 (1) TMI 1469 - SUPREME COURT (LB)], had held that 'the High Courts have been consistent in invoking constitutional tort whenever an act of omission and commission on the part of a public functionary, including a Minister, caused harm or loss. But as rightly pointed out by the learned Attorney General in his note, the matter pre-eminently deserves a proper legal framework so that the principles and procedure are coherently set out without leaving the matter open ended or vague.' In the present case, the loss of silver can only be attributable to the negligence of the respondents as the silver was stolen from the police station itself. The loss of such a large amount of silver and cash would absolutely impinge on the right of the petitioner, under Article 19(1)(g) to carry on his trade or business. In such circumstances, the petitioner is entitled to compensation for the loss suffered by him on account of the sheer negligence on the part of the officials of the State in protecting the property which has been seized from the son of the deceased. The undisputed facts are that 105 kgs of pure silver was seized from the son of the petitioner along with cash of Rs. 2,50,000/- weighting 81.567 kgs and cash of Rs.10 lakhs was handed over to the petitioner. The contention of the petitioner that only 27 kgs out of the aforesaid 81.567 kgs was pure silver and the remaining 54.567 kgs contained only 60% silver. It would not be possible for this Court to go into the question of the purity of the silver, handed over to the petitioner. There is also no material, on the basis of which this Court would be able to ascertain the impurity contained in 54.567 kgs of silver lumps. In the circumstances, this Court can only take into account the short fall of silver as the differences between 105 kgs of silver seized from the petitioner and 81.567 kgs of silver returned to the petitioner. This would mean there was a short fall of 23.433 kgs of silver - the cash of Rs. 2,05,000/- has been seized from the son of the petitioner and cash of Rs.10 lakhs has been returned to the petitioner. It is stated that the aforesaid Rs. 10 lakhs was the cash recovered from the persons who had stolen the silver and cash, as these persons had sold away some part of the silver and some of the proceeds of such sale, were recovered from these accused persons. The petitioner is entitled to a return of 23.44 kgs of pure silver - the value of silver, as on date, shall be taken for purposes of supply of such silver to the petitioner - the additional cash of Rs. 7,95,000/- shall be adjusted against the return of 23.44 kgs, by taking the value of Silver, as on today. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the State can be directed in writ jurisdiction to compensate for seized property (silver and cash) lost from police custody due to theft/negligence, notwithstanding the plea of sovereign function/immunity. 2. What is the quantification and mode of compensation payable for the shortfall in seized silver and the treatment/adjustment of cash already returned, given that the Court declined to determine purity disputes on the available material. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability and entitlement to compensation for loss of seized property from police custody Legal framework: The Court examined State liability where loss occurs during police custody of seized property and addressed the objection based on 'sovereign power' immunity, while also relying on the Court's approach recognising compensation in public law (constitutional tort) and the impact on constitutional rights. Interpretation and reasoning: The Court found that the loss of silver and cash occurred because the property was stolen from the police station itself, making the loss attributable to negligence of State officials in protecting seized property. The Court rejected the respondents' reliance on sovereign-function immunity as a bar to compensation in the circumstances, and held that such a loss 'absolutely' impinges upon the petitioner's right under Article 19(1)(g) to carry on trade or business. On that basis, the Court held the petitioner entitled to compensation for loss caused by 'sheer negligence' in safeguarding seized property. Conclusion: The Court conclusively held that compensation/delivery of equivalent value is payable for the loss/shortfall of seized silver from police custody attributable to negligence, and granted relief in writ jurisdiction. Issue 2: Quantification of shortfall and directions on adjustment/value and mode of restitution Legal framework: The Court proceeded on undisputed facts as to quantity seized and quantity returned, and fashioned restitution/compensation directions based on the market value of silver 'as on date,' with a time-linked valuation rule for delay. Interpretation and reasoning: Although the petitioner alleged that part of the returned silver was of reduced purity, the Court held it could not adjudicate purity because there was no material to ascertain impurity and it was not feasible to decide that issue in the writ petition. Therefore, the Court limited relief to the objectively verifiable shortfall between the seized quantity (105 kg) and the quantity actually returned (81.567 kg), computing a shortfall of 23.433 kg (rounded in the operative directions to 23.44 kg). As to cash, since more cash (Rs. 10 lakhs) had been returned than what was seized (Rs. 2,05,000), the Court treated the excess (Rs. 7,95,000) as available for adjustment against the value of the shortfall in silver, using the value of pure silver 'as on today.' The Court directed that the remaining balance after such adjustment must be made good either by delivering pure silver or paying cash equivalent, again pegged to the value of pure silver as on the applicable date. The Court further fixed a three-week period: if restitution occurs within three weeks, 'today's' value applies; if delayed, the value on the date of return governs. Conclusion: The Court ordered restitution for 23.44 kg of pure silver, directed valuation at the prevailing market value with a delay-sensitive valuation rule, mandated adjustment of Rs. 7,95,000 (excess cash returned) against the payable value, and required the respondents to satisfy any remaining amount by delivery of pure silver or cash equivalent. The Court left open the petitioner's liberty to establish the separate purity-based claim regarding the returned silver in appropriate proceedings.