M/S. Nautilus Metal Crafts Pvt. Ltd v. Joint Director General of Foreign Trade & Anr

order" against the firm.

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¶23In the present case, the respondent had received the communication dated 04.09.2019 from DRI, which has been quoted hereinabove. The same does not refer to any material/evidence of wrongdoing by the petitioner being done to the respondent. Further, as noted above, barring uploading the factum of placing the petitioner on DEL vide so-called order dated 10.01.2020, there is actually no such order recording any reason for the same. The order, in fact, in terms of Clause D(1) of the Guidelines is supposed to inform the firm that it has a remedy of filing an Appeal against the same. Even this mandatory requirement is also not complied with. Therefore, there is a clear violation of the Guidelines on more than one count.

¶24The learned counsel for the respondents has tried to justify the impugned action by contending that the Merchandise Exports from India Scheme (MEIS) has been designed to provide rewards to exporters to offset infrastructural inefficiencies and associated costs. The Duty Credit Scrips and goods imported/domestically procured against them are freely transferrable. In terms of Clause 3.04 of the Foreign Trade Policy – Exports of notified goods/products with ITC (HS) code, to notified markets as listed in Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of rewards on various notified products [ITS (HS) code-wise]. The basis of calculation of reward would be on realised FOB (Free on Board) value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in freely convertible foreign currencies, whichever is less, unless otherwise

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specified. Therefore, the entire basis for the reward under MEIS is a valid and genuine export.

¶25She further submits that Chapter 3 of the Handbook of Procedure outlines the procedure for claiming rewards under MEIS on exports, which entails filing of an online application using digital signature, on the DGFT website. The relevant shipping bills and e-BRC have to be linked with the on-line application. Further, to simplify the process of implementation of the 'Foreign Trade Policy' Schemes, Trade Notices No.30/2018-19 dated 11.09.2018 and No.03/2015-2020 dated 03.04.2019 were issued. In terms of Clause 2 (ii) (a) of Trade Notice dated

11.09.2018, online module would not accept the submission of the MEIS application, if the applicant firm is in the Denied Entry List/Suspended IEC/Cancelled IEC and in terms of Trade Notice dated 03.04.2019, even the issue of physical copy of MEIS scrips has been discontinued w.e.f.

10.04.2019 and therefore, as of today, the entire system from 'end to end' under MEIS operates digitally, online and without any human intervention.

¶26She submits that the petitioner having allegedly realised the export proceeds, would just need to log in online on the DGFT website and claim the digital scrips under the MEIS and the only way to stop the petitioner from claiming the said benefit is to place it under the 'Denied Entry List' till a final order is passed, which is done vide the Impugned Order dated 10.01.2020. The said order has placed the petitioner in the DEL temporarily and as an ad-interim measure, so that petitioner can be prevented from availing the MEIS benefits digitally till the passing of a

Page 14

final order of suspension/cancellation under section 9 of the Foreign Trade (Development and Regulation) Act, 1992 read with rule 9 and 10 of the Foreign Trade (Regulation) Rules, 1993, for the reason stated therein, that is, for the firm/petitioner being under the DRI Ludhiana investigation.

¶27Relying upon the judgment of the Supreme Court in Ashok Kumar Lingala & Ors. vs. State of Karnataka & Ors., (2012) 1 SCC 321, he submits that the power to pass an interim order, like the Impugned Order, is implicit in Section 9 of the Act read with Rules 9 and 10 of the Rules.

¶28She submits that when an entity is placed under the Denied Entity List (DEL) it becomes ineligible to receive any Foreign Trade Policy benefits only during the time period of being placed under DEL. It does not, in any manner, affect the import/export activities of the entity. Therefore, no prejudice as such has been caused to the petitioner. On the other hand, not placing the petitioner under DEL would not only enable it to withdraw the export incentives such as MEIS despite the gross violations but would also prejudice the outcome of the DRI investigation pending against the petitioner. She submits that the Principles of Natural Justice would not be applicable to such interim orders, which are prior to final order of suspension/cancellation. Relying upon the judgment of this Court in M/s J.K. Impex & Anr. vs. UOI & Ors., (2003) I DELHI 523, she submits that in such cases, even post-decisional hearing would meet the requirements of natural justice. She submits that the petitioner was granted adequate opportunity of hearing by way of two notices, dated

08.11.2019 and 02.12.2019. The petitioner submitted its reply to the

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Show Cause Notices, however, did not avail of the opportunity of personal hearing. The petitioner has also not made any representation against the order dated 10.01.2020 and therefore, the Principles of Natural Justice have been duly complied with. She submits that even otherwise, the petitioner has not shown any prejudice being caused to it by the alleged non-compliance with the Principles of Natural Justice. She places reliance on the judgment of the Supreme Court in Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise, Gauhati & Ors., (2015) 8 SCC 519, in support of her submissions.

¶29Placing reliance on Director General of Foreign Trade & Anr. v. Kanak Exports & Anr., (2016) 2 SCC 226, she submits that the allegation against the petitioner being grave, the petitioner cannot claim any relief from this Court under Article 226 of the Constitution.

¶30To appreciate the above submissions, certain provisions of the Act and the Rules need to be considered. Section 9 of the Act provides for the issue, suspension and cancellation of licence, and reads as under:-

"9. Issue, suspension and cancellation of licence.—

(1) The Central Government may levy fees, subject to such exceptions, in respect of such person or class of persons making an application for licence, certificate, scrip or any instrument bestowing financial or fiscal benefits of in respect of any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits granted or renewed in such manner as may be prescribed.

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(2) The Director General or an officer authorised by him may, on an application and after making such inquiry as he may think fit, grant or renew or refuse to grant or renew a licence to import or export such class or classes of goods or services or technology as may be prescribed and, grant or renew or refuse to grant or renew a certificate, scrip or any instrument bestowing financial or fiscal benefit, after recording in writing his reasons for such refusal.

(3) A licence, certificate, scrip or any instrument bestowing financial or fiscal benefits granted or renewed under this section shall—

(a) be in such form as may be prescribed;

(b) be valid for such period as may be specified therein; and

(c) be subject to such terms, conditions and restrictions as may be prescribed or as specified in the licence, certificate, scrip or any instrument bestowing financial or fiscal benefits with reference to the terms, conditions and restrictions so prescribed.

(4) The Director General or the officer authorised under sub-section (2) may, subject to such conditions as may be prescribed, for good and sufficient reasons, to be recorded in writing, suspend or cancel any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits granted under this Act: Provided that no such suspension or cancellation shall be made except after giving the holder of the licence, certificate, scrip or any instrument bestowing

Page 17

financial or fiscal benefits a reasonable opportunity of being heard.

(5) An appeal against an order refusing to grant, or renew or suspending or cancelling, a licence, certificate, scrip or any instrument bestowing financial or fiscal benefits shall lie in like manner as an appeal against an order would lie under section 15."

¶31A reading of Section 9(4) clearly shows that any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can be suspended or cancelled only "for good and sufficient reasons, to be recorded in writing". The Proviso to Section 9(4) further mandates grant of a reasonable opportunity of hearing to the holder of the licence, certificate, scrip or any instrument bestowing financial or fiscal benefits.

¶32Rule 7 of the Rules also authorises the Director General or the licensing authority to refuse to grant or renew a licence, certificate, scrip or any instrument bestowing financial or fiscal benefits "for reasons to be recorded in writing" and in the circumstances mentioned therein. Rule 7 of the Rules is quoted herein below:

¶7Refusal of licence.-

(1) The Director General or the licensing authority may for reasons to be recorded in writing, refuse to grant or renew a licence if -

(a) the applicant has contravened any law relating to customs or foreign exchange;

Page 18

(b) the application for the licence does not substantially conform to any provision of these rules;

(c) the application or any document used in support thereof contains any false or fraudulent or misleading statement;

(d) it has been decided by the Central Government to canalise the export or import of goods and distribution thereof, as the case may be, through special or specialised agencies;

(e) any action against the applicant is for the time being pending under the Act or rules and Orders made thereunder;

(f) the applicant is or was a managing partner in a partnership firm, or is or was a Director of a private limited company, having controlling interest against which any action is for the time being pending under the Act or rules and Orders made thereunder;

(g) the applicant fails to pay any penalty imposed on him under the Act;

(h) the applicant has tampered with a licence;

(i) the applicant or any agent or employee of the applicant with his consent has been a party to any corrupt or fraudulent practice for the purposes of obtaining any other licence;

(j) the applicant is not eligible for a licence in accordance with any provision of the Policy;

(k) the applicant fails to produce any document called for by the Director General or the licensing authority;

(l) in the case of a licence for import, no foreign exchange is available for the purpose;

(m) the application has been signed by a person other than a person duly authorised by the applicant under the provisions of the Policy;

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(n) the applicant has attempted to obtain or has obtained cash compensatory support, duty drawback, cash assistance benefits allowed to Registered Exporters or any other similar benefits from the Central Government or any agency authorised by the Central Government in relation to exports made by him on the basis of any false, fraudulent or misleading statement or any document which is false or fabricated or tampered with.(2) The refusal of a licence under sub-rule (1) shall be without prejudice to any other action that may be taken against an applicant by the licensing authority under the Act.

¶33Rule 9 provides for suspension of a licence, certificate, scrip or any instrument bestowing financial or fiscal benefits, again "by an order in writing" and in the circumstances mentioned therein, including where proceedings for cancellation of such licence, certificate, scrip or any instrument bestowing financial or fiscal benefits have been initiated under Rule 10 of the Rules. Rule 9 is quoted herein below:

¶9Suspension of a licence.-

(1) The Director General or the licensing authority may, by order in writing, suspend the operation of a licence granted to -

(a) any person, if any order of detention has been made against such person under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974); or

(b) a partnership firm or a private limited company, if the person referred to in clause (a) is a partner or a whole time director or managing director, as the case may be, of such firm or company: Provided that the order of suspension shall cease to have effect in respect of the aforesaid person or, as the case may be, the

Page 20

partnership firm or company, when the order of detention made against such person, -

(i) being an order of detention to which the provisions of section 9 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974) do not apply, has been revoked on the report of Advisory Board under section 8 of that Act or before receipt of the report of the Advisory Board or before making a reference to the Advisory Board; or

(ii) being an order of detention to which the provisions of section 9 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974) apply, has been revoked on the report of the Advisory Board under section 8 read with sub-section (2) of section 9 of the Act or before receipt of such report;

(iii) has been set aside by a court of competent jurisdiction.

(2) The Director General or the licensing authority may by an order in writing suspend the operation of any licence granted under these rules, where proceedings for cancellation of such licence has been initiated under rule 10.

¶34Rule 10 of the Rules authorises the Director General or the licensing authority to "by an order in writing", cancel any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits. It is quoted herein below:

¶10Cancellation of a licence.-The Director General or the licensing authority may by an order in writing cancel any licence granted under these rules if -

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(a) the licence has been obtained by fraud, suppression of facts or misrepresentation; or

(b) the licensee has committed a breach of any of the conditions of the licence; or

(c) the licensee has tampered with the licence in any manner; or

(d) the licensee has contravened any law relating to customs or foreign exchange or the rules and regulations relating thereto.

¶35A reading of the above provisions would clearly show that any refusal to grant, suspend or cancel any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits, can only be "by an order in writing". In fact, Section 9(4) expressly mandates that suspension or cancellation of any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be "for good and sufficient reasons". The requirement of giving reasons cannot therefore, be dispensed with and is mandatory.

¶36Even otherwise, it is now firmly established that even an administrative decision having civil consequences must record reasons as a mandatory compliance with principles of Natural Justice. This is especially so where the order itself is appealable, like in the present case. Even otherwise, the necessity of giving reasons cannot be undermined.

¶37In the present case, the learned counsel for the respondents has admitted that except for the reference on the website to the Impugned Order dated 10.01.2020, there is no separate order dated 10.01.2020 recording reasons for placing the petitioner on DEL. The sheer starkness

Page 22

of the same is highlighted by reproducing the relevant extract from the website of the respondent as under:- S.No. Order Number Order Date Order Issued by Order Details 14/AM20/EPS-II/CLA 10/1/2020 Jt.DGFT,CLA -New Delhi FIRM IS UNDER D.R.I LUDHIANA INVESTIGATION

¶38Therefore, in the so-called order there is no reference to the Show-Cause Notices and to the replies submitted by the petitioner and how they have been dealt with and appreciated by the Authority. In fact, it gives no reason except stating that the "Firm is under D.R.I Ludhiana Investigation". In terms of the Guidelines reproduced hereinabove, the same cannot be a sufficient reason as the respondent/Authority is to apply its independent mind to the allegations against the petitioner. The respondent admits that barring receiving a reference/request dated

04.09.2019 from the DRI, it has no other material to proceed against the petitioner. The reference/request itself is cryptic.

¶39The Show Cause Notice was for "availing Special MEIS benefits fraudulently by mis-declaration and forgery of documents". The petitioner in its reply had categorically submitted that it had not claimed or submitted any documents for grant of Special MEIS benefits till date. The petitioner had also requested for a copy of the communication received from DRI to understand the background for the proposed action.

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The Impugned Order dated 10.01.2020 does not show any application of mind to these submissions as the order contains no reasons.

¶40The Impugned Order dated 10.01.2020 is liable to be set aside on this short ground itself.

¶41The submission of the learned counsel for the respondents that the Impugned Order is interim in nature and therefore principles of Natural Justice can be dispensed with cannot also be accepted. First of all, this plea was not taken in the counter affidavit filed by the respondent but has been raised only during the oral submissions. Secondly, the order itself does not reflect so. It does not state that it has been passed only till such time that the petitioner is granted a hearing and some other final order is passed.

¶42The purpose and effect of the Impugned Order has been explained by the respondent in its counter affidavit itself. It is stated that when an entity is placed under DEL, it becomes ineligible to receive any Foreign Trade Policy benefits during the time of it being placed on DEL. It blocks future export incentives. Therefore, it is a final order having civil consequences on the petitioner. It cannot therefore, be accepted that the principles of Natural Justice, in so far as recording of reasons is concerned, need not be followed before passing such an order. Even if it is accepted that in grave and emergent circumstances, such order is required to be passed without giving an opportunity of prior hearing, reasons for the same must be recorded in such order and an opportunity of post-decisional hearing must be afforded to the affected party. In the present case, no reason is recorded showing such urgency. In fact, the

Page 24

respondents had issued not one but two Show Cause Notices to the petitioner, thereby completely belying its stand. There is also no notice issued to the petitioner informing that it can avail of post-decisional hearing. The judgement of this Court in J.K. Impex (supra), therefore, can be of no assistance to the respondents. In fact, the stand of the respondents is clearly an after-thought and is liable to be rejected.

¶43I must also note that in many other cases, on being challenged, the respondents had withdrawn similar Show Cause Notices and orders placing such parties on DEL reserving liberty to issue fresh Show Cause Notice and thereafter pass fresh orders.

¶44In view of the above, the Impugned Order dated 10.01.2020 and the Show Cause Notices dated 08.11.2019 and 02.12.2019 are set aside. This order shall not however, bar the respondents from passing a fresh order, in accordance with law, in future.

¶45The respondents shall pay costs of Rs. 25,000/- to the petitioner.

NAVIN CHAWLA, J NOVEMBER 18, 2020/RN

Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 09.10.2020 Date of decision: 18.11.2020 + W.P.(C) 5167/2020 & CM 18593/2020 M/S. NAUTILUS METAL CRAFTS PVT. LTD. …...Petitioner Through: Ms.Anjali J Manish & Mr.Priyadarshi Manish, Advs. versus JOINT DIRECTOR GENERAL OF FOREIGN TRADE & ANR. ..... Respondents Through: Ms.Nidhi Raman, CGSC for UOI, with Mr.Ritesh Kumar, Adv. CORAM: HON'BLE MR. JUSTICE NAVIN CHAWLA 1. This petition has been filed by the petitioner challenging the so- called order dated 10.01.2020 passed by the Joint Director General of Foreign Trade, placing the petitioner in the Denied Entity List (DEL). The petitioner further challenges the Show Cause Notice dated 08.11.2019 issued by the Assistant Director General of Foreign Trade, calling upon the petitioner to show cause as to why it be not placed in DEL. 2. It is the case of the petitioner that it deals mainly with readymade garments and made ups and for the same it procures orders from countries such as the USA, different companies of South America, Europe, Middle East, United Kingdom etc. and after procurement of an order, directly approaches the manufacturer in India, mainly situated at Page 2 Ludhiana, who manufactures the same and thereafter, these are supplied by the petitioner to the foreign buyers. 3. The petitioner further claims that its goods have also been examined by the Directorate of Revenue Intelligence (DRI) and were cleared as no discrepancy was found. 4. The petitioner further claims that pursuant to the Circular No. 16/2019-Customs dated 17.06.2019 issued by the Director, Customs, Central Board of Indirect Taxes and Customs with regard to IGST refund, the exports made by the petitioner were subjected to 100% examination and no discrepancy was found in the same. It is further claimed that even the export proceeds against these exports and other exports have been realised by the petitioner. 5. The petitioner further gives reference to the search conducted by the DRI, Ludhiana at the office of M/s Sadagati Clearing Services Pvt. Ltd., in which it is claimed that the Managing Director of the petitioner is one of the Directors. The petitioner thereafter goes on to make various averments regarding this search and proceedings thereafter, however, as this petition is not concerned with the proceedings initiated by the DRI but by the respondents herein, albeit at the instance of the DRI, and is to be adjudicated on questions of law referred to later in this judgment, detailed reference to the same is not being made in this judgment. 6. The respondent no. 2 issued the impugned Show Cause Notice dated 08.11.2019 to the petitioner stating that the DRI had informed it that an investigation is being carried out against the petitioner "for gross Page 3 overvaluation to fraudulently avail export benefits" and it had been requested not to issue any export incentives to the petitioner. The petitioner was asked to show cause as to why it be not placed in DEL so that benefit under Foreign Trade Policy (FTP) are stopped including future refusal of Authorisation/Scrips under Rule 7(c), 7(j) and 7(n) of the Foreign Trade (Regulation) Rules, 1993 (hereinafter referred to as the 'Rules'). The petitioner was asked to appear on any working day before 13.11.2019 with all documentary evidence in support of its case, incase it desired to be heard in person. 7. As the challenge is to the Show Cause Notice itself, the same is quoted herein below:- "Subject: - Show Cause Notice under section 9,11(2), 11(3) read with section 13,14 and 17 of the Foreign Trade (Deve1opment & Regulation) Act, 1992, as amended from time to time for availing Special MEIS benefits fraudulently by misdeclaration and forgery of documents. 1. Whereas the Directorate of Revenue Intelligence has informed this office that an investigation is being carried out against your firm for gross over valuation to fraudulently avail export benefits. 2. Whereas they have requested this office not to