Full Judgment Text
2024 INSC 408
NON REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6394 OF 2024
(Arising out of Special Leave Petition (C) No. 4974 of 2021)
M/S. EMBIO LIMITED …APPELLANT(S)
VERSUS
DIRECTOR GENERAL OF FOREIGN
TRADE & ORS. …RESPONDENT(S)
J U D G M E N T
ABHAY S. OKA, J.
1. The appellant filed a Writ Petition under Article 226 of the
Constitution of India before the Karnataka High Court,
challenging the order imposing a penalty of Rs. 23,38,882/—
under the provisions of Section 11(2) of the Foreign Trade
(Development and Regulation) Act, 1992 (for short, ‘the FT Act’).
The said Writ Petition was dismissed. By the impugned
judgment, a Writ Appeal against the order of the learned Single
Judge was dismissed.
2. The appellant was formerly known as Emmellen Biotech
Pharmaceuticals Limited, which amalgamated with Karnataka
Malladi Biotics Limited based on an order of the Bombay High
Signature Not Verified
th
Court dated 24 March 2009.
Digitally signed by
ASHISH KONDLE
Date: 2024.05.13
17:30:56 IST
Reason:
Civil Appeal @ SLP(C) 4974 of 2021 Page 1 of 8
FACTUAL ASPECT
3. A few factual aspects will have to be set out. Karnataka
Malladi Biotics Limited (for short, ‘Karnataka Biotics’) obtained
an Export Promotion Capital Goods Licence (for short, ‘the
licence’), which enabled it to import certain capital equipment at
a concessional rate of customs duty. Under the licence,
Karnataka Biotics was permitted to import capital goods worth
Rs. 23,38,882/- equivalent to US$ 64,987 CIF value, subject to
the condition of the appellant exporting the finished goods worth
US$ 2,59,948 and earning an equivalent amount in a freely
convertible foreign currency within five years from the date of
the licence. Karnataka Biotics imported goods as permitted
under the licence and commenced commercial production.
However, the Board for Industrial Finance and Reconstruction
th
(for short, ‘BIFR’), in its meeting dated 11 August 1999,
declared Karnataka Biotics as a sick unit under Section 3(1)(o)
of the Sick Industrial Companies (Special Provisions) Act, 1985
(for short, ‘SICA’). The said company submitted a rehabilitation
proposal to the operating agency. As Karnataka Biotics had
enjoyed the benefit of concessional duty, a demand notice was
issued by the Commissioner of Customs on 3rd April 2002,
making a demand for the differential duty of Rs. 5,38,525/- from
Karnataka Biotics. As the said company could not pay the
demanded amount, a sum of Rs. 4,86,800/- was recovered by
enforcing the bank guarantee furnished by the said company.
4. On June 3, 2003, the BIFR sanctioned Karnataka Biotics'
rehabilitation scheme under Section 18 of SICA. On July 16,
2004, the third respondent passed an Order-in-Original
imposing a penalty of Rs. 23,38,882/— on Karnataka Biotics for
Civil Appeal @ SLP(C) 4974 of 2021 Page 2 of 8
non-fulfilment of export obligation under the licence. An appeal
preferred before the appellate authority against the said demand
was dismissed, and a review filed before the Central Government
was rejected.
5. In 2007, a Writ Petition was filed by the Karnataka Biotics
before the High Court of Karnataka to challenge the demand for
th
penalty. On 24 March 2009, Karnataka Biotics amalgamated
with Emmellen Biotech Pharmaceuticals Limited under the
orders of the High Court. Accordingly, a certificate of
incorporation for the change of the name of Emmellen Biotech
Pharmaceuticals Limited to M/s Embio Limited (appellant
herein) was issued. The Writ Petition filed by Karnataka Biotics
was allowed by a learned Single Judge of the Karnataka High
Court. The respondents challenged the same by filing a Writ
Appeal. A Division Bench of the High Court disposed of the
appeal by granting permission to withdraw the Writ Petition with
the liberty to file a fresh Writ Petition, presumably in view of the
amalgamation.
6. The present appellant filed a Writ Petition before the High
Court of Karnataka. The learned Single Judge dismissed the
Writ Petition by the order dated 14th November 2017. One of the
grounds of dismissal was that Karnataka Biotics had withdrawn
the earlier Writ Petition without reserving any liberty to reagitate
the same issue. By the impugned judgment, a writ appeal
preferred by the appellant against the order of the Single Judge
was dismissed on the ground that Karnataka Biotics had
withdrawn the earlier Writ Petition without reserving any liberty
to reagitate the issues involved.
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SUBMISSIONS
7. The learned senior counsel appearing for the appellant has
invited our attention to the rehabilitation scheme of Karnataka
Biotics sanctioned by the BIFR, which provides for waiver of the
custom duty of Rs. 33.30 lakhs on account of non-fulfilment of
the export obligation on the part of the Karnataka Biotics and
interest accrued thereon. He submitted that as there was a duty
waiver, there was no question of imposing any penalty.
Secondly, he submitted that both the learned Single Judge and
Division Bench completely ignored that while Karnataka Biotics
was permitted to withdraw the earlier Writ Petition, a liberty was
granted to file a fresh one. He pointed out to the order of the
Division Bench of the Karnataka High Court in this regard. He
invited our attention to the Order-in-Original passed by the 3rd
respondent imposing a penalty of Rs. 23,38,882/- under Section
11(2) of the FT Act. The learned senior counsel would submit
that non-fulfilment of export obligation under the licence is not
a ground under Section 11 (2) of the FT Act to impose a penalty.
He submitted that the order imposing penalty under Section 11
(2) of the FT Act was completely illegal.
8. The learned counsel appearing for the respondents
submitted that under the scheme of rehabilitation of Karnataka
Biotics, there was no clause granting a waiver of penalty which
could be imposed on the ground of non-fulfilment of export
obligation under the license. Learned counsel submitted that
there was a contravention of the terms of the licence, and
therefore, the respondents were well within their powers to
impose the penalty. Learned senior counsel appearing for the
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appellant relied upon various decisions of the High Courts of
Gujarat and Delhi to support his contentions.
CONSIDERATION OF SUBMISSIONS
9. At the outset, we may note that the first error committed
by the Division Bench and learned Single Judge was by
recording a finding that the first Writ Petition filed by Karnataka
Biotics was withdrawn without seeking a liberty to file a fresh
th
Writ Petition. We may note here that on 9 February 2007, the
th
first Writ Petition was filed by Karnataka Biotics. On 24 March
2009, there was an amalgamation of Karnataka Biotics. Even
after the amalgamation, the Writ Petition filed in the name of
th
Karnataka Biotics was prosecuted. The order dated 13
December 2013 passed by a Division Bench of Karnataka High
Court records that an application was moved by the respondent
in the appeal seeking permission to withdraw the Writ Petition
by reserving liberty to file a fresh petition on the same cause of
action by impleading proper parties. The Division Bench
permitted withdrawal of the main Writ Petition by expressly
granting liberty to file a fresh Writ Petition on the same cause of
action within one week from receipt of a copy of the judgment.
The grant of liberty has been recorded explicitly in paragraph 4
of the order of the Division Bench. The present appellant filed a
fresh Writ Petition not within one week but after six months of
the said order. As liberty was reserved to file a fresh petition, the
Writ Petition filed by the appellant could not have been
dismissed on the ground that while withdrawing the earlier Writ
Petition, liberty to file a fresh petition was not granted. Perhaps
both the learned Single Judge and Division Bench have ignored
Civil Appeal @ SLP(C) 4974 of 2021 Page 5 of 8
th
clause 4 of the order of the Division Bench dated 13 December
2013.
10. The predecessor of the appellant was granted the licence
for the import of capital goods under the concessional custom
duty subject to the condition that they would export the final
product and earn foreign exchange equivalent as mentioned in
the licence within five years from the date of the licence. In view
of the grant of the licence, Karnataka Biotics was allowed to
clear the imported capital goods at a concessional rate of 15 per
cent. For non-payment of the balance customs duty demand,
the customs authorities issued a show cause notice. Pursuant
to the said notice, the bank guarantee furnished earlier by
Karnataka Biotics was encashed. We have carefully perused the
sanctioned rehabilitation scheme of Karnataka Biotics under
SICA. Various reliefs and concessions were noted in the scheme.
It provided for a waiver of payment of specific amounts. The
relevant waiver clause reads thus:
“ (ii) To waive the customs duty payable of
Rs. 33.30 lakhs payable on account of non-
fulfillment of export obligation and Rs.44.40
lakhs towards interest accrued up to May
st
31 2002. ”
Thus, on its plain reading, a customs duty waiver was granted.
11. We have perused the Order-in-Original passed by the third
respondent, which levied the impugned penalty of Rs.
23,38,882/—. The Order-in-Original records that Karnataka
Biotics did not comply with the export obligation under the
license granted under the FT Act. Therefore, the penalty was
Civil Appeal @ SLP(C) 4974 of 2021 Page 6 of 8
imposed specifically under Section 11 (2). Thus, the waiver
granted under the rehabilitation scheme is of no assistance to
the appellant as it was only of the customs duty.
12. Section 11 of the FT Act reads thus:
“
11. Contravention of provisions of this
Act, rules, orders and foreign trade
policy . —(1) No export or import shall be
made by any person except in accordance
with the provisions of this Act, the rules and
orders made thereunder and the foreign
trade policy for the time being in force.
(2) Where any person makes or abets or
attempts to make any export or import in
contravention of any provision of this Act
or any rules or orders made thereunder or
the foreign trade policy, he shall be liable
to a penalty of not less than ten thousand
rupees and not more than five times the
value of the goods or services or
technology in respect of which any
contravention is made or attempted to be
made, whichever is more.
……………………………………………………...
……………………………………………………”
(emphasis added)
Sub-Section (2) applies when any import or export is made in
contravention of any provision of the FT Act, Rules, and orders
made thereunder or the foreign trade policy.
13. In the present case, there is no allegation made by the
respondents against the appellant's predecessor of making or
attempting to make any export or import in contravention of the
FT Act, any Rules or orders made thereunder, or the foreign
Civil Appeal @ SLP(C) 4974 of 2021 Page 7 of 8
trade policy. Under the license granted to the appellant’s
predecessor, there was an obligation to export finished goods by
earning foreign exchange equivalent to USD 2,59,948 within a
period of five years. The allegation is of the failure to abide by the
obligation to export the finished goods within a period of five
years. So, there is no allegation of attempting to make an export
or import, which is covered by Section 11 (2). There is no
allegation against the appellant or its predecessor of making an
export or import in contravention of the export and import policy.
Section 11 (2) is a penal provision. It must be strictly construed.
Thus, the demand for penalty cannot be sustained. Hence, we
set aside the impugned judgments and orders of the learned
Single Judge and Division Bench. We also set aside the Order-
th
in-Original dated 16 July 2004 (Annexure P-3) by which the
impugned penalty was imposed.
14. Accordingly, the appeal is allowed with no orders as to
costs.
……………………..J.
(Abhay S. Oka)
……………………..J.
(Ujjal Bhuyan)
New Delhi;
May 13, 2024.
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