Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 12.02.2013
% Judgment delivered on: 14.03.2013
+ W.P.(C) 792/2012
CORPORATE AIRCRAFT FUNDING
COMPANY LLC ..... Petitioner
Versus
UNION OF INDIA & ORS. ..... Respondents
Advocates who appeared in this case:
For the Petitioner: Mr Amit Sethi, Mr A. Aggarwal & Mr Aman Gandhi, Advs.
For the Respondents: Ms Anjana Gosain, Adv. for R-1.
Mr S.K. Dubey, Ms Zeenat Masoodi & Ms Bhagyashree Rati,
Advs. for R-3.
CORAM :-
HON'BLE MR JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J
1. The petitioner before me, is the mortgagee of Bombardier Challenger
Aircraft 300, bearing manufacturer‟s serial no. 20174 (hereinafter referred to
as the `Aircraft‟), assigned call sign VT-RAK, by the Indian authorities.
The Aircraft, which is owned by respondent no. 2, i.e., Peel Aviation Ltd (in
short PAL), was leased to an Indian company by the name of Golden Wings
Pvt. Ltd. (in short GWPL).
1.1 Under a financing arrangement, a loan was extended by the petitioner
to PAL which was secured by creating a mortgage on the said aircraft.
1.2 The instrument of mortgage, inter alia confers on the petitioner the
right to seek de-registration of the Aircraft, from the jurisdiction of the
concerned State Registry. The State Registry, is defined in the instrument
WP(C) 792/2012 Page 1 of 22
of mortgage, as the national jurisdiction; in which the aircraft is registered;
which presently would be India.
2 The petitioner seeks to exercise, its right of de-registration, which is
resisted by respondent no. 1, i.e., the Director General of Civil Aviation (in
short DGCA) at the behest of the Directorate of Revenue Intelligence (in
short DRI), i.e., respondent no. 3. An intimation in this behalf was issued by
DRI to DGCA on 10.12.2010. The upshot of this communication is that,
even though GWPL had imported the Aircraft in issue, into India under a
Non-Scheduled Operator Permit (NSOP) no. 13/208 dated 08.05.2008 at
“nil” rate of duty, since it was apparently not used for the said purpose, a
case of duty evasion was being investigated by DRI. It is on account of this
fact that DRI advised DGCA, not to de-register the Aircraft. Furthermore,
in the very same communication DRI acknowledged the fact that, the
Aircraft was located at London, and that the lessor of the Aircraft was PAL.
3 The petitioner is, essentially, aggrieved by the refusal of DGCA to de-
register the Aircraft based on the aforementioned communication dated
10.12.2010 issued by DRI. DGCA by itself, as is emerged, during the
course of arguments advanced before me, has no objection to the de-
registration of the said Aircraft.
4. Briefly, the aforementioned grievance of the petitioner arises in the
background of the following broad, but relevant facts:
4.1 On 20.03.2008, PAL which is the owner of the Aircraft, entered into a
lease agreement with GWPL (in short the `March lease‟). A fresh lease
agreement was executed between the said entities on 07.05.2008 (in short
the `May lease‟), pursuant to which the March lease was terminated.
Apparently, on 15.07.2008, the very same entities entered into yet another
WP(C) 792/2012 Page 2 of 22
lease agreement (in short the `July lease‟), whereby it was agreed to
terminate the „May lease‟.
4.2 The petitioner, however, avers that it is unaware as to whether the
July lease was filed with DGCA. Apparently, in the interregnum, on
16.04.2008, DGCA granted a No-Objection Certificate (in short NOC) to
GWPL, to import the said Aircraft to India.
4.3 With the NOC in place, the said Aircraft was flown into India on
17.04.2008; whereupon, it is claimed by the petitioner, the Aircraft was
received in India and custom duty amounting to Rs.28,880/- was paid by
GWPL. Pertinently, as noticed above, the stand of DRI is that the Aircraft
was imported into India at nil rate of duty.
4.4 Evidently, on 25.04.2008, DGCA issued a certificate of registration
which carried an endorsement that the mortgagee of the Aircraft was the
petitioner. To be noted, the certificate of registration, as indicated therein,
is otherwise valid till 14.04.2015.
4.5 On 07.05.2008, the petitioner apparently entered into a loan
agreement with PAL. It is averred by the petitioner that, pursuant to the said
loan agreement, credit facility in the sum of USD 15,885,915/- was agreed
to be extended to PAL to enable it to: firstly, finance in-part, the acquisition
of the Aircraft. Secondly, to refinance the existing credit facility availed by
PAL, from Midland National Life Insurance Company.
4.6 In order to secure the repayment of loan, PAL executed an aircraft
security agreement and mortgage with the petitioner on 05.05.2008
(collectively referred to as mortgage documents). In addition, a supplement
mortgage was executed by PAL on the same date. By virtue of the said
mortgage documents, a first priority mortgage was created by PAL in favour
of the petitioner qua the Aircraft, which included the identified airframes
WP(C) 792/2012 Page 3 of 22
and engine etc. What is important to note, is that, by virtue of the
mortgaged document, the petitioner acquired the right to seek de-registration
of the aircraft from the jurisdiction of the State, in which, it was registered.
4.7 It is because the mortgage document required PAL to enter into a
fresh lease agreement, that the `July lease‟ was executed, which resulted in
termination of the `May lease‟.
4.8 Pertinently, India had ratified the convention known as: The Cape
Town Convention on International Interest in Mobile Equipment (in short
the Cape Town Convention); a fact which is reflected in the `July lease‟, as
well . From the point of view of the petitioner, there were two important
documents, which GWPL, i.e., the lessee, executed in favour of the
petitioner. The first document being an irrevocable power of attorney (in
short POA), which empowered the petitioner to seek deregistration of the
aircraft. The second document being: an “irrevocable deregistration and
export request authorization” (in short IDERA). This document was
executed pursuant to the provisions of Article XIII of the Protocol to the
Convention on International Interest in Mobile Equipment on Matters
Specific to Aircraft Equipment (in short the Protocol). Importantly, both
the POA and the IDERA were executed by PAL in favour of the petitioner
on the same date, i.e., 23.04.2008.
4.9 Evidently, the Aircraft was flown out of India on 25.04.2010.
Presently, the Aircraft appears to be parked at the Biggin Hill Airport, in
Kent, United Kingdom (U.K.) , since 23.07.2010.
5. Apparently, the `May lease‟ agreement, executed between PAL and
GWPL, was terminated on 30.09.2010; a notification with respect to which
was issued to GWPL, on 15.10.2010. This fact was confirmed by GWPL
WP(C) 792/2012 Page 4 of 22
by its communication dated 21.12.2010. It is not in dispute that for some
odd reason there has been no termination of the `July lease‟ by PAL.
5.1 In the interregnum, by a letter dated 04.11.2010 issued by PAL to
DGCA, PAL while informing DGCA that its dry lease agreement with
GWPL had been terminated on 30.09.2010, also sought, as indicated above,
an export certificate of airworthiness, to be followed by deregistration of the
Aircraft, in order to enable it to register the Aircraft in the U.K.. PAL also
intimated DGCA by this very letter that they had appointed one, Jet
Aviation; an entity based in U.K. for maintaining the Aircraft. DGCA vide
its letter dated 14.12.2010, apparently, sought explanation from GWPL with
regard to the aforesaid aspects as also the circumstances in which the
Aircraft was grounded at a foreign station.
5.2 Evidently, on 10.12.2010, DRI, as indicated above, advised DGCA
not to deregister the Aircraft.
5.3 On the part of GWPL, a response to DGCA‟s communication dated
14.12.2010, was issued vide letter dated 21.12.2010. GWPL informed
DGCA that the Aircraft was flown out of India as GWPL was under scrutiny
since August, 2010 by various statutory authorities including the Income
Tax Department, DRI, Customs, Enforcement Directorate etc., as the
Aircraft has been used by one Sh. Lalit K. Modi. This apart, GWPL also
stated in this very communication that the lease had been terminated on
30.09.2010, as also the fact that PAL had applied for deregistration and
issuance of an export certificate of airworthiness vide its letter dated
04.11.2010, to which it had no objection.
5.4 In response to the same, on 27.12.2010 DGCA informed GWPL that,
its request for deregistration of the Aircraft could not be acceded to, without
obtaining necessary clearance from DRI and the petitioner, i.e., the
WP(C) 792/2012 Page 5 of 22
mortgagee. A reference was also made to the fact that no explanation has
been offered by GWPL as to the circumstances in which the Aircraft was
grounded at a foreign station. A copy of the said communication was also
sent inter alia to the petitioner, PAL and DRI.
5.5 In response to the aforementioned communication GWPL, vide
communication dated 04.03.2011, offered the following explanation:
(i) the Aircraft had flown out of India on 25.04.2010 and was flying in
UK air space till 23.07.2010;
(ii) the Aircraft was parked at foreign station as per the instruction of the
lessor, PAL;
(iii) the lease was terminated on 30.09.2010, preceded by the termination
of the maintenance agreement with an Indian entity on 28.09.2010;
(iv) PAL had approached the DGCA for deregistration of the Aircraft,
which was refused vide letter dated 12.12.2010;
(v) the management of the Aircraft had been assigned to a company
based in U.K., resultantly it had no control over the aircraft; and
(vi) lastly, that it was desirous of surrendering the NSOP permit, which
was due for renewal as no aircraft is endorsed on the said permit.
5.6 DGCA, once again, by a letter dated 08.11.2011 informed GWPL
that, its request for deregistration could not be acceded to for two reasons.
Firstly, DRI was investigating the issue of evasion of custom duty and no
clearance had been received for deregistration from the said agency.
Secondly, a NOC /consent of the petitioner for deregistration had not been
received. A copy of this letter was sent inter alia to the petitioner, PAL and
DRI.
5.7 In view of the above, the petitioner vide letter dated 20.04.2011,
furnished their NOC for deregistration of the Aircraft. This communication
WP(C) 792/2012 Page 6 of 22
was apparently sent by the solicitors of PAL alongwith their communication
dated 25.04.2011.
5.8 Since no response was received from DGCA, the petitioner through
its solicitors reiterated its request vide communication dated 18.05.2011. It
appears since PAL had defaulted under the loan agreement, by a
communication dated 08.07.2011, the petitioner terminated the loan
agreement and also simultaneously called upon a company by the name of
London Executive Aviation Limited, which was, managing and maintaining
the Aircraft, to transfer the possession of the said Aircraft to the petitioner.
Pursuant to the aforesaid communication, the petitioner, in its capacity as a
mortgagee, took possession of the Aircraft. The above was followed by a
communication dated 21.07.2011 addressed to DGCA which, sought to
convey to DGCA, in no uncertain terms that, since the lease agreement had
been terminated it was desirous of deregistering the Aircraft from the Indian
Aircraft register in consonance with its power and capacity, conferred upon
it, under as the POA of GWPL, as also in its capacity as the mortgagee of
the Aircraft.
5.9 Apparently, meetings in this behalf were held between the officials of
DGCA as well as the solicitors of the petitioner on 02.09.2011, which is
reflected in the email of its solicitor dated 14.09.2011. The aforesaid
meeting was followed up by a communication dated 07.10.2011, issued by
the solicitor of the petitioner, seeking deregistration of the aircraft.
6 DGCA on its part, by letter dated 08.11.2011 informed the
petitioner‟s solicitor that since DRI was investigating the issue of evasion of
custom duty, it could not deregister the Aircraft till completion of
investigation, as conveyed by DRI vide its letter dated 10.12.2010. In sum
WP(C) 792/2012 Page 7 of 22
and substance, DGCA conveyed that till it receives the necessary clearance,
it could not deregister the Aircraft.
7 Aggrieved by the above, the petitioner filed the present writ petition
under Article 226 of the Constitution of India, whereupon notice was issued
in the petition on 08.02.2012. On the said date, a direction was issued to the
petitioner, to implead DRI, since the DGCA‟s resistance to deregistration of
the Aircraft was based on the communication issued by DRI in that behalf.
7.1 Upon issuance of notice, returns have been filed by both DGCA and
the DRI. Based on the aforesaid, the following submissions have been
made on behalf of the parties before me.
SUBMISSIONS OF COUNSELS
8 The petitioner was represented by Mr Amit Sethi, Advocate, while
DGCA was represented by Ms Anjana Gosain, Advocate. The submissions
on behalf of DRI was represented by Mr S.K. Dubey, Advocate.
8.1 Mr Sethi submitted that the decision of the DGCA, not to deregister
the Aircraft at the behest of DRI was illegal for the following reasons:
(i) The DGCA was a statutory authority under the Aircraft Act, 1934 (in
short the Aircraft Act) which was required to take decisions on its own in
consonance with provisions of the said Act read with the Aircraft Rules,
1937 (in short the Aircraft Rules), framed thereunder. In this regard,
reference was made, in particular to Rule 30(6)(iv)and para 9 of the Civil
Aviation Requirements (in short CAR) framed under Rule 133A.
(ii) The petitioner having exercised its power under the irrevocable POA
and the IDERA, DGCA could not have refused deregistration of the
Aircraft.
(iii) The refusal of DGCA to effect deregistration is violative of the
provisions of the Cape Town Convention and the Protocol. It was submitted
WP(C) 792/2012 Page 8 of 22
that under Article XIII of the Cape Town Convention, it was the bounden
duty of the DGCA to assist the petitioner, which was authorized to exercise
remedies available under Article IX of the said convention, which included
the right to seek deregistration of the Aircraft.
(iv) It is because there was a default by the lessee, i.e., GWPL, which led
to the termination of the lease and the consequent step taken towards
exercise of power under the POA and the IDERA by the petitioner for
seeking deregistration of the Aircraft.
(v) It is not the duty or function of DGCA as envisaged under the Aircraft
Act and the Rules framed thereunder, to recover the purported dues
seemingly owed by the importer to the customs. In this behalf, it was
submitted that DGCA is required to act independently and cannot abdicate
its statutory functions and powers in favour of another authority which had
nothing to do with the administration of the Aircraft Act and the Rules
framed thereunder.
(vi) The DRI, similarly, has no power or authority conferred upon it under
the Customs Act, 1966 (in short the Customs Act) to direct the DGCA to act
in a particular manner and in this particular case to refuse deregistration so
as to achieve indirectly what it cannot achieve directly.
(vii) The provisions of Section 110 and 111(o) of the Customs Act have no
applicability as the Aircraft is grounded at a place which is outside the
territory of India.
(viii) The petitioner being a financial institution, with a secured interest in
the Aircraft, it cannot be prevented from exercising that right by an entity
such as the DRI which has failed to show that, it has either a better right or a
statutory charge over the Aircraft.
WP(C) 792/2012 Page 9 of 22
(ix) The investigation of DRI against the Indian importer, i.e., GWPL
cannot impinge upon the rights which inhere in the petitioner under the
POA, IDERA, the Customs Act, Rules framed thereunder and the Cape
Town convention. In support of his contentions the learned counsel for the
petitioner relied upon the following judgments: Joint Action Committee of
Air Line Pilots’ Association of India (ALPAI) & Ors. vs Director General
of Civil Aviation & Ors. (2011) 5 SCC 435; GPA Finance Ltd. vs Union of
India, Through Ministry of Civil Aviation in C.W. No. 2368/1997 dated
02.07.1997 and Golden Dragon Traders vs Union of India 2009 (244)
E.L.T. 43(Guj) .
9. On the other hand Mr Dubey and Ms Gosain submitted that the writ
petition ought to be dismissed on the ground that there was a prima facie
case of evasion of customs duty in the import of the Aircraft in question;
investigation in respect of which was ensuing. Both counsels submitted
that DGCA was well within its powers, both under the provisions of clause
(vii) of Sub-rule 6 of Rule 30 of the Aircraft Rules to act in the manner in
which it did, i.e., refuse deregistration of the aircraft.
9.1 It was submitted by the counsels that the petitioner could not exercise
the power under the irrevocable POA or the IDERA in view of the fact that
the lease already stood terminated.
9.2 It was the submissions of the counsels that the charge of evasion of
customs duty was being investigated for the reason that at the point in time
when the Aircraft was imported, exemption was sought from payment of
duty on the specific undertaking that it would be used to provide NSOP
services, whereas it is now found that, since the date of import, the Aircraft
was being used exclusively by one Sh. Lalit K. Modi, for his exclusive
personal travel.
WP(C) 792/2012 Page 10 of 22
9.3 It was further submitted, investigations had revealed that GWPL, i.e.,
the lessee had not paid any lease rental to the lessor, i.e., PAL. The
counsels submitted that, since the Aircraft had been imported at nil rate of
duty under an exemption notification, whereby, it was required to be used in
a particular manner, as indicated above – the breach of the exemption
conditions had triggered a right to recover duties which were exempted only
if the aircraft was used for the purpose indicated in the notification. In this
behalf reliance was placed on condition no. 104 of notification no. 21/2002-
Cus-s.no. 347B.
10 Mr Dubey, in particular, submitted that, in view of the fact the
conditions of the exemption notification had been violated by GWPL, the
aircraft was liable to be seized/confiscated under the provisions of Section
110/111(o) of the Customs Act.
10.1 Mr Dubey relied upon his counter affidavit to contend that no sooner
was an investigation ordered against Sh. Lalit K. Modi in the IPL scam, the
Aircraft was flown out of the country, and, therefore, in order to seek
recovery of the duty evaded, the communication dated 10.12.2010, was
issued by DRI to DGCA advising it, not to deregister the Aircraft.
According to Mr Dubey, the duty evaded in respect of Aircraft in issue, was
to the tune of Rs. 19 crores (approximately), which was, exclusive of
interest and other charges applicable under the Customs Act.
10.2 Mr Dubey further submitted that, the respondents‟ action were in
consonance with provisions of Form No. 4, lodged by the Government of
India (GOI) under the Cape Town Convention at the time of deposit of its
instrument of accession which, empowered GOI to arrest or distrain an
aircraft for payment of amounts owed to it.
WP(C) 792/2012 Page 11 of 22
10.3 Mr Dubey, when asked, as to the source of DRI‟s power to make the
kind of request which it did vide its communication of 10.12.2010,
addressed to DGCA, relied upon the proviso to Section 110 of the Customs
Act.
REASONS
11 Having perused the record and heard the counsels for the parties,
following facts emerge in respect of which there is no perceptible dispute.
(i) The petitioner had executed three (3) successive lease agreements
with PAL, i.e., the owner of the Aircraft, in March, May and July of 2002.
These lease agreements have been referred to as the `March lease‟, the `May
lease‟ and the `July lease‟.
(ii) The petitioner also executed mortgage documents with PAL, on
05.05.2008. The said mortgage documents, create a first priority mortgage
in favour of the petitioner with regard to identified airframes and engines.
(iii) The petitioner has, in its favour, an irrevocable POA and IDERA.
Both documents empower the petitioner to seek deregistration of the
Aircraft.
(iv) The DGCA, made an endorsement on the certificate of registration
dated 25.04.2008, recognizing the petitioner as the mortgagee of the
Aircraft.
(v) The Aircraft was imported into the country on 16.04.2008, after a
NOC was issued by DGCA.
(vi) At the time of import, recourse was taken to the exemption
notification, which, according to DGCA and DRI required the use of the
Aircraft only for NSOP services and not charter services, which were
purportedly availed of by one Sh. Lalit K. Modi. This aspect is also borne
out, on a perusal of the NOC dated 16.04.2008 issued by the DGCA. The
WP(C) 792/2012 Page 12 of 22
petitioner claims that, at the time of import of the Aircraft a sum of Rs.
28,882/- was paid as duty by PAL, while DRI says that no duty was paid.
Since the sum is insignificant, nothing much turns on it. Though the perusal
of the bill of entry would show that the rate of basic custom duty is shown as
nil and the total amount of duty in the bill of entry is shown as Rs.28,882/-.
(vii) The import of aircraft was subject to the compliance of applicable
provisions of CAR and all other mandatory requirements laid down in that
behalf by DGCA. This was specifically indicated to GWPL, by DGCA,
vide its communication dated 16.04.2008.
(viii) The Aircraft was flown out of the country on 25.04.2010 and,
apparently, it is parked at Biggin Hill Airport in Kent, U.K., since
23.07.2010.
(ix) On 30.09.2010, the May lease agreement was terminated; a fact which
PAL conveyed to DGCA, vide communication dated 15.10.2010.
(x) The DRI, vide its communication dated 10.12.2010, advised DGCA
not to permit deregistration of the Aircraft.
(xi) Initially, DGCA had two substantial objections to the deregistration of
the Aircraft. These were: that there was no NOC issued by the petitioner for
deregistration; and secondly, the factum of pendency of investigation by
DRI. This aspect comes to fore in the DGCA‟s letters of 27.12.2010 and
31.03.2011, issued to GWPL.
(xii) Since, the NOC issued by the petitioner, was submitted to DGCA by
the solicitor of PAL, alongwith communication dated 25.04.2011, this
objection does not survive. The fact that only, the objection qua the
pendency of investigation by DRI survives, is quite evident upon a perusal
of letter dated 25.05.2011 issued by DGCA to the solicitor of PAL and the
letter dated 08.11.2011 issued to the solicitors of the petitioner.
WP(C) 792/2012 Page 13 of 22
12 In this background the first question which arises for consideration is:
whether the irrevocable POA issued in favour of the petitioner could be used
by the petitioner to seek deregistration of the Aircraft after the termination
of the lease. The answer to this question is found in the POA itself, which
clearly empowers the petitioner to determine at its sole discretion, the point
in time when, it ought to exercise the power of deregistration, and if, such
power is exercised, no authority including a governmental authority, will
inquire “ as to whether an event of default has occurred under the lease or
whether the lease has been terminated ”. The lessee-GWP, in fact, in this
behalf has waived its claims against any party which relies on the
instructions of the attorney, in this case, the petitioner. POA clearly
stipulates that, this power is conferred on the petitioner by the lessee-GWPL
for performance by the lessee of its obligation under the lease and the loan
documents. Since the POA is coupled with interest, it is declared to be
irrevocable.
12.1 Therefore, the argument advanced on behalf of the DGCA and DRI
that the powers of the petitioner under the POA have dissolved pursuant to
the termination of the lease agreement, is untenable and hence rejected.
12.2 Furthermore, it may be relevant to note that the IDERA issued in
consonance with Article XIII of the Protocol confers a similar power of
deregistration in favour of the petitioner and, on such a power being
exercised, the State Registry Authority of the contracting State, which is,
DGCA in this case, is required to assist the authorized party, i.e., the
petitioner in the instant case, in the exercise of remedies provided in Article
IX of the Protocol, which includes the procurement of deregistration of the
aircraft. The relevant provisions of Article IX and XIII of The protocol
reads as follows:
WP(C) 792/2012 Page 14 of 22
“ Article IX: Default Remedies, Priorities and
Assignments
1. In addition to the remedies specified in Chapter III of
the Convention, the creditor may, to the extent that the
debtor has at any time so agreed and in the circumstances
specified in that Chapter:
a. procure the de-registration of the aircraft; and
b. procure the export and physical transfer of the
aircraft object from the territory in which it is
situated.
2. The creditor shall not exercise the remedies specified
in the preceding paragraph without the prior consent in
writing of the holder of any registered interest ranking in
priority to that of the creditor.
3. Article 8(3) of the Convention shall not apply to
aircraft objects. Any remedy given by the Convention in
relation to an aircraft object shall be exercised in a
commercially reasonable manner. A remedy shall be
deemed to be exercised in a commercially reasonable
manner where it is exercised in conformity with a
provision of the agreement except where such a provision
is manifestly unreasonable.”
Article XIII: De-registration and export request
authorisation
1. This Article applies only where a Contracting State
has made a declaration pursuant to Article XXX (I).
2. Where the debtor has issued an irrevocable de-
registration and export request authorisation substantially
in the form annexed to this Protocol and has submitted
such authorisation for recordation to the registry
authority, that authorisation shall be so recorded.
3. The person in whose favour the authorisation has been
issued (the “authorized party”) or its certified designee
shall be the sole person entitled to exercise the remedies
specified in Article IX(1) and may do so only in
accordance with the authorisation and applicable aviation
safety laws and regulations. Such authorisation may not
WP(C) 792/2012 Page 15 of 22
be revoked by the debtor without the consent in writing
of the authorised party. The registry authority shall
remove an authorisation from the registry at the request
of the authorised party.
The registry authority and other administrative
authorities in Contracting States shall expeditiously co-
operate with and assist the authorised party in exercise of
the remedies specified in Article IX. (emphasis supplied)
12.3 In view of the provisions of Article IX and XIII, DGCA would, of
necessity, be obliged to render assistance to the petitioner in obtaining
deregistration. The only caveat to the aforesaid obligation appears to be
that which is contained in Form No. 4 of the instrument of accession lodged
by India under the Cape Town Convention. The said lodgement empowers
detention or arrest of an aircraft with the object of recovering amounts owed
to the GOI or any inter-governmental organization or private provider of
public services in India under the extant laws in respect of services provided
to the aircraft. For the sake of convenience the relevant part of Form no. 4
is extracted hereinbelow:
“...Form No. 4 (general opt-in declarations under Article 39(1)
(b)
“Nothing in the convention shall affect its right or that of
any entity thereof, or any intergovernmental organization in
which India is a member, or other private provider of public
services in India, to arrest or detain an aircraft object under its
law for payment of amounts owed to the Government of India,
any such entity, organization or provider directly relating to the
service or services provided by it in respect of that object or
another aircraft object.”
12.4 A bare perusal of the said provision would show that the power
conferred therein is with regard to arrest and detention of the aircraft and not
to prevent its deregistration. Admittedly, the Aircraft is no longer available
WP(C) 792/2012 Page 16 of 22
in India, having flown out of India on 25.04.2010. Therefore, the DGCA
cannot now, in my opinion, do indirectly what it cannot achieve directly.
The argument advanced on behalf of the DRI that, since there is reason to
believe that the aircraft,(being “goods”, within the meaning of Customs
Act), is liable to be confiscated on account of the fact that the conditions of
exemption notification were violated cannot be accepted as the Aircraft, i.e.,
the goods in issue, are no longer available within the territorial jurisdiction
of India. The power under Section 110 of the Customs Act cannot extend
beyond the territorial jurisdiction of India.
12.5 The submission of Mr Dubey that since the goods in issue, i.e., the
Aircraft was not available in India, power could be exercised under the
proviso to Section 110 is completely misconceived. A bare reading of Sub-
Section (1) of Section 110, would show that power contained thereunder is
exercisable where it is not practicable to seize goods in respect of which the
proper officer has reason to believe that the goods in issue, are liable for
confiscation. In such circumstances, the proper officer is empowered to
serve on the owner of the goods in issue, an order that he shall not remove,
part with or otherwise deal with the goods in issue except with his prior
permission. This power is conferred in respect of goods which are
otherwise available within the territorial jurisdiction of India and cannot be
seized, either because of their perishable nature, or their size or such other
circumstances which make it impractical to secure physical custody of the
goods. The word practicable in the proviso cannot be given a meaning
which would extend jurisdiction of the proper officer beyond the territory of
India.
13 A Single Judge of this court in the case of GPA Finance Ltd. (supra)
st
had an occasion to deal with this issue. In that case, the 1 petitioner before
WP(C) 792/2012 Page 17 of 22
nd
this court was owner of two aircrafts, while the 2 petitioner was the lessee
nd
of the aircrafts in issue. The 2 petitioner had sub-leased the aircrafts to a
carrier by the name of East-West Airlines. Upon defaults being committed,
the lease with East-West airline, was terminated. In a suit filed in the
nd
Bombay High Court by 2 petitioner against East-West airline, repossession
of the aircrafts was granted to it subject to certain conditions. Consequently,
the aircrafts were flown out of the country and were thus no longer available
in India. A second round of litigation commenced in this court when, the
petitioners proposed to let out the aircrafts on hire to third parties outside
India. At that stage, deregistration was refused on the ground that the
carrier, i.e., East-West airline had not cleared dues towards in-land travel
tax.
13.1 It is in this context that the court considered: as to whether the power
to arrest and distrain the aircraft could be exercised, when the aircrafts were
no longer available in the country. The relevant observations of this court,
made in that behalf, are as follows:
“..... The petitioner No. 1 who is the owner or petitioner
no. 2 who is the first lessee and had sub-leased the aircraft to
East West Airlines is neither the „carrier‟ within the meaning of
clause (c) of Section 41 of the Act nor „other person‟ under
Sub-Sections (2), (3) and (4) of Section 46A of the Finance Act,
1989. It is the „carrier‟ alone who has realised the tax, from the
passengers is liable to pay the tax and the carrier as defined
under Section 41(c) of the Finance Act 1989 means the person
or authority undertaking the carriage of a passenger on an
inland journey and includes any agent, representative or other
person acting on behalf of such person or authority. Petitioners
are not such persons.
Thus in this case East West Airlines as „the carrier; is the
person who is liable to pay the tax realized by them alongwith
interest and penalty for non payment of the tax to the
WP(C) 792/2012 Page 18 of 22
Government. And under the Finance Act, 1989 this liability
cannot be fastened on the petitioners.
However, these dues can be realised by distrain or arrest
and sale of any aircraft or any other property belonging to or
under the control of the carrier. East West Airlines are not the
owners of the two aircrafts nor are the two aircrafts under the
control of the carrier. Admittedly, the lease of the East West
Airlines was terminated on 7.2.1995 and the possession of both
the aircrafts was handed over to petitioner no. 2 in pursuance of
the Bombay High Court order dated 1.8.1996. It is also
admitted that both the aircrafts have flown out of the territory of
India, one sometime before 1.8.1996 and the other on or about
27.2.1997 after due permission and clearance. The words
“distrain” and “arrest” as per Webster‟s Dictionary mean as
under:
Distrain : to seize a person‟s goods so as to compel him
to pay a debt; to seize and sell (a person‟s goods) in lieu
of receiving payment of a debt; to seize the goods of
(someone) in this way.
Arrest : to seize and hold by legal authority or superior
force, to bring to a stop, check, (measures to arrest
inflation), to attract and hold (one‟s sight or attention).
Obviously, the aircraft could be distrained or arrested if it
is available within the territory of India. The Authority who is
competent to distrain or arrest the aircraft under the Act and the
Rules is the Assistant Collector of Customs. He would have no
authority to distrain or arrest an aircraft beyond the territory of
India. As such in the present case as at present, recovery
cannot be made by distrain or arrest of the aircrafts.....
....In any case, remedy if any, was by way of distrain or
arrest of the aircraft which remedy is lost after the aircrafts have
left the Indian territory....
....Here the aircraft has not been arrested nor is available
in India. The question of arrest of the aircraft does not arise.
This thus does not help the respondent.
The objections raised and the contentions advanced by
the learned Standing Counsel for the Government have no
force. Refusal to deregister the two aircrafts in the
WP(C) 792/2012 Page 19 of 22
circumstances is unreasonable, unwarranted and not justified.
The petitioners are being put to great loss due to non use of
their aircrafts. Writ petition is accordingly allowed with costs.
The respondent is hereby directed to deregister the above two
aircrafts from the register and issue necessary certificates in this
behalf within two days from today filing which the respondent
shall be liable to pay damages to the petitioner no. 1 @ Rs. 1
lakh per day till such certificates are issued....”
14. That apart, there is no averment made in the counter affidavit of the
DRI that any such order was served on the owner of the goods in issue (i.e.,
the aircraft) which in this case is PAL. There is another difficulty which is
that the investigation by DRI in the case has commenced, if not earlier, since
10.12.2010 when, it wrote to DGCA requesting it not to release the Aircraft.
The customs authorities, who are required under Sub-Section (2) of Section
110 to return the goods in issue, if notice, as prescribed under Section 124
clause (a) of the customs Act, is not issued within six (6) months of the
seizure of goods. The period of six months, under the proviso, can be
extended, on a sufficient cause being shown by the Commissioner of
Customs, for a period, not exceeding six (6) months. Admittedly, no notice
has been issued under Section 124(a) of the Customs Act, therefore, even if
one were to assume that a seizure was effected within the meaning of the
proviso to sub-section (1) of Section 110, the non-fulfilment of the
mandatory condition of sub-section (2), would then result in the seizure
dissolving. See J.K. Bardolia Mills vs M.L. Khunger, Dy. Collector & Ors.
1994 (5) SCC 332 and Jatin Ahuja vs UOI & Ors. 193(2012) DLT 156
This situation would of course occur only if it is assumed for the sake of
argument that a seizure can be effected qua the goods in issue which, are
located outside the territory of India. For the sake of convenience the
WP(C) 792/2012 Page 20 of 22
relevant provisions of Section 110(1) alongwith the proviso and sub-section
(2) of 110 including the proviso is extracted hereinbelow:
“ 110. Seizure of goods, documents and things . – (1) If the
proper officer has reason to believe that any goods are liable to
confiscation under this Act, he may seize such goods:
Provided that where it is not practicable to seize any
such goods, the proper officer may serve on the owner of the
goods an order that he shall not remove, part with, or
otherwise deal with the goods except with the previous
permission of such officer.
.....
.....
(2) Where any goods are seized under sub-Section (1) and no
notice in respect thereof is given under clause (9) of Section
124 within six months of the seizure of the goods, the goods
shall be returned to the person from whose possession they
were seized:
Provided that the aforesaid period of six months may, on
sufficient cause being shown, be extended by the
Commissioner of Customs for a period not exceeding six
months...”
15. Having regard to the aforesaid, the only conclusion that one can come
to is that there is no power under the Customs Act by which it can prevail
upon DGCA to desist from deregistering the aircraft. Accordingly, as
prayed, a writ of mandamus is issued directing the DGCA to deregister the
aircraft in issue, being Bombardier Challenger Aircraft 300, bearing
manufacturer‟s serial no. 20174, and registration no. VT-RAK.
16. It is, however, made clear that the aforesaid is not an expression of
opinion as to the mode and manner by which the customs dues may be
recovered if found payable, upon the completion of the investigation and the
adjudication of the alleged charge of evasion of custom duty.
WP(C) 792/2012 Page 21 of 22
17. The writ petition is disposed of in the aforementioned terms, leaving
parties to bear their own costs.
RAJIV SHAKDHER, J
MARCH 14, 2013
kk
WP(C) 792/2012 Page 22 of 22
Judgment reserved on: 12.02.2013
% Judgment delivered on: 14.03.2013
+ W.P.(C) 792/2012
CORPORATE AIRCRAFT FUNDING
COMPANY LLC ..... Petitioner
Versus
UNION OF INDIA & ORS. ..... Respondents
Advocates who appeared in this case:
For the Petitioner: Mr Amit Sethi, Mr A. Aggarwal & Mr Aman Gandhi, Advs.
For the Respondents: Ms Anjana Gosain, Adv. for R-1.
Mr S.K. Dubey, Ms Zeenat Masoodi & Ms Bhagyashree Rati,
Advs. for R-3.
CORAM :-
HON'BLE MR JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J
1. The petitioner before me, is the mortgagee of Bombardier Challenger
Aircraft 300, bearing manufacturer‟s serial no. 20174 (hereinafter referred to
as the `Aircraft‟), assigned call sign VT-RAK, by the Indian authorities.
The Aircraft, which is owned by respondent no. 2, i.e., Peel Aviation Ltd (in
short PAL), was leased to an Indian company by the name of Golden Wings
Pvt. Ltd. (in short GWPL).
1.1 Under a financing arrangement, a loan was extended by the petitioner
to PAL which was secured by creating a mortgage on the said aircraft.
1.2 The instrument of mortgage, inter alia confers on the petitioner the
right to seek de-registration of the Aircraft, from the jurisdiction of the
concerned State Registry. The State Registry, is defined in the instrument
WP(C) 792/2012 Page 1 of 22
of mortgage, as the national jurisdiction; in which the aircraft is registered;
which presently would be India.
2 The petitioner seeks to exercise, its right of de-registration, which is
resisted by respondent no. 1, i.e., the Director General of Civil Aviation (in
short DGCA) at the behest of the Directorate of Revenue Intelligence (in
short DRI), i.e., respondent no. 3. An intimation in this behalf was issued by
DRI to DGCA on 10.12.2010. The upshot of this communication is that,
even though GWPL had imported the Aircraft in issue, into India under a
Non-Scheduled Operator Permit (NSOP) no. 13/208 dated 08.05.2008 at
“nil” rate of duty, since it was apparently not used for the said purpose, a
case of duty evasion was being investigated by DRI. It is on account of this
fact that DRI advised DGCA, not to de-register the Aircraft. Furthermore,
in the very same communication DRI acknowledged the fact that, the
Aircraft was located at London, and that the lessor of the Aircraft was PAL.
3 The petitioner is, essentially, aggrieved by the refusal of DGCA to de-
register the Aircraft based on the aforementioned communication dated
10.12.2010 issued by DRI. DGCA by itself, as is emerged, during the
course of arguments advanced before me, has no objection to the de-
registration of the said Aircraft.
4. Briefly, the aforementioned grievance of the petitioner arises in the
background of the following broad, but relevant facts:
4.1 On 20.03.2008, PAL which is the owner of the Aircraft, entered into a
lease agreement with GWPL (in short the `March lease‟). A fresh lease
agreement was executed between the said entities on 07.05.2008 (in short
the `May lease‟), pursuant to which the March lease was terminated.
Apparently, on 15.07.2008, the very same entities entered into yet another
WP(C) 792/2012 Page 2 of 22
lease agreement (in short the `July lease‟), whereby it was agreed to
terminate the „May lease‟.
4.2 The petitioner, however, avers that it is unaware as to whether the
July lease was filed with DGCA. Apparently, in the interregnum, on
16.04.2008, DGCA granted a No-Objection Certificate (in short NOC) to
GWPL, to import the said Aircraft to India.
4.3 With the NOC in place, the said Aircraft was flown into India on
17.04.2008; whereupon, it is claimed by the petitioner, the Aircraft was
received in India and custom duty amounting to Rs.28,880/- was paid by
GWPL. Pertinently, as noticed above, the stand of DRI is that the Aircraft
was imported into India at nil rate of duty.
4.4 Evidently, on 25.04.2008, DGCA issued a certificate of registration
which carried an endorsement that the mortgagee of the Aircraft was the
petitioner. To be noted, the certificate of registration, as indicated therein,
is otherwise valid till 14.04.2015.
4.5 On 07.05.2008, the petitioner apparently entered into a loan
agreement with PAL. It is averred by the petitioner that, pursuant to the said
loan agreement, credit facility in the sum of USD 15,885,915/- was agreed
to be extended to PAL to enable it to: firstly, finance in-part, the acquisition
of the Aircraft. Secondly, to refinance the existing credit facility availed by
PAL, from Midland National Life Insurance Company.
4.6 In order to secure the repayment of loan, PAL executed an aircraft
security agreement and mortgage with the petitioner on 05.05.2008
(collectively referred to as mortgage documents). In addition, a supplement
mortgage was executed by PAL on the same date. By virtue of the said
mortgage documents, a first priority mortgage was created by PAL in favour
of the petitioner qua the Aircraft, which included the identified airframes
WP(C) 792/2012 Page 3 of 22
and engine etc. What is important to note, is that, by virtue of the
mortgaged document, the petitioner acquired the right to seek de-registration
of the aircraft from the jurisdiction of the State, in which, it was registered.
4.7 It is because the mortgage document required PAL to enter into a
fresh lease agreement, that the `July lease‟ was executed, which resulted in
termination of the `May lease‟.
4.8 Pertinently, India had ratified the convention known as: The Cape
Town Convention on International Interest in Mobile Equipment (in short
the Cape Town Convention); a fact which is reflected in the `July lease‟, as
well . From the point of view of the petitioner, there were two important
documents, which GWPL, i.e., the lessee, executed in favour of the
petitioner. The first document being an irrevocable power of attorney (in
short POA), which empowered the petitioner to seek deregistration of the
aircraft. The second document being: an “irrevocable deregistration and
export request authorization” (in short IDERA). This document was
executed pursuant to the provisions of Article XIII of the Protocol to the
Convention on International Interest in Mobile Equipment on Matters
Specific to Aircraft Equipment (in short the Protocol). Importantly, both
the POA and the IDERA were executed by PAL in favour of the petitioner
on the same date, i.e., 23.04.2008.
4.9 Evidently, the Aircraft was flown out of India on 25.04.2010.
Presently, the Aircraft appears to be parked at the Biggin Hill Airport, in
Kent, United Kingdom (U.K.) , since 23.07.2010.
5. Apparently, the `May lease‟ agreement, executed between PAL and
GWPL, was terminated on 30.09.2010; a notification with respect to which
was issued to GWPL, on 15.10.2010. This fact was confirmed by GWPL
WP(C) 792/2012 Page 4 of 22
by its communication dated 21.12.2010. It is not in dispute that for some
odd reason there has been no termination of the `July lease‟ by PAL.
5.1 In the interregnum, by a letter dated 04.11.2010 issued by PAL to
DGCA, PAL while informing DGCA that its dry lease agreement with
GWPL had been terminated on 30.09.2010, also sought, as indicated above,
an export certificate of airworthiness, to be followed by deregistration of the
Aircraft, in order to enable it to register the Aircraft in the U.K.. PAL also
intimated DGCA by this very letter that they had appointed one, Jet
Aviation; an entity based in U.K. for maintaining the Aircraft. DGCA vide
its letter dated 14.12.2010, apparently, sought explanation from GWPL with
regard to the aforesaid aspects as also the circumstances in which the
Aircraft was grounded at a foreign station.
5.2 Evidently, on 10.12.2010, DRI, as indicated above, advised DGCA
not to deregister the Aircraft.
5.3 On the part of GWPL, a response to DGCA‟s communication dated
14.12.2010, was issued vide letter dated 21.12.2010. GWPL informed
DGCA that the Aircraft was flown out of India as GWPL was under scrutiny
since August, 2010 by various statutory authorities including the Income
Tax Department, DRI, Customs, Enforcement Directorate etc., as the
Aircraft has been used by one Sh. Lalit K. Modi. This apart, GWPL also
stated in this very communication that the lease had been terminated on
30.09.2010, as also the fact that PAL had applied for deregistration and
issuance of an export certificate of airworthiness vide its letter dated
04.11.2010, to which it had no objection.
5.4 In response to the same, on 27.12.2010 DGCA informed GWPL that,
its request for deregistration of the Aircraft could not be acceded to, without
obtaining necessary clearance from DRI and the petitioner, i.e., the
WP(C) 792/2012 Page 5 of 22
mortgagee. A reference was also made to the fact that no explanation has
been offered by GWPL as to the circumstances in which the Aircraft was
grounded at a foreign station. A copy of the said communication was also
sent inter alia to the petitioner, PAL and DRI.
5.5 In response to the aforementioned communication GWPL, vide
communication dated 04.03.2011, offered the following explanation:
(i) the Aircraft had flown out of India on 25.04.2010 and was flying in
UK air space till 23.07.2010;
(ii) the Aircraft was parked at foreign station as per the instruction of the
lessor, PAL;
(iii) the lease was terminated on 30.09.2010, preceded by the termination
of the maintenance agreement with an Indian entity on 28.09.2010;
(iv) PAL had approached the DGCA for deregistration of the Aircraft,
which was refused vide letter dated 12.12.2010;
(v) the management of the Aircraft had been assigned to a company
based in U.K., resultantly it had no control over the aircraft; and
(vi) lastly, that it was desirous of surrendering the NSOP permit, which
was due for renewal as no aircraft is endorsed on the said permit.
5.6 DGCA, once again, by a letter dated 08.11.2011 informed GWPL
that, its request for deregistration could not be acceded to for two reasons.
Firstly, DRI was investigating the issue of evasion of custom duty and no
clearance had been received for deregistration from the said agency.
Secondly, a NOC /consent of the petitioner for deregistration had not been
received. A copy of this letter was sent inter alia to the petitioner, PAL and
DRI.
5.7 In view of the above, the petitioner vide letter dated 20.04.2011,
furnished their NOC for deregistration of the Aircraft. This communication
WP(C) 792/2012 Page 6 of 22
was apparently sent by the solicitors of PAL alongwith their communication
dated 25.04.2011.
5.8 Since no response was received from DGCA, the petitioner through
its solicitors reiterated its request vide communication dated 18.05.2011. It
appears since PAL had defaulted under the loan agreement, by a
communication dated 08.07.2011, the petitioner terminated the loan
agreement and also simultaneously called upon a company by the name of
London Executive Aviation Limited, which was, managing and maintaining
the Aircraft, to transfer the possession of the said Aircraft to the petitioner.
Pursuant to the aforesaid communication, the petitioner, in its capacity as a
mortgagee, took possession of the Aircraft. The above was followed by a
communication dated 21.07.2011 addressed to DGCA which, sought to
convey to DGCA, in no uncertain terms that, since the lease agreement had
been terminated it was desirous of deregistering the Aircraft from the Indian
Aircraft register in consonance with its power and capacity, conferred upon
it, under as the POA of GWPL, as also in its capacity as the mortgagee of
the Aircraft.
5.9 Apparently, meetings in this behalf were held between the officials of
DGCA as well as the solicitors of the petitioner on 02.09.2011, which is
reflected in the email of its solicitor dated 14.09.2011. The aforesaid
meeting was followed up by a communication dated 07.10.2011, issued by
the solicitor of the petitioner, seeking deregistration of the aircraft.
6 DGCA on its part, by letter dated 08.11.2011 informed the
petitioner‟s solicitor that since DRI was investigating the issue of evasion of
custom duty, it could not deregister the Aircraft till completion of
investigation, as conveyed by DRI vide its letter dated 10.12.2010. In sum
WP(C) 792/2012 Page 7 of 22
and substance, DGCA conveyed that till it receives the necessary clearance,
it could not deregister the Aircraft.
7 Aggrieved by the above, the petitioner filed the present writ petition
under Article 226 of the Constitution of India, whereupon notice was issued
in the petition on 08.02.2012. On the said date, a direction was issued to the
petitioner, to implead DRI, since the DGCA‟s resistance to deregistration of
the Aircraft was based on the communication issued by DRI in that behalf.
7.1 Upon issuance of notice, returns have been filed by both DGCA and
the DRI. Based on the aforesaid, the following submissions have been
made on behalf of the parties before me.
SUBMISSIONS OF COUNSELS
8 The petitioner was represented by Mr Amit Sethi, Advocate, while
DGCA was represented by Ms Anjana Gosain, Advocate. The submissions
on behalf of DRI was represented by Mr S.K. Dubey, Advocate.
8.1 Mr Sethi submitted that the decision of the DGCA, not to deregister
the Aircraft at the behest of DRI was illegal for the following reasons:
(i) The DGCA was a statutory authority under the Aircraft Act, 1934 (in
short the Aircraft Act) which was required to take decisions on its own in
consonance with provisions of the said Act read with the Aircraft Rules,
1937 (in short the Aircraft Rules), framed thereunder. In this regard,
reference was made, in particular to Rule 30(6)(iv)and para 9 of the Civil
Aviation Requirements (in short CAR) framed under Rule 133A.
(ii) The petitioner having exercised its power under the irrevocable POA
and the IDERA, DGCA could not have refused deregistration of the
Aircraft.
(iii) The refusal of DGCA to effect deregistration is violative of the
provisions of the Cape Town Convention and the Protocol. It was submitted
WP(C) 792/2012 Page 8 of 22
that under Article XIII of the Cape Town Convention, it was the bounden
duty of the DGCA to assist the petitioner, which was authorized to exercise
remedies available under Article IX of the said convention, which included
the right to seek deregistration of the Aircraft.
(iv) It is because there was a default by the lessee, i.e., GWPL, which led
to the termination of the lease and the consequent step taken towards
exercise of power under the POA and the IDERA by the petitioner for
seeking deregistration of the Aircraft.
(v) It is not the duty or function of DGCA as envisaged under the Aircraft
Act and the Rules framed thereunder, to recover the purported dues
seemingly owed by the importer to the customs. In this behalf, it was
submitted that DGCA is required to act independently and cannot abdicate
its statutory functions and powers in favour of another authority which had
nothing to do with the administration of the Aircraft Act and the Rules
framed thereunder.
(vi) The DRI, similarly, has no power or authority conferred upon it under
the Customs Act, 1966 (in short the Customs Act) to direct the DGCA to act
in a particular manner and in this particular case to refuse deregistration so
as to achieve indirectly what it cannot achieve directly.
(vii) The provisions of Section 110 and 111(o) of the Customs Act have no
applicability as the Aircraft is grounded at a place which is outside the
territory of India.
(viii) The petitioner being a financial institution, with a secured interest in
the Aircraft, it cannot be prevented from exercising that right by an entity
such as the DRI which has failed to show that, it has either a better right or a
statutory charge over the Aircraft.
WP(C) 792/2012 Page 9 of 22
(ix) The investigation of DRI against the Indian importer, i.e., GWPL
cannot impinge upon the rights which inhere in the petitioner under the
POA, IDERA, the Customs Act, Rules framed thereunder and the Cape
Town convention. In support of his contentions the learned counsel for the
petitioner relied upon the following judgments: Joint Action Committee of
Air Line Pilots’ Association of India (ALPAI) & Ors. vs Director General
of Civil Aviation & Ors. (2011) 5 SCC 435; GPA Finance Ltd. vs Union of
India, Through Ministry of Civil Aviation in C.W. No. 2368/1997 dated
02.07.1997 and Golden Dragon Traders vs Union of India 2009 (244)
E.L.T. 43(Guj) .
9. On the other hand Mr Dubey and Ms Gosain submitted that the writ
petition ought to be dismissed on the ground that there was a prima facie
case of evasion of customs duty in the import of the Aircraft in question;
investigation in respect of which was ensuing. Both counsels submitted
that DGCA was well within its powers, both under the provisions of clause
(vii) of Sub-rule 6 of Rule 30 of the Aircraft Rules to act in the manner in
which it did, i.e., refuse deregistration of the aircraft.
9.1 It was submitted by the counsels that the petitioner could not exercise
the power under the irrevocable POA or the IDERA in view of the fact that
the lease already stood terminated.
9.2 It was the submissions of the counsels that the charge of evasion of
customs duty was being investigated for the reason that at the point in time
when the Aircraft was imported, exemption was sought from payment of
duty on the specific undertaking that it would be used to provide NSOP
services, whereas it is now found that, since the date of import, the Aircraft
was being used exclusively by one Sh. Lalit K. Modi, for his exclusive
personal travel.
WP(C) 792/2012 Page 10 of 22
9.3 It was further submitted, investigations had revealed that GWPL, i.e.,
the lessee had not paid any lease rental to the lessor, i.e., PAL. The
counsels submitted that, since the Aircraft had been imported at nil rate of
duty under an exemption notification, whereby, it was required to be used in
a particular manner, as indicated above – the breach of the exemption
conditions had triggered a right to recover duties which were exempted only
if the aircraft was used for the purpose indicated in the notification. In this
behalf reliance was placed on condition no. 104 of notification no. 21/2002-
Cus-s.no. 347B.
10 Mr Dubey, in particular, submitted that, in view of the fact the
conditions of the exemption notification had been violated by GWPL, the
aircraft was liable to be seized/confiscated under the provisions of Section
110/111(o) of the Customs Act.
10.1 Mr Dubey relied upon his counter affidavit to contend that no sooner
was an investigation ordered against Sh. Lalit K. Modi in the IPL scam, the
Aircraft was flown out of the country, and, therefore, in order to seek
recovery of the duty evaded, the communication dated 10.12.2010, was
issued by DRI to DGCA advising it, not to deregister the Aircraft.
According to Mr Dubey, the duty evaded in respect of Aircraft in issue, was
to the tune of Rs. 19 crores (approximately), which was, exclusive of
interest and other charges applicable under the Customs Act.
10.2 Mr Dubey further submitted that, the respondents‟ action were in
consonance with provisions of Form No. 4, lodged by the Government of
India (GOI) under the Cape Town Convention at the time of deposit of its
instrument of accession which, empowered GOI to arrest or distrain an
aircraft for payment of amounts owed to it.
WP(C) 792/2012 Page 11 of 22
10.3 Mr Dubey, when asked, as to the source of DRI‟s power to make the
kind of request which it did vide its communication of 10.12.2010,
addressed to DGCA, relied upon the proviso to Section 110 of the Customs
Act.
REASONS
11 Having perused the record and heard the counsels for the parties,
following facts emerge in respect of which there is no perceptible dispute.
(i) The petitioner had executed three (3) successive lease agreements
with PAL, i.e., the owner of the Aircraft, in March, May and July of 2002.
These lease agreements have been referred to as the `March lease‟, the `May
lease‟ and the `July lease‟.
(ii) The petitioner also executed mortgage documents with PAL, on
05.05.2008. The said mortgage documents, create a first priority mortgage
in favour of the petitioner with regard to identified airframes and engines.
(iii) The petitioner has, in its favour, an irrevocable POA and IDERA.
Both documents empower the petitioner to seek deregistration of the
Aircraft.
(iv) The DGCA, made an endorsement on the certificate of registration
dated 25.04.2008, recognizing the petitioner as the mortgagee of the
Aircraft.
(v) The Aircraft was imported into the country on 16.04.2008, after a
NOC was issued by DGCA.
(vi) At the time of import, recourse was taken to the exemption
notification, which, according to DGCA and DRI required the use of the
Aircraft only for NSOP services and not charter services, which were
purportedly availed of by one Sh. Lalit K. Modi. This aspect is also borne
out, on a perusal of the NOC dated 16.04.2008 issued by the DGCA. The
WP(C) 792/2012 Page 12 of 22
petitioner claims that, at the time of import of the Aircraft a sum of Rs.
28,882/- was paid as duty by PAL, while DRI says that no duty was paid.
Since the sum is insignificant, nothing much turns on it. Though the perusal
of the bill of entry would show that the rate of basic custom duty is shown as
nil and the total amount of duty in the bill of entry is shown as Rs.28,882/-.
(vii) The import of aircraft was subject to the compliance of applicable
provisions of CAR and all other mandatory requirements laid down in that
behalf by DGCA. This was specifically indicated to GWPL, by DGCA,
vide its communication dated 16.04.2008.
(viii) The Aircraft was flown out of the country on 25.04.2010 and,
apparently, it is parked at Biggin Hill Airport in Kent, U.K., since
23.07.2010.
(ix) On 30.09.2010, the May lease agreement was terminated; a fact which
PAL conveyed to DGCA, vide communication dated 15.10.2010.
(x) The DRI, vide its communication dated 10.12.2010, advised DGCA
not to permit deregistration of the Aircraft.
(xi) Initially, DGCA had two substantial objections to the deregistration of
the Aircraft. These were: that there was no NOC issued by the petitioner for
deregistration; and secondly, the factum of pendency of investigation by
DRI. This aspect comes to fore in the DGCA‟s letters of 27.12.2010 and
31.03.2011, issued to GWPL.
(xii) Since, the NOC issued by the petitioner, was submitted to DGCA by
the solicitor of PAL, alongwith communication dated 25.04.2011, this
objection does not survive. The fact that only, the objection qua the
pendency of investigation by DRI survives, is quite evident upon a perusal
of letter dated 25.05.2011 issued by DGCA to the solicitor of PAL and the
letter dated 08.11.2011 issued to the solicitors of the petitioner.
WP(C) 792/2012 Page 13 of 22
12 In this background the first question which arises for consideration is:
whether the irrevocable POA issued in favour of the petitioner could be used
by the petitioner to seek deregistration of the Aircraft after the termination
of the lease. The answer to this question is found in the POA itself, which
clearly empowers the petitioner to determine at its sole discretion, the point
in time when, it ought to exercise the power of deregistration, and if, such
power is exercised, no authority including a governmental authority, will
inquire “ as to whether an event of default has occurred under the lease or
whether the lease has been terminated ”. The lessee-GWP, in fact, in this
behalf has waived its claims against any party which relies on the
instructions of the attorney, in this case, the petitioner. POA clearly
stipulates that, this power is conferred on the petitioner by the lessee-GWPL
for performance by the lessee of its obligation under the lease and the loan
documents. Since the POA is coupled with interest, it is declared to be
irrevocable.
12.1 Therefore, the argument advanced on behalf of the DGCA and DRI
that the powers of the petitioner under the POA have dissolved pursuant to
the termination of the lease agreement, is untenable and hence rejected.
12.2 Furthermore, it may be relevant to note that the IDERA issued in
consonance with Article XIII of the Protocol confers a similar power of
deregistration in favour of the petitioner and, on such a power being
exercised, the State Registry Authority of the contracting State, which is,
DGCA in this case, is required to assist the authorized party, i.e., the
petitioner in the instant case, in the exercise of remedies provided in Article
IX of the Protocol, which includes the procurement of deregistration of the
aircraft. The relevant provisions of Article IX and XIII of The protocol
reads as follows:
WP(C) 792/2012 Page 14 of 22
“ Article IX: Default Remedies, Priorities and
Assignments
1. In addition to the remedies specified in Chapter III of
the Convention, the creditor may, to the extent that the
debtor has at any time so agreed and in the circumstances
specified in that Chapter:
a. procure the de-registration of the aircraft; and
b. procure the export and physical transfer of the
aircraft object from the territory in which it is
situated.
2. The creditor shall not exercise the remedies specified
in the preceding paragraph without the prior consent in
writing of the holder of any registered interest ranking in
priority to that of the creditor.
3. Article 8(3) of the Convention shall not apply to
aircraft objects. Any remedy given by the Convention in
relation to an aircraft object shall be exercised in a
commercially reasonable manner. A remedy shall be
deemed to be exercised in a commercially reasonable
manner where it is exercised in conformity with a
provision of the agreement except where such a provision
is manifestly unreasonable.”
Article XIII: De-registration and export request
authorisation
1. This Article applies only where a Contracting State
has made a declaration pursuant to Article XXX (I).
2. Where the debtor has issued an irrevocable de-
registration and export request authorisation substantially
in the form annexed to this Protocol and has submitted
such authorisation for recordation to the registry
authority, that authorisation shall be so recorded.
3. The person in whose favour the authorisation has been
issued (the “authorized party”) or its certified designee
shall be the sole person entitled to exercise the remedies
specified in Article IX(1) and may do so only in
accordance with the authorisation and applicable aviation
safety laws and regulations. Such authorisation may not
WP(C) 792/2012 Page 15 of 22
be revoked by the debtor without the consent in writing
of the authorised party. The registry authority shall
remove an authorisation from the registry at the request
of the authorised party.
The registry authority and other administrative
authorities in Contracting States shall expeditiously co-
operate with and assist the authorised party in exercise of
the remedies specified in Article IX. (emphasis supplied)
12.3 In view of the provisions of Article IX and XIII, DGCA would, of
necessity, be obliged to render assistance to the petitioner in obtaining
deregistration. The only caveat to the aforesaid obligation appears to be
that which is contained in Form No. 4 of the instrument of accession lodged
by India under the Cape Town Convention. The said lodgement empowers
detention or arrest of an aircraft with the object of recovering amounts owed
to the GOI or any inter-governmental organization or private provider of
public services in India under the extant laws in respect of services provided
to the aircraft. For the sake of convenience the relevant part of Form no. 4
is extracted hereinbelow:
“...Form No. 4 (general opt-in declarations under Article 39(1)
(b)
“Nothing in the convention shall affect its right or that of
any entity thereof, or any intergovernmental organization in
which India is a member, or other private provider of public
services in India, to arrest or detain an aircraft object under its
law for payment of amounts owed to the Government of India,
any such entity, organization or provider directly relating to the
service or services provided by it in respect of that object or
another aircraft object.”
12.4 A bare perusal of the said provision would show that the power
conferred therein is with regard to arrest and detention of the aircraft and not
to prevent its deregistration. Admittedly, the Aircraft is no longer available
WP(C) 792/2012 Page 16 of 22
in India, having flown out of India on 25.04.2010. Therefore, the DGCA
cannot now, in my opinion, do indirectly what it cannot achieve directly.
The argument advanced on behalf of the DRI that, since there is reason to
believe that the aircraft,(being “goods”, within the meaning of Customs
Act), is liable to be confiscated on account of the fact that the conditions of
exemption notification were violated cannot be accepted as the Aircraft, i.e.,
the goods in issue, are no longer available within the territorial jurisdiction
of India. The power under Section 110 of the Customs Act cannot extend
beyond the territorial jurisdiction of India.
12.5 The submission of Mr Dubey that since the goods in issue, i.e., the
Aircraft was not available in India, power could be exercised under the
proviso to Section 110 is completely misconceived. A bare reading of Sub-
Section (1) of Section 110, would show that power contained thereunder is
exercisable where it is not practicable to seize goods in respect of which the
proper officer has reason to believe that the goods in issue, are liable for
confiscation. In such circumstances, the proper officer is empowered to
serve on the owner of the goods in issue, an order that he shall not remove,
part with or otherwise deal with the goods in issue except with his prior
permission. This power is conferred in respect of goods which are
otherwise available within the territorial jurisdiction of India and cannot be
seized, either because of their perishable nature, or their size or such other
circumstances which make it impractical to secure physical custody of the
goods. The word practicable in the proviso cannot be given a meaning
which would extend jurisdiction of the proper officer beyond the territory of
India.
13 A Single Judge of this court in the case of GPA Finance Ltd. (supra)
st
had an occasion to deal with this issue. In that case, the 1 petitioner before
WP(C) 792/2012 Page 17 of 22
nd
this court was owner of two aircrafts, while the 2 petitioner was the lessee
nd
of the aircrafts in issue. The 2 petitioner had sub-leased the aircrafts to a
carrier by the name of East-West Airlines. Upon defaults being committed,
the lease with East-West airline, was terminated. In a suit filed in the
nd
Bombay High Court by 2 petitioner against East-West airline, repossession
of the aircrafts was granted to it subject to certain conditions. Consequently,
the aircrafts were flown out of the country and were thus no longer available
in India. A second round of litigation commenced in this court when, the
petitioners proposed to let out the aircrafts on hire to third parties outside
India. At that stage, deregistration was refused on the ground that the
carrier, i.e., East-West airline had not cleared dues towards in-land travel
tax.
13.1 It is in this context that the court considered: as to whether the power
to arrest and distrain the aircraft could be exercised, when the aircrafts were
no longer available in the country. The relevant observations of this court,
made in that behalf, are as follows:
“..... The petitioner No. 1 who is the owner or petitioner
no. 2 who is the first lessee and had sub-leased the aircraft to
East West Airlines is neither the „carrier‟ within the meaning of
clause (c) of Section 41 of the Act nor „other person‟ under
Sub-Sections (2), (3) and (4) of Section 46A of the Finance Act,
1989. It is the „carrier‟ alone who has realised the tax, from the
passengers is liable to pay the tax and the carrier as defined
under Section 41(c) of the Finance Act 1989 means the person
or authority undertaking the carriage of a passenger on an
inland journey and includes any agent, representative or other
person acting on behalf of such person or authority. Petitioners
are not such persons.
Thus in this case East West Airlines as „the carrier; is the
person who is liable to pay the tax realized by them alongwith
interest and penalty for non payment of the tax to the
WP(C) 792/2012 Page 18 of 22
Government. And under the Finance Act, 1989 this liability
cannot be fastened on the petitioners.
However, these dues can be realised by distrain or arrest
and sale of any aircraft or any other property belonging to or
under the control of the carrier. East West Airlines are not the
owners of the two aircrafts nor are the two aircrafts under the
control of the carrier. Admittedly, the lease of the East West
Airlines was terminated on 7.2.1995 and the possession of both
the aircrafts was handed over to petitioner no. 2 in pursuance of
the Bombay High Court order dated 1.8.1996. It is also
admitted that both the aircrafts have flown out of the territory of
India, one sometime before 1.8.1996 and the other on or about
27.2.1997 after due permission and clearance. The words
“distrain” and “arrest” as per Webster‟s Dictionary mean as
under:
Distrain : to seize a person‟s goods so as to compel him
to pay a debt; to seize and sell (a person‟s goods) in lieu
of receiving payment of a debt; to seize the goods of
(someone) in this way.
Arrest : to seize and hold by legal authority or superior
force, to bring to a stop, check, (measures to arrest
inflation), to attract and hold (one‟s sight or attention).
Obviously, the aircraft could be distrained or arrested if it
is available within the territory of India. The Authority who is
competent to distrain or arrest the aircraft under the Act and the
Rules is the Assistant Collector of Customs. He would have no
authority to distrain or arrest an aircraft beyond the territory of
India. As such in the present case as at present, recovery
cannot be made by distrain or arrest of the aircrafts.....
....In any case, remedy if any, was by way of distrain or
arrest of the aircraft which remedy is lost after the aircrafts have
left the Indian territory....
....Here the aircraft has not been arrested nor is available
in India. The question of arrest of the aircraft does not arise.
This thus does not help the respondent.
The objections raised and the contentions advanced by
the learned Standing Counsel for the Government have no
force. Refusal to deregister the two aircrafts in the
WP(C) 792/2012 Page 19 of 22
circumstances is unreasonable, unwarranted and not justified.
The petitioners are being put to great loss due to non use of
their aircrafts. Writ petition is accordingly allowed with costs.
The respondent is hereby directed to deregister the above two
aircrafts from the register and issue necessary certificates in this
behalf within two days from today filing which the respondent
shall be liable to pay damages to the petitioner no. 1 @ Rs. 1
lakh per day till such certificates are issued....”
14. That apart, there is no averment made in the counter affidavit of the
DRI that any such order was served on the owner of the goods in issue (i.e.,
the aircraft) which in this case is PAL. There is another difficulty which is
that the investigation by DRI in the case has commenced, if not earlier, since
10.12.2010 when, it wrote to DGCA requesting it not to release the Aircraft.
The customs authorities, who are required under Sub-Section (2) of Section
110 to return the goods in issue, if notice, as prescribed under Section 124
clause (a) of the customs Act, is not issued within six (6) months of the
seizure of goods. The period of six months, under the proviso, can be
extended, on a sufficient cause being shown by the Commissioner of
Customs, for a period, not exceeding six (6) months. Admittedly, no notice
has been issued under Section 124(a) of the Customs Act, therefore, even if
one were to assume that a seizure was effected within the meaning of the
proviso to sub-section (1) of Section 110, the non-fulfilment of the
mandatory condition of sub-section (2), would then result in the seizure
dissolving. See J.K. Bardolia Mills vs M.L. Khunger, Dy. Collector & Ors.
1994 (5) SCC 332 and Jatin Ahuja vs UOI & Ors. 193(2012) DLT 156
This situation would of course occur only if it is assumed for the sake of
argument that a seizure can be effected qua the goods in issue which, are
located outside the territory of India. For the sake of convenience the
WP(C) 792/2012 Page 20 of 22
relevant provisions of Section 110(1) alongwith the proviso and sub-section
(2) of 110 including the proviso is extracted hereinbelow:
“ 110. Seizure of goods, documents and things . – (1) If the
proper officer has reason to believe that any goods are liable to
confiscation under this Act, he may seize such goods:
Provided that where it is not practicable to seize any
such goods, the proper officer may serve on the owner of the
goods an order that he shall not remove, part with, or
otherwise deal with the goods except with the previous
permission of such officer.
.....
.....
(2) Where any goods are seized under sub-Section (1) and no
notice in respect thereof is given under clause (9) of Section
124 within six months of the seizure of the goods, the goods
shall be returned to the person from whose possession they
were seized:
Provided that the aforesaid period of six months may, on
sufficient cause being shown, be extended by the
Commissioner of Customs for a period not exceeding six
months...”
15. Having regard to the aforesaid, the only conclusion that one can come
to is that there is no power under the Customs Act by which it can prevail
upon DGCA to desist from deregistering the aircraft. Accordingly, as
prayed, a writ of mandamus is issued directing the DGCA to deregister the
aircraft in issue, being Bombardier Challenger Aircraft 300, bearing
manufacturer‟s serial no. 20174, and registration no. VT-RAK.
16. It is, however, made clear that the aforesaid is not an expression of
opinion as to the mode and manner by which the customs dues may be
recovered if found payable, upon the completion of the investigation and the
adjudication of the alleged charge of evasion of custom duty.
WP(C) 792/2012 Page 21 of 22
17. The writ petition is disposed of in the aforementioned terms, leaving
parties to bear their own costs.
RAJIV SHAKDHER, J
MARCH 14, 2013
kk
WP(C) 792/2012 Page 22 of 22