Civil Appeal No 1434 1435 of 1968
Appeal from the Judgment and order dated 6th April 1967 of the Calcutta High Court in Appeal from original order No 175 of 1963 and 177 of 1963
G L Sanghi and Girish Chandra for the Appellant
H K Puri and M C Dhingra for Respondents
The Judgment of the Court was delivered by GOSWAMI J
These two appeals are on certificate by the Calcutta High Court from its common judgment of April 6 1967 in Appeal Nos 175 and 177 of 1963
Respondent No 1 prior to its liquidation was a private limited company carrying on business as an importer and dealer in sewing machines
On or about April 16 1958 the respondent was granted an import licence by the Joint Chief Controller of Imports and Exports Bombay by which it was authorised to import industrial sewing machines together with spare parts to the extent of S per cent of the total value of the goods to be imported
The total value of the imports authorised was Rs 47406 
The respondent could under the licence import the goods through any port in India
Out of the permitted value under the licence goods worth about Rs 9919 were imported by the respondent through the Bombay port
The respondent then wanted to arrange the rest of the import through the Calcutta port
At the request of the respondent the Customs authorities of Bombay gave a release order in respect of the remaining goods to be imported in terms of the aforesaid licence through the Calcutta port
By an indent of November 11 1958 the respondent placed orders with Ms Fuji Trading Company Limited Osaka Japan for supply of 162 pieces of industrial sewing machine head Raruna Brand and 973 208 dozen of oscillating rock shafts
By two other indents of December 3 1958 the respondent sent orders to Ms Alickson  Company Osaka for the supply of 59 sets of industrial sewing machine head Prosper Brand And certain industrial sewing machine parts
All these three indents were accepted by the two Japanese Companies in  due course
Ms Fuji Trading Company Limited shipped the goods against orders placed with them on January 30 1959 by section section Sydney Maru
Ms Alickson  Company also shipped the goods covered by the indents placed with them on January 28 1959 by section section State of Andhra
The respondent apparently had some financial difficulties for releasing the goods at Bombay as according to it it did not have sufficient credit with the Bombay Bank to open the letter of credit with payment of a nominal margin only
The respondent therefore approached the Bombay and Calcutta Cycle Company briefly the Cycle Company a partnership firm which also used to carry on business as dealers in sewing machines and had previous dealings with the respondent
The Cycle Company agreed to guarantee the letter of credit if it were opened through their Bankers at Delhi the respondent agreed to do so and thereupon at the request of the Cycle Company the Mercantile Bank Limited of Delhi agreed to Act as the respondent s Bankers and also to allow the respondent to open the letter of credit
There after on or about December 2930 1958 the respondent opened with the Mercantile Bank Limited Delhi a letter of credit being L C No 1011085
The respondent advanced a sum of Rs 288450 np by way of marginal deposit to the extent of 10 per cent of the value of the letter of credit and the necessary Bank charges
On February 20 1959 while the said goods were on the high seas there was an agreement between the respondent and the Cycle Company by which the respondent agreed to sell and the Cycle Company agreed to buy at a future date certain quantities of industrial sewing machine heads and oscillating rock shafts
The contract of sale may be quoted in extenso SALE CONTRACT We Messrs Pednekar and Co Private Ltd 172 Girgaon Road Bombay 1 
hereby agree to sell in forward sale Industrial  Sewing Machine Heads and parts thereof to Messrs Bombay  Calcutta Cycle Co
Of 48 Popatwadi Kalbadevi Road Bombay on the following terms and conditions Items and quantity 221 pcs
IndustrialSewing Machine Head TA 1 Model complete with knee Lifter accessories box Bobbin winder made in Japan
200 dozen oscillating Rock Shaft Coto brand made in Japan
Rates and value 221 pcs
Industrial Sewing Machine Heads  305 per machine 
Rs 67405 20O dozen oscillating Rock Shaft  Rs 24 per dozen 
Rs 4800 __________ Total 
Rs 72205 __________ 974 Payment The sum of Rs 13300 already recied by the sellers from the buyers Rs 7000 received on 19th June 1958 Rs 2300 received on 7th July 1958 and Rs 4000 received on 22nd December 1958 will by adjusted against the above payment
The sum of Rs 56000 Rs fifty six thousand only will be paid by buyers as and when required before the delivery of the goods and the balance sum of Rs 2905 will be paid by the buyer after the delivery of the goods to them in good condition in their godown
Place of delivery Buyers  Godown at Bombay
Time of Delivery  June July 1959 Sales Tax  Buyers will issue K  From Bombay Sales Tax against sellers Bill for the goods
For Pednekar  Co Private Ltd Sd Managing Director Bombay dated 20th February 1959
We confirm
For Bombay  Calcutta Cycle Co Sd Partner
section section State of Andhra and section section Sydney Maru arrived at the port 6 of Calcutta on February 26 and February 27 1959 respectively The respondent instructed the Bankers to engage Ms Mackinon 
Mackenzie  Co Pvt Ltd briefly the Clearing Agents as Agents for clearing the goods arriving by the said two ships
The Bankers were also asked to despatch the shipping documents to the Clearing Agents
The Bankers carried out these instructions and the Clearing Agents filed with the Customs authorities Calcutta bills of entry or in respect of the aforementioned goods for consumption in the name of the respondent
On the requisition of the Customs authorities several documents as required were supplied to them
Informations as to who guaranteed for the letter of credit who retained the documents and who paid for the goods were also supplied to the Customs authorities by the Clearing Agents as desired
On October 28 1959 the Assistant Collector of Customs for Appraisement issued a show cause notice on the respondent under section 1678 and section 16737 of the  read with section 32 of the Imports and exports Control Act 1947 relating to the goods that arrived by section section Sydney Maru
On November 18 1959 an exactly similar show cause notice was served upon the respondent by the Assistant Collector of Customs in respect of the goods arrived by section section State of Andhra
In these notices it was alleged that the importation of the goods in question had been  made by the Cycle Company without any valid import licence in their favour and not by the respondent and that the Cycle Company was the real owner of the goods
It was further alleged that the respondent had aided and abetted in the unauthorized importation of the goods by the Cycle Company
There was a further charge that the respondent had transferred the licence in favour of the Cycle 975 Company
It was alleged in the show cause notice of October 28 A 1959 that the licence in any case did not cover the importation of oscillating rock shafts
The respondent was asked to show cause within 14 days of receipt of the respective notices as to why the goods should not be confiscated and why a penalty should not be imposed on the respondent for being concerned in the unauthorized importation of the said goods
The respondent was also asked in the first show cause notice to show cause why oscillating rock shafts of the value of Rs 137319 np should not be confiscated under section 16737 of the and why a penalty should not be imposed on the respondent
The respondent submitted its explanation repudiating the allegations
The respondent further contended that the oscillating rock shafts were spare parts of which clearance could be allowed to the extent of S per cent of the face value of the notices
The respondent denied the applicability of clause 37 of section 167 of the and demanded the release of the goods immediately
On December 17 1959 the Assistant Collector addressed a letter to the respondent which is described as an additional show cause notice
The substance of the allegations made in this letter is that the goods in question were ascertained and specific goods and that the property in the goods had passed from the respondent to the Cycle Company by reason of the agreement for forward sale dated February 20 1959 and that the property in the goods had already vested in the Cycle Company at the time of importation so that the goods were not covered by the licence submitted by the respondent
The respondent was asked to make further submissions within a fortnight from receipt of this letter
There was a similar additional show cause letter dated December 22 1959 addressed to the respondent with regard to goods which arrived by section section State of Andhra
The respondent sent a reply to the additional show cause notices
The respondent denied in its explanation that the property in the goods had passed to the Cycle Company before the goods were cleared On March 18 1960 the Deputy Collector of Customs passed an order by which the go which arrived by section section State of Andhra were confiscated under section 1678 of the read with section 32 of the Imports and Exports Control Act 1947
personal penalty
Of Rs 350 was also imposed on the respondent as well as on the Cycle Company
Thereafter on March 23 1960 the Deputy Collector of Customs passed another order by which the goods which arrived by section section Sydney Maru were confiscated and a personal penalty of Rs 1000 was imposed on the respondent as well as on the Cycle Company
The above is the background which led to two writ applications in the High Court against the aforesaid two orders under article 226 of the Constitution of India which the respondent filed against the appellants impleading also the Cycle Company as respondent No 4 therein
The learned single judge of the High Court dismissed the respondent s writ applications except with reference to the oscillating rock 976 shafts
According to the learned judge these shafts were properly imported under section 2 Part V Item 76a of the Import trade Control Policy Book but these shafts also except 8 dozen were liable to confiscation in view of his decision against the respondent in respect of 200 sewing machine heads
The respondent then appealed to the Division Bench of the High Court
The Division Bench allowed the appeals by setting aside the judgment of the single judge with out disturbing at the same time the aforesaid portion of the judgment regarding oscillating rock shafts
The High Court granted certificates to appeal to this Court under article 133 1 a of the Constitution of India to the appellants
 We may note in passing that during the pendency of the proceedings before the High Court the respondent was wound up by an order of the High Court of Bombay and necessary substitution was made
We are only concerned in these appeals with the confiscation of 200 sewing machine heads and of 200 oscillating rock shafts
Since there had been no appeal by the appellant against that part of the order of the single judge with regard to the importation of 8 oscillating rock shafts Mr Sanghi has rightly not addressed us in respect of the same
Mr Sanghi at the commencement of his argument submitted to quote his own words that the main thrust of the show cause notice was the realness of the transaction
In other words he wanted to raise the question which had also been unsuccessfully pressed into service before the Division Bench that though everything ostensibly was done by the respondent the real importer in the case was the Cycle Company and the respondent merely lent his name
The Division Bench in our opinion rightly rejected the submission holding that that was a completely new case which had not been made out either before the adjudicator or before the learned single judge
The Division Bench further rightly held as follows It was never the contention of the Customs authorities that the importation of the goods was not done by the petitioner and that though everything is ostensibly done by the petitioner the real importer is B C Cycle Company
In the show cause notice there is no allegation made on the part of the Customs that the contract with the Japanese supplier was a sham or that the petitioner s contract with the B C Calcutta Cycle Co was also a sham transaction
 We are therefore unable to agree with Mr Sanghi that he can be permitted to raise this question of a make believe  transaction by the respondent
The only question therefore that arises for decision in this case and on which Mr Sanghi has addressed us is as to the question whether property in the goods had passed to the Cycle Company when the contract had been entered by the respondent with it that is to say
prior to the arrival of the goods at Calcutta port for clearance 977 We may even quote what was stated in the additional show cause notice Thus it appears that the sale contract which purports to be an agreement to sell  is actually a sale and that the property in the subject goods vested with Ms Bombay  Calcutta Cycle Co at the time of importation The learned single judge answered the question in the following words In this case the goods were specific goods in a deliver able state as already held
There was nothing in the con tract indicating that the property in the goods would pass to the buyer at a later stage
Therefore under section 20 of the Sale of Goods Act that property passed at the time of the contract of sale and it was immaterial that time for payment of price and also time for delivery were postponed
 The Division Bench on the other hand after extensively dealing with all the facts and circumstances of the case including the terms of the contract came to the conclusion that  no property could pass before the goods were delivered at the Bombay godowns of the B C Cycle Company
 The controversy has to be resolved by reference to sections 18 19 and 20 of the 
It is in our opinion not possible to hold that the property in goods passed at the time of agreement dated February 20 1959
The contract to sell related not to the entire consignment of the goods which were being imported by the respondent but only to part of those goods even though it may be a major part
Out of 208 dozen rock shafts which were imported 200 dozen were to be sold by the respondent company to respondent No 2
There was nothing to prevent the respondent company from selecting for itself any eight dozen rock shafts out of the whole consignment
The place of delivery of the goods was buyers godown in Bombay
The property in the goods could not pass in favour of respondent No 2 until after the arrival of the goods in Bombay two hundred dozen rock shafts to be delivered to the buyer were separated
So far as industrial sewing machines were concerned the property in them could also not pass to the buyer before the passing of the property in rock shafts as the contract between the respondent company and the buyer was one indivisible contract
The High Court in our opinion rightly held that the property in the goods did not pass to the buyer till the time of the delivery of the goods in Bombay
No specific goods in a deliverable state were attached to the contract when it was made
Mr Sanghi summits that the fact that the Cycle Company was principally financing the whole transaction and stood guarantee to the Bankers in Delhi enabling the respondent to open a letter of credit for the importation of the goods clearly indicates that notwithstanding the place of delivery in the contract the parties intended that the 978 imported goods were appropriated to the contract when the same was made
In many genuine commercial transactions guarantee can be arranged by a party importing or exporting goods under a valid licence
The mere fact of financial guarantee to a Banker for the purpose of opening a letter of credit without any thing more would not convert the guarantor to be the owner of the property the moment the contract was entered if the terms therein pointed to the contrary
We are unable to hold that the mere fact of the Cycle Company being the guarantor with regard to the financial arrangement which the respondent made with the Bankers in Delhi would lead to the in escapable conclusion that the property in the goods had passed to the Cycle Company at the time when the contract was made
The cor respondent between the respondent and the Cycle Company that between the parties and the Banker and the arraignments for clearing the goods through the Calcutta Clearing House relied upon by Mr Sanghi do not lead to a contrary conclusion
It is clear that the respondent had a valid import licence under the cover of which It imported the goods from Japan and as we have held above the property in the goods had never passed during the importation as alleged by the Customs authorities
The entire controversy before the adjudicator was with reference to the importation of the goods by the Cycle Company which fact was sought to be established against the respondent from the legal position urged with regard to the passing of property to the Cycle Company at the time the contract had been made on February 20 1959
Mr Sanghi submits that if on the facts and circumstances conduct of the parties and the correspondences during the relevant period taken with the advance of finance and guarantee of the Cycle Company the adjudicator came to the conclusion that the property had passed and the goods were liable to confiscation and the conclusion was prima facie reasonable the High Court had no jurisdiction to interfere with the order under article 226 of the Constitution
p This would be true says counsel even if the High Court could on the same facts and circumstances take another view in the matter
We are unable to accede to the submission
We are dealing with an order of confiscation of certain goods imported under a licence granted to the respondent
It was never disputed that it was a valid licence
It was also not an Actual User licence the respondent therefore could sell these imported goods to others
The whole matter therefore turned on the legal issue as to whether property had passed at the time the respondent had enter ed into the contract for the sale of the imported goods
Even the Customs Authority in its additional show cause notice made particular reference to section 20 of the appointed out that the ownership in the goods under consideration appears to have passed on to Ms Bombay  Calcutta Cycle Co right from the time the sale contract was concluded
 979 When therefore on the terms of the contract along with other relevant facts and circumstances which had to be looked into by the adjudicator for application of section 20 of the  he committed a manifest error of law apparent on the face of the order the High Court s jurisdiction to interfere under article 226 of the Constitution is clearly attracted
The submission of Mr Sanghi is therefore without any force
In the view we have taken regarding passing of property in the goods we need not deal with Mr Sanghi s submission with reference to the provisions of warranty under section 12 of the 
The orders of confiscation of the goods and penalties imposed are invalid and the High Court was right in quashing the same by issuing the appropriate writs
In the result the appeals are dismissed with costs
VPS Appeals dismissed


Summary:
The first respondent an importer and dealer in sewing machines was granted an import licence for importing industrial sewing machines and spare parts
After importing some goods through the Bombay port the first respondent was permitted by the Customs Authorities to import the rest through the Calcutta port and the first respondent entered into contracts with Japanese companies for supply of a certain number of industrial sewing machines and oscillating rock shafts
Being in some financial difficulty the first respondent approached the 2nd respondent and the latter stood guarantee to Bankers at Delhi enabling the first respondent to open the necessary letter of credit
Thereafter while the goods contracted for from the Japanese companies were on the high seas there was an agreement by which the first respondent agreed to sell to the second respondent at a future date certain quantities of sewing machines heads and oscillating rock shafts
When the goods arrived at Calcutta the Customs authorities took the view that the goods were ascertained and specific goods that the property in them had passed to and vested in second respondent by reason of the agreement to sell so that at the time of importation the goods were not covered by the licence in favour of the first respondent and ordered confiscation of the goods and the imposition of a penalty
The first respondent thereupon moved the High Court and the High Court held against the appellant
In appeal to this Court the appellant Collector of Customs also raised the contentions that though everything ostensibly was done by the 1st respondent the real importer was the 2nd respondent and that therefore the importation was unauthorized and that the High Court had no jurisdiction to interfere Under article 226 with the order of the Customs authority
Dismissing the appeal  HELD I It is not possible to hold on the facts of this case that the property in the goods passed to the second respondent at the time of the agreement and the High Court was right in holding that the property in the goods did not pass to the buyer till the time of delivery of the goods in Bombay 977E G H a The agreement to sell related not to the entire consignment of the goods which were being imported by the first respondent but only to part of those goods even though it was a major part
Out of 208 dozen rock shafts which were imported 200 dozen were to be sold to the 2nd respondent
There was nothing to prevent the first respondent from selecting for itself any 8 dozen rock shafts out of the consignment
The Place of delivery was the second respondent s godown in Bombay and therefore the property in the goods could not pass in favour of the second respondent until after the arrival of the goods in Bombay and the 200 dozen rock shafts to be delivered to the 2nd respondent were separated
So far as the sewing machines were concerned the property in them could also not pass to the buyer before the passing of the property in rock shafts as the contract was one indivisible contract
No specific goods in a deliverable state were attached to the contract when it was made
977E G 972 b n many genuine commercial transactions guarantee can be arranged by a party importing or exporting goods under a valid licence
The mere fact of financial guarantee by the second respondent to a banker for the purpose of enabling the first respondent to open a letter of credit without anything more would not convert the guarantor 2nd respondent to be the owner of the property the moment the contract was entered into if the terms therein pointed to the contrary
978A B 2 It was never the contention of the Customs authorities that the importation of the goods was not done by the 1st respondent or that the 1st respondent s contracts with the Japanese suppliers were sham
Therefore the appellant cannot be permitted to raise the contention that the real importer was the 2nd respondent
977E G 3 The 1st respondent s licence was not an Actual User Licence and there fore the 1st respondent could sell the imported goods to others
The legal issue in the case was whether property had passed to the 2nd respondent at the time the agreement was entered into between the respondents and if on the terms of the agreement along with relevant facts and circumstances the customs authorities had committed a manifest error of law apparent on the face of the order the High Court s jurisdiction to interfere under article 226 is attracted
978G 979B