Case: Joint Chief Controller Of Imports And Exports, Madras Vs. M/S. Aminchand Mutha Etc

Wanchoo, J.1. These eight appeals by special leave against the judgment of the Madras High Court raise a common question of law and will be dealt with together. It will be enough if we give the facts of one case (Jt. Chief Controller v. Amin Chand Mutha-C. A. 60/1965), for the facts in the other cases are more or less similar. It appears that there was a partnership firm known as Nainmull Juthmull. This firm had a quota for import of certain things, as it was an "established importer". Established importers used to be given quotas every year and thereafter licences used to be issued to such importers on the basis of the quota allotted to them. The quota was not inheritable or transferable, but under certain circumstances to which we shall refer later it could be divided between partners where the quota holder was a firm. The firm in the present case had three partners, namely. Amin Chand Mutha, Nainmull Nathumull and Juthmull Mutha. On January 1, 1957, the firm was dissolved. Consequently in accordance with the instructions contained in what is known as the Red Book, application was made on March 25, 1957 by one of the partners (Amin Chand Mutha) for the grant of a licence with respect to the period January-June 1957. It was noted in the application that quota certificates had been issued in favour of the firm Nainmull Juthmull of which the applicant was a partner. That firm had been dissolved and application had been made to the Chief Controller of Imports, New Delhi for division of the quota of the firm between the three partners of the firm who had separated. It may be mentioned that application for licence had to be made before the 31st of March of the January-June 1957 period.2. It was stated that the application had already been made to the Chief Controller on behalf of the dissolved firm on March 4, 1957 for division of the quota between the three partners and was pending when the application for licence was made by Amin Chand Mutha on March 25, 1957. The application for licence had to be made to the Joint Chief Controller of Imports at Madras where the partners of the dissolved firm were carrying on business. The Joint Chief Controller informed the respondent on April 8, 1957 that before any licence could be given to him he should get the approval of the Chief Controller about the division of the quota rights of the dissolved firm. It appears that there was some delay in the office of the Chief Controller for reasons into which it is unnecessary to go, and the Chief Controller informed the partner concerned in September 1957 that instructions had been issued to the licensing authority to the effect that quota certificates admissible to the dissolved partnership firm should in future be divided between the three partners in certain proportions which it is unnecessary to set out. Thereafter the Joint Chief Controller was approached to grant a licence. But on January 9, 1958, the Joint Chief Controller informed the partner concerned that it was regretted that his request for the issue of licence for the period January-June 1957 could not be acceded to since the transfer of quota rights in his favour had been recognised by the Chief Controller only after the expiry of the licensing period to which the application related. It appears that there was then an appeal from this order of the Joint Chief Controller which failed. Then came the writ petition to the High Court in December 1958 or January 1959, and the main contention on behalf of the respondents was that the Joint Chief Controller could not refuse the issue of licences on the ground that the Chief Controllers approval as to the division had been made after the period of January-June 1957 had come to an end. The High Court allowed the petition holding, on the basis of an earlier decision of that court in the Joint Chief Controller of Imports and Exports Madras 1 v. H. V. Jain, ILR (1959) Mad 850: (AIR 1959 Mad 534 ), that the approval of the Chief Controller to the provision of the quota between partners of a dissolved firm related back to the date of the dissolution of the firm and the partners would be entitled to import licences on the basis of such approval subject to the licensing order. Thereupon the Joint Chief Controller went in appeal and the Division Bench of the High Court which heard the appeals upheld the order of the learned Single Judge. The High Court having refused leave to appeal, the appellant obtained special leave from this Court; and that is how the matter has come up before us.3. Before we consider the point raised in the present appeals we shall briefly refer to the system of licensing which came into force after the Imports and Exports (Control) Act, No. 18 of 1947, (hereinafter referred to as the Act). By S. 3 of the Act, the Central Government was given power to provide for prohibiting, restricting or otherwise controlling in all cases or in specified classes of cases, and subject to such exceptions, if any, as may be made by or under the order, the import, export, carriage coastwise or shipment as ship stores of goods of any specified description. This could be done by means of order published in the official gazette. The Act also made by S. 5 any contravention of any order made and deemed to have been made under the Act punishable and by S. 6 provided for cognizance of offences against the provisions of the Act.3a. In pursuance of the power granted to the Central Government, the Imports (Control) Order was issued on December 7, 1955 (hereinafter referred to as the Order). This Order repealed the earlier orders issued under the Act or the Defence of India Rules 1939. It provided for a system of licensing and R. 3 thereof provided that no person shall import any goods of the description specified in Sch. I, except under and in accordance with a licence or a customs clearance permit granted by the Central Government or by any officer specified in Sch. II. Form of application for licences and fees payable therefor are provided in R. 4 and R. 5 provides for conditions to be imposed on a licencee at the time of granting licences. Rule 6 gave power to the Central Government or the Chief Controller to refuse to grant a licence or direct any licensing authority not to grant licence for certain reasons. One of the reasons for such refusal was if the application for import licence was defective, and did not conform to the prescribed rules. Rule 7 provided for amendment of licences and R. 8 gave power to the Central Government or the Chief Controller to suspend the issue of licences or debar a licencee from using a licence for certain reasons. Rule 9 provided for cancellation of licences by the Central Government or any other officer authorised in this behalf. The power under Rr. 7, 8 and 9 was to be exercised after giving a reasonable opportunity of being heard to the licencees.4. These are the statutory provisions under the Act and the Rules for granting licences. In order however to guide the licensing authorities in the matter of granting import licences, the Central Government issued certain administrative instructions to be followed by the licensing authorities. These instructions provided for grant of import licences to three kinds of persons - (i) established importers, (ii) actual users, and (iii) new comers: (see the Red Book of Rules and Procedure for Import Trade Control for the period January - June, 1957). We are in the present appeals concerned with established importers and may briefly indicate how established importers were dealt with in the Red Book concerned. "Established importers" were defined as persons or firm who had been actually engaged in import trade of the articles comprised in the schedule during at least one financial year falling within the basic period. The basic period out of which the established importer could select the best year for the purpose of calculating the quota was from April 1, 1945 to March 31, 1952. Procedure was provided in these instructions for applications and for establishment or refixation of quotas: (see Section I of the Red Book for the period January - June 1957, instruction 22).5. After setting out the system of granting quotas to established importers on the basis of their past imports, instruction 71 with which we are particularly concerned, laid down that quotas were granted on the pre-supposition that no change had taken place in the constitution of the firm. The expression "firm" included a partnership, a limited company and a proprietary business. It was further provided that when a change occurred in the constitution or the name of a firm or the business changed hands the reconstituted firm would not be entitled to the quota of the original firm until the transfer of the quota rights in their favour had been approved by the Chief Controller or other licensing authority, as the Case may be instruction 71 also provided how the transfer of quota rights would be recognised or approved. In the present case we are concerned with Cl. (b) of instruction 71, which is in these terms:-"Where a firm is dissolved, and the partners agree to divide its business, assets and liabilities, and its goodwill is taken over by one of the partners or none of them is allowed to use it, the partners shall get their respective share in the quota rights according to the provision of the agreement."Instruction 72 provided for documentary evidence to be produced by the applicants in support of their case for transfer of quotas.6. It will be seen that these administrative instructions do not create any right as such in favour of persons with whom they deal. They are for guidance of the authorities in the matter of granting quotas for the purpose of the Order. That is why when Cl. (b) of instruction 71 provides for division of quota rights it lays down that the partners shall get their respective share in the quota rights according to the provision of the agreement between them. Once the Chief Controller is satisfied, on the evidence produced before him that the firm had certain quota rights and had been dissolved, he has to divide the quota rights between partners in accordance with the provisions of the agreement between them. As we read Cl. (b), it is clear that where the conditions contained in instruction 71 are fulfilled, the Chief Controller must divide the quota rights in accordance with the provisions of the agreement between the partners of the firm that has been dissolved. Clearly therefore these administrative instructions provide a machinery for division of quota rights in certain cases including the dissolution of a firm consisting of a number of partners and all that the Chief Controller has to do is to satisfy himself that there has been a dissolution in accordance with the provisions in Cl. (b) and thereafter he is bound to accord approval to the division of quota rights according to the provision of the agreement between the partners. He cannot refuse to divide the quota rights between the partners of a dissolved firm where he is satisfied on the evidence produced before him that the conditions contained in Cl. (b) have been satisfied. The function of the Chief Controller under instruction 71 read with instruction 72 appears more or less of a ministerial nature and he is bound to divide the quota rights in accordance with the provisions of the agreement between the partners of a dissolved firm, once he is satisfied on the evidence produced before him of such dissolution and the agreement leading to dissolution provides for the division of quota rights. The division of quota rights according to the instructions is merely for the purpose of helping the licensing authority under the Order in the matter of grant of licence to the class of established importers with which this division is concerned. The approval of the Chief Controller is provided by these instructions in order that the licensing authorities may have a clear guidance as to how they should deal with the quota allotted to a firm consisting of a number of partners which has been dissolved. It is in the background of this position that we have to consider whether this approval granted by the Chief Controller relates back to the date of the agreement relating to the dissolution of the firm consisting of a number of partners.7. Two views have been expressed by the High Courts in this behalf. The Madras High Court took the view in Jains case, ILR (1959) Mad 850; (AIR 1959 Mad 534 ) (supra), that "where a firm is dissolved and the partners agree to divide the business, assets and liabilities, the partners shall get their respective share in the quota rights according to the terms of the agreement. Such rights would accrue to each of the partners from the date of the agreement." The Madras High Court further held that even where the approval of the Chief Controller is made after the licensing period for which application has been made is over, the approval dated back to the time when the firm was dissolved and the agreement to divide the quota rights was made.The licensing authority therefore according to this view has to deal with the application for licence on the basis that the approved quotas were given to the partners of the dissolved firm from the date of the agreement and cannot refuse the licence only on the ground that the approval was granted after the import period had expired.8. The other view is taken by the Bombay High Court in Jagannath v. Varadkar, AIR 1961 Bom 244 . It was held in that case that the transfer of quota rights was a condition precedent to the grant of an import licence. The person in whose favour such a transfer had been recognised or sanctioned was consequently entitled to rely upon that transfer for a period subsequent to such sanction or recognition and not for any anterior period, even though the application for licence might have been made in proper time before the import period expired.9. We have given the matter careful consideration and are of opinion that the view taken by the Madras High Court is correct. We have already pointed out that on a proper interpretation of instruction 71, there is no doubt that the Chief Controller is bound to divide the quota of a firm consisting of partners which has been dissolved in accordance with the provisions of the agreement between the partners provided the necessary evidence has been produced before him, as required by instruction 72 in that behalf. Such being the nature of the proceeding before the Chief Controller it follows that when he gives approval to the division of the quota between the partners of a dissolved firm in accordance with the agreement between them, the approval must take effect from the date of the agreement between the partners. It might have been a different matter if the Chief Controller had the power to refuse division of the quota rights under these instructions; but he has no such power and must divide the quota in accordance with the agreement if he is satisfied as to the dissolution on the evidence produced in accordance with instruction 72. If such approval by the Chief Controller were not to date back to the date of agreement it would mean that the partners who were otherwise entitled to approval under instructions 71 and 72 might lose the advantage that they would have before the licensing authority by delay in the approval by the Chief Controller. In this connection our attention was drawn to the opening words in instruction 71 which provided that "the reconstituted firm will not be entitled to the quotas of the original firm until the transfer of the quota rights in their favour has been approved by the Chief Controller." It is true that these words make it necessary that there should be approval of the Chief Controller before a partner of a dissolved firm can say that he holds a quota. But these words do not mean that such approval will not date back to the date of agreement dividing the quota rights for the Chief Controller, as already indicated, has to divide the quota rights once he is satisfied as to dissolution on the production of evidence mentioned in instruction 72.In such circumstances it would in our opinion be fair to hold that the Chief Controllers approval dates back to the date of agreement so that such persons may not suffer on account of the delay in the Chief Controllers office in the matter of according approval.10. The fact that in his letter of approval the Chief Controller usually says that the quota rights admissible to the dissolved partnership should in future be divided between the partners would not necessarily mean that the quotas for the partners were to take effect only after the date of approval. If the division of quota has to be recognised by the Chief Controller on production of evidence required by Instruction 72 and this division has to be in accordance with the agreement between the partners of a dissolved firm, the approval must relate back to the date of agreement, for it is the agreement that is being recognised by the Chief Controller. In such a case the fact that the Chief Controller says that in future the quota would be divided, only means that the original quota of the undissolved firm would from the date of the agreement of dissolution be divided between partners as provided thereunder.11. Further we should like to make it clear that quotas should not be confused with licences. Quotas are merely for the purpose of informing the licensing authority that a particular person has been recognised as an established importer for import of certain things. Thereafter it is for the licensing authority to issue a licence to the quota holder in accordance with the licensing policy for the half year with which the licence deals. For example, if in a particular half year there is an order of the Central Government prohibiting the import of certain goods which are within the quota rights, the licensing authority would be entitled to refuse the issue of licence for import of such goods whose import has been banned by the Central Government under the Act by notified order. Thus the approval of the Chief Controller under instruction 71 is a mere recognition of the division made by the partners of dissolved firm by agreement between themselves and in that view the recognition must clearly relate back to the date of the agreement. Further when the Chief Controller says in his letter that in future the division would be recognised in a certain ratio based on the agreement it only means that the Chief Controller has approved of the division made by the parties and such approval then must relate back to the date of the agreement between the parties. We, therefore, hold that the view taken by the Madras High Court that the approval by the Chief Controller relates back to the date of agreement is correct.12. It was next urged that the application when it was made to the Joint Chief Controller was not complete inasmuch as it did not mention what quota the particular partner had. That is undoubtedly so for the applications in the present cases stated that the firm had been dissolved and application had been made to the Chief Controller for division of the quota of the original firm between the partners according to the agreement between them. To that extent the application was defective. It is pointed out that under Instruction 13 application for licence has to be made before a certain date and has to be complete in all respects. It was further urged that it is always open to the Joint Chief Controller to reject an application which is defective and is thus incomplete. Assuming that is so, one should have expected such a defective application being dismissed immediately after the last date for making the application had expired and the Joint Chief Controller should have given that as the reason for the rejection of the application for licence. But this was not done in the present cases and the reason for rejection of the application was not that it was not complete when made. Further it appears that it is not unusual for licences to be granted after the import period is over. It is also not denied that it was open to the Chief Controller in his discretion to say that the division of quota rights would be recognised from the date of the agreement even though the approval came must later. If that is so, it would mean that the applicant for division of quota would be entirely at the mercy of the Chief Controller because there is nothing in the Red Book to show under what circumstances the Chief Controller can grant recognition from the date of the agreement even though the approval comes much later. On the whole, therefore, we are of opinion that the view taken by the Madras High Court is correct as the grant of approval in accordance with the agreement is obligatory on the Chief Controller if the evidence required under Instruction 72 has been produced to his satisfaction.13. The last point urged was that subsequent to October 1957, Government of India changed its policy with respect to import of fountain pens with which some of the present appeals are concerned. This it was urged amounted to a ban on the import of fountain pens and it would not be open to the Joint Chief Controller to issue any licence for any period, be it January - June 1957, after the import of fountain pens had been banned from October 1957. Now there is no doubt that it is open to the Central Government under S. 3 to prohibit the import of any article but that can only be done by an order published in the official gazette by the Central Government under S. 3. The High Court has found that no such order under S. 3 of the Act has been published. Nor has any such order by the Central Government been brought to our notice. All that has been said is that in the declaration of policy as to import, the word "nil" appears against fountain pens. That necessarily does not amount to prohibition of import of fountain pensunless there is an order of the Central Government to that effect published in the official gazette. We, therefore, agree with the High Court that unless such an order is produced it would be open to the licensing authority to issue a licence for the period of January - June 1957 even after October 1, 1957.

Decision reasoning: 0[ds]We have already pointed out that on a proper interpretation of instruction 71, there is no doubt that the Chief Controller is bound to divide the quota of a firm consisting of partners which has been dissolved in accordance with the provisions of the agreement between the partners provided the necessary evidence has been produced before him, as required by instruction 72 in that behalf. Such being the nature of the proceeding before the Chief Controller it follows that when he gives approval to the division of the quota between the partners of a dissolved firm in accordance with the agreement between them, the approval must take effect from the date of the agreement between the partners. It might have been a different matter if the Chief Controller had the power to refuse division of the quota rights under these instructions; but he has no such power and must divide the quota in accordance with the agreement if he is satisfied as to the dissolution on the evidence produced in accordance with instruction 72. If such approval by the Chief Controller were not to date back to the date of agreement it would mean that the partners who were otherwise entitled to approval under instructions 71 and 72 might lose the advantage that they would have before the licensing authority by delay in the approval by the Chief Controller. In this connection our attention was drawn to the opening words in instruction 71 which provided that "the reconstituted firm will not be entitled to the quotas of the original firm until the transfer of the quota rights in their favour has been approved by the Chief Controller." It is true that these words make it necessary that there should be approval of the Chief Controller before a partner of a dissolved firm can say that he holds a quota. But these words do not mean that such approval will not date back to the date of agreement dividing the quota rights for the Chief Controller, as already indicated, has to divide the quota rights once he is satisfied as to dissolution on the production of evidence mentioned in instruction 72.In such circumstances it would in our opinion be fair to hold that the Chief Controllers approval dates back to the date of agreement so that such persons may not suffer on account of the delay in the Chief Controllers office in the matter of accordingthe approval of the Chief Controller under instruction 71 is a mere recognition of the division made by the partners of dissolved firm by agreement between themselves and in that view the recognition must clearly relate back to the date of the agreement. Further when the Chief Controller says in his letter that in future the division would be recognised in a certain ratio based on the agreement it only means that the Chief Controller has approved of the division made by the parties and such approval then must relate back to the date of the agreement between the parties. We, therefore, hold that the view taken by the Madras High Court that the approval by the Chief Controller relates back to the date of agreement isthe whole, therefore, we are of opinion that the view taken by the Madras High Court is correct as the grant of approval in accordance with the agreement is obligatory on the Chief Controller if the evidence required under Instruction 72 has been produced to histhere is no doubt that it is open to the Central Government under S. 3 to prohibit the import of any article but that can only be done by an order published in the official gazette by the Central Government under S. 3. The High Court has found that no such order under S. 3 of the Act has been published. Nor has any such order by the Central Government been brought to our notice. All that has been said is that in the declaration of policy as to import, the word "nil" appears against fountain pens. That necessarily does not amount to prohibition of import of fountain pensunless there is an order of the Central Government to that effect published in the official gazette. We, therefore, agree with the High Court that unless such an order is produced it would be open to the licensing authority to issue a licence for the period of January - June 1957 even after October 1, 1957.