461 •

MANICK CHAND PAUL & OTHERS ETC ..

UNION OF INDIA AND OTHERS

Aptil 17, 1984

~\ (V.D .• TULZA¥URKAR, V. BALAl:R!SHNA BRAD! AND D.P. MADON, JJ.]

Gold Control Act 1968, Sections 16(7), 52, 79, JOO read with rule 3(1) Qf the Go:/d Control (ldenific.ation of Customers) Rule1, 1960,. whet he~. violatte of the provisions of Articles U,19(1)(/l), 301anl.302 of the Constitution. . .

Gold Control (Forms, Fees and Misce/lane1us Mattefs)· Rules, 1968-For11t1 GS, J J and GS 11 as amended are unworkable anti require modification-,.-Govern· 1nel/t of India's Letter of Instructions ani the Trade Notices withdrawint the-· faciility of sale by licensed traders throuzh their trflvtlli111 sales1nen whether 1•islativ~ Articles U, 19(/)(t) and 301 ofrhe &nstituti1n.

In Harak Chand Rotan ChanJ Bamhia's c.u [1~70] I SCR 479, where tao Gold (Control) Act, 1969 and some of its provision; prioi to the amendment by Act 26 of 1969 were challenged, the Supreme Court poiilted out that even tho, P&h.' import of Gold into India had been banned, considerable quantities Of contrab&, nd glod were findinii. their \Vay into the cciuntry through illei!al channels;.. affecting the national economy and hamperin: the country's economicstability and progress, th!!:t the Customs . DCpartment was not in a position to effectively combat the sn1ugglinu over the long borders and coast lines, that, therefore, anti-smugglinu measur~ l'iad to be supplemented by a detailed •ystem of control over internal transaclions and that the Gold (Contro1) Act, 1968 was passed for this purpose. In other words, the several restrictions that have be-en put oll the activities of the trad!rs doing business in e01d, go Id orname'nts and articles of gold, will have to be viewed frbm the aforesaid perspective. The Court further held the enactment to be within _the Jegl.slative compeie_nce of P.1rliamen.f:and out of the several provisions that were challenged only ss. 5(2)(b), 27(2)(d), 27(6), 32, 46. 8-8 and lOO were invalid. As a result of the aforesaiddecisions and, the obServations made by this Couft therein t

0 he Act of 1968 was suitably amended by Gold Control (Amendment) Act (i6) of 1969. These amended provisions, the Gold Control (Identification of Customers) Rules, 1969, th~ Gold Coritrol (Forms, Fees and Miscellaneous Matters) Rules 1968 are chaJ!enged by the Writ Petitioners as being: violative of the provisions. of Article 14, 19(r)(g), 301,_ and 302 of the Constitution. Some of the pet_itioners including the petitioners in S.L.P. Civil 5J8 of 1973 have also challenged the Govern1nent of lndias Letter of Instructions and the Trade Notices withdrawing the facility of permitting Jicensed dealers to send naments for. sale through their travelling salesmen, on te same grouds.

Dismissin&: the petit!ons, the~Court

_-\ HELD: 1:1, Section 16(7) of the Gold (Cootrol) Act, 1968 as .amended is

constitutionally valid. [269E, 47IB] '

1:2. The counteraffidavit of the Urilon. of India not merCiy furrilshes the inteI!igible classification ffiade betwen the.licensed dealers and non-dealers and

nonrCfiners~ but .. also shows th.at the 'ctassitic3.tioil has a reaSonable nexus with the object of the Act and the reasons for denying e>.emption limil~'tO liceriscd deJ.Jers or refiners are also valid and r.eferable to the Object of the ct, namely "to provlde, in the economic arid financial intefests of thC co'nimunity, for the confroJ of production, manufacture, supply distribution, se and poss::ssion of' and business in, gold ornaments and articles of goid and for matters connectCd

terewith r incidntal thereto:; [t69F, 4700-E}

~ .\Vhile.ordinary citizens (nondealers and. non.rCfinCrs) are pot premitted-by - Jaw to have any primary gold in their possession• a deah:r or a, refiner 1s permit tej under the law to have unlimited quantity of primary rold in hi..; poss.:ssion and therefore, it is tasr for a dealer or a refinC:r to acquire !rpugg!ed rold and \\-ith a viw to preventing" det~1.:tion of such golJ, to convert .1he same into or.na . ' . . ments and to claint such ornaments as his personal property. This necessitated a provision for a dcdaration cf all ornaments and articles, owned, possessed.

hld or controlled by th!m o lha, t they_could not _caim any clandestinely manu. factured oranaments, when detected to be their p!rsonal property and that is

,- \\; hy it has been providd in S.t6(7) i1; at e'veiYliCensed dealer or refiner hould

declare all g6Td articles arid ornaments which belong to h1m or Which are in his custody; posssC'sion o.r control, and that is why it has been further.provided that th~ e.o.:cmption limit-> permissibl~ for general public in rel::uion to the

requirment of.declaration of articles and ornaments shouid not be available lO the dealers and refinerS: [469G-H, 470B-D]

1 :3. 1 hC provi5ion in section 16(7) could not be regarded as unnecessary or " one ·,-\lhich c3.sts an unrea!iOnable burden on the licensed dealer or refiner. The reasons for-introducing thi;: provision justify its enaetmcnts, if the objects of the . Act are to be achi_ev:J. , -Oath: sp!c:t of casting unreasonable burd.:n on the

dealer refiner, tirStly, the burde~ orl the dealer or refiner i:s the same as that which haS been Casi on a non-de:il:r (iridividual or family) whenever the l.ttter come:;.' to own, posses5, h;)ld or have under hi1 cOntrol articles or oriiamenti of sold in .excess of the exempted limit ; secodly visits of guests and relationS (including , maried daught:rs and siters) on festive o.:casiofi5 aod requestsproct.eding frOn1

• them ro lh~ houe-k.e.:p:r to keep their orilam!nts in safe" custody during their stays \\-i!h him, which are ordinary inciden'ts iri li_fe, arc common to licensed dealers Or refiners aiid nCln'-dealers and thi::refi.Jr.! the requirement of rriaking a declaration uild.:r section _16(7) does not cao; t any additional burden on him; and. thirdly under section 16(i) it is provided that 'the licensed d:aler or refiner shall inake a -dec-laratioa- "'in iccordanc: with the provisions of this section" \vhich means he his to '&J so wi"1hin 30 days of his acquiring the O\\-n.erShlp, ('9ssession, custody or conlrol of such gold. \Vith such, time limi-t being Provided the burden casttcannot be, said to be unreasonable.~ especialiy Y.ben the provision is found to be nCcessary to carry out the objectives of the Act, .

. [470E-H, 471AB] ..

' \

--¢

tl.C. PAUL v, UN:O~ 463

2:t". Section 52 of the GOid (Coptrol) Act, 1968 -as am.endd does not suffCr from the vice of excessiVi! delegation of the power and therefore the said provi

sion iS constitutional. [472G-HJ

2:2. it is true that section 52 os not contairi any guide-line~ or pinciples which would regulte the exercise of the ppwer of the Administrator in the matter of gi-ant or refusal or approval to change in lhe Partnership of a firm but in the exercise of the powers confrred by s.114 readwith s.27(6) of the Act the Central Government has framed the 'Gold Control (Licensing of Dealers) Rules 1969'_ and Rule 2 enlists matters to Which regard. is tq be had before issuing a licence and Rule 3 indicates the conditions on the fulfilinent of which

_a Hcence could bC ref!ewed. It 'is true that the5c RuJes. w.hich deal wi1h Jicens .. ing of d:!alers and renewal of their licences, in tenns do not cover a case of a change in the partnership of a firm and the.approval to t-e accorded thereto by the Adminbtrator but in a sense a case of a change occurrin'g in thC -partnership of the _ fifin and the occasion to app_ly for grant. of approval thi:reto by the Administ'rator would be a ca1J~ of 5eekin& renewal of the licence by the firm in which a change has occurred eith'r by death or re tiremefit of a partner or aS a result of reconstitution of th~ firm and therefore to such a: case .th-!se licensig Rules, particularly Rule 3, must and will apply and these rules; in so far as they. are appli.:able to the situation, afford. the n, ecessary guidi.lincs on the basis of which approval to the change could be given or rfused .. Obviously, if the charige in he .firm involves fntroduction of a new panner into the firm these guide-lines under Rules, 2 and 3 will play an important part ia the matter of ac.:ording or refusing to accord ihe approval but if the change nearly involves. alteration in lhe share..capit<il or Profit harirlg basfa an1ngst the se!f-same partners who coatin1,1e the .firm the .ipproval Would be a nlatter of forma!i{y, In view of the Licensing Rule1J, 1969 which must apply, it cannot be said that any unfeuered or unregulated discretion has beeO conferred upon the Adminis trator in th~ matter of grant of refusal of appro(al to a change in the partaCr. 'ship of a firm. [47JH, 472A-E] ,,

2:~. On the aspect of absence -of a prov1s1on from appe!ll, a remedy by wa:Y of an appeal to correct any erroneous order that may be pasSed undel'. section 52 has beeil provided for by Notificafion dated 26August, .. 1983 issued ·.

by tht: Ad1ninistrator under seC. 4 (4) of thC Act whereunder the exercise of the poWer under sec. 5-2 has been delegated to the Deputy Collector of the Centre Excist: with the result that.aq ippeal; against his order und.er s.52 will lie to the . Collector of. Centre Excise under s.80 of t?c ACt. -[472E~G] •

3. The power to grant extension under section 79 of the Gold (Control) Act as amended is not arbitrary and does not suffer fronl.Jack of guidelines. Of

course two in built .; afeguards will have to be and must b-= read into the Provision. Since every extensio_n involves civil Consequence in that the owner's or the r::cerned person's right to have the seize_d g0Jd returned to him is adversely affected by beingpostponed. before granting any extensio_n he must be given a notice and an opportunity to make representatiou aga'int the Proposed exten Sloe. 474H,,47SA-lJJ '-

-464

S~PREME COURT REPORTS (19811] 3 s.c.R.

It is true that s.79 docs not expressly mention the iuidelinc5 on 'the ba, sis of which the power to grant ext; psion of die initial period of six Il!Ontbs is to be exercised buL if regard is had to the provh.ions ._dealing with &:izure (s.66), Confiscation (s.71), .Adjudication (s.78). and Giving of ('pportunity (s.79) the Policy of the Legislature becomes qi.lite clear that -·- herl!:<1'3 tlo' .. l---Ower to seize'. can be_ exercised by any Gold Control Officer if ht: Las"'reason to lxlieve" that in repect ot any -gold _any provision of the A.ct has been or is beini or is _ attempted t? 'be contravened the confication._of gold can takC_ pla.cC only if'

: actual contravention bas taken place Or is apprehended or is attempted and such

co;, fisCatiori can b~ adjudged or o?defed withOut limit tiy a Gold cOntiol Officer not below the rank of a Collctoi Or Central Excise or of Customs and subject _-to such.limitsas may __ be specified in that behalf by'such other Gold COntrol

0f!1ccr not beTOw the rank of a Superintendent of Central Excise as the Centrai

GovemmentSma~ autliorise in that behalf; but the power _to 8raot extension of

- -- the initial period of six moflths has been conferred under the second proviSo to

's.~9 only upon a superir officer, namely tl1; e COlfector of Ceiitral Excise or of

customs, Further under the second proviso to s.79 tbe owner oi the person con 'Cemed has been iliven the right to have the seized gold returned to him where Ilo ... o-tice _p.roposing Cofiscation is_ served uPon him within' a period of six months

from"the d'ate of th~ seizure of _the gold which shows that the Legisla:ure clearly intended that ordinarily the investig<ition in corinection with the seized gold is Cxpected to be over within six months ; but only in caseS where such investigation may not be complet'ed owing to some gen.uine or bonafide diffi culties the Legislature gave undi:r the proviso power to the Co11ector tO'"e'l!"tend that time. Iii other word3 Collector is expected to pass extension order~ neither mech.anicaUy nor as a atter Of routine but only on being satisfied that fact! or circumstances Cxist which ind.icate that the investigation could not be completed for bona fide reasons withln the initial period of six moI}ths. Such guidelines

- would be imP1icit if the extra-ordinary powe; to effect seizure and adjudge confis. cation conferred by the Act is considered in jllstaposition with the rig.ht confer , ted upon the owner or the person cOncerned to have the seized gold.returned to him "norniauY at the eX.piry of the initial Period of six months. Presumably, the ramifications of any gold smllgg\ing 3.ctivity which are usually' extensive and. cclmplicated must haVe Jed the. LegisJature ·not to 'impose a Jimit or ceiling on_ the power to gtant. extension but , jf the above gllidelines are to gov_ern every-· extension that may be granted then mere absence of a limit or ceiling will not be or any consequence. [473H, 474A-G] . -

AsSistant Collector of Customs v. Charan Das Malhot'ra, [1971] 3 S.C~R. -802;

aPPtied~ '

4:1 Section JOO of ihe Gold Control Act read with Rule 3(1) of the Gold Controi (ldentificaliOn of Customers) Rules~ 1968 is constitutiona1Jy v:ilid and' does not restrict. ihe licensed dealers to arry on their business iricludins their . inter-state trade-, (478FeG]

4':2. Section 100 of thC Act as it originally stood prior to its amendment in t969 imposed a statutory obligation Upon a dealer to-take all reasonable steps to 'sati:c; fy himself about the identity .of the person fro~ :n.hom gold wa! boug.h; t liut h did not specify the ntuII cf steps which a dealer as supposed to t-ak.o ..

M.C. PAUL v. UNION 4~5

-for such -satisfaction and therefor~ this Court i~ .1/arakchtind: Ratanchand

...Banthia's case took the view that the obliiatioa, cast thereunder' was uncertain -2nd incapable of proper_ co:npliance and therefore the section was uncqnstitu~

tional on the ground that it imposed an imposSible and unreasonable burden. In the light of this decision, ~.100 was appfopriately ameilded and the •Gold Control ·{ld<.!ntification of Customers) Rules, 1969 were. frarried and p.irticularly Rule 3(1) n::>w prescribed the Several steps one. or more of which have to be iakCn by the '11censed dealer to satisfy himself as to the identitY of the Customer from whom be proposes to accept, buy or otherw_ise receive any go?d, 477E-G]

4:3. From the. mere fact that most of the custon1ers who come from villages .:as also from outside their own State. prefer to recive payments in.cash_in Jieu of

old sold and arenot prepared to receivepayments by crossed cheque!. for the £Cason that they do not ha Ve a.ny_ bank account or their apprChen .. ion that the ---said cheques may-_ not be enca-stied, it cannot be said complianCe is either incap . able or hnpOssiable even frcm-a practical or commercial point of view. More :

-Over. thi provisions contained in sub-rule_ (2)(a) of Rule 3 i!I apPlicable in all -cases. v.:hcre gold is accepted bought or otherwi:so received by th: dealer irrespec - tive -Qf whether the. customer is personi; Jlly _known to the dealer or not known tc> :him; The Purpose served b:Y s_ub-rul.! (2)(a) of Rule 3 is entirely diffl;!rept from . the purpose served by one or more _of the step:s that are 1equired to be taken by "a dealer under sub-rule (I) of Rule 3 and therefore, it canD.ot be said that be .. ---Cause of the provisions contained in sub-rule 2(a) ihe stePs contemplated under sub.-rulc (If are unreasonable •. [ 47SA-B, E; Fl

BihCir State Bullion Merchafits, Assn. &: Others v. Union of India an_d Otheu, A. \.R. 1971 Pat. 240; approved.

S. The amende~ prescribed form3 Nos. G.S.11 and GS. 12 required to be maintained ur..der section 5.$ of the Gold Control Act read with Rule J l of the -Oold Gontrol (Forms Fees, and Miscellaneous Matters)Rules, 1968 brought into-.

force v.:lth effect frOm 31st Octobr. 1975 do not.-provide, as conceded by the Government, for all tbituations under which gold would be received by him in his possession or custody and keeping the account of their gOid in . aCcordance

- with the said For.ms Would -give rise to anomalies and the dealer \VOuld not

be' able_ to discharge his st1tutory duty of disclosing a true and complete .=:cunt of the gold in his possession or custody. [478H, 479G-1!]

Th~efre. the Court directed .the- Adrllillistrator .to look into theSe \1lriev1nces and remedy the same by taking appropriate action and hope that in the meanwhile no action penal or otherwise would be taken against Iicens -cd dealers for f; J.ilure io maintain aecounts in the amended Forms G, S. 11 .and G.S. 12. [480C-D]

6. Secti0n 27(7J(b) of the Gold Control Act. y, rhich confines a licensed dealer to carry on business as such dea!er to the premises specified in his licence. being

regulatorY in Charact!r does not violate any ot his rights under the constitution.

The Ltter of Instructions or the trade Notices does not privet or stop inter . State trade but were issued with a view to prevent the several malpractice:s that were indulged iii while availing of the facility or hawking: ornam"ents throuch

t[aveling :salesmen. [431CFl 1

' A.


k ORIGINAL Jur'1SDICTION: Writ'Petitios Nos. 918-953,. 1159-

1186 of 1977, 88 of)973, ,107, 664 & 575 So 618 f 1973 •

. (Under Article 32 of the Constitution of India)

Wmr ,.

Special Leave Petition (Ciyil No. 538 of 1973

(From the Judgment and Order dated 24th July. 1972 of the Punjab ancj Haiyana High Conrt'in C.W. No. 1221 of 1972)

• A.K. Sen and G.S. Chatterjee for the ~Petitioners in WP. 918_ ' . and 95~/77 .

. Gobindas, G.S.

Chatterjee and D.P. Mukherjee for the Petitioners iri W.Ps. Nos. 1159-86 of 1977. . . ' Dr. Y.S. Chitale; Mrs. A.K. Verma, R.N. Banerjee and D.'N •.

Jfishra' for the Petitioners in WP. No. 88 of 1973 ·& WP, No. 107 /73. .

•. D.N. Mishra for the Petitio~rs in WPs. 564, 575-618/73 and: (Civil) No. 538/73. ·

.. Ms. A. Subhashini for th(Respondents in WPs. 918-953/77.

SLP 1159-86 of 1977 ..

I ;

88/73 Abdul Khadder, D. Goburdhan 1 for the Respon.dnts in WP.. >- . ' D. Goburdhan .for the Respondents. ·

The Judgment of the CoJlrt was delivered by

TuLZAPURKAR:· J. 'By these. writ petiticns, the petitioners whoa re licensed dealers, are chailenging the constitutional validity of tliec Gold (Control)Act, 1968 and in particular the provfaions. contained in ss. 2(p), 16, 27 (as amended), 44, 48, 52,. 79 and 100 (as amended)

...

M.C. PAUL v. UNION (Tulzapurkar, J.) 467

and the Gold Control (Forms, Fees and Miscellaneous Matters) Rules, 1968 (as amended in 1975/1976) and the Gold Control . (Identification of Customers) Rules, 1969 as being violative of /

th,. fundamental rights under Arts. 14 and 19(l)(g) and are seeking suitable directions restraining the respondents from giving: effect to any of those provisions, Some of the petitioners (including the petitioner in S.L.P. (Civil) No. 538of1973) are challening the Government of India's Letter of Instructions and the Trade Notices withdrawing the facility of permitting licensed dealers to , end ornaments for sale through their travelling salesmen as being

' violative of the constitutional guarantee under Art. 301 as also their fundamental rights under Arts. 14 and 19(1)(g) of the Constitution.

At the outset we would like to observe that the several grou\lds of challenge will have to be considered in the background of two things: (a) the object with which the Act was nacted and (b) this Court's decision and the observations made by it in Harakchand Ratanchand Banthia'sl'l case where the Gold (Control) Act and some of its provisions prior to its amendment by Act 26 of 1969 were challenged. The Long Title to the Act shows that it was put on the Statute Book with a view ("to provide, in the economic and 'financial interests of the community, for the control of production . . ,

manufacture, Supply distribution, use and possession bf, and business in, gold ornaments and articles of gold and for matters connected therewith or incidental thereto.") In Harakchand Banthi~'s case

this Court bas further pointed out that even though import. of Gold into India had beed banned, considerab1e quantities of contraband gold were finding their way into the country through illegal channels, affecting the national economy and hampering the country's economic stability and progress. tbftt the Customs Department was not in a position to effectively combat the smuggling over the Jong ' borders and coast lines, that, therefore, anti-smuggling measures [had to be supplemented by a detailed system of control over inter-

: nal transactions and that the Gold (Contfol) Act, 1968 was passed ' G for this purpose. In other words, the several restriciions that have been put on the activities of the traders doing business in gold, gold ornaments and articles of gold, will have to be viewed from the aforesaid perspective. We might also mention that in Harakchand .' Banthia's case the enactment (prior to its amendment in 1969) had

(I) [1970] I SCR. 479

been challenged riot merely on the ground of legislative incompe- . tence on the part of the Parliament but several of its provisions , were also challenged on the ground that the same were in violation of the petitioners fundamental rights under Arts. 14 and 19(1.~") & (g). This Court held the enactment to be within the legislative m- IL . petence of Parliament and out of the several provisions that were

. challenged only ss. 5(2)(b), 27(2) (d) 27(6), 32, 46, 88 and 100 were held to be invalid.

As a result of the aforesaid decisionand the observations made by this Court thercrin the Act of 1968 was suit

ably amend.ed by Go!<,! Control (Amendment) Act (26) of 1969). It j . is the provisions of the Act,. as amended in 1965 t.hat are being

thal!engcd by the petitioners before us and we. may state tht • though a large number of provisions have been made the subject of . challenge in the writ petitions, at the hearing only some provisions were selected against which the ch.allcnge was pressed before us an'd • we propose to deal with only those provisions.

The first provision that has been Act which provides : challenged is

s. 16(7) of the

"Every licensed dealer ot refiner shall make a declaration in accordance with the provisions of this section in relation to any gold owned, possessed, held or controlled by E him, in any capacity other than the capacity of a licensed dealer or refiner and the provisions of sub-s.(5) shall not apply to such gold". '

The requirement of making a declaration under this prov1S1on . is in respect of any gold owned, possessed, held or conttolled by a licensed dealer or refiner otherwise than in his capacity as a ·~ I licensed dealer or refiner and the examption granted to' a nondealer in respect of articles and ornaments of gold, total weight whereof does not exceed 2,000 gms. in the case of au: individual ancl 4,000 gms. in case of a family in the matter of making a declaration under sub"sec. (5) is. not applicable.

Counsel for the petitioners challenged this. provision on two ground : (a) it is discriminatory under Art. 14 and (b) it imposcs'.unreasonable restriction on licensed f dealers and is violative of Art. 19(1 )(g). It was pointed out that

•very licensed dealer is reqµired to furnish, under s. 56, returns in 1 'escribed form as to the quantity, description and other prescribed

'pa.iculars of gold owned, possessed, held or .controlled by him as such dealer nd the aforesaid requirement of making a declaration in respect of any other gold owned, possessed. helcl or controlled •

M.C. PAUL v. UNION (Tu/zapurkar, J.) 46?

'by him as non-dealer is an additional requirement and while prescribing such additional tequirement the exemption under s. 16(5) which is available to non-dealers (individuals and families) has been .denied to him and according to counsel the classification made is not based on any intelligible differentia having any nexus to the . -0bject sought to be achieved by th~ Act ; in other words, every licensed dealerin his capacity as a non-dealer is subjected to dis- Criminatory treatment.

Secondly, counsel urged that imposing £uch a requirement on a licensed dealer to make declarations on

,. evety occasion in respect of any quantity of gold coming in his possession or custody as an individual or a member of a family .amounts to putting an unnecessary and unreasonable burden on him and the .requirement may at times become impossible to comply with ; counsel elaborated his submission by giving an example that if guests or relations, particularly married daughters and sisters visit the residence of a gold dealer for a short stay on festive .occasions and request him, as it frequently happens in normal . .course of events, to keep their ornaments in safe custody during their stay he has to oblige them, but in terms of the requirement of s. 16(7) the dealer has to make a declaration in respect of such gold. ·

which has come in his custody or possession and to require him to dp so on every occasion is to cast unreasonable burden on him amoun- ting to unreasonable restriction especially as. non-compliance there entails penal consequences and therefore the provision must . be regarded as unreasonable and arbitrary.

ln our view neither of the contentions has any force.

As regards the attack under Art. 14, sufficient material has been placed before us in the counter affidavit of Shri K.S. Venkataramani, Deputy Secretary, Ministry of Finance (filed in W.P. Nos. 918-953 ef 1977) showing how the classification made between the two cate- :gories in the context of making a declaration under s. 16 in relation to gold owned, possessed, held or controlled by them is based on intelligible differentia having a nexus to the object of the Act. In para 5 of the counter affidavit it has been pointed out that while ordinary citizens (non-dealers and non refiners). are not premitted by law to have ony primary gold in their possession, a dealer or a refiner is permitted under the law to have unlimited quantity of primary gold in his posse1sion and therefore, it is easy for a dealer or a tenner to acquire 11muggled gold and with a view to preventin& .ctetectioa of such gold, to convert the same into ornaments and t.

.claim Hl'l1l ornaments as bis i>crsonal property. It is further poia

470 BUP}lEME COURT REPORTS

(1984] 3 S.C.R.

ted out that it had been repeatedly observed that licensed dealers.

A in gold, when found in.possession of stocks of ornaments in excesi.

. of those entered in the prescribed accounts. often took the plea that these represented their personal property and it was further notied

that they kept the ornaments manufactured by them clandestinely at their residences and at other places and when such stocks were

• detected thee were cla.imed as tfleir personal property ; it therefore became necessary to provide for a declaration of all ornaments ' ancll ... articles owned, possessed, held or controlled by them so that they . could not claim any clandestinely manufactured ornaments, when • detected, to be their personal property and that is why it has been ' provided in s. 16(7) that every licensed dealer or 1efiner shoold C, dedare all gold articles and ornaments which belong to him or

which are in his custody, possession or conttol, and that is why it has been further provided that the exemption limits permissible for general public in relation t_o the requirement of declaration of arti- .J cles and .ornaments should. not be available to the dealers and D refiners. The aforesaid materials in the counter.-affidavit not merely furnishes the intelligible differentia for the classification mad_e lint also shows thaHhe classification.has a reasonable nexus with the object of the Act and the reasons for denying the exemption limits. to_ licensed dealers or r; finers are also valid and referable to the object of the Act.

As regards the second ground of challenge it is difficult t<> ap_preciate how the provision could be regarded as unnecessary or one which casts an unreasonable burden on the licensed dealer or refiner.

In fact the reasons for introducing the provision as indicated F above justify its enactment if the objects of the Act are to be achieved. On the aspect of castiug unreasonable burden on the dealer or refiner it must in the first place be observed that the burden oi:i the dealer or refiner is the same as that which bas been cast on a non-dealer Qlidividual or family) whenever the latter comes to own,· possess, hold or have under his control articles or ornaments of gold G in excess of the exempted limit. Visits of guests and relations

(inluding 'married daughters and sisters on festive occasions and requests proceeding from them to the house-keeper to keep their ornaments in safe custody during their stays with him. which are ordinary incidents in life, are common to licensed dealers or refiners H and ilon-dealers and there is no reason to suppose that the requirement of making a declaration under s. 16(7) casts any additional burden on him than on a non-dealer when be has in his possession

1 ·-4

• f

M.C. PA.UL v. UNION (Tulzapurkar, J.) 471

-Or 'custody articles and ornaments in excess of the exemption limit. & Moreover, unders.16(7) it is provided that the licensed dealer or refiner shall make a declaration "in accordance with the provisions -of this section'' which means he has to do sowithin 30 days pf his acquiring the ownership, possession, custody or control of such gold.

With such time limit being provided the burdeu cast tannot be said to be unreasonable, especially when the provision is found to be B necessary to carry out the objectives of the Act.

Having regard to

he above discussio:1, the challenge to the constitutionality of s.16(7) must foil.

The next provision challenged is sec. 52 of the Act which provides for licence issued to a firm becoming invalid if there is any •£hange in the partnership of the firm. fhat section runs thus:-

"52. Where any firm has been licensed under this Act to carry on business as a dealer or refiner, such licence shall, notwiths•anding anything contained in this Act, become invalid on and from the date on which there is a change in the partnership of such firm, unless such change in the partnership has been approved by the Administrator".

Counsel for the petitioners contended that change in partnership

~ a normal and usual thing that occurs when business is carried on

ty a firm and such change may arise on account of death or retirement of a partner or reconstitution of , the firm but the above provision imposes an nnrcasonable restriction in so far as it provides 'that the licence of a firm shall become invalid on and from the date -0n which there is a change in the partnership of such firm unless the , -<:bange has been approved by the Administrator. According to .counsel the restriction imposed is excessive and what is more no ; guide-lines or principles arc !"id down on the basis of which approval to a change may or may not be given by the Administrator; besides there is no appeal or other corrective machinery provided against .an!adverse order oftthc Administrator refusing at)proval. Counsel therefore, urged that this provision clearly suffers from the vice of .excessive delegation of legislative power and is liable to be declared

.unconstitutional.

It is true that sec. 52 does not contain any guide-lines er J>rinciples which would regulate the exercise of the power of the .

Administrator in the matter of grant or refusal of approval to a <£h ange in the partnership of a Ii.rm but in the exercise of the powers

.A conferred by sec.114 read with sec. 27 (6) of the Act the CentraF Government has framed the 'Gold Control (Licensing of. Dealers) Rules 1969' and Rule 2 enlists matters to which regard is to be had before issuing a licence and Rule 3 indicates the conditions on the fulfilment ofwhfch a licence could be renewed. It is true that these B Rules, which deal with licensing of dealers and renewal of their licences, in terms do not cover a case of a change in the partnership of a firm and the approval to be accorded thereto by the Administrator but in a sense a case of a change occurring in the partnershil" of the firm and the occasion to apply for the grant of approval thereto by the Administrator would be a case of seeking renewal of the Cl licence by the firm in which a change has occurred either by death or retirement of a partner or as a result of reconstitution of the firm, and therefore to such a case these Licensing Rulos, particularly Rule 3, must and will apply and these Rules, in so far as they are appli- . .:able to the situation, afford the necessary guide-lines on the basis.

of which approval to the change could be given or refused. Obviously, 8 if the change in the firm involves introduction of a new partner into the firm these guide-lines under Rules 2 and 3 will play an important part in the matter of according or refusing to accord the approval but if the change nearly involves alteration in the share capital or profit sharing basis amongst the self-same partners who continue the E firm the approval would be a matter of formality. Inview of tlw Licensing Rules, 1969 which must apply it is difficult to accept the contention 'that any unfetterred or unregl, llatcd discretion has been .£onferred upon the Administrator in the matter of grant or refusat

<Jf approval to a change in the partnership of a firm.

On the aspect of there being no appeal or other corrective machinery provided • against an adverse order of refusing approvat"that may be passed 11nder this ection it may be stated that Counsel for the respondents. produced before us copy of a (Notification dated 26th Augus~. 1683 ' issued by the Administrator under sec.4(4) of the Act whereunder the exercise of the power under sec .52 has been, delegated to the G • Deputy Collector of Ceqtral Excise with the result that an appeal'

against his order under sec.52 w!ll lie to the Collector of Central Excise under sec.SO of the Act.

In other words, a remedy by way ef an appeal to correct any erroneous order that may be passed under 11ec.52 has been provided for.

In this view of the matter i\is difficult. to accept the contention that s. 52 suffers from the vice of excessive B .telegation of legislative power or for that reason the said "provision, is unconstitut.ional. The challenge to that section therefore, has to- 1tc rejected.

M.C. PAUL v. UNION (Tulzapurkar, J.) 473

The next provision that has been challenged is s.79 read with A. the second proviso thereto.

Section 79 provides that no order. of confiscation of any gold, in respect whereof contravention of any provision of the Act or any rule or order made thereunder has occurred or is apprehended or at(empt<; d, shall be made unless the owner of such gold has been given a notice in writing informing him of the grounds on which it is proposed to confiscate such gold and is

 B; further given a reasonable opportunity of making a representation in writing against the proposed confiscation and if he so desires, of being hc?rd in the maMer; and the second proviso which is material runs thus:

"Provided further that where'no such notice. is given within a period of si.x months from the date of the seizure of the gold, or such jimher period as the Collector of Central Excise or of Customs may allow, such gold shall be returned aft" the expiry-of that period to the person. from whose possession it was seized.''

Counsel for the petitioners coritended that the section does.not 1 provide for any guidelines or principles regarding the conditions 'and

circumst.\l-nces governing the grant of further extention of the initial statutory period of six months on the expiry of which, in the absence of extention, the ow.ner or the person from whose possession the gold has been seized is entitled to have the seized gold returned to him; furthermore, there is no limit or ceiling over the period a for which further extension may be granted. In contrast, counsel pointed out that in parallel legislation like the proviso to sec. 110(2) of the Customs Act, 1962 such limit or ceiling is laid down by providing that the initial period of six months may, on sufficient cause being shown, be extended by the Collector of Customs for a period not exceeding six months; moreover thewords "on stifficient cause being

shown" that occur in the Customs Act are absent here .. Counsel, therefore, urged that in the absence of any guidelines and in the absence of any limit over the period of extenion that could be granted, the provision (s.79. read with second proviso) will have to be regarded as conferring an arbitrary power and is unreasonable and hence violative of Arts. 14 and 19(\)(g) of the Constitution.

, It is true that s. 79 does not expressly mention th~ guidelines on the basis of which the power to grant extension of the initial period of six months is to be exercised but if regard is had .to . the' provisions dealing with Seizure (sec. 66) Confiscation (sec. 71),

SUPREME CO\JRT REPORTS [1984] 3 s.c.R.

Adjudication (sec. 78) and Giving of Opportunity (sec. 79) the policy of the Legislature becomes quite clear that whereas the power to seize can be exercised by any Gold Control Officer if he has "reason to believe" that in respect of any gold any provision of the Act been or is being or is attempted to be contravened the confiscation of gold can tike place only if actual contravention has taken place or is apprehended or is attempted and such confis cation can be adjudged or, ordered without limit by a Gold Control Officer not below the rank of a Collector of Central Excise or of Customs and subject to such limits as may , be specified in that behalf by such other Gold Control Officer not below the rank of a Superintendent of Central Excise as the Central Government may anthodse in that behalf ; but the power to grant extension of the initial period of six months has beer1 conferred under the second proviso to s. 79 only upon a superior officer, namely, the Collector of Central Excise or of Cust9ms.

Further under the stcond proviso to s. 79 the owner or the person concerned has beed given the right D to have the seized gold returned to him where no gotice proposing confiscation is served upon him wit[1in a period of six months from the date of the seizure of the gold which shows that the Legislature clearly intended that ordinarily the investigation in connection with the seized gold is expectea to be over witliin six months ; but only

in casts where such investigation may not be completed owing to some genuine or bonafide difficulties the Legi, slature gave under the proviso power to the Collector to extend that time, In oth" words the Collector is expecied to pass extension orders neither mechanically nor as a matter of routine but only on being satisfied that facts or circumstances exist which indicate that, the investigation could not be completed for buna fide reasons within the initial period of six months.

Such guidelines would be implicit. if the extraordinary power to effect seizure and adjudge confiscation conferred by the Act ill considered in juxta-pasition with the right conferred uponthe owner or the person concerned to !Jave the seized gold returned to him normally at the expiry of the initial period of six months.

Presumably, the ramifications of any gold smuggling activity .which are usually extensive and complicated must have led the Legislature not to impose a limit or ceiling on , the power to grant extension but if the above guidelines are to govern every extension that may be granted then mere absence of a limit or ceiling will not be of any consequence. '

It is, therefore, not possible to accept the contention that the power to grant extension is arbitrary orsuffers from lack of guide-

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M.C. PAUL v. UNION (Tulzapurkar, J.) 475

tines. Of course two inbuilt safeguards will have to be and must be read into the provision. Since every extension involves dvil

consequences in that the owner's or the concerned person's right to have the seized gold returned to him is adversely affected by being postponed, bafore granting any extension he must be given a notice and an opportunity to make representation against the pro- .posed extension. In Asst/. Collector of Customs v. Chwan Das

Malhotra,('! a case under sec. 110(2) proviso of the Customs Act, 1962 this Court has taken the view that sue~ opportunity is necessary, not merely on the ground that the proviso contains the words "upon sufficient cause being shown" but also on the ground that the civil right of the concerned pers.on to the restoration of the goods on the expiry of the 1N'riod whether initial or extended is 2ffected.

Secondly since the Collector's decision or order granting extension of time is appeal able under sec. 81(2) at the instance of the Administrator, who could be moved by the aggrieved person, .and in any case could be challenged by the aggrieved person in an appeal against the order of confiscation every order granting exten- sion must recor.d reasons for it as otherwise the appeal will be ineffective. In oti.er words the power to extend the initial period or the extended period must be exercised subject to the ob>ervance of 1he aforesaid' two safeguards. In view of the above discussion it

1s clear that the challenge to s. 79 and the second proviso thereto :has to fail.

The next provision challenged is s. JOO of tqe Act as amended) read with Rule 3(1) of the 'Gold Control (Indentification of Customs) Rules 1969' on the ground that the said provision is focapable of compliance in a practical sense and from a commercial point of view and has the effect of running the business of the peti- 1ioner sand since the said Rule 3(1) unreasonably restricts the right of the petitioners to carry on their business including their inter state trade the same is violative of Art. 19(l)(g), 301 and 302 of the Constitution. Section 100 as amended by the Amending Act 26 -0f 1969 provides for certain precautions to be taken by a licensed

.dealer before acquiring any Gold. It runs thus : •

"JOO(!) Every licensed dealer or refiner or certified :goldsmith, as the cas.i; may be, shall, before accepting, buying or otherwise receiving any gold from any person,· take such

,(!) .[1971] 3 SCR 802.

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steps as are specified by the Central Government by rules made in this behalf, to satisfy himself as to the identity of the person from whom such gold is proposed to be accepted bought or other.wise received by him."

. The Gold Control (Identification of Customers) Rules framed by the Central Government in exercise of the powers conferred. under sec. 114 read with sec. 100(1) of the. Act provide for the several steps, one or more of whi_ch have to be taken by the licen-· sed dealer to satisfy himself as to the identity of the customer from Whom he proposes to accept, buy or otherwise recive any goid.

Under Rule 3(1) it has been provided tJpt except in cases where the customer is personally known to the licensed dealer or cases. where transactions are put through by means of crossed cheques, the licensed dealer shall take one or more of the following steps tosatisfy himself as to the identity of the customer, namely :-

(!) Introduction or identification of the customer by a person who is eithe.r personally known to the licensed dealer or whose idntity has been established to the satisfaction of the licensed dealer,

(2) The production of any document which establishes. ·

the identity of the customer, such as-

(a) a valid passport held by the customer,

(b) a valid identity card issued to the customer by the

postal authorities,

(c) a valid identity card issued by the Secretariat of Parliament or of any Legislature in a State or Union Territory_;

(d) a valid identity card issued to the customer by his.

employer if such employer is a local authority or a body corporate or Government or a corpo ration owned or controlled by Government,

(e) a rooter driving licence held by the customer as a.

paid employee ;

(f) an identity card issued by the Gold ControU

Officer.

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M.c, PAUL v. UNION (Tu!zapurkar, J.). 477

Sub-rule (2) of Rule 3 which is also material runs thus:-

' .. (2) Before accepting, buying or otherwise receiving any gold from a customer, a licensed dealer shall, in every case:-

 (a) obtain on the voucher, the signature and full p; istal address of the customer,

(b) where the licensed dealer's satisfaction as to the identity of the customer is based on the. identification made by another person, obtain on the voucher the signature and full postal address of such identifier, and where such identifier is not personally known to him, he shall also note, on the voucher, the particulars of the documents on the strength of which he has been satisfied as to the identity of such identifier,

(c) where the licensed dealer's satisfaction as to the identity of the customer is based on any other documen!, note on the voucher, the date and other particulars of such document.

It may be stated at the outset that sec. 100. as it originally stood prior to its amendment in 1969 imposed a statutory obligation upon a dealer to take all reasonable steps to satisfy himself about the identity of the person from whom gold was bought but it did not specify the nature of steps which a dealer was supposed to take for such satisfaction and therefore this Court in Harakchand ...

Ratanchand Banthia's cas.e took the view that the obligation cast

:~, thereunder was uncertain and incapible of proper c0 n.'J?liance and therefore the section was unconstitutional on the ground that it imposed an impossible and unreasonable b urdrn. In light of this decision, s. JOO was appropriately amended ard tbe 'Gold Control (Identification of Customers) Rules, 1969, were framed and particularly Rule 3(1) now prescribes the .several steps one or more of which have to be taken by the licensed dealer )O satisfy himself as to the identity of the customer from whom he prop3ses to accept, buy or ~-otherwise receive any gold.

A two-fold submission challenging t'1: an :n d ed s. 100 read with Rule 3(1) was made by counsel for the petitioners. In the first

!fl

place it was submitted that the steps indicated in Rule 3(!) one or more of which are required to be takell by the licensed dealer to satisfy himself about the identity of the customer are incapable or impossible of compliance in a practical sense and from a commercial point of view. The precis~ argument was tl\at most of the cust<fmers of the petitioners come from villages as also from outside their own State and it becomes extremely difficult for the dealer to demand from them production of either a passport or identity card specified in the Rules and further thafmost of the customers prefer to receive payments in cash in lieu of gold sold an<l are not prepared to receive payments by crossed cheques since many of them do not have bank accounts and even the dealers equally haye the apprehension that the cheques issued by the customers may not be encashed. Secondly, it was urged that since sub-rule (2)(a) of Rule 3 provides for_ sufficient safeguards regarding the identity of the customers when the uealer is requird to obtain their signatures on the vouchers and the full address of the customer and or of the ideniifier, the insistence upon .a dealer to tal::c steps as contemplated under sub-rule (I) of Rule 3 would b& unreasonable.

We are .not impressed by either of the submi5sions. The grievances articulated under the first submission do not at all indicate that compliance of one or more.of steps indicated in Rule 3(1) is either incapable or impossible even from a practical or co!)'lmercial point of view. Moreover, the provision contained in sub-rule (Z)(a) of Rule 3 is applicable in all cases where gold is accepted bought or otherwise received by the dealer irrespecti'\'e of whether the customer is personally known to the dealer' or not known to him. The purpose served by sub-rule (2)(a) of rule 3 is entirely different from the purpose served by one or more of the steps that nre required to be taken by a dealer under sub-rule (!}of Rule 3 and therefore, it cannot be said that because

of~!" provision contained in sub-rule (2)(a) the .steps contemplated under.sub-rule(!) are unreasonable. The validity of the amended sec. 100 read with Rule 3(.1) must therefore be upheld. We were informed that a similar contei!ion challenging the said provision (amended sec. !00 ead with sub-rule (I) of Rule 3) was raised before the Patna High Court in .the case of Bihar Stat< Bullion

Merchants' Assn. & Ors. v. Union of India & Ors.l1J and the same was rejected. We approve of that decision .

Lastly the petitioners as- Jicensed dealers seem to have some JI grievance against the amended prescribed Forms Nos. G.S. [ l and

(l) A.J.R. 1971 Patna 240

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M.C. P.<UL v. U;!ION (Tulzapurkar, J.) 479

G.S. 12 required to be maintained under s. 55 of the Act read with Rule 11 of the Gold Control (Forms, Fee, .and Miscellaneous Matters) Rules, 1968,-Forms which have been brought into force with effect from 31st October, 1975.

Under s. 55 of the Act every licensed dealer is required to keep, in such form and in such manner as may be prescribed, a true and complete account of the gold owned, possessed, held, controlled, bought or otherwise acquired or accepted or otherwise received or sold, delivered, transferred or otherwise disposed of by him in his capacity as such licensed dealer and Rule 11 provides that the account of gold shall be kept in Forms G.S. IL and G.S. 12. It appears that prior to the amendment of the Rules on 31st October, 1975 the licensed dealer was required to keep the account of gold in prescribed Forms No>. G.S. 10, G.S. 11 and G.S. 12 but after the amendment Form No. G.S. JO was completely deleted while new amended Form G.S. 11 and G.S. 12 were prescribed and according to the pet!tioners the deletion of old Eorm No. G.S. IO and insertion of the new Forms G.S. 11 and G.S. 12 has resulted in the licenSfd dealer being prevented from maintaining a true and correct account of the gold owned, possessed, held, controlled, etc. by him. The precise grievance is that the new prescribed Forms G.S. 11 and G.S .. 12 do net provide for all situations under which gold would be received bY. him in his possession or custody and keeping the account of their gold in accordance with the said Forms would give rise to anomalies and the dealer would not be able to dischage his salutary duty of disclosing a true and complete account of the gold in his possession or custody. For instance, it was pointed out that old Form G.S. IO contained a comprehensive column No. 2 which required the dealer to indicate "name and address of the person from whom (gold was) received or to woom (gold was) sold", which Po.rm under the amended Rules has been dekted, while the new amended Form No. G.S. 11 requires the licensed dealer to indicate in column No. 3 only two categories of persons from whom gold is .received, namely, (a) Seller's name and full address or (b) Dealer's name and Licence No. and that there is no provision in the Form to account for the receipts of gold by the licened dealer from artisans or certified golil-smiths; further.

Form No. G.S. II does riot provide for accoi..uting the receipts of samples and old ornaments intended to be converted into new ornaments from the customers. Counsel further pointed out that in the amended Form No. G.S. 11 column 11 requii; es a dealer to record the weight in terms of pure gold which requirement cannot be satisfied by any dealer unless and until the gold ornaments received from the customers are broken and refined. It was further pointed out

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480 SUPREME COURT REPORl'S

(1984] 3 S.C.R.

that in the old Form No.G.S.11 colunm No. 12 was provided to record the loss of weight ('ghat') which would necessarily follo-.y an account of re-mo king, melting, refining and polishing of new ornaments from old ornaments received by the dealer from bis customers but in the amended new Form G.S.11 there is no such column where this 'ghat' (loss of weight) could be recorded.

Similarly other deficiencies in the amended Form G.S.12 were pointed out by counsel for the petitioners. 'In brief the contention has been that the old Forms were better but the .new Forms lack in providing adequate or proper columns with the result that by filing these a trne and complete account of gold owned or possessed or held or controlled, etc. by the dealer could not be reflected. We find some substance in the aforesaid grievance made .bY the petitioners and when these aspect of the amended Forms were put to the counsel for the Respondents, he fairly conceded that either the new Forms will have to be suitably revised or the old Forms could again be revived. We, therefore, direct the Administrator to look into these grievances and remedy the same by taking appropriate action and hope that in the mean while no action penal or otherwJse would be taken against licensed dealers for failure to maintain accounts in the amended Forms GS.11 and G.S.12

Some of the petitioners have challenged Government of India's Letter of Instructions issued to all the Collectors of Central Excise through out the country directing t)lem to withdraw the facility till then afforded to the licensed dealers to send ornaments for sale through travelling salesman and the Trade Notice issued by the Collectors of Central Excise pursuant thereto actually withdrawing the s.aid facility with immediate effect (specimen Letter of Instructions dt. 1 Sth February, 1972 and Trade Notice dt. 17th March 1972 are enclosed as Annexures A & B to Writ Petition No. 88/1973) on the ground that it has the effect of preventing the licensed dealers from undertaking inter-State trade and commerce which is in violation of the constitutional guaranteed under Art. 301 of the Constitution as also their fundamental rights under Arts. 14 and IO(l)(g) of the Constitution. It appears that the said Letter of Instrnctions and the Trade Notice have been issued with a view to prevent the ... sev\iral ma! practice that were being indulged in while availing of the said facility (of llawking ornaments through travelling salesman) aifd in the counter-affidavit of Shri Kulwant Ram Mehta, . Dep.l!\y Secretary, M, inisfry of Finance (filed in W.P. No. 88 of 1983) t!l, tse Dial-practices have been enfated. Bt apart from this aspect ofi)le

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M.C. PAUL v. UNION (Tulzapurkar, J.) 4sr

matter it has been clarified in the said eounter-affidavit that there is no intention to prohibit or siop illter-State trade or co.mmerce in gold ornaments but that merely the facility of permitting the licensed dealers to send ornaments for sale outside their licensed premises through thir saiesman has been withdrawn_; in paragraph 12 _the relevant averment in that behalf runs thus :

, "I reiterate that the dcalrs can send. ornaments, on such o; ders' haing been placed with them,· through post parcels, air.freight or through miy other means of commercial trapspoi4tation of goods, besides deliveri!\g the ;. ornaments to . the cuStomers in their own premises. i'emphaiical!y say that. no (iirection or notice is issued which may resu!t'i:l. any stoppage of interState trade."

Jn view of this statement the contention'that the Letter of -Instructions or the Trade Notice has. the effect of preventing or stopping inter-State trade has no substance. Realising this postilion and in view of the aforesaid. statement contained in paragraph 12 of the aforesaid counter-affidavit counsel for the petitioners did not press the challange to.the impugned Letter of instructions and the trade Notice. The cb.allenge to s._27(7) (b) of the Act; in furtherance whereof the f; cility of effecting peripatetic sales of gold ornaments through travelling salesman in various parts of the country was with dra'j\'n, must-also faH. Section 27(7) (b}, wbich confines a licensed .. dealer to carry on business as .such dealer to the premises specified

 in his licence, being regulatory in character does not violate any of his rights under the Constitution. ·

' . • In view of the foregoing discussion all the writ l)etitions. as also S.I;.P. No. 538 of 1973 are dismissed. In ati the circumstances of the case there will be no order as to costs.

S.R. • Petitions dismissed • • •