Duncans Industries Ltd. vs Union of India

M.N. Rao, J.—Whether the show cause notice dated 30-9-1986 issued by the Collector of Central Excise, Guntur, the second respondent herein, was validly served upon the petitioner - M/s. Duncan Industries Limited - is the question at issue in this writ petition.

The petitioner is a public limited company registered under the Companies Act, 1956, having its registered office at No. 31, Netaji Subhas Road, Calcutta. National Tobacco Company had a factory at Agarpara in the State of West Bengal and another factory at Biccavolu in Andhra Pradesh and engaged in the manufacture and sale of cigarettes and smoking mixtures. The National Tobacco Company was amalgamated with Birpara Tea Company pursuant to a scheme of amalgamation sanctioned by the Calcutta High Court in January, 1978. With effect from the date of merger i.e., 1-3-1977, the name of Birpara Tea Company was changed to Duncans Agro Industries Limited (DAIL). DAIL carried on the business of manufacture and sale of cigarettes through its tobacco division at two factories - one situate at Biccavolu in the State of Andhra Pradesh known as Duncan Tobacco Company and another at Agarpara in West Bengal known as National Tobacco Company. Another company by name M/s. New Tobacco Company which had its registered office at Nos. 1 and 2, Old Court House Corner, Calcutta, with effect from 1st April, 1984, was merged with the Tobacco Division of DAIL by virtue of the orders of the Calcutta High Court. The corporate entity, according to the averment in the affidavit filed by the petitioner in support of the present writ petition, was renamed as Duncans Industries Limited.

In the impugned show-cause notice issued by the Collector of Central Excise, Guntur, it was alleged inter alia that the tobacco division of DAIL and New Tobacco Company Limited, Calcutta, during the period September, 1981 to February, 1983, manufactured cigarettes, that the two companies were managed by a Board of Directors and several senior executives and that a large amount of central excise duties leviable on cigarettes aggregating Rs. 28,13,77,765.50 (mentioned therein) were evaded contrary to certain provisions of the Central Excise Rules by wilfully mis-declaring the assessable values of cigarettes for the above period. Shri Gouri Prasad Goenka was the Chairman of DAIL and the show cause notice mentioned the names of Shri Goenka and certain other Directors as involved in the fraud. The show cause notice was served on Sri Goenka at his residential address on 3-10-1986 and he sent a reply on 27-10-1986 stating that the notice was without jurisdiction, he was only a non-executive Director of DAIL and as Chairman, he presided over the meetings of the Board of Directors and was "not in any manner connected with the day to day working of the said company". He also sought inspection of the documents relied upon in the show cause notice. M/s. Gagret and Co., a firm of Advocates, issued a notice to the Directorate of Audit, Customs and Central Excise, on behalf of Sri G. P. Goenka admitting that the notice was received by Sri Goenka but "no notice has been issued to DAIL or to any of its other Directors" and that a careful reading of the show cause notice disclosed that it was only addressed to M/s. New Tobacco Co. Ltd., and two other companies and persons with whom Sri Goenka had no connection. The Advocates'' notice sought withdrawal of the show cause notice on the above grounds.

An addendum to the show cause notice was issued on 17-3-1987 containing certain corrections, deletions and additions. The third respondent, the Collector of Central Excise, New Delhi, who has taken over, for the sake of administrative convenience, the responsibility of adjudicating the matter, issued a notice on 15-3-1995 to DAIL and four other companies directing them to appear before him on 18-4-1995 at 10.30 AM "with a view to continuing the proceedings initiated under the show cause notice dated 30-9-1986". DAIL sent a reply on 24-4-1995 asserting that no show cause notice dated 30-9-1986 was ever served on them. One other notice dated 12-6-1995 was also issued by the third respondent to M/s. Duncan Industries Limited bringing to their notice that a perusal of the records revealed that the show cause notice and its addendum were issued and served amongst others to the petitioner company, M/s. Duncan Tobacco Co., and Sri G. P. Goenka and that the next date of hearing was fixed for 10th July, 1995 at 3.00 P.M., in the office of the third respondent. A lawyer''s notice was also sent to the third respondent on 4-9-1995 reiterating that the petitioner has not received the show cause notice which is the subject matter of adjudication, the proceedings initiated are wholly barred by time and totally without jurisdiction.

In the counter affidavit and additional counter affidavit filed on behalf of the respondents, it was pleaded that the show cause notice and the addendum were served on Sri G. P. Goenka as Chairman of DAIL and he was the principal officer of the company and he received the same as the agent of the company. Sri Goenka responded to the show cause notice on different occasions firstly on 27-10-1986 and subsequently on 23-2-1987. M/s. National Tobacco Co., also responded to the show cause notice on 27-10-1986 and the letter of M/s. National Tobacco Company clearly showed that it was a wholly owned subsidiary of DAIL. The petitioner also responded by their letter dated 23-2-1987 addressed to the Collector of Central Excise wherein they have forwarded copies of opinions given by two former Chief Justices of India - Justice Y. V. Chandrachud and Justice P. N. Bhagawathi - and that the petitioner company also submitted written arguments. By their letter dated nil, which was received by the third respondent on 13-9-1995, the petitioner-company requested the third respondent for a ruling as to whether there was valid service of notice on the company. Even without waiting for a reply, the present writ petition was filed on the next day i.e., 14-9-1995. In the rejoinder filed by the petitioner, it is inter alia pleaded that Sri Goenka was dealing with the matter in his personal capacity.

The only contention urged by Sri Soli Sorabjee, the learned senior Counsel for the petitioner-company, is that the service of the show cause notice on the petitioner-company being sine qua non for initiating action and as the impugned show cause notice has not been served upon the petitioner, the action now proposed by the third respondent by fixing dates for hearing to adjudicate the matter is wholly without jurisdiction. It is not open now for the respondents to issue notice to the company since the alleged liability is barred by time u/s 11A of the Central Excises and Salt Act, 1944, which prescribes five years as the limitation. Service of notice on Sri Goenka, the Chairman of the petitioner-company, according to the learned Counsel, could not be equated with service of notice on the company and that the mode of service should be in accordance with Section 51 of the Companies Act and the service of notice u/s 37C of the Central Excise Act should be read harmoniously with Section 51 of the Companies Act. No precedent has been cited by the learned Counsel for the petitioner.

In opposition to this, Sri Innayya Reddy, learned senior Standing Counsel for the Union of India, has contended that the petitioner-company having submitted to the jurisdiction of the third respondent cannot now extricate itself especially after it had sought a ruling on the question concerning the validity of service of notice. Service of notice on Sri Goenka must be deemed to be service of notice on the company. The material available warrants piercing the veil of the corporate entity in order to see who is liable for dues and that the petitioner-company should not be allowed to escape adjudication of an alleged huge fraud counting to more than Rs. 28 crores. The petitioner company appeared before the third respondent on 10-7-1995 and made submissions regarding the aspect of validity of service of show cause notice. This assertion has not been denied in the rejoinder but what is pleaded is that the petitioner apprehending that the third respondent might ignore the evidence and vital contentions regarding jurisdiction, was constrained to seek a ruling on that issue.

Want of jurisdiction is the foundation based upon which the petitioner is seeking a writ of prohibition. How summons, orders or decisions should be served is dealt with by Section 37C of the Central Excises and Salt Act, the relevant portion of which reads :

"Section 37C. - Service of decisions, orders, summons etc. (1) Any decision or order passed or any summons or notices issued under this Act or the rules made thereunder shall be served, -

(a) by tendering the decision, order, summons or notice, or sending it by registered post with acknowledgement due, to the person for whom it is intended or his authorised agent, if any;

(b) . . . . .

(c) . . . . ."

The crucial words occurring in clause (a) are the "person for whom it is intended or his authorised agent". The expression ''person'' is not defined. The petitioner-company is undoubtedly a person and notice intended for the company was served upon Sri Goenka, the Chairman of the Company. Whether Sri Goenka could be deemed to be the authorised agent of the petitioner-company ? It is not the case of the petitioner that some one other than Sri Goenka was the authorised agent. The Central Excise Act does not prescribe as to what categories of officers of a company should be permitted to act as authorised agents. Having received the notice, Sri Goenka raised an objection asserting that he was not liable for any of the alleged acts of evasion of central excise duty. The petitioner company itself, it is clear from the record, objected to the levy and sought a decision on the preliminary question as to the validity of service of notice. This objection which was put forth in the form of a letter without any date was actually received by the third respondent on 13-9-1995 but on the very next day i.e., on 14-9-1995, the present writ petition was filed taking the plea that the show cause notice was without jurisdiction. Having invited a decision on the aspect of the validity of service of notice, it was not open to the petitioner to contend that the show cause notice was without jurisdiction. The petitioner-company was fully aware of the contents of the show cause notice and that is the reason why it went to the extent of citing the opinions of two former Chief Justices of India. Section 37C of the Central Excise Act only incorporates the well known principle of natural justice that nobody should be condemned unheard. There is no requirement that the notice intended for the company or its authorised agent under the Central Excise Act should be served in the manner contemplated by Section 51 of the Companies Act which lays down that the document may be served on the company or any officer at the registered office of the company. The Central Excises and Salt Act being a self contained Code, there is no warrant for the supposition that with a view to complying the principle of natural justice for the purpose of fastening pecuniary liability on any manufacturer, the mode of service of notice should be in the manner contemplated by a provision in a different enactment viz., Section 51 of the Companies Act. In cases of this nature, the test, according to us, is the actuality as to the receipt of the notice but not the technicality as to the mode in which it was served. Whether the companies in question before amalgamation with the petitioner company had really indulged in acts of evasion of duty is outside the purview of this writ petition.

Apart from the fact that the company had full knowledge of the contents of the show cause notice as can be seen by the objections it raised before the third respondent as stated in the counter affidavit, we are also of the considered opinion that Sri Goenka must, in the fact situation, be deemed to be the authorised agent of the petitioner-company. As the Chairman of the company, it was brought to his notice the alleged acts of evasion of excise duty by the impugned show cause notice. A reading of the show cause notice in its entirety would clearly show that in substance it was addressed to the petitioner-company and by way of abundant caution, it also mentioned in detail the names of the Directors and also the other officers allegedly involved in the evasion of excise duty of a huge amount of Rs. 28 crores and odd. Even if it were to be a civil suit, the service of notice on a Director under Order XXIX Rule 2 of the CPC would amount to service of notice on the company Jute & Gunny Brokers Ltd. v. Union of India (1962) 32 Com Cas 845. That being the case, the service of show cause notice on the Chairman of the petitioner-company setting out in detail the alleged acts of evasion of excise duty could not be said to be an act without jurisdiction.

We, therefore, hold that the plea of want of jurisdiction canvassed for issue of a writ of prohibition is totally unfounded. The writ petition fails and accordingly it is dismissed with costs.