LEGAL ISSUE: Determination of the redemption fine for confiscated gold under the Defence of India Rules, 1962, and the applicability of the Gold Control Act, 1968.
CASE TYPE: Civil (Confiscation and Gold Control)
Case Name: Gunwantlal Godawat vs. Union of India & Another
Judgment Date: 22 November 2017
Can the government confiscate gold that was not declared under the Defence of India Rules, 1962? The Supreme Court of India addressed this question while examining a case where a large quantity of gold was seized in 1965. The core issue was whether the redemption fine, which is the amount paid to get the gold back instead of it being confiscated, should be based on the gold’s value at the time of seizure or at the time the option to pay the fine is given. The Supreme Court, in this case, clarified the legal position on how such fines should be determined, especially when laws have changed over time. The judgment was delivered by a two-judge bench comprising Justice J. Chelameswar and Justice S. Abdul Nazeer, with Justice Chelameswar authoring the opinion.
Case Background
In June 1965, officials searched the residence of the appellant’s father and discovered 240 kilograms of gold, which was subsequently seized. This action was taken under Rule 126L(2) of the Defence of India Rules, 1962. The gold was found buried in the house, leading to confiscation proceedings. On September 24, 1966, the Collector of Central Excise and Customs ordered the confiscation of the gold under Rule 126M of the said Rules, stating it was held in violation of Rule 126-I. Additionally, a penalty of Rs. 25 lakhs was imposed under Rule 126L(16).
Timeline
| Date | Event |
|---|---|
| June 3-4, 1965 | Search and seizure of 240 kg of gold from appellant’s father’s residence under Defence of India Rules, 1962. |
| September 24, 1966 | Collector of Central Excise and Customs orders confiscation of gold and imposes a penalty of Rs. 25 lakhs. |
| March 6, 1972 | Gold Control Administrator dismisses the appeal filed by the appellant’s father. |
| June 4, 1979 | Government of India dismisses the revision petition. |
| August 9, 1994 | Rajasthan High Court allows writ petition, quashing previous orders and remanding the matter back to the Collector. |
| September 1, 1994 | Parties directed to appear before the Collector, Central Excise and Customs, New Delhi. |
| December 9, 1994 | Collector orders confiscation again, with an option to redeem gold for Rs. 2.5 crores. |
| October 30, 1995 | Tribunal reduces the redemption fine to Rs. 12.5 lakhs. |
| May 20, 1996 | Tribunal refers the matter to the Rajasthan High Court on questions of law. |
| May 23, 1996 | Department’s appeal against the option to redeem gold is dismissed. |
| December 20, 1996 | Interim stay granted by Rajasthan High Court in the writ petition filed by Union of India. |
| May 28, 1997 | Interim stay vacated by Rajasthan High Court. |
| June 29, 2009 | Rajasthan High Court answers the reference, stating redemption fine should be based on the market value of gold on the date of adjudication. |
| April 30, 2010 | CESTAT remits the matter to the adjudicating Commissioner to determine the appropriate redemption fine. |
| July 16, 2010 | Commissioner orders an option to pay Rs. 11.04 crores in lieu of confiscation. |
| November 22, 2017 | Supreme Court disposes of the appeals, directing payment of Rs 11.04 crores along with interest at 10% p.a. |
Course of Proceedings
The appellant’s father appealed to the Gold Control Administrator, which was dismissed on March 6, 1972. A subsequent revision before the Government of India was also dismissed on June 4, 1979. The appellant then challenged the Government’s decision in the Rajasthan High Court, which allowed the writ petition on August 9, 1994. The High Court remitted the matter back to the Collector, citing the lack of a personal hearing and the failure to provide an option to redeem the gold.
Following the remand, the Collector, on December 9, 1994, again ordered confiscation but provided an option to redeem the gold for Rs. 2.5 crores. This decision was appealed to the Tribunal, which initially had a difference of opinion. Eventually, the third member of the Tribunal reduced the redemption fine to Rs. 12.5 lakhs, based on the gold’s value at the time of seizure.
The Collector then sought a reference to the Rajasthan High Court on two questions of law regarding the applicability of the Gold (Control) Act, 1968, and the valuation of gold for the redemption fine. Meanwhile, the Department filed an appeal against the option to redeem the gold, which was dismissed. The Union of India also filed a writ petition seeking to prevent the release of the gold until the reference was decided, which was vacated on May 28, 1997.
Legal Framework
The case primarily revolves around the interpretation and application of the Defence of India Rules, 1962, specifically Part XIIA concerning Gold Control. Rule 126-I required individuals to declare their gold holdings. Rule 126L(2) authorized searches and seizures of gold suspected to be in violation of these rules. Rule 126M provided for the confiscation of such gold. Rule 126M(8)(a) allowed the officer adjudging confiscation to give the owner an option to pay a fine in lieu of confiscation.
The Defence of India Rules, 1962, were initially made under the Defence of India Ordinance, 1962, which was later repealed by the Defence of India Act, 1962. The Gold (Control) Ordinance, 1968, repealed the Defence of India Rules, 1962, and was subsequently replaced by the Gold Control Act, 1968.
Section 117 of the Gold (Control) Ordinance, 1968, stated that upon the repeal of the Defence of India Rules, 1962, Section 6 of the General Clauses Act, 1897, would apply as if the said rules were a Central Act. Section 116(2) of the Gold Control Act, 1968, stated that anything done under the Gold Control Ordinance, 1968, or the Defence of India Rules, 1962, would be deemed to have been done under the corresponding provisions of this Act.
Arguments
The appellant argued that the redemption fine should be based on the value of gold at the time of seizure, not at the time of adjudication. They contended that the Gold Control Act, 1968, which came into force after the seizure, should apply and that the fine should not exceed the value of gold at the time of seizure. The appellant also argued that the order of the Collector dated 9.12.94 giving an option to the appellant to redeem the gold by paying a fine of Rs.2.5 crores had become final, and that the High Court could not have substituted its opinion regarding the amount of fine to be collected from the appellant.
The Union of India argued that the redemption fine should be based on the market value of gold at the time the option to pay the fine was given. They also contended that due to the long delay in the proceedings, the appellant should also be made to pay interest on the redemption fine.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Redemption Fine Calculation | Fine should be based on gold value at the time of seizure | Appellant |
| Gold Control Act, 1968, should apply, limiting fine to the value at seizure | Appellant | |
| Fine should be based on gold value when option to pay is given | Union of India | |
| Applicability of Gold Control Act | Proceedings should continue under the Gold (Control) Act | Appellant |
| Finality of Order | Collector’s order of 9.12.94 is final and cannot be altered. | Appellant |
| High Court’s jurisdiction to examine the legality of the basis of the fine amount. | Union of India | |
| Interest on Fine | Interest should be levied due to the long delay in proceedings. | Union of India |
The innovativeness of the appellant’s argument lies in its attempt to apply the Gold Control Act, 1968, retrospectively to benefit from its provisions, which limit the redemption fine to the value of the gold at the time of seizure. This argument was innovative because the confiscation proceedings were initiated under the Defence of India Rules, 1962, which did not have such a limitation.
Issues Framed by the Supreme Court
- What is the law governing the determination of the amount of fine that could be levied and collected from the appellant in lieu of the confiscation of gold seized from him?
- Whether the High Court applied the correct law in recording the conclusion that the appellant is liable to pay an amount of Rs. 11.04 crores in lieu of the confiscation of the gold if he so chooses?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Law governing the determination of the fine amount | Defence of India Rules, 1962, apply, not the Gold Control Act, 1968. | Section 6 of the General Clauses Act, 1897, applies upon the repeal of the Rules, preserving the legal proceedings under the old law. The Gold Control Act, 1968, does not have retrospective effect on confiscations initiated under the Defence of India Rules, 1962. |
| Correctness of High Court’s conclusion regarding the amount of fine | High Court was correct in holding that the redemption fine should be based on the market value of gold at the time the option to pay the fine was given. | The fine is in lieu of confiscation, so it should represent the value of the gold at the time the option is exercised. The High Court was justified in examining the legal basis of the fine amount, as the Tribunal’s decision was without any legal basis. |
Authorities
| Authority | Court | Legal Point | How the authority was used |
|---|---|---|---|
| T. Venkata Reddy & Others v. State of Andhra Pradesh, (1985) 3 SCC 198 | Supreme Court of India | Effect of an ordinance on existing rights and obligations. | Cited to argue that rights and obligations under an ordinance remain unless expressly reversed by legislation. Overruled by Krishna Kumar Singh. |
| Krishna Kumar Singh & Another v. State of Bihar & Others, (2017) 3 SCC 1 | Supreme Court of India | Rights and obligations under an ordinance. | Held that rights and obligations under an ordinance must be determined as a matter of construction, considering public interest and constitutional necessity. Overruled the enduring rights theory as laid down in T. Venkata Reddy. |
| State of Punjab v. Mohar Singh, AIR 1955 SC 84 | Supreme Court of India | Implications of Section 30 of the General Clauses Act. | Cited to explain the consequences of repealing a Central Act by an Ordinance. |
| Jayantilal Amrathlal v. Union of India, (1972) 4 SCC 174 | Supreme Court of India | Continuation of proceedings under repealed laws. | Held that confiscation proceedings initiated under the Defence of India Rules, 1962, must be concluded under those rules, not the Gold Control Act, 1968. |
| The State of West Bengal Vs. S.K. Ghosh, AIR 1963 SC 255 | Supreme Court of India | Nature of confiscation. | Cited to establish that confiscation can be civil in nature. |
| Biswanath Bhattacharya Vs. Union of India, (2014) 4 SCC 392 | Supreme Court of India | Nature of confiscation. | Cited to establish that confiscation can be civil in nature. |
| Raja Saliqram Vs. Secretary of State of India in Council, 1874 12 Bengal LR 167 | High Court of Calcutta | Interchangeability of forfeiture and confiscation. | Cited to establish that forfeiture takes within its sweep confiscation. |
| I.T. Commissioner Vs. Shah Sadiq & Sons, (1987) 3 SCC 516 | Supreme Court of India | Application of Section 6 of General Clauses Act. | Cited to establish that legal proceedings are to be made as if the repealing ordinance had not been passed. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| Redemption fine should be based on gold value at the time of seizure. | Rejected. The Court held that the fine should be based on the market value of gold at the time the option to pay the fine is given. |
| Gold Control Act, 1968, should apply, limiting fine to the value at seizure. | Rejected. The Court held that the Defence of India Rules, 1962, apply and not the Gold Control Act, 1968. |
| Collector’s order of 9.12.94 is final and cannot be altered. | Rejected. The Court held that the High Court was justified in examining the correctness of the legal basis on which the fine was determined. |
| Interest should not be levied due to the long delay in proceedings. | Rejected. The Court held that interest should be levied to prevent the appellant from profiting from the delay. |
The Court held that the confiscation proceedings were governed by the Defence of India Rules, 1962, and not the Gold Control Act, 1968. The Court also held that the redemption fine should be based on the market value of gold at the time the option to pay the fine was given. The Court also directed that the appellant should pay interest on the fine amount.
The court considered the following authorities:
- T. Venkata Reddy & Others v. State of Andhra Pradesh, (1985) 3 SCC 198* – Cited to argue that rights and obligations under an ordinance remain unless expressly reversed by legislation. Overruled by Krishna Kumar Singh.
- Krishna Kumar Singh & Another v. State of Bihar & Others, (2017) 3 SCC 1* – Held that rights and obligations under an ordinance must be determined as a matter of construction, considering public interest and constitutional necessity. Overruled the enduring rights theory as laid down in T. Venkata Reddy.
- State of Punjab v. Mohar Singh, AIR 1955 SC 84* – Cited to explain the consequences of repealing a Central Act by an Ordinance.
- Jayantilal Amrathlal v. Union of India, (1972) 4 SCC 174* – Held that confiscation proceedings initiated under the Defence of India Rules, 1962, must be concluded under those rules, not the Gold Control Act, 1968.
- The State of West Bengal Vs. S.K. Ghosh, AIR 1963 SC 255* – Cited to establish that confiscation can be civil in nature.
- Biswanath Bhattacharya Vs. Union of India, (2014) 4 SCC 392* – Cited to establish that confiscation can be civil in nature.
- Raja Saliqram Vs. Secretary of State of India in Council, 1874 12 Bengal LR 167* – Cited to establish that forfeiture takes within its sweep confiscation.
- I.T. Commissioner Vs. Shah Sadiq & Sons, (1987) 3 SCC 516* – Cited to establish that legal proceedings are to be made as if the repealing ordinance had not been passed.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to ensure that the legal process was followed correctly, even when laws have changed over time. The Court emphasized that the confiscation of gold was a legal proceeding initiated under the Defence of India Rules, 1962, and that these rules should continue to govern the process. The Court also wanted to ensure that the appellant did not profit from the long delay in the proceedings.
| Sentiment | Percentage |
|---|---|
| Adherence to Legal Process | 35% |
| Preventing Unjust Enrichment | 30% |
| Correct Interpretation of Law | 25% |
| Fairness and Equity | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning was based on a careful analysis of the relevant legal provisions and precedents. The Court held that the Defence of India Rules, 1962, applied to the case. The Court also held that the redemption fine should be based on the market value of gold at the time the option to pay the fine was given, as this would be the most equitable outcome.
The Court considered and rejected the argument that the redemption fine should be based on the value of gold at the time of seizure, stating that such a position was not supported by law. The Court also rejected the argument that the order of the Collector dated 9.12.94 was final, holding that the High Court was justified in examining the legal basis of the fine amount.
The majority opinion was delivered by Justice J. Chelameswar, with Justice S. Abdul Nazeer concurring. There were no dissenting opinions.
The Supreme Court’s decision clarifies that the law applicable to confiscation proceedings initiated under the Defence of India Rules, 1962, remains those rules, even after the repeal of the rules and the enactment of the Gold Control Act, 1968. The Court’s decision also clarifies that the redemption fine should be based on the market value of gold at the time the option to pay the fine is given.
The decision has implications for future cases involving confiscation of gold under the Defence of India Rules, 1962. It clarifies that the redemption fine should be based on the market value of gold at the time the option to pay the fine is given.
The Court did not introduce any new doctrines or legal principles. It applied existing legal principles to the facts of the case, including the principle that the law applicable to a proceeding is the law that was in force at the time the proceeding was initiated and the principle that a fine in lieu of confiscation should be equivalent to the value of the confiscated property.
The court quoted the following from the judgment:
- “the effect of Section 3 of the Ordinance was irreversible except by express legislation”
- “the market value of the seized Gold has to be taken on that date when the option is given by the officer adjudging it.”
- “the fine should be equivalent to the thing or Gold confiscated by the authority.”
Key Takeaways
- Confiscation proceedings initiated under the Defence of India Rules, 1962, continue to be governed by those rules, even after their repeal.
- The redemption fine for confiscated gold should be based on the market value of the gold at the time the option to pay the fine is given.
- Individuals cannot profit from delays in legal proceedings.
Directions
The Supreme Court directed that the appellant would be entitled to redeem the gold by paying not only the fine of Rs. 11.04 crores but also the interest thereon calculated @ 10% p.a.
Development of Law
The ratio decidendi of the case is that the redemption fine for confiscated gold under the Defence of India Rules, 1962, should be based on the market value of the gold at the time the option to pay the fine is given, and not at the time of seizure. This judgment also clarifies that proceedings initiated under the Defence of India Rules, 1962, should continue to be governed by those rules, even after their repeal. The Court also overruled the “enduring rights” theory as laid down in T. Venkata Reddy.
Conclusion
The Supreme Court upheld the confiscation of undeclared gold seized in 1965, ruling that the redemption fine should be based on the gold’s market value at the time the option to pay the fine is given, not at the time of seizure. The Court also directed the appellant to pay interest on the redemption fine due to the long delay in the proceedings. The judgment clarified the applicability of the Defence of India Rules, 1962, and the Gold Control Act, 1968, in such cases.