FEDERATION OF CUSTOMS HOUSE AGENTS ASSOCIATION AND ORS. ETC.versusUNION OF INDIA AND ORS. ETC. ETC.

A              FEDERATION OF CUSTOMS HOUSE AGENTS
                     ASSOCIATION AND ORS. ETC.
                                 v.
                  UNION OF INDIA AND ORS. ETC. ETC.

                                  JULY 15, 1999
B
                 [N.P. SINGH AND S. SAGHIR AHMAD, JJ.]

          Customs House Agents Licensing Regulations, 1984-Regns. 2(C), 4,
    5, 6, 8, 9 and 20---Customs House Agent-Validity of Regulation &-Grant of
C   temporary licence, without passing the examination specified by regula-
    tion~Regulations framed on the suggestion made by the Committee on Sub-
    ordinate-Legislation-Held, neither arbitrary nor violative of Sec. 146 of the
    Custom Act-<:ustoms Act, 1962 S. 146-<:onstiHltion of India, Art, 14.

         Under the Customs House Agents Licensing regulations, 1960 and
D 1965 applicant had to appear in the examinations conducted for the
  selection of Custom House Agent and only selected candidate could get the
  licence for the Custom House Agent, But 1984 Regulation enable the to act
    as Custom House Agent, without passing such examination, on the basis
    of temporary licence granted to him by the Collector. On this licence he
E can act as Custom House Agent for a period of one year as a matter of
    course and up to two years on the conditions prescribed by proviso to
    regulation 8 of 1984 Regulation.

          The appellants filed a writ petition challenging the validity of 1984
    Regulation, as it was arbitrary, inasmuch as a person allo,ved to act as
F Custom House >\.gent on the basis of temporary licence without his
    suitability and qualifications being tested, which was a must under the
    earlier regulations and permitted to act at par with regular licensees who
    have got the licence after passing the examination conducted for their
    selection, High Court found no merit and dismissed the petition. Hence,
G   this appeal.

          Dismissing the appeal, this Court

        HELD : 1. Regulation 8 of the Customs House Agents Licensing
  Regulations, 1984 have been framed on the basis of recommendation made
H by the Committee on Subordinate Legislation, for grant of temporary
                                         548
     FEDERATION OF CUSTOMS HOUSE AGENTS ASSN. v. STATE                   549

licence as such it couldn't be held to be arbitrary or ultra vires. [556-C-D]   A

       2.1. Regulation 8 has been framed in exercises of the power conferred
by Sub. Sec. (2) of Section 146 of the Customs Act, 1962. Sub-section (1)
of Section 146, prescribes a bar that no person shall carry on business as
an agent relating to the entry or departure of a conveyance of the import
or export of goods ai any Customs Stations unless such person holds a           B
licence granted in this behalf in accordance with the Regulations. None of
the clauses of sub-section (2) of Section 146 of the Act prescribed any
restriction on grant of temporary licence. [556-E-F)

        2.2. T)ie Committee on Subordinate-Legislation bad recommended          c
that temporary licence should be issued initially for a period of two years
and the performance of the applicant be watched. TI1e Committee did not
say that such temporary licence should be issued only after the applicant
had passed the written examination; rather it laid emphasis that a tem-
porary licence should be converted into permanent 'on the applicant's
showing satisfactory turn over and a minimum level of efficiency'. Regula-      D
ti on 8l1as proper check and balance in which the experience of work relating
to clearance of goods through the Customs as well as the performance at the
qualifying written or oral examination, both have been taken note of. It
cannot, therefore, be said that the postponing the qualifying examination
for a period of one year .and on fulfilling the conditions of the proviso to    E
regulation 8 up to 2 years in respect of temporary licensee, any irrational
procedure has been prescribed or adopted and that Regulation 8 is invalid,
arhi.trary or unconstitutional in any manner. [556-G-H; 557-B-C]

      Chandhrakant Krislmarao Pradhan v. The Collector of Customs, Bom-
bay, (1962) 3 SCR 108 and D. V. Bakshi v. Union of India, I1993) 3 SCC          F
663, referred to.

      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2632 of
1985 Etc. Etc.
                                                                                G
      From the Judgment and Order dated 1.2.85 of the Delhi High Court
in C.W. No. 1186 of 1984.

     M. Chandrasekharan, Additional Solicitor General, P.P. Rao, S.B.
Sanyal, Dr. Suman! Bharadwaj, Ms. Mridula Ray Bharadwaj, S.P. Pandey,
Ms. Rekha Pandey, S.N. Bhattacharya, R.D. Upadhyay, G.G. Upadhyay, H
    550                    SUPREME COURT REPORTS (1996] SUPP. 3 S.C.R.

A N.K. Bajpai, V.K. Verma, D.S. Mehra and C.V. Subba Rao for the appear-
    ing parties.

          The following Order of the Court was delivered by

         N.P. SINGH, J. The Federation of Customs House Agents Associa-
B tion and others have filed this appeal against the judgment of the High
  Court of Delhi, dismissing the writ petition filed on behalf of the appellant,
  questioning the validity of the Customs House Agents Licensing Regula-
  tions, 1984 (hereinafter referred to as the 1984 Regulations) which have
  been framed by the central Board of Excise and Customs under Section
C 146 of the Customs Act, 1962 (hereinafter referred to as the Customs Act).

          It may be mentioned that the Customs Act repealed the Sea Customs
    Act, 1878 under which Customs House Agents Licensing Rules 1960 had
    been framed (hereinafter referred to as the 1960 Rules). Rule 2(c) of the
    said rule defined 'Customs House Agent' to mean a person licensed under
D   those rules to act as agent for the transaction of any business relating to
    the entrance or clearance of any vessel or the import or export of goods
    or baggage in any Customs House. Rule 6 prescribed the conditions which
    had to be fulfilled by the applicant before the grant of licence to act as
    Customs House Agent, saying :

E               "6. Certain conditions to be fulfilled by the the applicant before
             the grant of licence. - An applicant for a licence shall -

                 (a) furnish to the Customs Collector satisfactory evidence as to
             his respectability, reliabilty and financial status;

F                (b) produce satisfactory evidence to the Customs Collector that
             he would be in a position to master sufficient clientele and business
             in the event of his being granted the licence.

                   (c) furnish an income-tax clearance certificate."

G Rule 9 laid down the details and procedure for examination of the ap-
     plicant with a view to ascertain his knowledge of customs law and
     procedure and his fitness to render proper service, to importers and
     exporters. Such examination could be oral or written or both. In view of
     Rule 10, the Customs Collector was empowered to reject an application
H    for the grant of a licence to act as Customs House Agent, if the applicant
      FEDERATION OF CUSTOMS HOUSEAGENTSASSN. '· STA1E(N.P. S!NGl!,J.I    551

failed to pass the examination prescribed under those rules or if the A
applicant was not considered suitable due to any other reason to be stated
in writing. After coming into force of the Customs Act, the Custom House
Agents Licensing Regulations, 1965 (hereinafter referred to as the 1965
Regulations) were framed in exercise or the powers conferred by sub-sec-
tion (2) of section 146 of the said Act. Rule 2(c) defined 'Custom House B
Agent' to mean a person licenced under those regulations to act as agent
for the transaction of any business relating to the entrance or clearance of
any vessel or the import or export of goods or baggage in any Custom
House. Regulation 5 provided that an application for a licence to act as a
Custom House Agent was to be made in the form prescribed. Regulation
6 prescribed the conditions to be fulfilled by the applicant before the grant C
of licence :

           "6. Certain conditions lo be fulfilled by the applicant before the
        grant of licence. - An applicant for a licence shall -

            (a) furnish to the Collector of Customs satisfactory evidence as D
        to his respectability and financial status;

            (b) produce satisfactory evidence to the Collector of Customs
        that he would be in a position to muster sufficent clientle and
        business in the event of his being granted the licence;                 E

            (c) furnish an income tax clearance certificate.

Regulation 9 contained the provision and procedure regarding examination
of the applicant with a view to ascertain his knowledge of custom law and
procedure and his fitness lo render service to importers and exporters. This    F
examination could be oral or written or both to be conducted by the
Collector of Customs or by a committee of officers of customs to be
appointed by him for that purpose. The regulations which were framed in
exercise of powers conferred by sub-section (2) of Section 146 of the
Customs Act in the year 1984 referred to above repealed the Customs
House Agents Licensing Regulations 1965. Several changes were intro-            G
duced in the 1.984 regulations. Regulation 2(c) defines 'Customs House
Agent' to mean a person licensed under the regulations to act as agent for
the transaction of any business relating to the entry or departure of
conveyance or the import or export of goods at any customs station. In view ·
of regulation 4, the Collector. may invite applications for the grant of a H
    552                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A licence to act as Customs House Agent in the month of January every year
    in the form prescribed. Regulations 6 and 8 which are the subject matter
    of controversy in the present appeal provided the conditions which have to
    be fulfilled by the applicant and conceive grant of temporary licences as
    well:

B               "6. Conditions to be fulfilled by the applicant. - The applicant or
            the person referred to in Cl. (b) of sub-regulations (2) and (3) of
            Regulation 5 as the case may be, shall prove to the satisfaction of
            the Collector that :


c               (a) he has the experience of work relating to clearance of goods
            through the customs for a period of not less than one year; and

                (b) the applicant has financial viability supported by a certifi-
            cate issued by a Scheduled Bank or such other proof acceptable
            to the Collector evidencing possession of assets of the value of not
D           less than Rs. 1 lakh in the case of applicants for the b'fant of licence
            in respect of any one of the Customs Stations at Bombay, Calcutta,
            Madras, Cochin, Kandla, Goa, Mangalore, Tuticorin or Visak-
            hapatnam and not less tl:an Rs. 50,000 in the case of the each of
            the other Customs Stations, situated at places other than those
            specified above :
E
                Provided that in cases where a Coµector's jurisdiction extends
            to more than one Customs Station the Collector may issue one
            licence for all the Stations or more than one such Station to be
            specified in the licence, waiving the need for separate compliance
F           of the provisions of Cls. (a) and (b) above for such additional
            Customs Stations. The Collector may also waive the need for
            separate compliance of the requirement of Regulation 11 in such
            cases :

               Provided further that in places where there is more than one
G           Collector exercising jurisdiction over differenl Customs Stations
            and Customs House Agents, licenced under the Customs House
            Agents Licensing Regulations, 1965 have been operating in the
            said Customs Stations on the basis of one licence, it shall be open
            to such agents to obtain a temporary licence under Regulation 8
H           from the Collector other than the one who has issued them the
      FEDERATION OF CUSTOMS HOUSE AGENTS ASSN.'· SfATE (N.P. SINGH, J.J   553

        existing licence, without being required to comply with the require-     A
        ments of Regulation 6 in regard to financial viability or the require-
        ments as to fresh deposit in terms of Regulation 11."

            "8. Grant of temporary licence. - Any applicant whose applica-
        tion is received within the last date specified in Regulation 4 and
        who satisfies the requirements of Regulations 5 and 6, shall be          B
        permitted to operate as Custom House Agent at the Customs
        Station for which the application is made initially for the period
        of one year against temporary licence granted by the Collector in
        this regard in Form B.

            Provided that when evidence is produced to the Collector that
                                                                                 c
        the applicant has already availed of two chances for qualifying in
        the written or oral examination prescribed in these regulations and
        would like to avail of the third chance as soon as the next examina-
        tion is held in terms of Regulation 9 and that the applicant has
        been able to account for the minimum volume of work prescribed           D
        for such agents in the course of one year's working, the Collector
        may extend the aforesaid period of one year for which the tem-
        porary licence has been granted by another six months or such
        further period not exceeding one year to enable the applicant to
        avail of the third chance for qualifying in the examination in terms     E
        of Regulation 9. While granting such extension, the collector of
        Customs shall satisfy himself that the requirements of Regulations
        lO(l)(a) and lO(l)(b) has been fully met by the applicant."

On a plain reading in view of regulation 6, the applicant has to prove to
the satisfaction of the Collector that he has an experience of work relating     F
to clearance of goods through the customs for a period of not less than
one year. Incidentally, it may be mentioned that clause (a) of Regulation
6 has been substituted by Notification No. 74/91 (N.T.)-Cus., dated
15.11.1991 and now it read as follows :
                                                                                 G
            "6. Conditions to be fulfilled by the applicant.- The applicant
        or the person referred to in c)aµse (b) of sub- regulations (2) and
        (3) of Regulation 5 as the case may be, shall prove to the satisfac-
        tion of the Collector that :

            (a) is an employee of a licensee and that he possesses a H
    554                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A           permanent pass in Forms G prescribed under regulation 20 and
            has the experience of work relating lo clearance of goods through
            customs, for a period of not less than one year, in the capacity of
            such a pass-holder; and ...... .,........ ''.

B This was not required under 1960 rules and 1965 regulations. Regulation
    8 provides that an applicant shall be permitted lo operate as Customs
    House Agent at the Customs Station for which the application is made
    initially for the period of one year against temporary licence granted by the
    Collector in From B. In view of proviso to the said regulation 8, such
    applicant is entitled to avail of two chances for qualifying in the written or
C   oral examination prescribed in those regulations. However, he may avail of
    the third chance in the next examination to be held in terms of regulation
    9 on the conditions prescribed in proviso to regulation 8. The Collector has
    been empowered to extend the aforesaid period one year for which the
    temporary licence had been granted by another six months or such further
D   period not exceeding one year to enable the applicant to avail of the third
    chance for qualifying in the examination. Regulation 9 gives the details of
    such examination which is to be conducted twice every year. A licensee
    may, having regard to the volume of business transacted by him in view of
    regulation 20 'employ one or more persons to assist him in his work as
    Custom House Agent'. Such appointment of a person by the licensee is to
E   be made only after obtaining the approval of the Assistant Collector of ·
    Customs. Regulation 20(3) prescribes the condition subject to which such
    persons can be appointed by the licensee to assist him in his work as
    Custom House Agent. Regulation 20(3) requires such person who has been
    employed by the licensee to pass the examination conducted by the Assis-
F   tant Collector of Customs within six months from the date of his appoint-
    ment to ascertain the adequacy of his knowledge regarding the provisions
    of the statutes subject to which goods and baggage are cleared through the
     Customs.

          The appellants challenged the validity of regulation 8 aforesaid
G saying that it has introduced an arbitrary and irrational provision regarding
  grant of temporary licence before an applicant qualifies at the examination
  to be held. According to them, 1960 rules and 1965 regulations required
  the applicant first lo appear at the examination and only after such ap-
  plicant was selected, a licence was to be granted to him to act as Custom
H House Agent, but regulation 8 of 1984 regulations enables the applicant,
      FEDERATION OF CUSTOMS HOUSE AGENTS ASSN. v. STATEfN.P.SING!-1.J.J         555

who has not at all appeared at any such examination to act as a Customs A
House Agent on basis of temporary licence granted to him by the Collec-
 tor. On basis of such temporary licence he can act as Custom House Agent
for a period of one year as a matter of course and upto the period of two
years on the condition prescribed by proviso to regulation 8 which is per
se arbitrary, inasmuch as a person is allowed to act as Custom House Agent
                                                                                B
on basis of temporary licence wi.thout his suitability and qualifications being
tested which was a must under the earlier rules and regulations. It was
pointed out that the holders of such temporary licences without the evalua-
tion of their merit can transact any business relating to entry or departure
of the conveyance or import or export of goods at the Customs Station, at
par with regular licensees who have got the licence after passing the                 c
examinations conducted for their selection. In this connection reference
was made to the Report of the Study Team on the Customs Department,
submitted in the year 1967. In the said report in respect of the clearing
agency system it was suggested that the clearing agency rules should be
tightened to provide effective control over the clearing agents. For that D
object strict test for grant of licence or approval to conduct Custom House
business should be held. It also recommended that clearing agents associa-
tions should be encouraged to arrange their affairs like a disciplined guild
with a code of conduct, fair scales of charges, arrangements for training
their staff and regulations regarding employing unqualified or undesirable
persons. It was also pointed out that the aforesaid recommendation, that E
the clearing agency rules should be tightened to provide effective control
over the agents had been accepted by the Government. Reference was also
made to the Report of the committee for Subordinate Legislation, sub-
mitted in the year 1983 in which the procedure for inviting applications for
grant of licence to act as Customs House Agent, conduct of a written or F
oral examination to satisfy regarding the suitability of the applicant was
recommended apart from other requirements. However, it may be pointed
out that the said committee itself had felt :

            11
                 ........   the present restriction on the number of Custon1s House
        Agents should be done away with and that the licences should be               G
        thrown open to all eligible Candidates ...... ".

The committee also recommended :

            "The licence should be issued initially for a period of 2 years           H
    556                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A            and performance of the applicant watched. The licence will, there-
             fore) be a tcn1porary one and its conversion into a permanent
             licence will be conditional on the applicant's showing satisfactory
             turn over and a minimum level of efficiency."

    We are not able to appreciate as to how the Report of the Committee for
B   Subordinate legislation helps the appellants when the said committee itself
    recommended that temporary licence should be issued initially for a period
    of two years and performance of the applicant be watched and the conver-
    sion of the temporary licence into a permanent licence should be condi-
    tional on the applicants' showing satisfactory turn over and a minimum
C   level of efficiency. Regulation 8 of 1984 regulations, appears to have been
    framed on the basis of the aforesaid recommendation regarding grant of
    temporary licence for a period of one year which period can be extended
    upto 2 years on conditions prescribed in proviso, to regulation 8. If regula-
    tion 8 has been framed on the pattern suggested by the Committee for
D   Subordinate Legislation, we are unable to appreciate as to how regulation
    8 can be held to be invalid, arbitrary or ultra vires.

            The learned counsel, who appeared for the appellants, could not
    point out that a regulation in the nature of regulation 8 could not have been
    framed in exercise of the power conferred by sub- section (2) of Section
E 146 of the Customs Act. Sub-section (1) of Section 146 prescribes a bar
    that no person shall carry on business as an agent relating to the entry or
    departure of a conveyance or the import or export of goods at any customs
    statiou. unless such person holds a licence granted in this behalf in accord-
    ance with the regulations. None of the clauses of sub- section (2) of Section
    146 prescribe any restriction on grant of temporary licence. The Committee
F for Subordinate Legislation aforesaid had also recommended under the
    heading 'eligibility conditions' that the applicant must be atleast a graduate
    and the desirable qualification should be atleast 3 years experience which
    could be reduced to 6 months in deserving cases. Then it recommended
    that such applicant should pass a written examination which shall be held
G annually. It also recommended that temporary licence should be issued
    initially for a period of two years and the performance of the applicant be
 ·. watched. The Committee did not say that such temporary licence should
    be issued only after the applicant had passed the written examination,
    rather it laid emphasis that a temporary licence should be converted into
    a permanent 'on the applicants showing satisfactory turn over and a mini-
H mu.m level of efficiency". In this background, it is difficult to hold that when
          FEDERATION OF CUSTOMS HOUSE AGENTS ASSN. v. SfATEIN.P. SINGH.J.J   557

    regulation 8 provides for grant of temporary licence for a period of one       A
    year before the applicant his qualified in the written or oral examination
    so prescribed, it is invalid, arbitrary or unconstitutional in any manner.
    Regulation 8 has proper check and balance in which the experience of
    work relating to clearance of goods through the Customs as well as the
    performance at the qualifying written or oral examination both have been
    taken note of. The amendment which was introduced in clause (a) of             B
    regulation 6 by the aforesaid notification dated 15.11.1991 links the ex-
    perience of such applicant acquired in accordance with the regulation 20.
    ll cannot be said that by postponing the qualifying examination for a period
    of one year and on fulfilling the conditions of the proviso to regulation 8
    upto 2 years in respect of temporary licensee, any irrational procedure has    C
    been prescribed or adopted. From reading regulations 6, 8 and 20 it is
    apparent that 1984 regulations have given due weight to the experience as
    well as to the merit.

          It was pointed out that in many countries like United States and
    Australia, written examination for such Customs House Agents is a must D
    and that should be held at the threshold. Even under regulation 8 a
    qualifying v.Titten or oral test is a must for a temporary licensee. Regulation
    8 requires the applicant who has been permitted to operate as Customs
    House Agent to qualify at the written or oral examination prescribed within
    the period of one year and under certain specified conditions within a E
    further extended period of one year.

          On behalf of the appellant, reference was made to the judgment of
    this Court in the case of Chandhrakant Knshnarao Pradhan v. The Collector
•   of Customs, Bombay, [1962] 3 SCR 108 and it was pointed out that rule 9
    of 1960 rule provided for examination written or oral or both was upheld F
    by this Court. Admittedly, in that case neither there was any controversy
    nor could have been in respect of grant of temporary licence for a limited
    period before qualifying at the written or oral examination, as there was
    no such provision in those rules. That judgment is of no help to the
    appellants. Attention was also drawn to the judgment of this Court in the G
    case of D. V: Bakshi v. Union of India, [1993] 3 SCC 663 where in a different
    contest regulations 8 and 9 of 1984 regulations had been challenged. A
    grievance had been that 100 niarks for written test and 50 marks for oral
    test was arbitrary and irrational. The controversy with which we are con-
    cerned was not involved in that case. However, incidentally it may be
    mentioned that in respect of grant of temporary licence for a period of one H
    558                     SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A   year under regulation 8, it \Vas said :

                   "The importance of the oral interview lies in the fact that the
               cxamin~rs have an opportunity to assess his performance as a
               temporary licence hokier and also seek his clarification in regard
               to certain matters which might have come to their knowledge
B              during the period he worked as a temporary licence holder. The
               Regulations have, therefore, taken care to ensure that he has
               experience of at least one year as an apprentice to an agent before
               he applies for the grant of licence. Jn order to assess his work he
               is given a temporary licence before he qualifies by clearing the
               prescribed examination. The authorities have the opportunity of
c              assessing his knowledge regarding the laws and procedure through
               the written examination. It must be remembered that the cu·stoms
               station is a place of Work. Observance of regulations is absolutely
               essential as movement of very valuable goods takes place and only
               sufficiently experienced hands can be permitted to act as agents.
D              He must satisfy the authorities that he has adequate knowledge
               regarding the law and the procedure connected with the clearance
               of goods and that he actually is in a position to handle the work
               from the moment he is licensed. The assessment of his work during
               the period he holds the licence is, therefore, of great relevance
               and that can be-done at the oral test only. The assessment has to
E              be made on the basis of his performance as a temporary licen-
               ceholder and his capacity to handle goods as an agent at the
               customs station. 11

             It can be said that in the aforesaid judgment this ·court has impressed
F the utility of the temporary licence for purpose of the assessment of the
                                                                                       ..
    work of such temporary licence holder.

             Accordingly, the appeal is dismissed. There shall be no order as to
    costs.

G            CA. No. 9224 of 1996 @ SLP (C) No. 10440 of 1994

                                          WITH

             CA. No. 821 of 1994.

H            Leave granted in the S.L.P.(C) No. 10440/94
             FEDERATION OF CUSTOMS HOUSEAGENfS ASSN. v. STATE[N.P. SINGH. l.J   559

           These appeals have been filed on behalf of Union of India and others A
    for setting aside the judgment of the Calcutta High Court, holding that 1984
    regulations so far they allow temporary licence to be issued on conditions
    prescribed therein were invalid. On that finding, the writ petition filed by
    the respondents in the present appeals were allowed. In view of the
    judgment which has been delivered today by us in C.A. No 2632 of 1985, B
    these appeals are allowed. The judgment of the High Court is set aside and
    the writ petition filed on behalf of the respondents is dismissed. No costs.

          CA. No. 9225 of 1996@ SLP (C) No. 14101/96 (CC28292/94).

                                         ORDER                                        c
         Delay condoned.
,
         Leave granted.

          This appeal has been filed against the judgment dated July 2, 1993          D
    passed by the Calcutta High Court in 0.A. No. 518 of 1988. It is allowed
    in terms of the judgment in C.A. No. 821 of 1994 delivered today.

         CA. Nos. 822, 823 and 824/94.

                                        ORDER

          These appeals have been filed against the judgment dated July 2,
    1993 passed by the Calcutta High Court in O.A. No. 518 of 1988. These
    appeals are allowed in terms of the judgment in Civil Appeal No. 821 of
    1994, delivered today.

    B.K.S.                                                Appeal allowed except
                                                    Appeal No. 2632/85 dismissed.