Analysing the Conflict Between Detention Certificates and Right to Demurrage

[By Jaipreet Singh Alag]

The author is a student of Rajiv Gandhi National University of Law, Punjab.

 

Introduction

With the advent of the Delhi High Court’s judgement in the case of Bhavik S. Thakkar v. Union of India, a debate has started between the power of the customs authority to issue detention certificates and the right of the custodians to claim demurrage charges from the importers of goods. In the said case, there was a mis-declaration of goods on the part of the petitioner leading to their confiscation by the Directorate of Revenue Intelligence (DRI). Once the case was settled a detention certificate was issued by the Customs Authority to the Container Corporation of India (hereinafter, referred to as ‘CONCOR’) i.e., the custodian of imported goods. However, the same was not heeded by the CONCOR, leading to a dispute between it and the Petitioner.

Detention Certificates are issued by the customs authority to waive demurrage charges which are levied by the custodian of imported goods on the importers, primarily in cases of illegal detention of goods by the customs authority. They derive their legal standing from Regulation 6(1)(l) of the Handling of Cargo in Customs Areas Regulations (HCCAR, 2009). The aforementioned judgement has placed primary reliance on Section 63 of the Customs Act, 1962 while not giving much consideration to the detention certificate issued under HCCAR, 2009. However, the Finance Act, 2016 has omitted Section 63 from the Customs Act which has enhanced the status of the HCCAR. The article analyses the conflict that has emerged between the HCCAR and the relevant statutes in the area of customs because of the omission of Section 63 from the Customs Act.

Right to Demurrage of Custodians

Demurrage is a charge that is levied by a custodian of imported goods under Section 45 of the Customs Act in return for the services provided by it, such as warehousing. In certain cases, the imported products are detained by the customs authority for investigation which can be a lengthy process. In such a case the investigation takes place while the services of the custodians are under continuous use. Upon the conclusion of the investigation, the custodians demand the charges (referred to as demurrage) for the usage of their services from the importers. In cases of illegal detention of goods by the customs authority, the chances of conflict between the custodians and the importers increase exponentially.

In such cases, the judiciary has usually taken a stand in the interest of the custodians. In the case of International Airports Authority of India v. Grand Slam International, the Supreme Court upheld the Right to Demurrage of the custodian even when the goods were illegally detained. However, the judiciary’s stance is not entirely one-sided. For instance, in the case of M/s Shipping Corporation of India v. CL Jain Woolen Mills, the Supreme Court transferred the liability of paying the demurrage charges to the customs authority instead of the importer of goods. Nevertheless, in the said case, the decision stood in favour of the custodians. Therefore, it can be suitably said that judicial precedents continue to recognise the right to demurrage of custodians.

Impact of the Omission of Section 63 from the Customs Act

The conflict between detention certificates and the right to demurrage fees of custodians appeared to be settled because of the established precedents. However, the omission of Section 63 from the Customs Act has led to this conflict coming to the fore again. It is pertinent to note that Regulation 6(1)(l) of the HCCAR, 2009 begins with a ‘subject to’ clause which makes the regulation prone to the provisions of other statutes in the country. In this regard, the detention certificates did not possess much power since Section 63 of the Customs Act upheld the right to demurrage of the custodians countering the regulation. The same was affirmed in the case of Bhavik S. Thakkar v. Union of India wherein, the Delhi High Court gave primary consideration to the aforementioned provision of the Customs Act while upholding the decision of the custodian i.e., CONCOR to not release the goods until the demurrage charges for the usage of its warehousing are paid.

The intention behind the omission of Section 63 of the Customs Act

The omission of Section 63 from the Customs Act has been consistently used as a means to justify the violation of the right to demurrage of custodians. However, while dealing with the instant omission it is important to consider the intention behind the omission of the aforementioned provision. Thus, reference must be made to the explanatory notes of the Finance Bill, 2016. The explanatory note to clause 126 of the Finance Bill explicitly mentions the intention behind the omission of Section 63 to be “privatization of services, and free market determination of rates, including those by facilities in the public sector.” The instant explanation to clause 126 of the Bill cannot be interpreted in a manner that curtails the right to demurrage of the custodians since privatisation is the primary aim of the instant omission. Therefore, any adverse effect on the demurrage rights of the custodians would be contrary to the omission of Section 63.

Section 170 of the Indian Contract Act and its interplay with the issue of Demurrage Rights

The Finance Act, 2016 has provided for the omission of Section 63 from the Customs Act, it has become important that alternative statutes are used to protect the demurrage rights of custodians. In most cases, the relationship between a custodian and an importer is foundationally based on a contract of bailment. In such contracts of bailment, the importer is considered the bailor while the custodian is the bailee of the goods imported. This view has been upheld by the Supreme Court in the case of M/s Shipping Corporation of India v. C.L. Jain Woolen Mills wherein, it was held that such a relationship requires the application of Section 170 of the Indian Contract Act, 1872. The said provision of the Contract Act provides for the Right to lien of the bailee. The said right gives the authority to retain the bailed goods to the bailee till the time the bailee receives due remuneration from the bailor for the services rendered concerning such goods. Additionally, in the aforementioned case, the Court has held that according to Section 170 of the Contract Act of 1872, the Bailee is entitled to keep the goods until he is paid appropriately for the services, he provided in relation to them.

Therefore, it can be held that the instant provision of the Indian Contract Act plays a role similar to that of Section 63 of the Customs Act and can be suitably used to reduce the control of the Customs Authority to issue detention certificates arbitrarily. Moreover, the established precedents as well as the applicable statutes favour the right to demurrage of the custodians thus, making negative the applicability of Regulation 6(1)(l) of the HCCAR, 2009 on matters of validity of detention certificates.

Conclusion and Suggestions

The recent changes in the field of Demurrage Rights and Detention Certificates in Customs Law have raised questions on the validity of the existing precedents as well as the statutes relating to the instant subject matter. Such changes have also led to a rise in the number of disputes in matters relating to the validity of detention certificates. From a judicial perspective, it is important to strike a balance between the rights of the custodians and those of the importers and ensure that their rights are not violated. While the recent omission of Section 63 from the Customs Act raises doubts about the right to demurrage of custodians, it is crucial to also look at the legislative intent behind such an omission. Additionally, Section 170 of the Indian Contract Act is supplementary to the provisions of both the HCCAR, 2009 as well as the Customs Act and thus, cannot be ignored while dealing with such disputes. The interplay between the Contract and Customs Law becomes more relevant with the legal precedents supporting it.

Furthermore, the primary reason behind the development of such doubts in the legal sphere is a dearth of precedents in this regard. The most recent Supreme Court precedent relating to the instant subject matter is more than two decades old. Therefore, the development of this void has to be urgently looked at by both the legislature as well as the judiciary to ensure that the ambiguities in the existing laws do not lead to the violation of the rights of any party in case of such disputes.

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