28 May 2025 Legal Updates

S.27 CUSTOMS ACT OR DOCTRINE OF UNJUST ENRICHMENT WON'T APPLY TO REFUND OF BANK GUARANTEE: SUPREME COURT

(a) Case Title: 

• M/s Patanjali Foods Limited vs. Union of India & Ors. 

(b) Court: 

• Supreme Court of India 

(c) Date of Decision: 

• 19 May 2025 

(d) Bench:  

• Justices Abhay S. Oka and Ujjal Bhuyan 

Facts:

The appellant (Patanjali Foods) imported crude degummed soyabean oil in 2002. The Customs Department demanded higher duty based on a tariff value notification under Section 14(2) of the Customs Act, 1962. The appellant contested this, arguing the notification was not yet in effect or publicly available.

The Gujarat High Court initially allowed clearance of goods upon furnishing bank guarantees for the differential duty. 

The High Court later dismissed the appellant’s writ petitions (2012), leading to the encashment of bank guarantees by the Customs Department in 2013.  The appellant sought a refund of the encashed amounts, but the Department insisted on compliance with Section 27 of the Customs Act (unjust enrichment doctrine). 

Issues Before the Supreme Court: 

• Whether encashment of bank guarantees (furnished as security) amounts to "payment of duty" under Section 27 of the Customs Act. 
• Whether the doctrine of unjust enrichment applies to such encashed amounts. 

Supreme Court Analysis:

1. Encashment does not amount to Payment of Duty: 

Citing Oswal Agro Mills Ltd. (1994) and Somaiya Organics (2001), the Court held that bank guarantees are security, not actual duty payment. Thus, Section 27 (refund provision) does not apply. 

2. Doctrine of Unjust Enrichment: 

When a person has been unfairly benefitted at the expense of the other person is called unjust enrichment. In the cases related to unjust enrichment, the court directs the unfairly benefitted person to give back all the benefits which he/she acquired unfairly or to give compensation. The defendant is obliged by natural justice and equity to pay back the money.

In the present case the court observed that the doctrine of unjust enrichment applies only when duty is paid and passed on to consumers. Here, the encashment was coercive and not a voluntary payment. Hence, the doctrine is inapplicable.

3. Direction for Refund:

The Customs Department was ordered to refund the amounts with 6% interest within four months. 

Key Legal Principles:

• Bank Guarantees are security instruments, not equivalent to tax/duty payment. 
• Unjust Enrichment (Section 27) applies only to voluntary payments, not coercive recoveries. 

DISCHARGE IN PREDICATE OFFENCE DOES NOT INVALIDATE PMLA PROCEEDINGS U/S 3 OF ACT: J&K HIGH COURT

(a) Case Title: 

• Niket Kansal vs. Union of India (Enforcement Directorate) 

(b) Court: 

• High Court of Jammu & Kashmir and Ladakh at Jammu 

(c) Date of Decision: 

• 22 May 2025 

(d) Bench:

• Justice Wasim Sadiq Nargal 

Key Facts

The petitioner, Niket Kansal, was discharged by the Special NDPS Court in predicate offences related to the illicit diversion of codeine-based cough syrup ("Cocrex").  [A predicate offence is a crime that is a component of a more complex criminal activity, often associated with money laundering or organised crime.]

The Enforcement Directorate (ED) initiated PMLA proceedings based on the same predicate offences, issuing summons under Section 50 PMLA and conducting searches. 

1. Petitioner’s Arguments:

• Since the predicate NDPS offences were discharged, there could be no "proceeds of crime" under Section 2(1)(u) PMLA, rendering PMLA proceedings invalid.  The petitioner also argued that PMLA proceedings cannot survive without an active predicate offence. 

2. Enforcement Directorate’s Arguments:

• PMLA proceedings are independent of the predicate offence. Discharge in NDPS case does not automatically terminate PMLA action; Section 50 PMLA can proceed irrespective of discharge in the predicate offence. 

Key Legal Issues:

• Whether discharge in the predicate offence invalidates PMLA proceedings. 
• Whether PMLA proceedings are independent of the predicate offence. 
• Validity of summons under Section 50 PMLA when the predicate offence is discharged. 

Court's Judgement:

1. PMLA Proceedings Are Independent: 

The offence of money laundering under Section 3 PMLA is distinct from the predicate offence. While the predicate offence generates "proceeds of crime," PMLA targets the process of laundering those proceeds.  Therefore, discharge in the predicate offence does not automatically quash PMLA proceedings. 

2. Summons Under Section 50 PMLA Valid: 

Summons are procedural tools to collect evidence and do not imply guilt.  The Supreme Court in Vijay Madanlal Choudhary and Vilelie Khamo upheld ED’s authority to issue summons even if the predicate offence is discharged. 

3. Proceeds of Crime: 

Defined under Section 2(1)(u) PMLA as property derived from criminal activity linked to a scheduled offence.  The ED must establish a nexus between the property and the predicate offence, but the pendency of the predicate offence is not mandatory for PMLA action. 

Judgement:

The High Court refused to quash the summons, holding that PMLA proceedings must be evaluated independently.  It emphasized that the ED’s investigation into "proceeds of crime" can continue even if the predicate offence is discharged. 

Key Takeaways

Proceedings under the Prevention of Money Laundering Act are not ancillary to the predicate offence; they focus on the laundering process.