The Customs authorities take charge of imported goods for inspection and payment of Customs duty. Due to lack of space in Customs-bonded warehouses, the authorities enlist the services of other agencies. These agencies act as custodians of the goods under the Customs Act. If any damage occurs to the goods while in their custody, can the custodian be held liable? This was decided on September 17, 2010, by the National Consumer Disputes Redressal Commission (Mysore Sales International versus Chemad Exim and connected appeals).

Chemad Exim had to import sophisticated electronic equipment for supplying it to various defence laboratories and establishments. This included 100 accelerometers costing Rs 1.4 lakh each. Chemad placed the order for the accelerometer with a supplier in the UAE who in turn ordered 10 units from Russia. When this consignment arrived at the Bangalore Airport, the Customs authorities took charge and appointed Mysore Sales International Ltd (MSIL), a Karnataka state company, as custodian under Section 45 of the Indian Customs Act, 1962.

While the consignment was stored in MSILs warehouse, a fire destroyed the accelerometers. On being informed about the incident, Chemad claimed Rs 12.83 lakh for the loss. As MSIL did not settle the claim, Chemad filed a consumer complaint against MSIL and the customs authorities.
MSIL objected to the maintainability of the complaint on the ground that it is a state government undertaking appointed as a custodian by the Customs authorities and had not rendered any services to Chemad. MSIL argued that Chemad could not be termed its consumer. Also, there was no privity of contract between MSIL and Chemad and so the complaint was not maintainable.

Alternatively, MSIL claimed if at all any compensation is payable, it would have to be restricted to a maximum of $20 per kg as fixed by the government of Karnataka in consultation with the Customs authorities.

The Customs commissioner stated he performed the sovereign and statutory function of collecting Customs duty and could not be considered a service provider and, hence, the complaint was not maintainable. He claimed he enjoyed immunity under the Customs Act for anything done in good faith.

The Karnataka State Commission held both MSIL and the Customs jointly liable, restricted the claim to Rs 12,333 calculated at $20 per kg, but granted additional compensation of Rs 1 lakh. Feeling aggrieved, all the parties approached the National Commission.

The Commission considered the duties and responsibilities of MSIL as custodian to provide service to importers for which it was receiving certain charges, including demurrage. Therefore, regardless of the existence or otherwise, of any direct privity of contract, such custodian would be deemed to be a service provider. Consequently, the custodian on behalf of the customs, would be liable to reimburse the loss caused to the person to whom the goods belonged.

On the role of the customs, the National Commission held that Customs authorities discharge functions, which are sovereign in nature and restricted to levy of duty, and / or confiscation of goods under the Customs Act. Moreover, since a custodian had been appointed, the customs could not be held guilty of deficiency in service and no liability could be fixed on them for the loss.

As the goods were destroyed by fire, Chemad did not pay the foreign supplier for the goods imported, despite the latter having sent a legal notice. Since the importer had not paid for the goods, the National Commission observed the title or ownership of the goods had not been passed on to Chemad. The importer tried arguing the overseas supplier could initiate legal action for recovering the price of the goods, and hence, was entitled to claim the amount without having paid for the goods.

However, since no such suit had been filed till the time the appeal came up for hearing, the Commission held that Chemad could not be said to have any title to the goods and, hence, did not have the locus standi to claim the loss of the goods.

Since the goods had not been paid for, no loss had occurred to Chemad, and, hence, claiming the amount terming it a loss was an attempt to get undue enrichment. On this ground, the complaint was dismissed.

An importer can file a consumer complaint to recover the loss caused to him while his goods are in the custody of the custodian appointed by the customs authorities, provided he establishes his ownership or title to the goods. A person who defaults in making payment only complicates the issue and increases his losses.