Kiran Raj

The Supreme Court of India Division Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra held that the Railway authorities are entitled to raise penal demands under Section 66 of the Railways Act, 1989, even after the delivery of goods. The Court categorically set aside the judgment and order of the Gauhati High Court dated 20th December 2021, which had earlier affirmed the Railway Claims Tribunal's direction to refund sums collected through post-delivery demand notices.

In a significant judgement, the Apex Court determined that the penal charges levied due to misdeclaration of goods were lawfully raised in accordance with statutory authority under Section 66. The High Court's interpretation relying on Sections 73 and 78 of the Act, which pertain to overloading, was held to be inapplicable to the present dispute.

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The Supreme Court clarified that Section 66 does not stipulate any temporal restriction requiring demand notices to be issued prior to delivery. Thus, the Court directed that the impugned order of the Gauhati High Court be set aside and allowed the civil appeals filed by the Railway authorities, thereby restoring the validity of the demand notices.

The appeals before the Supreme Court arose out of a batch of matters decided by the Gauhati High Court on 20th December 2021. The appeals challenged the affirmation of a common order dated 19th January 2016 passed by the Railway Claims Tribunal, Guwahati Bench in O.A. Nos. 229/12, 184/12, 228/12, and 185/2012. The respondents in the matter, namely C.M. Traders, Vinayak Logistics, and M/S Kamakhya Transport Pvt. Ltd., had previously approached the Tribunal seeking a refund of charges levied through demand notices issued by the Indian Railways.

The factual matrix involved demand notices dated 13th October 2011, 7th April 2012, and 29th October 2011, raised by the Appellant Union of India through the Indian Railways. These notices alleged misdeclaration of goods by the consignees and imposed additional charges post-delivery. The respondents paid the demanded amounts but subsequently filed claim petitions under Section 16 of the Railway Claims Tribunal Act, 1987, asserting that the demand was illegal as it was issued after delivery of goods.

The Railway Claims Tribunal allowed the claim petitions and directed a refund of the paid amounts along with interest at the rate of 6% per annum. The following refunds were directed:

• C.M. Traders (O.A. No. 184/12): Rs. 4,47,965/-
• Vinayak Logistics (O.A. No. 185/12): Rs. 4,97,342/-
• Kamakhya Transport Pvt. Ltd. (O.A. No. 228/12): Rs. 3,07,902/-
• Kamakhya Transport Pvt. Ltd. (O.A. No. 229/12): Rs. 15,12,959/-

In arriving at this decision, the Tribunal relied on the judgment of the Gauhati High Court in Union of India v. Megha Technical & Engineers Pvt. Ltd., holding that demands under Section 83 must be raised before delivery. The Tribunal concluded that the penal charges were issued without adherence to principles of natural justice.

The Union of India filed an appeal before the Gauhati High Court, asserting that the Tribunal had failed to consider that the charges related to misdeclaration and not overloading. The High Court dismissed the appeal, affirming the Tribunal's view. The High Court observed:

• Section 74 and Rule 1820 of the Railway Commercial Manual II, 1991 permit recovery of dues before delivery.

• Section 83 was interpreted in light of Jagjit Cotton Textile Mills v. Chief Commercial Superintendent N.R. and Ors., wherein it was held that punitive charges must be raised before delivery.

• Sections 73 and 78 of the Railways Act permit penal charges only prior to delivery.

Aggrieved, the Railway authorities approached the Supreme Court, arguing that the Gauhati High Court had misapplied the provisions of the Railways Act by relying on statutory sections pertaining to overloading, whereas the issue in dispute pertained to misdeclaration. The appellant submitted that Section 66 of the Railways Act governed the case, and that no provision therein limited the imposition of charges to a time before delivery.

The respondents countered by stating that the demand notices were raised post-delivery and therefore unlawful. They submitted that the High Court had correctly affirmed the Tribunal's judgement.

The Supreme Court examined the statutory provisions of the Railways Act, 1989, in detail. It recorded the following observation regarding Section 66:

"It is borne from the above that a consignee/owner of goods/person having charge of goods who has brought goods for the purpose of carriage has to give the Railway authorities a written statement regarding the description of the goods, to enable them to charge the appropriate rate of carriage."

On the issue of when charges under Section 66 may be imposed, the Court stated:

"No reference is made to the stage at which such a charge can be made, i.e., either before or after delivery. Consequently, it can be seen that the legislative intent had to be, to permit levy of charge under this Section, at either stage and not at a specific one."

The Court contrasted Section 66 with Sections 73 and 78, which pertain to punitive charges for overloading and reclassification respectively. The Court clarified:

"We have perused the demand notices... It is evident from the contents thereof that the demand was raised for misdeclaration by the respondents. No reference has been made to the overloading of wagon, to which Section 73 applies. Therefore, in our view, Section 66 applies to the present lis."

Responding to the reliance placed by the High Court and respondents on Jagjit Cotton Textile (1998) 5 SCC 126, the Court noted: "We find such an approach to be erroneous and not in furtherance of the exposition in Jagjit Cotton Textile (supra)."

The Court remarked: "When this Court observed 'one such ‘condition’ could be by directing that penal charges could be collected before delivering the goods', it was a suggestion, to explain the conditions that could be imposed by the Railway Administration under Section 54(1)."

The Supreme Court concluded that the application of Jagjit Cotton Textile was misplaced in the present case as that decision was confined to Section 54, whereas the instant matter concerned Section 66. Furthermore, the Court found no evidence to support the respondents' argument that the demand notices were not genuine.

"In the absence of evidence to the contrary, we are inclined to find the demand notices to be genuine."

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The Supreme Court issued the following directions:

"In view of the above, the impugned order dated 20th December, 2021 passed by the Gauhati High Court in MFA Nos.80 of 2016, 57 of 2016, 29 of 2017 and 28 of 2017, is hereby set aside."

"In the attending facts and circumstances of this case, the civil appeals are allowed."

"Pending applications, if any, shall stand disposed of."

Advocates Representing the Parties:

For the Petitioners: Mr. K.M. Nataraj, A.S.G., Mr. Ameyavikrama Thanvi, Adv., Mr. Vatsal Joshi, Adv., Mr. B.K. Satija, Adv., Mr. Chinmayee Chandra, Adv., Mr. Gaurang Bhushan, Adv., Mr. Amrish Kumar, AOR, Mr. Sudarshan Lamba, AOR

For the Respondents: Mr. Divyansh Rathi, Adv., Mr. K.P. Maheshwari, Adv., Mr. Divyam Rathi, Adv., Mr. Gunjan Kumar, AOR

Case Title: Union of India v. M/s Kamakhya Transport Pvt. Ltd. & Others

Neutral Citation: 2025 INSC 805

Case Number: Civil Appeal Nos. 7376-7379 of 2025

Bench: Justice Sanjay Karol, Justice Prashant Kumar Mishra

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