Kamal Kumar vs Union of India and Others

Vipin Sanghi, J.—This petition has been preferred under Article 226 of the Constitution of India to assail the order dated 28.11.1994

passed u/s 7(1) and 7(3) of Smugglers And Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA), passed by the

competent authority; the appellate tribunal order dated 08.03.1996 in FPA No.4/DLI/95, and; the rectification order dated 08.05.1996 u/s 20 of

SAFEMA.

The petitioner, Piare Lal was served with a detention order dated 08.11.1976 issued in the name of Governor of Punjab, inter alia, stating that

with a view to prevent him from dealing in smuggled goods, it is necessary that he be detained. A declaration was also issued by the Governor of

Punjab u/s 12A(2) of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (""COFEPOSA?) declaring that the

detention is necessary, and that it is not in public interest to disclose the facts or to give an opportunity of making a representation to the detenu.

Following the said detention, which was unsuccessfully challenged by the petitioner, a notice dated 10.05.1978 was issued by the competent

authority u/s 6 of SAFEMA stating that he had reason to believe that the properties mentioned in the schedule have been acquired by him illegally

within the meaning of clause (c) of sub section (1) of section 3 of SAFEMA. The petitioner was required to indicate the sources of his income,

earnings and assets out of which, or by means of which the petitioner had acquired the scheduled properties, and also to show cause as to why

they should not be declared as illegally procured properties and forfeited under the Act. The said notice pertained to the following properties:

THE SCHEDULE

Description of the property Name of the present holder of

property

1) Plot Nos. 35 to 38, Chandrauli, Delhi Shri Piara Lal

2) Plot No.13/1, 14/15, bearing Khasra No. 21-24 in village Karawal �

Nagar, Ilaqa Shahdra, Delhi

3) Plot No.2, B-Block, Laxmi Industrial Enclave, V, Gharota, Pargna �

Loni, Tehsil Ghaziabad, Meerut

4) 1/2 share in plots bearing Khasra Nos. 13 to 17 in Karawal Nagar, �

Ilaqa Shahdra, Delhi

5) 110 Tolas gold ornaments �

6) Cash in Hand �

Section 6 of SAFEMA obliges the competent authority to record his reasons to believe that the properties in respect whereof the notice is

issued are illegally acquired properties. The ""reasons to believe"" recorded by the competent authority in this case were to the effect that the

Commissioner of Income Tax, vide letter dated 24.02.1977 had furnished certain information. The position of the petitioner''s income tax returns

and assessment was disclosed as follows:

Asst. YearsIncome returnedIncome assessed

1967-68 11,300 P

1968-69 11,300 P

1969-70 11,300 P

1970-71 11,300 P

1971-72 11,300 11,500

1972-73 11,300 22,050

1973-74 11,300 12,500

1974-75 11,300 36,062

1975-76 11,300 25,000

The competent authority recorded :

A perusal of the above chart bring out one striking feature. The income returned for all the years from 1967-68 to 1975-76 is the same viz.

Rs.11,300, all the returns have been filed on one date viz. 21.1.76 and all the assessments have also been completed on a single date viz. 19.1.77.

The source of this income is stated to be Dalali business, but no accounts are stated to have been maintained. Assessments have been completed

for the assessment years 1971-72 to 1975-76. It will be noted that in each year additions have been made to the income returned, the heaviest

being in assessment years 1972-73, 1974-75, 1975-76. The additions in these years are on account of various investments made and expenditure

incurred by Piara Lal in these years. As a perusal of para 3 would indicate, Piara Lal''s investments in real estate were made in the periods relevant

to assessment years 1972-73 and 1974-75. In the period relevant to assessment year 1972-73, Piara Lal has made an investment of Rs.10,800 in

the Chandrauli Plot in Delhi. In the course of assessment proceedings, being unable to explain the source of his investment, Piara Lal has

surrendered the amount of investment for assessment. Similarly in the period relevant to assessment year 1974-75, Piara Lal has made investments

in real estate listed at S. No.2,3 and 4 in para 2. The aggregate of these investments comes to about Rs.16,000. Here again, unable to explain the

source of this investment, Piara Lal has surrendered the same for assessment. In this year an addition has also been made on account of inadequate

marriage expenses and inadequate household expenses. It will thus be abundantly clear that although Piara Lal''s various investments have been

considered in the course of assessment proceedings, the source of these investments has at no stage, been proved. Since the source of investment

in properties listed at S. No.1 to 4 of para 3, has not been explained and proved, those properties fall squarely within the purview of sec. 3(1)(c)

(iii) of the SAFEMA. Similar is the position with regard to the assets listed at S. Nos.5 and 6 of para 3, whose source of acquisition has never

been proved.

[Emphasis supplied].

The competent authority further recorded that the aforesaid properties had been wholly or partially acquired out of, or by means of income,

earnings or assets, the source of which has not been proved ""and which has not been proved and which has not been shown to be attributable to

any Act or thing done in respect of any matter in relation to which Parliament has no power to make laws and is thus hit by the provisions of

section 3(1)(c)(iii) of SAFEMA"".

In para-6 of the reasons to believe, the competent authority recorded:

I have, therefore, reason to believe that the undermentioned properties held by Piara Lal are illegally acquired properties within the meaning of

sec. 3(1)(c) of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 and a notice under sec. 6(1) of the Act

should be issued to him to indicate the sources of his income, earnings or assets, out of which or by means of which he acquired these properties,

the evidence on which he relies and other relevant information and particulars and to show cause why these properties should not be declared to

be illegally acquired properties and forfeited to the Central Government.

Following the initiation of the said proceedings u/s 6 of SAFEMA, the impugned orders came to be passed against the petitioner, first by the

Competent Authority, and therafter by the Appellate Authority. Consequently, this petition was preferred by the petitioner, who has died during its

pendency and the same is being pursued by his legal representatives. The first submission of Learned Counsel for the petitioner, Sh. L.P. Dhir is

that the ""reasons to believe"", as aforesaid, did not show the existence of any nexus between the alleged smuggling activity of the petitioner and the

acquisition of the aforesaid properties. He submits that the petitioner has never been convicted for any offence, and it has not been established that

he was engaged in the activity of smuggling of goods. Even otherwise, without existence of source material to connect the alleged activity of

smuggling to the source of funds from which the scheduled properties were acquired, the competent authority did not even derive the jurisdiction to

issue the said notice u/s 6 of SAFEMA. He places reliance on the following decisions:

i) Fatima Mohd. Amin (Dead) through LR. Vs. Union of India (UOI) and Another,

ii) P.P. Abdulla and Another Vs. The Competent Authority and Others,

iii) Attorney General for India and Others Vs. Amratlal Prajivandas and Others,

iv) Shri Gian Chand Garg v. Union of India & Ors. in W.P.(C.) No. No. 4581/1996 decided on 04.09.2007 by S. Ravindra Bhat, J.

On the other hand, the submission of Learned Counsel for the respondent, Mr. Malik is that the ""reasons to believe"" recorded by the competent

authority are sufficient. He submits that nexus between the income derived from illegal activity and the acquisition of the property need not be

established where the property concerned is that of the detenu himself. The said nexus is required to be established only when the detenu''s

property is held benami in the name of any other person or relative. It is only in such cases that the nexus between the income derived from illegal

activity, and the property is required to be established.

He has further placed reliance on section 8 of SAFEMA, which provides that in any proceedings under this Act, the burden of proving that any

property specified in the notice served u/s 6 is not illegally acquired property shall be on the person affected. He submits that the petitioner had not

been able to explain the source of his income, wherefrom the aforesaid properties had been acquired by him. Even if the belatedly filed returns

were to be accepted, the amount apparently spent on purchase of properties in a few years was far in excess of the income shown for those years,

as noticed in the recorded ""reasons to believe"".

In Fatima Mohd. Amin (supra), the Supreme Court held that the contents of the notice even if taken on their face value did not disclose any

reason warranting action against the appellant. It was observed that no allegation whatsoever has been made to the effect that there exists any link

or nexus between the property sought to be forfeited and the illegally acquired money of the detenu. I may note that in this case, the property that

was sought to be forfeited belong to the mother, whereas the detenus were her two sons and it was the case of the respondent that the illegal

activity was carried out by two sons, and the property was acquired in the name of the mother from the ill-gotten monies.

In P.P. Abdulla (supra), which was a case pertaining to property of the detenu himself, the Supreme Court applied the decision in Fatima

Mohd. Amin (supra). In this case, the appellant had been convicted under the Customs Act in a case relating to seizure of 700 bars of foreign gold

recovered from him. The detenu himself was issued a notice u/s 6(1) of SAFEMA for forfeiture of his property. The property was forfeited by the

order of the competent authority and the appellate tribunal also rejected his appeal. The writ petition was allowed by the learned Single Judge of

the High Court. However, the Division Bench reversed the judgment of the learned Single Judge. The Supreme Court, after perusing the record of

the ""reason to believe"", observed as follows:

It must be stated that an order of confiscation is a very stringent order and hence a provision for confiscation has to be construed strictly, and

the statute must be strictly complied with, otherwise the order becomes illegal.

In our opinion, the facts of the case are covered by the decision of this Court in Fatima Mohd. Amina v. Union of India (supra). In the present

case the contents of the notice, even if taken on face value, do not disclose any sufficient reason warranting the impugned action against the

appellant as, in our opinion, the condition precedent for exercising the power under the Act did not exist. Hence, the impugned orders cannot be

sustained.

In the present case, in the notice dated 15.3.1988 issued to the appellant u/s 6(1) of the Act (copy of which is annexed as Annexure P1 to this

appeal), it has not been alleged therein that there is any such link or nexus between the property sought to be forfeited and the alleged illegally

acquired money of the appellant.

Hence, in view of the decision of this Court in Fatima Mohd. Amina''s case (supra), the said notice dated 15.3.1988 has to be held to be

illegal. Consequently the order passed in pursuance of the said notice is declared as null and void. The appeal is, therefore, allowed and the

impugned orders of the High Court and the concerned Authorities are set aside. No costs.

[Emphasis supplied]

In Gian Chand Garg (supra), the facts of the case were somewhat similar. Like in the present case, the detenu had filed income tax returns

collectively for five previous years (in the present case, they were filed for nine previous years), prior to the passing of the detention order. The

detention order was passed after the filing of the said returns, like in the present case as well. The Court held that there was not a whisper that any

enquiry or investigation u/s 18 of the Act preceded the notice.

To counter the submission of Mr. Malik founded upon section 8 of the Act, Mr. Dhir has placed reliance on the judgment of this Court in

Shanti Devi Vs. Union of India (UOI) and Others, . The Division Bench in this case held that the question of applying the rule of evidence enacted

by section 8 of SAFEMA, casting the burden of proof on the person affected, shall come into play only on some connecting link or nexus being

established or traced between the holding of the property or assets by the person proceeded against, and illegal activity of the detenu/convict.

The ""reasons to believe"" as recorded in the present case by the competent authority undoubtedly raise a doubt about the source of funds

wherefrom the aforesaid properties were acquired at the relevant time. However, they do not go on to state that there was a nexus between the

income derived from the alleged activity of smuggling and the scheduled properties acquired by the detenue, and the said ""reasons to believe"" do

not show as to how a nexus is sought to be established between the income allegedly derived from the illegal activity of smuggling, and the

acquisition of the said properties.

In the light of the aforesaid discussion, since the ""reasons to believe"", as recorded by the competent authority appear to be wholly insufficient,

the notice issued u/s 6(1) of SAFEMA cannot be said to have been issued validly. The competent authority did not derive the jurisdiction to issue

the same in the absence of the recording of the valid ""reasons to believe"". Consequently, the orders passed on the said notice by the competent

authority on 28.11.1994, and by the appellate tribunal on 08.03.1996 and the rectification order dated 08.05.1996 cannot be sustained and are,

accordingly, quashed. Parties are left to bear their respective costs.