Union of India & Ors v. Kamal Kumar

1. The Union of India, by these appeals, challenges the judgment of a learned single judge, dated 25.11.2011, allowing four writ petitions, preferred under Article 226 of the Constitution of India. The petitions had challenged an order dated 28.11.1994 passed under Section 7 and 7 (3) of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA), by the competent authority as well as the decision of the appellate tribunal dated 08.03.1996 in FPA No.4/DLI/95, and the rectification order dated 08.05.1996 under Section 20 of SAFEMA. Facts of the case

2. One Piare Lal (the father of two petitioners and husband of the third and their common predecessor in interest) was served with a detention order dated 08.11.1976 issued in the name of the Governor of Punjab. The order claimed that to prevent him from dealing in smuggled goods, he had to be detained. A declaration was also issued by the Governor of Punjab under section 12A(2) of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (“COFEPOSA‟) declaring that the detention was 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. Piare Lal unsuccessfully challenged his detention. A notice, dated 10.05.1978 was issued by the competent authority under Section 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 notice was with respect to the following properties:

┌──────────────────────────────────────────────────────────────────────────────────────────────┐
│ Sl. No.               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                DO                 │
│            village Karawal Nagar, Ilaqa Shadara, Delhi                                       │
│ 3.         Plot No.2, B-Block, Laxmi Industrial Enclave, V,               DO                 │
│            Gharota, Pargna Loni, Tehsil Ghaziabad, Meerut                                    │
│ 4.         1/2 share in plots bearing Khasra Nos.13 to 17 in              DO                 │
│            Karawal Nagar, Ilaqa Shahdra, Delhi                                               │
│ 5.         110 Tolas gold ornaments                                       DO                 │
│ LPA No.531/2012 & connected matters                               Page 3 of 14               │
│                                                                           2017:DHC:6394-DB   │
│ 3.     In terms of Section 6, SAFEMA, the competent authority has to                         │
└──────────────────────────────────────────────────────────────────────────────────────────────┘

6. The learned single judge, by the impugned judgment, in allowing the writ petitions, relied on Shanti Devi v Union of India & Ors 73 (1998) DLT 477 (DB) and held that: “… 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 detenue/convict.

15. 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.

16. 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 under section 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.”

7. It is argued on behalf of the appellant Union of India, that the impugned judgment is erroneous as it holds that reasons to believe are not recorded in the show cause notice served under Section 6 of SAFEMA. It was argued that though it may not be stated in so many words that the properties in question were acquired from the illegal income of the detenue, such a link may be inferred and be discernible from the entire reading of the reasons to believe. Investigation in the said matter also revealed that the source of funds of the property could not be verified. On that basis the link was inferred and the properties were taken as illegally acquired properties. It was urged that these facts were the basis to conclude that the statutory conditions laid down under SAFEMA were satisfied and the burden was shifted upon the respondents to show the source of the said property and prove that they were not illegally acquired, which they failed to do. Counsel relied on S. Narayanapa Vs. Commissioner of Income Tax 63 ITR 219 and S.T.O. Vs. Uttareshwai Rice Mills 89 ITR 6 to argue that there is no requirement of disclosure of reasons under Section 6 of the Act to the person issued with show cause notice.

8. Learned counsel argued that the basis of forfeiture under SAFEMA cannot be questioned in terms of observations in Mahesh Kantilal Zavefi v. Union of India 2010 VII AD (Delhi) 804 which relied on Amritlal Prajivandas, which had ruled that unless the detention order under COFEPOSA is successfully challenged, the basis of subsequent order under SAFEMA cannot be questioned. It was also argued that one of the respondents (Kamla Vati), widow of Piare Lal, was an affected person. She had no independent source of income and she was financially dependent on the detenue. She did not possess any means to make any investment as regards the property in her name for the same reason. In this regard, it was argued that in the absence of any explanation for the details of income, it could be concluded that the persons shall be covered under section 2 (2)(c) of SAFEMA and the competent authority’s order for forfeiture of the property was therefore valid. Counsel lastly relied on Sh. Zahid Pervaz v Union of India ILR 2012 (1) Del 566, where it was held as follows: “The impugned orders have to be tested on the basis of the materials produced before the authorities who have passed these orders. The said plea is clearly an afterthought and is an attempt to improve his case by petitioner. From the known source of income of the petitioner or his father, the aforesaid properties have not been established to have been acquired. It has not even been argued that the competent authority did not have, or did not record the reasons for issuance of the show cause notice.

15. On the other hand, the principle of law contained in the aforesaid observations made by this Court in Shahid Parvez (supra), with due respect, appears to be per incuriam. I may refer to the provision contained in Section 68J of the NDPS Act which provides that “in any proceedings under this Chapter, the burden of proving that any property under Section 68H is not illegally acquired property shall be on the person affected.” Therefore, the observation of the learned Judge that the onus would be on the respondent authorities is in the teeth of the said statutory provision. I may note that Section 68J has not been noticed by the learned Judge in Shahid Parvez (supra).

16. So far as the competent authorities “reason” to believe that the aforesaid properties are illegally acquired is concerned, the acquisition of immovable properties by a minor of 12 years itself furnishes reason to entertain the said belief. The consequence of the said belief is only that an enquiry is set into motion by issuance of a show cause notice to grant the person concerned an opportunity to disclose his income, earnings or assets, out of which or by means of which he has acquired the property in question.” Significantly, the appellants did not produce the original files containing any materials, other than what was mentioned in the notice, linking Piare Lal with any smuggling activities; they relied on the notice and the order of detention.

9. The successful writ petitioners-arrayed as respondents, resist the appeals, contending that the findings drawn on the basis of materials on the record are unexceptionable. It was pointed out that though Section 8 of SAFEMA casts a burden on the person receiving the notice, the basic premise is a valid notice. Thus, the notice should show some nexus or connection with smuggling activities, leading to acquisition of ill gotten wealth. If such nexus is missing, and the notice is upheld, SAFEMA would act in a draconian manner, casting a burden on proving that the wealth or assets acquired were through legitimate means, which may be impossible if, like in this case, the authorities proceeded to reject the income tax authorities’ orders.

10. The decisions in Fatima Mohammed Amin (supra) and P.P. Abdulla (supra) are categorical as to the need for existence of a link between some smuggling activities and the acquisition of assets/properties that are to be the subject matter of SAFEMA proceedings. In P.P. Abdulla (supra), this aspect was highlighted by the Supreme Court, in the following manner: “8. 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.

9. In our opinion, the facts of the case are covered by the decision of this Court in Fatima Mohd. Amin v Union of India (2003) 7 SCC 436. 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.”

11. Section 6 (1) of SAFEMA provides: “Section 6 - Notice of forfeiture (1) If, having regard to the value of the properties held by any person to whom this act applies, either by himself or through any other person on his behalf, his known sources of income, earnings or assets, any other information or material available to it as a result of action taken under section 18 or otherwise, the competent authority has reason to believe (the reasons for such belief to be recorded in writing) that all or any of such properties are illegally acquired properties, it may serve a notice upon such person (hereinafter referred to as the person affected) calling upon him within such time as may be specified in the notice, which shall not be ordinarily less than thirty days, to indicate the sources of his income, earnings or assets, out of which or by means of which he has acquired such property, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties as the case may be should not be declared to be illegally acquired properties and forfeited to the Central Government under this Act.” This section therefore, is premised on proper application of mind and subjective satisfaction of the Competent Authority as to the existence of "reasons to believe". Those should be recorded in writing; they should also be to the effect that the property sought to be proceeded against is illegally acquired. In Gian Chand Garg, it was held that: “Such "reasons to believe", should be considered by the authority not only about the disproportionate nature of the assets of the person concerned, (in relation to known sources of income), but also other information or material available as a result of action taken under Section 18 or otherwise. Section 18 empowers the Competent Authority to cause an inquiry or investigation, regarding any person, place, property, etc. For this an officer of the Income-tax Department can be asked to carry out such exercise or survey. This should naturally precede the opinion formation, i.e. "the reasons to believe" as well as precede the issuance of notice under Section 6(1). The facts disclose that no such inquiry preceded the notice. This investigation under Section 18 is a salutory principle, because it is now well settled that the more stringent the procedure and consequences, the threshold of safeguards have to be higher.”

12. In Zahid Pervez (supra) a show cause notice under Section 68H(1) of the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) on 20.04.1994, based on detention under Section 3(1) of the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 (PITNDPS Act) was in question. The court had to consider if a 12 year old minor’s property could be said to have been validly acquired, given that his brother’s detention was unsuccessfully challenged. The court, in that case, did not consider either Fatima Mohd. Amin or P.P. Abdulla (supra). Therefore, this court is of the opinion that Zahid Pervez cannot be considered a binding authority, which can be preferred over the decisions of the Supreme Court.