Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 4369 OF 2009
M/S. PLATINUM THEATRE AND OTHERS ….APPELLANT(S)
VERSUS
COMPETENT AUTHORITY SMUGGLERS &
FOREIGN EXCHANGE MANIPULATORS
(FORFEITURE OF PROPERTY) ACT, 1976
AND ANOTHER ….RESPONDENT(S)
J U D G M E N T
Rastogi, J.
1. The instant appeal is directed against the judgment and order
th
dated 19 April, 2007 passed by learned Single Judge of the High
Court of Karnataka at Bangalore upholding the order passed by the
Signature Not Verified
competent authority under Section 7 read with 19(1) of the
Digitally signed by
Ashwani Kumar
Date: 2023.03.22
15:57:55 IST
Reason:
Smugglers and Foreign Exchange Manipulators(Forfeiture of
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Property) Act, 1976(hereinafter being referred to as the “Act, 1976”)
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dated 31 December, 1997.
2. Appellant no.1 is said to be a registered partnership firm
comprising of appellant nos. 2 to 5 and one N.A. Yusuf(not a party
herein) as its partners with the profit sharing ratio of the partners
as follows:
N.A. Yusuf 50%
P.M. Saheeda(appellant no. 2) 25%
Mohd. Ali(appellant no. 3) 8.33%
Shaukat Ali(appellant no. 4) 8.33%
Mumtaz(appellant no. 5) 8.33%
3. The background facts culled out from the record which led to
passing of the order forfeiting the subject property are that one of
the partners of the first appellant, namely, N.A. Yusuf, was ordered
to be detained by Conservation of Foreign Exchange and Prevention
of Smuggling Activities Act, 1974(hereinafter being referred to as
st
“COFEPOSA”) by order dated 21 January, 1985 by Government of
Maharashtra and later by the Central Government by order dated
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27 August, 1991. The two detention orders against N.A. Yusuf
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came to be challenged in the writ petition before Delhi High Court.
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Both the petitions were allowed by judgments dated 15 October,
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1991 and 11 May, 1992 respectively. In consequence thereof, the
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forfeiture order passed by the competent authority on 23
November, 1977 came to an end.
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4. On 16 October, 1994, a show cause notice was issued to the
first appellant firm and its partners calling upon them to provide an
explanation as to why the subject theatre (M/s. Platinum Theatre)
should not be forfeited. After affording opportunity of hearing, the
competent authority, in the first instance, passed an order of
forfeiture against the first appellant firm forfeiting M/s. Platinum
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Theatre and its equipment by order dated 31 July, 1995.
However, on appeal being preferred at the instance of the
appellants, the matter was remanded back to the competent
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authority for fresh consideration by order dated 17 July, 1997.
5. The competent authority after revisiting the matter afresh and
affording an opportunity of hearing to the parties, passed an order
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dated 31 December, 1997 of forfeiture of M/s. Platinum Theatre
under Section 7 of the Act, 1976. Subsequently, the Appellate
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Tribunal for Forfeited Property, New Delhi(hereinafter being referred
to as the “Tribunal”) dismissed the appeal and upheld the order of
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forfeiture passed by the competent authority on 7 September,
1999 and, thereafter, the writ petition filed at the instance of the
appellants also came to be dismissed by judgment and order dated
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19 April, 2007 which became a subject matter of challenge in
appeal before us.
6. Learned counsel for the appellant has challenged the order of
forfeiture particularly on the following submissions:
(i) The land on which the subject theatre was constructed is not
the property of the first appellant firm. It is owned by appellant no.
2(P.M. Saheeda w/o Ibrahim Soofi) through a registered sale deed
th
dated 16 April, 1969. Since the land was privately owned by
appellant no. 2, the order regarding forfeiture of land, in the facts
and circumstance of the case, is not legally sustainable.
(ii) The competent authority ought to have applied Section 9 of
the Act, 1976 in the present case and should have provided an
option to the appellants to pay fine in lieu of forfeiture, taking into
consideration the fact that the appellants had disclosed source of
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more than 50% cost incurred in construction of the theatre. The
loan of Rs.12 lakhs obtained from Vijaya Bank by the appellants
constituted more than 50% of cost of the theatre’s construction. As
such, the authority was under an obligation to give an option to the
appellants to pay a fine in lieu of forfeiture in terms of Section 9 of
the Act, 1976.
(iii) The forfeiture proceeding initiated in 1995 was grossly
delayed. The partnership firm is of the year 1974, the construction
of the theatre was carried out during the period 19711974 and the
forfeiture order was passed in 1997, after more than two decades.
The competent authority ought to have considered the inordinate
delay in passing of an adverse order of forfeiture on the premise
that it could not have been possible because of long delay to trace
the relevant documents which, indeed, has caused prejudice to the
appellants.
7. Per contra, learned counsel for the respondents, while
supporting the finding returned by the competent authority, in the
first instance, forfeiting the subject property in question and later
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confirmed by the Tribunal in the impugned judgment, in counter,
has made the following submissions:
(i) Section 8 of the Act, 1976 provides that the burden to proof, in
any proceedings under this Act, shall lie on the person affected.
The appellants have failed to discharge the said burden, in
consequence of which the finding recorded by the competent
authority duly supported with the material on record justify and
support the order of forfeiture passed by the competent authority
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dated 31 December, 1997.
(ii) Both N.A. Yusuf and appellant no. 2(P.M.Saheeda) failed to
disclose any source of their capital contribution in the first
appellant firm and have failed to disclose any books of accounts for
the expenditure in construction of the subject theatre and also
failed to disclose any bank account from which money was
disbursed for building the said theatre. In addition, appellant no.
2(P.M. Saheeda) failed to substantiate with proof the claim that the
land was bought from her wedding gifts in 1969. In the facts and
circumstances, the finding of forfeiture recorded by the competent
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authority has been rightly confirmed at all later stages in the course
of proceedings.
(iii) The contribution of N.A. Yusuf was more than half of the total
contribution of Rs.10.20 lakhs of capital infused in the partnership
firm. Since more than 50% of the value remained unexplained, the
appellants were not entitled to seek an option to pay a fine in lieu of
forfeiture as contemplated under Section 9 of the Act.
(iv) There was no delay which could be attributed to the authority
for the reason that proceedings were initiated in the first instance
against the appellant firm by issuance of show cause notice dated
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13 January, 1977 and since then the proceedings were continued
one after the other. In reference to the instant proceedings, the
show cause notice was served to the appellant firm and its
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partners(appellant nos. 2 to 5) on 16 October, 1994 which finally
culminated into forfeiture of the property under Section 7 by order
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dated 31 December, 1997. In the given circumstances, there was
no delay on the part of the respondent authorities in initiating the
proceedings in reference to the forfeiture of the property under the
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Act, 1976 which, in no manner, be said to be fatal in the given facts
and circumstances to interfere in the instant proceedings.
8. We have heard learned counsel for the parties and with their
assistance perused the material available on record.
9. The Act, 1976 has been enacted by the Parliament with an
object to provide for the forfeiture of illegally acquired properties of
smugglers and foreign exchange manipulators and for matters
connected therewith or incidental thereto. At the same time, to
provide an effective prevention of smuggling activities and foreign
exchange manipulations which are having a deleterious effect on
the national economy, it is necessary to deprive persons engaged in
such activities and manipulations of their illgotten gains. It also
provides that such persons have been augmenting such gains by
violations of wealthtax, incometax or other laws or by other means
and have thereby been increasing their resources for operating in a
clandestine manner and to nail such persons who are holding the
properties acquired by them through such gains in the name of
their relatives, associates and confidants.
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10. Section 2(1) of the Act, 1976 applies to the persons specified in
subsection (2). Section 2(2) gives a long list of different categories
of persons to whom the Act applies and includes as defined in
Section 2(2)(b) that every person in respect of whom an order of
detention has been made under the COFEPOSA and also includes
every associate of a person referred to in clause (a) or clause (b) as
defined in subclause(d) read with Explanation 3, which refers to an
associate and covers all individuals who had been or is a member,
partner or director of an association of persons including
association, body, partnership firm or private company, etc.
11. Sections 2, 6, 7, 8 and 9 of the Act, 1976 which are relevant
for the purpose, are extracted hereinbelow:
“ 2. Application.
(1) The provisions of this Act shall apply only to the persons
specified in subsection (2).
(2) The persons referred to in subsection (1) are the following,
namely:
(a) every person
(i) who has been convicted under the Sea Customs Act,
1878 (8 of 1878), or the Customs Act, 1962 (52 of
1962), of an offence in relation to goods of a value
exceeding one lakh of rupees ; or
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(ii) who has been convicted under the Foreign
Exchange Regulation Act, 1947 (7 of 1947), or the
Foreign Exchange Regulation Act, 1104 1973 (46 of
1973), of an offence, the amount or value involved in
which exceeds one lakh of rupees; or
(iii) who having been convicted under the Sea Customs
Act, 1878 (8 of 1878), or the Customs Act, 1962 (52 of
1962), has been convicted subsequently under either
of those Acts ; or
(iv) who having been convicted under the Foreign
Exchange Regulation Act, 1947 (7 of 1947), or the
Foreign Exchange Regulation Act, 1973 (46 of 1973),
has been convicted subsequently under either of those
Acts ;
(b) every person in respect of whom an order of detention has been
made under the Conservation of Foreign Exchange and Prevention
of Smuggling Activities Act, 1974 (52 of 1974);
Provided that
(i) such order of detention, being an order to which
the provisions of section 9 or section 12A of the said
Act do not apply, has not been revoked on the report of
the Advisory Board under section 8 of the said Act or
before the receipt of the report of the Advisory Board
or before making a reference to the Advisory Board; or
(ii) such order of detention, being an order to which
the provisions of section 9 of the said Act apply, has
not been revoked before the expiry of the time for, or
on the basis of, the review under subsection (3)of
section 9, or on the report of the Advisory Board under
section 8, read with sub section (2) of section 9, of the
said Act ; or
(iii) such order of detention, being an order to which,
the provisions of section 12A of the said Act apply, has
not been revoked before the expiry of the time for, or
on the basis of, the first review under subsection (3)
of that section, or on the basis of the report of the
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Advisory Board under section 8, read with subsection
(6) of section 12A, of that Act ; or
(iv) such order of detention has not been set aside
by a court of competent jurisdiction ;
(c) every person who is a relative of a person referred to in clause
(a) or clause (b) ;
(d) every associate of a person referred to in clause (a) or clause (b);
(e) any holder (hereafter in this clause referred to as the present
holder) of any property which was at any time previously held by a
person referred to in clause (a) or clause (b) unless the present
holder or, as the case may be, anyone who held such property after
such person and before the present holder, is or was a transferee
in good faith for adequate consideration.
Explanation 1.
Explanation 2.
Explanation 3.For the purposes of clause (d), "associate", in
relation to a person, means
(i) any individual who had been or is residing in the
residential premises (including outhouses) of such
person;
(ii) any individual who had been or is managing the
affairs or keeping the accounts of such person;
(iii) any association of persons, body of individuals,
partnership firm, or private company within the
meaning of the Companies Act, 1956 ( 1 of 1956), of
which such person had been or is a member, partner
or director;
(iv) any individual who had been or is a member,
partner or director of an association of persons, body
of individuals, partnership firm or private company
referred to in clause (iii) at any time when such person
had been or is a member, partner or director of such
association, body, partnership firm or private
company;
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(v) any person who had been or is managing the
affairs, or keeping the accounts, of any association of
persons, body of individuals, partnership firm or
private company referred to in clause (iii);
(vi) ….”
….
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, and 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 writting) 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.
(2) Where a notice under subsection (1) to any
specifies any property as being held on behalf of such
person by any other person. a copy of the notice shall
also be served upon such other person.
7. Forfeiture of property in certain cases.
(1) The competent authority may, after considering the
explanation, if any, to the show cause notice issued
under section 6, and the materials available before it
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and after giving to the person affected (and in a case
where the person affected holds any property specified
in the notice through any other person, to such other
person also) a reasonable opportunity of being heard,
by order, record a finding whether all or any of the
properties in question are illegally acquired properties.
(2) Where the competent authority is satisfied that
some of the properties referred to in the show cause
notice are illegally acquired properties but is not able
to identify specifically such properties then, it shall be
lawful for the competent authority to specify the
properties which, to the best of its judgment, are
illegally acquired properties and record a finding
accordingly under subsection (1).
(3) Where the competent authority records a finding
under this section to the effect that any property is
illegally acquired property, it shall declare that such
property shall, subject to the provisions of this Act,
stand forfeited to the Central Government free from all
encumbrances.
(4) where any shares in a company stand forfeited to
the Central Government under this Act, then, the
company shall, notwithstanding anything contained in
the Companies Act, 1956 (1 of 1956), or the articles of
association of the company, forthwith register the
Central Government as the transferee of such shares.
8. Burden of proof.
In any proceedings under this Act, the burden of
proving that any property specified in the notice served
under section 6 is not illegally acquired property shall
be on the person affected.
9. Fine in lieu of forfeiture.
(1) Where the competent authority makes a declaration
that any property stands forfeited to the Central
Government under section 7 and it is a case where the
source of only a part, being less than onehalf of the
income, earnings or assets with which such property
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was acquired has not been proved to the satisfaction of
the competent authority, it shall make an order giving
an option to the person affected to pay, in lieu of
forfeiture, a fine equal to one and onefifth times the
value of such part.
Explanation.For the purposes of this subsection, the
value of any part of income, earnings or assets, with
which any property has been acquired, shall be,
(a) in the case of any part of income or earnings, the
amount of such part of income or earnings;
(b) in the case of any part of assets, the
proportionate part of the full value of the
consideration for the acquisition of such assets.
(2) Before making an order imposing a fine under sub
section (1), the person affected shall be given a
reasonable opportunity of being heard,
(3) Where the person affected pays the fine due under
sub section (1), within such time as may be allowed in
that behalf, the competent authority may, by order,
revoke the declaration of forfeiture under section 7 and
thereupon such property shall stand released.”
12. Taking into consideration the scope and ambit of Act, 1976 of
which a detailed reference has been made, forfeiture proceedings
could be initiated under Section 6 in reference to such illegally
acquired properties by such persons who are covered under Section
2 read with the explanation, appended thereto, by a show cause
notice and after due compliance of principles of natural justice, the
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power vests in the competent authority to pass an order of forfeiture
of the property in exercise of power under Section 7 of the Act 1976.
13. Section 8 clearly postulates that burden of proof, in any
proceedings under this Act, in reference to the notice served under
Section 6 in regard to the illegally acquired properties shall lie on
the person affected and while exercising power under Section 7,
forfeiting the illegally acquired properties in a case where the source
of only a part, being less than onehalf of the income of which such
property is acquired, the acquisition has been subject to proof to
the satisfaction of the competent authority, can be offered an option
to the person affected to pay in lieu of forfeiture, a fine of the value
of such part, as indicated under Section 9 of the Act 1976.
14. The respondents have initiated the proceedings serving show
cause notice under Section 6 of forfeiture of the property which was
taken from illgotten gains to the first appellant firm and its
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partners(Appellant nos. 2 to 5) dated 16 October, 1994. The
competent authority, in the first instance, after taking into
consideration the material on record returned a finding that the
total contribution of the partners in M/s. Platinum Theatre by way
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of capital was Rs.10,20,000/ as could be seen from the
Partnership Deed as well as returns of M/s. Platinum Theatre that
clearly indicates that N.A. Yusuf contributed Rs.5 lakhs. Appellant
no.2 (P.M. Saheeda) and her minor son contributed Rs.5.20 lakhs.
The partners are the joint owners of the property of a firm by virtue
of their capital contribution in terms of Partnership Deed.
15. N.A. Yusuf has not disclosed any source from which he got
capital contribution of Rs.5 lakhs. In respect of contribution made
by Appellant no. 2(P.M. Saheeda) and her minor son to the tune of
Rs. 5.20 lakhs in the partnership firm, no explanation was tendered
about the source of funds infused in the partnership firm. The
authorities of the incometax department on assessment were able
to substantiate that neither the source of contribution made by N.A.
Yusuf nor anyone else and the entire sum of Rs.4.57 lakhs was
assessed as income of Appellant no. 2(P.M. Saheeda). From the
other documentary evidence which has come on record, it reveals
that the construction and decoration of the theatre was undertaken
by N.A. Yusuf as a proprietor. A finding was recorded that the
entire capital in M/s. Platinum Theatre in the names of N.A. Yusuf,
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P.M. Saheeda(Appellant no. 2) and her minor children was created
through the illegally earned money by N.A. Yusuf through his
smuggling activities. It was supported by incometax returns for
the assessment year 197576. Appellant no. 2(P.M. Saheeda) which
claimed that the land was purchased by her for Rs.33,000/ in the
year 1969 from her own funds generated through wedding gifts in
support of which no proofs was produced, and with land, the value
of the theatre would work out to be Rs.25.12 lakhs. The appellants
failed to justify that the loan of Rs. 12 lakhs from Vijaya Bank was
ever invested in the subject theatre. There was no document placed
on record which could justify that Rs.12 lakhs was invested in the
construction of theatre. According to the finding recorded by the
competent authority, more than 50% of the value assessed(i.e. Rs.
13.12 lakhs) of the theatre has remained unexplained and
accordingly the theatre was liable for forfeiture under Section 7 of
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the Act, 1976, free from all encumbrances, under Order dated 31
December, 1997. On appeal being preferred, the finding stood
th
affirmed by order dated 7 September, 1999.
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16. Against the said order, a writ petition was filed before the High
Court under Article 226 of the Constitution. The learned Single
Judge of the High Court revisited the factual matrix on record and
returned a finding that no documentary evidence was placed by
either of the appellants, during the proceedings initiated by the
competent authority, who are under an obligation to prove in terms
of Section 8 of the Act 1976. From the evidence which came on
record, it could be gathered that out of the investment made by the
partners(Appellant nos. 2 to 5) to the tune of Rs.10.20 lakhs, N.A.
Yusuf contributed Rs.5 lakhs and Appellant no.2(P.M. Saheeda) and
her children have contributed to the tune of Rs.5.2 lakhs each but
neither N.A. Yusuf has justified any source from where his capital
contribution was made nor the explanation was tendered by
Appellant nos. 2 to 5 regarding their source of income and it was
disbelieved at all stages and a finding was returned that major part
of the investment has been treated as income from undisclosed
sources. That apart, no evidence was placed by Appellant no.
2(P.M. Saheeda) on record to justify that the land in question was
purchased from the resources available at her command in the year
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th
1969, through the sale deed dated 16 April, 1969. In the given
circumstances, the appellants are not entitled to seek protection of
Section 9 of the Act 1976.
17. That apart, as regards the submissions made by the counsel
for the appellants to impose fine in lieu of forfeiture, as
contemplated under Section 9 of the Act 1976, after noticing the
argument advanced by the appellants before the High Court, a
categorical finding has been recorded as to why the appellants are
not entitled to seek protection of Section 9 of the Act 1976, which is
as follows:
“The argument of petitioners’ counsel is, major contribution
is from the petitioners and that the land in question was acquired
in the year 1969 prior to the entering into a partnership agreement
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out of the borrowings of 2 petitioner Saheeda and that land in
question ought not have been taken into consideration to forfeit
the same, and as such, the Competent Authority and the Appellate
Tribunal ought to have taken note of the same into consideration
only to impose fine and not to forfeit the property and also the land
in question should be available to the petitioners and it should not
be the subject matter of forfeiture.
In this regard, it appears the Competent Authority as well as
the Appellate Tribunal having noted the transaction and also
nd
having noted that there is no explanation offered by the 2
petitioner properly regarding acquisition of the land in question for
Rs.33,000/ in the year 1969, and also having doubted the
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unsigned agreement between the 2 petitioner and N.A. Yusuf,
and in the absence of any such proper explanation as to source of
acquisition, held that major investment remain unexplained and
nd
also disbelieved the version of the 2 petitioner on the ground that
the proof of gift from her marriage has not been produced. Thus,
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according to the Competent Authority as well as the Appellate
Tribunal, even if the value of the land is taken only at Rs.33,000/,
the total value of the land and building will work out at
Rs.25,20,000/ and as such, it was of the view that major part of
the investment remained unexplained. Even the accounts are not
maintained in respect of the cost of construction of the building
and all other various installations made.”
18. Taking into consideration the submissions made, we find no
error being committed in the finding returned by the High Court
which may call for our interference.
19. Even before this Court, there is no material that has been
placed by Appellant no.2 (P.M. Saheeda) in rebuttal which may even
prima facie justify the sources of fund available at her command for
acquisition of the land in question to the tune of Rs.33,000/ in the
year 1969. In the absence of proper explanation as to the source of
acquisition and as majority of investment remains unexplained, the
authority disbelieved the version of Appellant no. 2(P.M. Saheeda)
as no proof was placed on record of gifts from her marriage. That
apart, if the value of the land is taken only of Rs.33,000/, the total
value of the land and building work out at Rs.25,20,000/, and as
such, the major part of the investment still remains unexplained.
Even the accounts were not maintained in respect of the cost of
construction of the building, in absence whereof, the authority has
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not committed any manifest error in forfeiting the property in
exercise of power under Section 7 of Act 1976.
20. Suffice it to say that the proceedings were initiated in
reference to the appellants, in the first instance, pursuant to show
th
cause notice dated 13 January, 1977 and the competent authority
rd
passed an Order of forfeiture on 23 November, 1977. Later that
came to be set aside in the year 1991 and fresh forfeiture
proceedings were initiated pursuant to show cause notice under
th
Section 6 of the Act dated 16 October, 1994 which finally
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culminated into passing of order of the competent authority on 31
December, 1997 and on dismissal of appeal, the writ petition was
preferred at the instance of the appellants and the matter reached
to this stage. Thus, in the given facts and circumstances, the very
plea of so called alleged gross delay in initiating the proceedings for
forfeiture of the property is misconceived and deserves an outright
rejection.
21. Consequently, the appeal is without substance and
accordingly dismissed. No costs.
22. Pending application(s), if any, shall stand disposed of.
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..…….………………….J.
(AJAY RASTOGI)
………………………….J.
(BELA M. TRIVEDI)
NEW DELHI;
MARCH 22, 2023.
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