Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1053 OF 2003
Aslam Mohd. Merchant …Appellant
Versus
Competent Authority & Ors. …Respondent
WITH
CRIMINAL APPEAL NO. 1054 OF 2003
WITH
CRIMINAL APPEAL NO. 1055 OF 2003
WITH
CRIMINAL APPEAL NO. 1056 OF 2003
WITH
CRIMINAL APPEAL NO. 1057 OF 2003
J U D G M E N T
S.B. SINHA, J :
INTRODUCTION
1. Interpretation and application of Chapter VA of the Narcotic
Drugs and Psychotropic Substances Act, 1985 (for short, “the Act”)
providing for forfeiture of property derived from or used in illicit traffic,
2
is in question in this batch of appeals which arise out of a judgment and
order dated 27.11.2002 passed by the High Court of Bombay in Criminal
Writ Petition No. 1095 of 2002.
OVERVIEW
2. One Iqbal Mohammed Memon alias Iqbal Mirchi (“Mirchi”, for
short) is related to the appellants. aPPELLANT No. 2 is his first wife,
Appellant No.3 is second wife, Appellant No. 4, Abdul Kadar Mohd.
Merchant, is one of his brothers, Appellant No. 5, Shir Firoz Mohd.
Memen, is his second brother whereas Petitioner No. 6, Aslam Mohd.
Merchant, is his third brother. Appellant No.7, Nazma Aslam Merchant,
is his brother’s wife, Appellant No.8, Zaibunnisa Memon, is his sister
and Appellant No. 9, Arij Mohd. Merchant, is the brother-in-law of the
said Iqbal Mohammed Memon.
An order of preventive detention was passed against him for his
alleged involvement in illicit trafficking under the Prevention of Illicit
Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 (for
short the “PITNDPS”) on or about 29.9.1994. The same, however, could
not be served on him as he had left India.
3
A pre execution writ petition filed on his behalf was dismissed.
The said order of detention is still operative.
3. The said Iqbal Mirchi is, thus, a ‘person’ within the meaning of
Section 68A(C) of the Act. Appellants being his relatives in terms of
Section 68H of the Act were issued with notices directing them to show
cause as to why the properties mentioned therein should not be forfeited
being ‘illegally acquired properties’. Causes were shown pursuant
thereto. Opportunities of hearing were also afforded. Whereas some of
the properties belonging to the appellants were directed to be forfeited,
some were released.
The Appellate Tribunal on appeals having been preferred
thereagainst by the appellants by a common order dated 26.7.2002
affirmed the said findings. Some more properties, however, were
directed to be released opining that they did not come within the purview
of the defeinition of ‘illegally acquired properties’.
4. Writ Petitions preferred thereagainst by the appellants have been
dismissed by the High Court by reason of the impugned judgment,
holding that the proceedings were validly initiated against them.
4
CONTENTIONS
5. Whereas, on one hand, the submissions of the learned counsel
appearing on behalf of the appellants is that the conditions precedent for
initiating a valid proceeding, namely, formation of ‘reason to believe’ on
the part of the authority wherefor reasons are required to be recorded in
writing had not been fulfilled, the submission of Mr. B.B. Singh, the
learned counsel appearing on behalf of the respondent on the other hand,
is that a notice containing general allegations would meet the
requirements of law. According to the learned counsel, once the
noticees were informed that they were relatives of the ‘person’ referred to
in Section 68A and valuable properties stand in their name, which were
acquired beyond their known source of income, it will be for them to
satisfy the authority that acquisition of the property by them has nothing
to do with the purported income derived by ‘Mirchi’ out of illicit
trafficking of narcotic, drug and psychotropic substances.
On behalf of the appellants, it was furthermore urged:
(i) Even a perusal of from the order passed by the competent
authority, it would appear that one of the properties had been purchased
by one of the appellants herein much prior to her marriage to ‘Mirchi’
5
and as such the question of such a property having been acquired out of
the “illegally acquired property” does not and cannot arise.
(ii) Appellants having filed their income tax returns and wealth
tax returns wherein the properties were shown to have been purchased
from their own income, the impugned order is wholly unsustainable.
Although orders of assessment passed by an authority under the said Act
having regard to the provisions contained in Section 68W thereof may
not be conclusive, but, the same carry a presumption of correctness and
thus were required to be treated as evidence.
(iii) The competent authority, on the basis of the purported
investigation report or otherwise, was required to show that the
properties in question were in fact purchased from the tainted money and
it was not for the appellants to prove contra.
(iv) As the only relevant consideration for passing an order in
terms of Section 68H of the Act is that the property had been acquired
from the tainted income, it is sufficient for the noticee to show that the
said allegations were not correct.
(v) The competent authority was required to keep distinction
between his function and the one under the Income Tax Act and the
Wealth Tax Act in mind; his jurisdiction being limited, that is, whether
6
the properties were illegally acquired properties or not, wherefor he
could not have gone further and hold that only because the noticees had
not been able to trace the source of their income, the properties were to
be treated to be illegally acquired property, which may be only a relevant
factor but would not necessarily lead to the said conclusion.
THE ACT
6. The Act was enacted to consolidate and amend the law relating to
narcotic drugs, to make stringent provisions for the control and
regulation of operation relating to narcotic drugs and psychotropic
substances, to provide for the forfeiture of property derived from, or used
in, illicit traffic in narcotic drug and psychotropic substances, to
implement the provisions of the International Convention on Narcotic
Drugs and Psychotropic Substances and for matters connected therewith.
7. Chapter VA was inserted in the Act by Act No. 2 of 1989. It
appears that the said amendment was carried out having regard to the
International Convention as referred to in Section 2(ix) of the Act, which
read as under:-
“2. Definitions. – In this Act, unless the context
otherwise requires, -
7
(i) *
*
*
(ix) “International Convention” means -
(a) the Single Convention on Narcotic Drugs, 1961
adopted by the United Nations Conference at
New York in March, 1961;
(b) the protocol, amending the Convention
mentioned in sub-clause (a), adopted by the
United Nations Conference at Geneva in March,
1972;
(c) the Convention on Psychotropic Substances,
1971 adopted by the United Nations Conference
at Vienna in February, 1971 ; and
(d) any other international convention, or protocol
or other instrument amending an international
convention, relating to narcotic drugs or
psychotropic substances which may be ratified
or acceded to by India after the commencement
of this Act.”
8. Section 68A of the Act applies to persons specified in sub-section
(2) thereof which would, inter alia, include every person in respect of
whom an order of detention has been made under the PITNDPS.
9. It also applies to persons who are relatives of a person inter alia
against whom an order of detention has been issued or his associate(s).
8
Section 68B is the interpretation section.
We may notice some of the provisions contained therein.
“Section 68B. Definitions – In this Chapter, unless the
context otherwise requires –
(b) "Associate" in relation to a person whose property
is liable to be forfeited under this Chapter, means, -
(i) Any individual who had been or is residing in the
residential premises (including out houses) 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, of which such
person had been or is a member, partner or director;
(vi) The trustee of any trust, where, -
(1) The trust has been created by such person;
or
(2) The, value of the asset contributed by such
person (including the value of the assets, if
any, contributed by him earlier) to the trust
amounts on the date on which contribution is
made, to not less than twenty per cent of the
value of the assets of the trust on that date,
9
(g) "Illegally acquired property" in relation to any
person to whom this Chapter applies, means, -
(i) Any property acquired by such person,
whether before or after the commencement of
this Chapter, wholly or partly out or by means of
any income, earnings or assets derived or
obtained from or attributable to the contravention
of any provisions of this Act; or
(ii) Any property acquired by such person,
whether before or after the commencement of
this Chapter, for a consideration, or by any
means wholly or partly traceable to any property
referred to in sub-clause (i) or the income or
earning from such property,
And includes, -
(A) Any property held by such person which
would have been, in relation to any previous
holder thereof, illegally acquired property under
this clause if such previous holder had not ceased
to hold it, unless such person or any other person
who held the property at any time after such
previous holder or, where there are two or more
such previous holders, the last of such previous
holders is or was a transferee in good faith for
adequate consideration;
(B) Any property acquired by such person,
whether before or after the commencement of
this Chapter, for a consideration or by any
means, wholly or partly traceable to any property
falling under item (A), or the income or earnings
therefore;
(h) "Property" means property and assets of every
description, whether corporeal or incorporeal, movable
or immovable, tangible or intangible and deeds and
instruments, evidencing title to, or interest in, such
property or assets derived from, or used in, the illicit
traffic,
10
(i) "Relative" means, -
(1) Spouse of the person;
(2) Brother or sister of the person;
(3) Brother or sister of the spouse of the person;
(4) Any lineal ascendant or descendant of the
person;
(5) Any lineal ascendant or descendant of the
spouse of the person;
(6) Spouse of a person referred to in sub-clause
(2) or sub-clause (3), sub-clause (4) or sub-clause
(5);
(7) Any lineal descendant of a person referred to
in sub-clause (2) or sub-clause (3);
(j) "Tracing" means determining the nature, source,
disposition, movement, title or ownership of property;
Section 68(C) provides for prohibition in respect of holding
illegally acquired property in the following terms:-
“ 68C. Prohibition of holding illegally acquired
property - (1) As from the commencement of this
Chapter, it shall not be lawful for any person to whom
this Chapter applies to hold any illegally acquired
property either by himself or through any other person
on his behalf.
(2) Where any person holds any illegally acquired
property in contravention of the provisions of sub-
section (1) such, property shall be liable to be
11
forfeited to the Central Government in accordance
with the provisions of this Chapter:
Provided that no property shall be forfeited under this
Chapter if such property was acquired, by a person to
whom this Act applies, before a period of six years
from the date he was arrested or against whom a
warrant or authorisation of arrest has been issued for
the commission of an offence punishable under this
Act or from the date the order or detention was issued,
as the case may be.”
Section 68E provides as to how illegally acquired property shall be
identified, stating:
“68E. Identifying illegally acquired property - (1)
Every officer empowered under section 53 and
every officer-in-charge of a police station shall, on
receipt of information is satisfied that any person to
whom this Chapter applies holds any illegally
acquired property, he may, after recording reasons
for doing so, proceed to take all steps necessary for
tracing and identifying such property.
(2) The steps referred to in sub-section (1) may
include any inquiry' investigation or survey in
respect of any person, place, property, assets,
documents, books of account in any Bank or public
financial institution or any other relevant matters.
(3) Any inquiry, investigation or survey referred to
in sub-section (2) shall be carried out by an officer
mentioned in sub-section (1) in accordance with
such directions or guidelines as the competent
authority may make or issue in this behalf.”
12
Section 68F provides for seizure or freezing of illegally acquired
property in the following terms:-
“ 68F. Seizure or freezing of illegally acquired
property - (1) Where any officer conducting an
inquiry or investigation under Section 68E has
reason to believe that any property in relation to
which such inquiry or investigation is being
conducted is an illegally acquired property and
such property is likely to be concealed, transferred
or dealt with in any manner which will result in
frustrating any proceeding relating to forfeiture of
such property under this Chapter, he may make an
order for seizing such property and where it is not
practicable to seize such property, he may make an
order that such property shall not be transferred or
otherwise dealt with, except with the prior
permission of the officer making such order, or of
the competent authority and a copy of such order
shall be served on the person concerned.”
The procedure in relation to forfeiture of property is contained in
Sections 68H and 68I thereof in the following terms:-
“68H. Notice of forfeiture of property - (1) If,
having regard to the value of the properties held by
any person to whom this Chapter 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 a report from any officer making an
investigation under Season 68-E 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
13
affected) calling upon him within a period of thirty
days specified in the notice to indicate the sources of
his income, earning 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 Chapter.
(2) Where a notice under sub-section (1) to any
person specifies any property as being held on
behalf of such person by any other person, a copy of
the notice shall be served upon such other person:
Provided that no notice for forfeiture shall be served
upon any person referred to in clause (cc) of sub-
section 68 A or relative of a person referred to in
that clause or associate of a person referred to in that
clause or holder of any property which was at any
time previously held by a person referred to in that
clause.
68I. Forfeiture of property in certain cases - (1)
The competent authority may, after considering the
explanation, to the show cause notice issued, under
Section 68-H and the materials available before it
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:
14
Provided that if the person affected (and in a case
where the person affected holds any property
specified in the notice through any other person
such other person also) does not appear before the
competent authority or represent his case before it
within a period of thirty days specified in the show-
cause notice, the competent authority may proceed
to record finding under this sub-section ex parte on
the basis of evidence available before it.
(2) Where the competent authority is satisfied that
some of the properties referred to in show cause
notice are illegally acquired properties but is not
bale 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 sub-section (2).
(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
Chapter, stand forfeited to the Central Government
free from all encumbrances.
Provided that no illegally acquired property of any
person who is referred to in clause (cc) of sub-
section (2) of section 68A or relative of a person
referred to in that clause or associate of a person
referred to in that clause or holder of any property
which was at any time previously held by a person
referred to in that clause shall stand forfeited.
(4) Where any shares in a company stand forfeited
to the Central Government under this Chapter, then,
the company shall, notwithstanding anything
contained in the Companies Act, 1956 or the articles
of association of the company, forthwith register the
Central Government as the transferee of such
shares.”
15
Section 68J provides for burden of proof as;
“68J. Burden of proof - In any proceedings under
this Chapter, the burden of proving that any property
specified in the notice served under Section 68-H is
not illegally acquired property shall be on the person
affected.”
Section 68W provides:-
68W. Findings under other laws not conclusive
for proceedings under this Chapter – No finding
of any officer or authority under any other law shall
be conclusive for the purposes of any proceedings
under this Chapter.
THE PROCEEDINGS
10. The Show Cause Notice was issued on 17.12.1999. It detailed as
many as forty items of properties. In their reply to show cause notice,
noticees-appellants contended that they were concerned only with 11
properties which was accepted. Proceedings in respect of the unrelated
16
properties were dropped and, thus, continued in respect of the said 11
properties stating:-
“27. After the replies to the Show Cause Notice
were received from the affected person it was
found that many of the properties were disclaimed
by them. This necessitated further verification and
enquiries were conducted and it was found that
most of the properties are under
ownership/possession of different persons who are
not noticees. The affected person have disclaimed
the properties mentioned at Sl. Nos. 6, 7, 13, 14,
15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27
and 38. It was further informed that the properties
at Sl. No. 36 i.e., (i) Rabia Mansion (ii) Mariam
Lodge and (iii) Sea View are owned by “Sir
Mohammed Yusuf Trust”. It was further stated
that the properties at sr. nos. 3 and 33 are not
owned by them but are tenanted properties. After
preliminary inquiries conducted by office it was
felt that in these cases provisions of Section 68-H
(2) / 68-L of the NDPS Act need to be complied
with and therefore, in the interest of justice it has
been decided to take up those cases separately.
This order, therefore, is confined only to the
properties which have been claimed by the
affected persons, i.e., properties at Sl. Nos. 1, 2, 4,
5, 8, 9, 10, 11, 12, 28, 29, 30, 31, 32, 34, 35, 37
and 39.”
The material part of the said show cause notice is contained in
paragraphs 15 and 16 thereof which read as under:-
“15. Whereas AP1 had been absconding since the
issue of the detention order and is reportedly living
in England with AP3. Exhaustive investigations
17
into the properties of the AP1 by various
enforcement agencies including the Anti-Narcotic
Cell, C.B. C.I.D. /C.B.I. Mumbai had resulted in
issue of freezing orders in respect of 11 properties
in the name of AP1 & AP3 and 5 others. These
freezing orders were confirmed by the then
Competent Authority, SAFEMA/NDPS, Mumbai.
The Aps filed detailed and voluminous
submissions before the Competent Authority
which included Income-tax and Wealth-tax returns
and other relevant documents. On the basis of
these submissions, the then Competent Authority
released 7 properties and forfeited the remaining 4
to the Central Government free from all
encumbrances. It is pertinent to note that the 4
properties which were finally forfeited were in the
name of AP3 with one property jointly held with
AP1. The Aps could not prove the legality of the
sources by which these properties were acquired
by them. The property in question now are jointly
held by AP1 to AP11 in similar manner. These
properties have never found any mention in the
submissions made by the APs nor they were
declared by the Aps in the proceedings under
Chapter V A of the NDPS Act considered by the
then Competent Authority nor it was disclosed to
any enforcement agencies in any manner.
16. Whereas considering the above and the
background of AP1 and his involvement in drug
smuggling & in drug trafficking on a massive scale
and also the fact that AP2 to AP11 have no source
of legal income of their own by means of which
they could have acquired such huge and valuable
properties mentioned hereinbefore, I have reason
to believe that the said properties and assets as
mentioned in para 14 have been acquired from the
illegal income or source generate or earned by AP1
through or out of drug trafficking and have to be
considered as illegally acquired property as
defined under sub-section (g) of section 68B of the
NDPS Act.”
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11. From a perusal of the said notice to show cause, it is evident that
admittedly another proceeding had been initiated against them.
12. Four properties were directed to be forfeited; seven were released.
13. The second proceedings with which we are concerned herein
continued in respect of the 11 properties. Indisputably again in the
earlier proceedings, income tax returns had been brought on records.
14. The relevant provisions of the Smugglers and Foreign Exchange
Manipulators (Forfeiture of Property) Act, 1976 (for short “SAFEMA”)
and Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS) are
in pari materia.
15. Contentions were raised that the show cause notice shows
complete non-application of mind on the part of the competent authority,
as ;
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(i) 28 unconnected properties including the property of Late
Fatima Amin which formed part of the separate proceeding had
been included.
(ii) The properties mentioned therein had never been mentioned by
the appellants in the previous proceedings, although they did
not form part thereof.
ISSUE
16. The core question which, therefore, arises for consideration is
what are the statutory requirements for initiating a valid proceeding.
INTERPRETATION
17. Chapter VA contains stringent provisions. It provides for
forfeiture of property. Such property, however, as the heading of the
Chapter shows, must be derived from or used in illicit traffic. Illegally
acquired property in relation to any person to whom the chapter applies
would mean only such property which was acquired wholly or partly out
of or by means of any income attributable to the contravention of any
20
provision of the Act or for a consideration wholly or partly traceable to
any property referred to in sub-clause (i) or the income or earning from
property.
18. It is, therefore, evident that the property which is sought to be
forfeited must be the one which has a direct nexus with the income etc.
derived by way of contravention of any of the provisions of the Act or
any property acquired therefrom. What is meant by identification of
such property having regard to the definition of ‘identifying’ is, that the
property was derived from or used in the illicit traffic.
19. The property having regard to the said definition would include
any of the properties described therein and deeds of instruments
evidencing interest therein derived from or used in the illicit traffic.
In the aforementioned context, the word “person” also assumes
importance which leads to determining the nature, source, disposition,
movement, title or ownership of the property. Direction to forfeiture of
a property is in two parts. Firstly, it has to be identified in terms of
Section 68-F of the Act. For the said purpose, a satisfaction must be
arrived at by the authority specified therein to the effect that the person
concerned had been holding any illegally acquired property. Secondly,
21
on the basis of such information, he is entitled to take steps for tracing
and identifying the property.
The Authority is also entitled to seize or freeze such a property.
20. Before, however, the actual order of forfeiture of such illegally
acquired property is passed, issuance of a notice to show cause is
essential so as to fulfill the requirements of natural justice.
Such a notice is to be issued by the Authority having regard to:
(i) The value of the property held by the person concerned,
(ii) His known source of income, earning or assets,
(iii) Any other information or material made available as a result of
a report from any officer making an investigation under Section
68-E of the Act or otherwise.
21. When the aforementioned conditions are satisfied, the competent
authority would be entitled to issue a show cause notice, if he has reason
to believe, wherefore reasons are to be recorded in writing that the
properties are illegally acquired properties.
22
22. Once the notice to show cause is found to be satisfying the
statutory requirements which are condition precedent therefor, a valid
proceeding can be said to have been initiated for forfeiture of the
property. Only in a case where a valid proceeding has been initiated, the
burden of proof that any property specified in the notice is not illegally
acquired property, would be on the ‘person’ affected.
23. Before, however, an order of forfeiture can be passed, the
Competent Authority must not only comply with the principles of natural
justice, he is also required to apply his mind on the materials brought
before him. It is also necessary that a finding that all or any of the
properties in question were illegally acquired properties is recorded
24. The competent authority has a vast power as is provided under
Section 68-R of the Act. He is not bound by any finding of any officer or
authority under any other law as the same would not be conclusive for
the purpose of any proceeding under the said chapter.
Analysis of the aforementioned provisions clearly establish that a
link must be found between the property sought to be forfeited and the
income or assets or properties which were illegally acquired by the
person concerned.
23
25. We may, however, at this juncture also notice that during the
course of the proceedings, the learned advocate of the appellants by a
letter dated 19.2.2000 requested the competent authority to supply the
reasons for issuing the notice. In response thereto, the prescribed
authority by a letter dated 23.2.2000, stated that the reasons had been
incorporated in the respective show cause notices. Evidently, therefore,
no other reason was available for being supplied.
26. We may also notice some observations made in the proceeding
sheet of the Competent Authority dated 29.12.2000 which is in the
following terms :-
“On going through the certificate in respect of
SP/Satara it may be seen that they have simply
informed details of the ownership in re present and
past only. Nowhere they have mentioned in clear
words whether nexus between the present holder
and sh. Iqbal mirchi is there nor are properties
claimed by sh. Iqbal mirchi and his family members
mentioned in Show Cause Notice dated 17/11. as
per (illegible) association/ nexus of present holder
of properties between iqbal mirchi can’t be
established as still they are silent on the issue.
However, the matter shall be decided on merits by
C.A. during the course of proceedings. Put up for
instructions.”
24
It shows that till the said date, no material had been brought on
record to show that any nexus or a link between the properties sought to
be forfeited and thus in case of ‘Mirchi’ it was merely a perception of the
competent authority alone.
27. We are unable to accept the contention of Mr. Raju Ramchandran,
the learned senior counsel appearing for the appellants that only because
a large number of properties had been mentioned in the show cause
notice, the same by itself is demonstration of complete non-application of
mind on the part of the competent authority. Identification of such a
property although might have been made in an inquiry made by the
officer in-charge of a Police Station; however, when the proceeding was
initiated, the question as to whether such properties were illegally
acquired properties or not, was required to be ultimately determined by
the competent authority alone.
28. It is, however, beyond any doubt or dispute that a proper
application of mind on the part of the competent authority is imperative
before a show cause notice is issued.
Section 68-H of the Act provides for two statutory requirements on
the part of the authority viz: (i) he has to form an opinion in regard to his
‘reason to believe’; and (ii) he must record reasons therefor.
25
Both the statutory elements, namely, ‘reason to believe’ and
‘recording of reasons’ must be premised on the materials produced
before him. Such materials must have been gathered during the
investigation carried out in terms of Section 68-E or otherwise.
Indisputably therefore, he must have some materials before him. If no
such material had been placed before him, he cannot initiate a
proceeding. He cannot issue a show cause notice on his own ipse dixit .
A roving enquiry is not contemplated under the said Act as properties
sought to be forfeited must have a direct nexus with the properties
illegally acquired.
29. It is now a trite law that whenever a statute provides for ‘reason to
believe’, either the reasons should appear on the face of the notice or
they must be available on the materials which had been placed before
him.
We have noticed hereinbefore that when the authority was called
upon to disclose the reasons, it was stated that all the reasons were
contained in the show cause notices themselves. They, however, in our
opinion, do not contain any reason so as to satisfy the requirements of
sub-section (1) of Section 68H of the Act.
26
A Constitution Bench of this Court in Attorney General for India
and Others Vs Amratlal Prajivandas and Others [(1994) 5 SCC 54 while
considering the validity of the provisions of the Smugglers and Foreign
Exchange Manipulators (Forfeiture of Property) Act, 1976, opined:
“44…The relatives and associates are brought in
only for the purpose of ensuring that the illegally
acquired properties of the convict or detenu,
acquired or kept in their names, do not escape the
net of the Act. It is a well-known fact that persons
indulging in illegal activities screen the properties
acquired from such illegal activity in the names of
their relatives and associates. Sometimes they
transfer such properties to them, may be, with an
intent to transfer the ownership and title. In fact, it
is immaterial how such relative or associate holds
the properties of convict/detenu – whether as a
benami or as a mere name-lender or as a bona fide
transferee for value or in any other manner. He
cannot claim those properties and must surrender
them to the State under the Act. Since he is a
relative or associate, as defined by the Act, he
cannot put forward any defence once it is proved
that that property was acquired by the detenu –
whether in his own name or in the name of his
relatives and associates…”
Holding that such provisions had been enacted to counteract
several devices that may be adopted by the persons concerned, it was
stated:-
“By way of illustration, take a case where a
convict/detenu purchases a property in the name of
27
his relative or associate – it does not matter whether
he intends such a person to be a mere name lender or
whether he really intends that such person shall be
the real owner and/or possessor thereof – or gifts
away or otherwise transfers his properties in favour
of any of his relatives or associates, or purports to
sell them to any of his relatives or associates – in all
such cases, all the said transactions will be ignored
and the properties forfeited unless the
convict/detenu or his relative/associate, as the case
may be, establishes that such property or properties
are not “illegally acquired properties” within the
meaning of Section 3(c). In this view of the matter,
there is no basis for the apprehension that the
independently acquired properties of such relatives
and associates will also be forfeited even if they are
in no way connected with the convict/detenu. So
far as the holders (not being relatives and associates)
mentioned in Section 2(2)(e) are concerned, they are
dealt with on a separate footing. If such person
proves that he is a transferee in good faith for
consideration, his property – even though purchased
from a convict/detenu – is not liable to be forfeited.
It is equally necessary to reiterate that the burden of
establishing that the properties mentioned in the
show-cause notice issued under Section 6, and
which are held on that date by a relative or an
associate of the convict/detenu, are not the illegally
acquired properties of the convict/detenu, lies upon
such relative/associate. He must establish that the
said property has not been acquired with the monies
or assets provided by the detenu/convict or that they
in fact did not or do not belong to such
detenu/convict.”
The relevant portion of the summary of the said judgment
reads as under:-
28
“(4) The definition of “illegally acquired
properties” in clause (c) of Section 3 of
SAFEMA is not invalid or ineffective.
(5)The application of SAFEMA to the relatives
and associates [in clauses (c) and (d) of Section
2(2)] is equally valid and effective inasmuch as
the purpose and object of bringing such persons
within the net of SAFEMA is to reach the
properties of the detenu or convict, as the case
may be, wherever they are, howsoever they are
held and by whomsoever they are held. They
are not conceived with a view to forfeit the
independent properties of such relatives and
associates as explained in this judgment. The
position of ‘holders’ dealt with by clause (e) of
Section 2(2) is different as explained in the
body of the judgment.”
30. A similar question again came up before a Three Judges’ Bench of
this Court in Fatima Mohd. Amin (Smt.) (Dead) Through LRs. Vs. Union
of India and Another [(2003) 7 SCC 436], wherein relying upon Amratlal
Prajivandas (supra), it was held;
“7. ……We do not find any averments to the effect
that the property acquired by the appellant is a benami
property of her son or the same was illegally acquired
from her son.
8. The contents of the said notices, even if taken at
their face value do not disclose any reason warranting
action against the appellant. No allegation whatsoever
has been made to this effect that there exists any link
or nexus between the property sought to be forfeited
and the illegally acquired money of the detenu(s).
9. As the condition precedent for initiation of the
proceedings under SAFEMA did not exist, the
29
impugned orders of forfeiture cannot be sustained. In
that view of the matter, the appeals deserve to be
allowed. The order under challenge is set aside.”
31. Our attention, however, has been drawn to a decision of a two
Judge Bench of this Court in Kesar Devi (Smt.) Vs. Union of India and
Others [(2003) 7 SCC 427] wherein Fatima Mohd. Amin (supra) was
distinguished by a Bench of this Court, inter alia, opining that no nexus
or link between the money of the debt and property sought to be forfeited
is required to be established under the Scheme of the Act, stating;
“ 10 …The condition precedent for issuing a notice
by the competent authority under Section 6(1) is
that he should have reason to believe that all or
any of such properties are illegally acquired
properties and the reasons for such belief have to
be recorded in writing. The language of the section
does not show that there is any requirement of
mentioning any link or nexus between the convict
or detenu and the property ostensibly standing in
the name of the person to whom the notice has
been issued…
“13. We are, therefore, clearly of the opinion that
under the scheme of the Act, there is no
requirement on the part of the competent authority
to mention or establish any nexus or link between
the money of the convict or detenu and the
property sought to be forfeited. In fact, if such a
condition is imposed, the very purpose of enacting
SAFEMA would be frustrated, as in many cases it
would be almost impossible to show that the
property was purchased or acquired from the
money provided by the convict or detenu. In the
present case, the appellant is the wife of the detenu
and she has failed to establish that she had any
income of her own to acquire the three properties.
In such circumstances, no other inference was
30
possible except that it was done so with the money
provided by her husband.”
32. We, with utmost respect to the learned Judges express our inability
to agree to the said observations. The necessity of establishing link or
nexus in our opinion is writ large on the face of the statutory provision as
would appear from the definition of ‘illegally acquired property’ as also
that of ‘property’. The purport and object for which the Act was enacted
point out to the same effect.
33. Fatima Mohd. Amin (supra) was followed by a Bench of this
Court in P.P. Abdulla Vs. Competent Authority [(2007) 2 SCC 510],
wherein it was observed :
“7. Learned counsel submitted that it has been
expressly stated in Section 6(1) that the reason to
believe of the competent authority must be recorded
in writing . In the counter-affidavit it has also been
stated in para 8 that the reasons in the notice under
Section 6(1) were recorded in writing. In our opinion
this is not sufficient. Whenever the statute requires
reasons to be recorded in writing, then in our opinion
it is incumbent on the respondents to produce the said
reasons before the court so that the same can be
scrutinised in order to verify whether they are relevant
and germane or not. This can be done either by
annexing the copy of the reasons along with the
counter-affidavit or by quoting the reasons
somewhere in the counter-affidavit. Alternatively, if
the notice itself contains the reason of belief, that
notice can be annexed to the counter-affidavit or
quoted in it. However, all that has not been done in
this case.
31
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.”
It was also observed:-
“10. In the present case, in the notice dated 15-3-1988
issued to the appellant under Section 6(1) of the Act
(copy of which is annexed as Annexure P-1 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.”
34. In the final order, the rule of evidence as envisaged under Section
68-I read with Section 68-J of the Act must be applied. A person
affected would be called upon to discharge his burden provided a link or
nexus is traced between the holder of the property proceeded against and
an illegal activity of the detenu. Such a formation of belief is essential.
35. Mr. B.B. Singh, however, has drawn our attention to a decision of
this Court in State of Gujarat and Another Etc. Vs. Mehboob Khan
Usman Khan Etc. [1968 3 SCR 746].
This Court therein, was considering the provisions of the Bombay
Police Act of 1951. The said statute postulated externment of the noticee
on the basis of ‘general allegations’ made against him Keeping in view
32
the statutory requirements, this Court opined that ‘general allegations’
made in the notice would subserve the statutory requirements stating:-
“…..Without attempting to be exhaustive we may
state that when a person is stated to be a “thief”, that
allegation is vague. Again, when it is said that “A
stole a watch from X on a particular day and at a
particular place”, the allegation can be said to be
particular. Again, when it is stated that “ X is seen at
crowded bus stands and he picks pockets” it is of a
general nature of a material allegation. Under the last
illustration, given above, will come the allegations,
which, according to the Gujarat High Court, suffer
from being too general, or vague. Considering it from
the point of view of the party against whom an order
of externment is proposed to be passed, it must be
emphasized that when he has to tender an explanation
to a notice, under Section 59, he can only give an
explanation, which can be of a general nature. It may
be open to him to take a defence, of the action being
taken, due to mala fides, malice or mistaken identity,
or he may be able to tender proof of his general good
conduct, or alibi, during the period covered by the
notice and the like. The allegations made in the
notices, issued under Section 59, as against the
respective respondents, in our opinion, contain the
general nature of the material allegations made
against each of them, in respect of which the
respondents had been given a reasonable opportunity
of tendering an explanation, regarding them……”
(emphasis supplied)
This Court, therefore, in the fact situation obtaining in the said
case was satisfied as regards compliance of the statutory requirements.
General or vague allegations in a case of this nature would not subserve
the statutory purposes and objects.
36. Reliance has also been placed on Pandharinath Shridhar
Rangnekar Vs. Dy. Commr. of Police, State of Maharashtra [(1973) 1
33
SCC 372]. Therein again the provisions of the Bombay Police Act were
involved.
The said decision ex-facie has no application to the fact of the
present case.
REASON TO BELIEVE
37. This brings us to the next question as to what does the term
“reason to believe” mean. We may in this behalf notice some precedents
operating in the field.
38. In the context of the provisions of Section 147 of the Income Tax
Act, this Court in Phool Chand Bajrang Lal Vs. ITO : [1993] 203 ITR
456] held:-
“From a combined review of the judgments of this
court, it follows that an Income-tax Officer acquires
jurisdiction to reopen an assessment under section
147(a) read with section 148 of the Income-tax Act,
1961, only if on the basis of specific, reliable and
relevant information coming to his possession
subsequently, he has reasons, which he must record,
to believe that, by reason of omission or failure on
the part of the assessee to make a true and full
disclosure of all material facts necessary for his
assessment during the concluded assessment
proceedings, any part of his income, profits or gains
chargeable to income-tax has escaped assessment.
He may start reassessment proceedings either
because some fresh facts had come to light which
were not previously disclosed or some information
34
with regard to the facts previously disclosed comes
into his possession which tends to expose the
untruthfulness of those facts. In such situations, it
is not a case of mere change of opinion or the
drawing of a different inference from the same facts
as were earlier available but acting on fresh
information. Since the belief is that of the Income-
tax Officer, the sufficiency of reasons for forming
this belief is not for the court to judge but it is open
to an assessee to establish that there in fact existed
no belief or that the belief was not at all a bona fide
one or was based on vague, irrelevant and non-
specific information. To that limited extent, the
court may look into the conclusion arrived at by the
Income-tax Officer and examine whether there was
any material available on the record from which the
requisite belief could be formed by the Income-tax
Officer and further whether that material had any
rational connection or a live link for the formation
of the requisite belief.”
See also Income Tax Officer Vs. Lakshmani Mewal Das [(1976)
103 ITR 437].
In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock
Brokers Pvt. Ltd. [2007 (8) SCALE 396], interpreting the term ‘reason to
believe’ as used under Section 247 (a) of the Income Tax Act, 1961, it
was opined :
“To confer jurisdiction under Section 247(a) two
conditions were required to be satisfied firstly the AO
must have reason to believe that income profits or
gains chargeable to income tax have escaped
assessment, and secondly he must also have reason to
believe that such escapement has occurred by reason
35
of either (i) omission or failure on the part of the
assessee to disclose fully or truly all material facts
necessary for his assessment of that year. Both these
conditions were conditions precedent to be satisfied
before the AO could have jurisdiction to issue notice
under Section 148 read with Section 147(a). But
under the substituted Section 147 existence of only
the first condition suffices. In other words, if the
assessing officer for whatever reason has reason to
believe that income has escaped assessment, it confers
jurisdiction to reopen the assessment.”
NON APPLICATION OF MIND
Applying these tests, it is evident that the statutory requirements
have not been fulfilled in the present case.
39. Non- application of mind on the part of the competent officer
would also be evident from the fact that a property named ‘Rose Villa’
which was the subject matter of the decision of this Court in Fatima
Amin (supra), was also included herein.
Once the show cause notice is found to be illegal, the same would
vitiate all subsequent proceedings.
40. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax,
Mumbai and Another [(2007) 6 SCC 329], this Court held:
“86. It is of some significance that in the standard
pro forma used by the assessing officer in issuing a
36
notice despite the fact that the same postulates that
inappropriate words and paragraphs were to be
deleted, but the same had not been done. Thus,
the assessing officer himself was not sure as to
whether he had proceeded on the basis that the
assessee had concealed his income or he had
furnished inaccurate particulars. Even before us,
the learned Additional Solicitor General while
placing the order of assessment laid emphasis that
he had dealt with both the situations. The
impugned order, therefore, suffers from non-
application of mind. It was also bound to comply
with the principles of natural justice. (See
Malabar Industrial Co. Ltd. Vs. CIT) ”
RECORDING OF REASONS
41. Submission of Mr. Singh that the appellants have not been able to
discharge the burden of proof which was on them from the impugned
orders, it would appear that they have utterly failed to prove their own
independent income; they being close relative of the detune as in terms
of the statutory requirements , it was for them to show that they had
sufficient income from those properties.
42. Had the show cause notice been valid, Mr. B.B. Singh, might have
been right, but if the proceedings themselves were not initiated validly,
the competent authority did not derive any jurisdiction to enter into the
merit of the matter.
37
Legality and/or validity of the notice had been questioned at
several stages of the proceedings. Despite their asking, no reason was
disclosed by the authority to the appellants. They had asked for
additional reasons, if any, which were not reflected in the show cause
notices. None was disclosed.
43. It is also relevant to notice that the High Court opined that there
had been a proper application of mind on the part of the Competent
Authority and Appellate Tribunal as they had released some items of
properties. Application of mind on the part of the Competent Authority
and the Appellate Tribunal at the subsequent stage was not in question;
what was in question was non application of mind on the part of the
authority prior to issuance of the notice.
CONCLUSION
44. We are not unmindful of the purport and object of the Act.
Dealing in narcotics is a social evil that must be curtailed or prohibited at
any cost. Chapter VA seeks to achieve a salutary purpose. But, it must
also be borne in mind that right to hold property although no longer a
fundamental right is still a constitutional right. It is a human right.
38
The provisions of the Act must be interpreted in a manner so that
its constitutionality is upheld. The validity of the provisions might have
received constitutional protection, but when stringent laws become
applicable as a result whereof some persons are to be deprived of his/her
right in a property, scrupulous compliance of the statutory requirements
is imperative.
45. For the reasons aforementioned, the impugned judgments cannot
be sustained. They are set aside accordingly. The appeals are allowed.
However, it would be open to the respondents to initiate fresh proceeding
(s) in accordance with law, if they are so advised. In the facts and
circumstances of the case, we make no order as to costs.
………………………….J.
[S.B. Sinha]
..…………………………J.
[V.S. Sirpurkar]
New Delhi;
July 08, 2008