1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 85928593 OF 2010
THE INCOME TAX OFFICER, CIRCLE I (2),
KUMBAKONAM & ANR. …APPELLANTS
VERSUS
V. MOHAN & ANR. …RESPONDENTS
J U D G M E N T
A.M. KHANWILKAR, J.
1. The conundrum in these appeals is: when the Competent
Authority
claims that the subject property (to be forfeited) is that of
the convict (V.P. Selvarajan) and ostensibly held by the relatives of
the convict (respondents herein), whether it is mandatory to serve a
primary notice under Section 6(1) of the 1976 Act upon such
convict with copy thereof to his relatives under Section 6(2) of the
under the Smugglers and Foreign Exchange Manipulators (Forfeiture of
Property) Act, 1976 (for short, “1976 Act”)
2
1976 Act, and nonservice of such primary notice upon the convict
would vitiate the entire proceedings initiated only against his
relatives?
2. The High Court of Judicature at Madras
vide impugned
judgment
held that Section 6 of the 1976 Act leaves no room for
doubt that the primary notice must be served on the convict,
wherein the convict is required to indicate the sources of his
income, earnings or assets, out of which or by means of which he
had acquired the properties sought to be forfeited; and nonservice
of such notice upon the convict would vitiate the action initiated
against his relatives, even if the forfeited properties are ostensibly
held by or in the name of the relatives. The High Court rejected the
argument of the appellants herein (Competent Authority) that only
the person in whose name the property is held is required to be
called upon to offer explanation regarding the sources of his
income, earnings or assets, out of which or by means of which he
had acquired such property including the evidence on which he
for short, “Madras High Court”
in Writ Petition Nos. 1149 & 1150 of 2001 decided on 24.3.2008 reported in
2008 SCC OnLine Mad 244
3
would rely and other relevant information and particulars. If the
property in question is ostensibly held by the relatives in his name
or through any other person on his behalf, the convict or detenu is
not expected to nor can offer any explanation in that regard. The
High Court also rejected the argument of the appellants herein that
no prejudice is likely to be caused to the noticees (respondents
herein) being the relatives of the convict, who had held the forfeited
properties in their name. The High Court opined that the action
against the respondents initiated by the Competent Authority was
vitiated for lack of notice to the convict and it was, thus, pleased to
set aside the entire action initiated against the respondents by the
Competent Authority.
3. A contra view has been taken by at least two other High
Courts. The first is of the High Court of Kerala in Sajitha & Ors.
vs. Competent Authority & Ors.
wherein after analysing the
relevant provisions, it held as follows:
“11. Section 2(c) refers to every person who is a relative
of a person referred to in clause (a) or clause (b). Section
2(e) refers to any holder of any property which was at
2005 SCC OnLine Ker 101
4
any time previously held by a person referred to in
clause (a) or clause (b). When we read Section 6(1) and
6 (2) along with Section 2 (2)(e) it is evident that
notice contemplated under Section 6(2) is to any
other person if the property does not stand in the
name of the detenu. So far as this case is concerned,
property stands in the name of wife and brothers.
Admittedly notices have been issued to them as
contemplated under Section 6(1). We are of the view,
non issue of notice to the detenu will not vitiate the
proceedings as against their relatives.
12. Petitioners also have raised a contention that more
than six years have elapsed and the proceedings have
not been initiated within a reasonable period. No time
limit has been prescribed under the Act. The Apex
Court in Attorney General for India v. Amratlal
Prajivandas has dealt with the scope and ambit of the
Act which requires no reiteration. However we may refer
to the recent decision of the apex court in Kesar Devi v.
Union of India
. The apex court while dealing with
Section 2(2)(c) of the Act has categorically held that
the burden of proving that such property is not
illegally acquired property will be upon the person to
whom notice has been issued. On facts petitioners
could not establish that the properties were legally
acquired. Competent authority and the Tribunal
concurrently found so and this court in writ jurisdiction
will not be justified in a taking a different view in the
absence of any contra evidence. We therefore find no
infirmity in the orders passed by the competent
authority. The writ petition lacks merits and the same
would stand dismissed.”
(emphasis supplied)
(1994) 5 SCC 54 : AIR 1994 SC 2179
(2003) 7 SCC 427
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The second decision is of the Calcutta High Court in The
Competent Authority & Administrator & Anr. vs. Manilal
Jalal & Anr.
. Even in this case, notice was issued only to the wife
of the detenu and not to the detenu. The question was specifically
dealt with by the Calcutta High Court after analysing the relevant
provisions in the following words:
“…..
A bare perusal of Section 2 of the Act would show
that the Act not only applies to the detenu but also
to the relations and/or associates of such detenu.
Nowhere the said provision of law mandates that a
proceeding against a relative of a detenu can be
initiated only if such detenu is proceeded against
under SAFEMA. Such right to proceed against the
relative/associate is independent of any action
taken against the detenu under SAFEMA. It is wholly
fallacious to argue that the detenu must be
proceeded against under SAFEMA as a condition
precedent for any action against a relative of such
detenu. The properties and/or assets which were
sought to be forfeited were standing in the name of
Sarbani Devi Jalan herself and therefore respondent
authorities rightly issued a notice under Section 6 of
the Act upon her as “person affected” for the
purpose of initiating a proceeding of forfeiture of
such property. There is nothing in the law that the
property standing in the name of a relation of a
detenu which is sought to be proceeded against
must require a notice to be issued upon the detenu
2013 SCC OnLine Cal 12911
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also. To infer such a requirement when the same is
not provided in law would amount to rewriting the
statutory provision which is unwarranted. This
submission of the appellants being unfounded must
therefore fail.
…..”
(emphasis supplied)
4. In view of the above, these appeals not only involve question
regarding interpretation of Section 6 read with other provisions of
the 1976 Act, but also call upon us to expound the stated question
authoritatively and resolve the conflicting view taken by different
High Courts.
5. Reverting to the facts of the present case, one V.P. Selvarajan
(convict) — brotherinlaw of respondent No.2 and paternal uncle of
respondent No.1, was convicted for an offence punishable under
the Customs Act, 1962
on 23.11.1969. As a result of his
conviction, he came within the ambit of the expression “person” or
“such person” occurring in the 1976 Act — Section 2 in particular.
Respondents being the relatives of the convict in terms of Section
2(2) read with Explanation 2 also came within the ambit of
for short, “1962 Act”
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expression “person” defined in the 1976 Act to whom the Act
applies.
6. The 1976 Act came into force with effect from 5.11.1975,
pursuant to which the Competent Authority under the Act resorted
to inquiry, investigation or survey under Section 18 of the Act and
on the basis of the information collated had reason to believe that
certain properties are illegally acquired properties having nexus to
the unlawful activities of the convict. As a result, a notice under
Section 6(1) of the 1976 Act was issued to the convict on 2.2.1980.
In the present appeals, we are not concerned with the said notice
or for that matter illegally acquired properties of the convict
referred to therein.
7. The Competent Authority, however, on the basis of
information gathered had reason to believe that some of the
properties were held by the respondents herein by themselves,
which were illegally acquired properties within the meaning of
Section 3(1)(c) of the 1976 Act. Accordingly, notice under Section
6(1) of the 1976 Act dated 19.1.1994 was issued to V. Mohan,
respondent No.1 herein being nephew of the convict, calling upon
8
him to disclose the sources of his income, earnings or assets, out
of which or by means of which he had acquired the properties
referred to in the stated notice by himself. The description of the
properties had been given in the Schedule, which reads thus:
“SCHEDULE
S. No. Description of the Property Name of the
present holder
of property
1 2 3
1. Investment in the firm M/s V.P.V.
Jewellery Mart, Kumbakonam
2. Investment in the Proprietary Concern
M/s V.P.V. Gold Palace Kumbakonam
3. Residential Property in the form of
house being land and building at
No.113, Sarangapani East Street,
Kumbakonam
4. Agricultural Lands 1 Acre & 8 cents at
south pattam, Paganasam Taluk
1 Acre & 75 Cents at Thepperumal
nallur village.”
8. Similarly, a notice dated 28.2.1994 was issued to
Smt. V. Padmavathy, respondent No.2 herein being the relative of
the convict in respect of properties referred to in the said notice
purportedly illegally acquired properties. The Schedule reads thus:
“SCHEDULE
S. No. Description of the Property Name of the
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present holder
of property
1 2 3
1. Residential house which includes land
and building at No.123. Big Street,
Kumbakonam.
V. Padmavathy
2. Agricultural lands at Thepprumalnallur
Village at Kumbakonam as specified
below.
do3. Investment in the firm of M/s V.P.V.
Prema Jewellery, Kumbakonam.
do4. Jewellery disclosed under Voluntary
Disclosure Scheme (i.e.) 518 gms of gold
and 28 ets. of diamond.”
do9. The Competent Authority after giving opportunity to the
respondent(s) eventually passed separate forfeiture order(s) on
30.4.1998 against Smt. V. Padmavathy, respondent No.2 and on
28.5.1998 against V. Mohan, respondent No.1 in exercise of powers
under Section 7(1) of the 1976 Act. It held that an order of
forfeiture of the stated properties had become inevitable as the
respondent(s) had failed to produce any credible evidence or
explanation to discharge the burden of proving that the properties
referred to in the impugned notice were legally acquired properties
by them.
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10. Being aggrieved, the respondents took the matter in appeal
bearing Nos. F.P.A.No.31/MDS/98 (of respondent No.2) and
F.P.A.No.32/MDS/98 (of respondent No.1) before the Appellate
Tribunal for Forfeited Property, New DelhiII, Camp: Bangalore
.
These appeals came to be dismissed by the Appellate Tribunal vide
common order dated 15.11.2000. Resultantly, the order of
forfeiture of subject properties passed by the Competent Authority
was upheld.
11. The respondents then carried the matter before the Madras
High Court by way of Writ Petition No.1149 of 2001 (of respondent
No.1) and Writ Petition No.1150 of 2001 (of respondent No.2). Both
these writ petitions came to be allowed by common judgment and
order dated 24.3.2008 passed by the Division Bench of the Madras
High Court taking the view that the action initiated against the
respondents had vitiated owing to lack of notice to V.P. Selvarajan
(convict), which in its view was mandatory requirement under
Section 6 of the 1976 Act.
for short, “Appellate Tribunal”
11
12. The appellants, being aggrieved by the said decision, have
approached this Court by way of present appeals. According to the
appellants, the view taken by the Madras High Court vide
impugned judgment on the interpretation of Section 6 of the 1976
Act is untenable. Whereas, the issue has been rightly concluded in
favour of the appellants by two other High Courts, namely, High
Court of Kerala and Calcutta High Court.
13. It is urged that notice under Section 6 of the Act is required to
be given to the person to whom the 1976 Act applies in respect of
properties held by him, either by himself or through any other
person on his behalf, being illegally acquired property within the
meaning of the Act and proposed to be forfeited by the Central
Government under the Act. It does not require issuing notice to
the convict or detenu, as the case may be, if the properties are not
held by him or in his name. Indeed, if the properties in question
are held in the name of any other person on his behalf, the notice
is required to be given to such person. To buttress this
submission, reliance has been placed on Section 2 of the Act
providing for application of the Act to the persons specified in
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Section 2(2). The spouse of the brother of the convict as well as the
son of the brother of the convict are plainly covered within the
expression “relative” as clarified in Explanation 2 of Section 2 of the
1976 Act and for which reason, the Act applies to the respondents
as well. Emphasis is placed on the expression “held” occurring in
Section 6 of the 1976 Act in particular which in terms of definition
in P. Ramanatha Aiyar’s The Major Law Lexicon
would cover (i)
those entitled to possession of property; and (ii) those in possession
thereof.
14. It is urged that respondents were admittedly holding the
properties in their name and thus, they were entitled to possession
of such property and in fact they were in physical possession
thereof. Therefore, they alone were expected to offer explanation
and discharge the burden of proving that the properties are their
legally acquired properties. They were, in fact, the persons directly
affected by the proposed action of forfeiture and, hence, notice
under Section 6 was required to be issued to the respondents
alone. There is no mandate in Section 6 that a primary notice be
4
th Edition, Vol. 3 at pages 305051
13
served on the convict to require him to indicate his sources of
income as noted by the Madras High Court. More so, the convict is
not expected to offer explanation with regard to the properties held
by his relatives and not by him.
15. As regards the purport of Section 6(2) of the 1976 Act, it is
urged that the plain and literal interpretation does not mandate
issuing notice to the convict even if the property proposed to be
forfeited is not held by him at the relevant time. It is a different
matter that the convict can also be issued notice, but it is not a
mandatory requirement when the properties proposed to be
forfeited were held by the relatives of the convict at the relevant
time when the action is initiated.
16. The appellants have placed reliance on the decisions of the
High Court of Kerala and Calcutta High Court referred to earlier.
In addition, reliance has also been placed on the dictum of the
Constitution Bench of this Court in Amratlal Prajivandas
, which
has decoded the intent of the legislation and all relevant provisions
while rejecting the argument regarding constitutional validity of the
Supra at Footnote No. 5
14
enactment. It held that the burden of establishing that the
properties mentioned in Section 6 notice held on that date by a
relative or an associate of the convict or detenu are not illegally
acquired properties, lies upon such relative or associate. Further,
the Act is intended to frustrate all attempts at screening properties
irrespective of how the relatives/associates hold the property
(whether benami or as namelender or through transferee) and
wherein the said relative/associate cannot disclose that the
properties have not been acquired with the monies or assets
belonging to a detenu/convict, but the failure to discharge the
burden would justify their forfeiture there being a prohibition on
any person to whom the Act applies from holding illegally acquired
properties.
17. Reliance has also been placed on the dictum in Shobha
Suresh Jumani vs. Appellate Tribunal, Forfeited Property &
Anr.
, wherein a showcause notice under Section 6 was issued to
the detenu Suresh Manoharlal Jumani and his wife Shobha
Suresh Jumani. Right to file appeal by Shobha Suresh Jumani
(2001) 5 SCC 755
15
was questioned by the competent authority. Nevertheless, this
Court upheld the action initiated against the relative (wife) of the
detenu as the properties were held by her. It is submitted that the
impugned judgment be set aside and the contra view taken by the
High Court of Kerala and Calcutta High Court be affirmed.
18. Per contra, learned counsel for the respondents has
supported the view taken by the Madras High Court in the
impugned judgment and would urge that the appellants had all
throughout proceeded against the respondents on the assumption
that the respondents are only ostensible owners and the properties
in question, in fact, belonged to the convict. Further, the
respondents were holding the subject properties on behalf of the
convict. In that context, the Madras High Court examined the
purport of Section 6 and the interplay of two subsections therein
to conclude that primary notice to the convict was a mandatory
requirement, in such a fact situation. Now, in the present appeals,
the appellants have taken a completely different position, namely,
that the respondents are, in fact, the recorded owners of the
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subject properties and, therefore, no notice is required to be given
to the convict.
19. The respondents have invited our attention to the definition of
“persons” and Explanation 2 in Section 2 of the 1976 Act. It is also
urged that the properties referred to in the impugned notices
issued to the respondents were not made subject matter of notice
under Section 6 issued to the convict on 2.2.1980. In other words,
no notice had ever been given to the convict in respect of properties
referred to in the impugned notices issued to the respondents as
being his illegally acquired properties held through other person on
his behalf.
20. As a matter of fact, it is urged by the respondents that Section
6(1) posits that when a notice is issued to a relative, it is imperative
upon the Department to allege and establish a nexus between the
properties of the relative sought to be forfeited and the convict or
detenu. In that, the forfeited properties must be traceable to the
illegal sources of income, earnings or assets of the convict or
detenu. The personal properties of relative or associate of the
17
convict or detenu having no connection with the convict or detenu,
cannot be made subject matter of forfeiture under the 1976 Act as
held in Amratlal Prajivandas
; Kesar Devi
; Fatima Mohd. Amin
(Dead) through LRs. vs. Union of India & Anr.
; and Aslam
Mohammad Merchant vs. Competent Authority & Ors.
.
21. It is then urged that the subject properties cannot be forfeited
without substantiating the link or nexus between the properties of
the relatives with the activity of the convict or detenu and more so
when the relatives are not his immediate relatives such as parents
or children or spouse. For lack of nexus between the properties
sought to be forfeited being that of the convict, the statutory
presumption is not attracted; and it must follow that Section 8
requiring burden of proof to be discharged by the noticee being the
relative of the convict, would not come into play. Moreover, the
notice contains a bald unreasoned averment — that the properties
in question were acquired during the time when the convict was
supra at Footnote No. 5 (para 44)
supra at Footnote No. 6 (paras 11 and 12)
(2003) 7 SCC 436 (paras 7 to 9)
(2008) 14 SCC 186 (para 45)
18
engaged in gold smuggling, the only inescapable conclusion is that
the said properties were acquired by the funds of such convict. As
a matter of fact, the respondents had furnished copious materials
before the Authorities to establish that the properties in question
are, in fact, personal properties purchased by them out of their
business earnings, gifts, etc. The plea so taken by the respondents
has been completely discarded.
22. It is urged that neither the Competent Authority nor the
Appellate Tribunal took into account that no reasons have been
recorded on the basis of which it was believed that the properties of
the respondents were illegally acquired. Relying on the dictum in
Nazir Ahmad vs. Emperor and Chandra Kishore Jha vs.
Mahavir Prasad & Ors.
, it is urged that when a statute provides
something to be done in a particular manner it ought to be done in
that manner alone and in no other manner. Whereas, the
Competent Authority failed to record proper reasons to believe as
stipulated in Section 6 of the 1976 Act.
AIR 1936 PC 253
(1999) 8 SCC 266
19
23. It is then contended that on account of inordinate and undue
delay, the proceedings suffer from the vice of arbitrariness and
irrationality. In that, the convict was convicted on 23.11.1969 for
an offence punishable under the 1962 Act. The properties in
question belonging to the respondents were acquired between 1959
till 1980. Whereas, the impugned notices were issued on
19.1.1994 and 28.2.1994. Further, as aforesaid, the stated
properties have not been referred to in the criminal proceedings
against the convict nor in the notice issued to him on 2.2.1980. No
explanation has been offered or forthcoming from the Competent
Authority about the delay in issuing notice after 25 years, calling
upon the respondents to explain and account for the sources of
funds from which the properties in question have been acquired by
them. This is not only unjustified, but also impractical and not
meet the test of a reasonable period of time. Now, further period of
25 years has lapsed. Thus, to reopen and readjudicate the entire
proceedings afresh at this distance of time would not only be
iniquitous, but also result in serious irreparable harm and injury
to the respondents and persons claiming through them.
20
24. It is urged that this Court may lean in favour of closure of the
proceedings inasmuch as even the appellants succeed, the parties
may have to be relegated to the High Court for consideration of all
other aspects raised by the respondents in the writ petitions and
not dealt with by the High Court being of the view that initiation of
the action against the respondents without primary notice to the
convict vitiated the entire proceedings. As a matter of fact, the
High Court in paragraph 21 of the impugned judgment had left it
open to the Authorities to initiate fresh proceedings in accordance
with law, which the appellants have not chosen to initiate despite
the fact that there was no interim stay given by this Court in that
regard.
25. We have heard Mr. Aman Lekhi, learned Additional Solicitor
General of India, Mr. A.K. Srivastava, learned senior counsel for
the appellants and Mr. Atul Shankar Vinod, learned counsel for the
respondents.
26. Before we proceed to examine the different viewpoints in
reference to the provisions of the 1976 Act, it is essential to notice
21
the legislative intent for enacting the 1976 Act. That can be
discerned from the Preamble of the Act and also exhaustively dealt
with by the nineJudges Constitution Bench of this Court, in
Amratlal Prajivandas
.
27. The Preamble of the 1976 Act reads thus:
“An Act to provide for the forfeiture of illegally
acquired properties of smugglers and foreign exchange
manipulators and for matters connected therewith or
incidental thereto.
WHEREAS for the 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;
AND WHEREAS 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 clandestine
manner;
AND WHEREAS such persons have in many cases
been holding the properties acquired by them
through such gains in the names of their relatives,
associates and confidants;”
(emphasis supplied)
28. This Court dealt with the legislative intent in extenso. It also
analysed the relevant provisions of the 1976 Act which would
Supra at Footnote No. 5
22
reinforce the legislative intent. While dealing with the definition of
“illegally acquired properties” (re: question No.4 in paragraph 43), it
had noticed that the stated expression is quite expansive. It not
only takes within its ambit the property acquired after the Act, but
also the property acquired before the Act, “whatever be the length
of time”. Secondly, it takes in the property which may have been
acquired partly from out of illegal activity — in which case, of
course, the provision of Section 9 would be attracted. Further,
illegal activity is not confined to violation of the laws mentioned in
Section 2 of the 1976 Act but all laws which Parliament has power
to make, such as if a smuggler has acquired some properties by
evading tax laws or by committing theft, robbery, dacoity,
misappropriation or any other illegal activity prohibited by the
Indian Penal Code or any other law in force. All that would be
liable to be forfeited.
29. The Constitution Bench negatived the challenge to the
expansive definition of expression “illegally acquired property” on
the grounds of unreasonableness, arbitrariness or for that matter
23
on any of the grounds relatable to Part III of the Constitution as not
being available. The Constitution Bench then noted as follows:
“Question No.4
43. …..We can take note of the fact that persons
engaged in smuggling and foreign exchange
manipulations do not keep regular and proper accounts
with respect to such activity or its income or of the
assets acquired therefrom. If such person indulges in
other illegal activity, the position would be no different.
The violation of foreign exchange laws and laws relating
to export and import necessarily involves violation of tax
laws. Indeed, it is a wellknown fact that over the
last few decades, smuggling, foreign exchange
violations, tax evasion, drugs and crime have all got
mixedup. Evasion of taxes is integral to such
activity. It would be difficult for any authority to
say, in the absence of any accounts or other relevant
material that among the properties acquired by a
smuggler, which of them or which portions of them
are attributable to smuggling and foreign exchange
violations and which properties or which portions
thereof are attributable to violation of other laws
(which Parliament has the power to make). It is
probably for this reason that the burden of proving
that the properties specified in the showcause
notice are not illegally acquired properties is placed
upon the person concerned. May be this is a case
where a dangerous disease requires a radical
treatment. Bitter medicine is not bad medicine. In
law it is not possible to say that the definition is
arbitrary or is couched in unreasonably wide terms.
Further, in view of clear and unambiguous language
employed in clause (c) of Section 3, it is not possible or
permissible to resort to the device of reading down. The
said device is usually resorted to save a provision from
being declared unconstitutional, incompetent and ultra
vires. We are, therefore, of the opinion that neither the
constitutional validity of the said definition can be
24
questioned nor is there any warrant for reading down
the clear and unambiguous words in the clause. So far
as justification of such a provision is concerned, there is
enough and more. After all, all these illegally
acquired properties are earned and acquired in ways
illegal and corrupt — at the cost of the people and
the State. The State is deprived of its legitimate
revenue to that extent. These properties must justly
go back where they belong — to the State. …..”
(emphasis supplied)
30. After having said that while dealing with the ambit of Section
2(2) of the Act, the Court observed thus:
“Question No. 5
44. It is contended by the counsel for the petitioners
that extending the provisions of SAFEMA to the
relatives, associates and other ‘holders’ is again a case
of overreaching or of overbreadth, as it may be called —
a case of excessive regulation. It is submitted that the
relatives or associates of a person falling under clause
(a) or clause (b) of Section 2(2) of SAFEMA may have
acquired properties of their own, may be by illegal
means but there is no reason why those properties be
forfeited under SAFEMA just because they are related to
or are associates of the detenu or convict, as the case
may be. It is pointed out that the definition of ‘relative’
in Explanation (2) and of ‘associates’ in Explanation (3)
are so wide as to bring in a person even distantly related
or associated with the convict/detenu, within the net of
SAFEMA, and once he comes within the net, all his
illegally acquired properties can be forfeited under the
Act. In our opinion, the said contention is based
upon a misconception. SAFEMA is directed towards
forfeiture of “illegally acquired properties” of a
person falling under clause (a) or clause (b) of
Section 2(2). The relatives and associates are
brought in only for the purpose of ensuring that the
illegally acquired properties of the convict or
25
detenu, acquired or kept in their names, do not
escape the net of the Act. It is a wellknown 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 namelender 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. It is to counteract the
several devices that are or may be adopted by
persons mentioned in clauses (a) and (b) of Section
2(2) that their relatives and associates mentioned in
clauses (c) and (d) of the said subsection are also
brought within the purview of the Act. The fact of
their holding or possessing the properties of
convict/detenu furnishes the link between the
convict/detenu and his relatives and associates.
Only the properties of the convict/detenu are
sought to be forfeited, wherever they are. The idea is
to reach his properties in whosoever's name they are
kept or by whosoever they are held. The
independent properties of relatives and friends,
which are not traceable to the convict/detenu, are
not sought to be forfeited nor are they within the
purview of SAFEMA
. We may proceed to explain
That this was the object of the Act is evident from para 4 of the
preamble which states: “And whereas such persons have in many cases
been holding the properties acquired by them through such gains in the
names of their relatives, associates and confidants.” We are not saying
that the preamble can be utilised for restricting the scope of the Act, we
are only referring to it to ascertain the object of the enactment and to
reassure ourselves that the construction placed by us accords with the
26
what we say. Clause (c) speaks of a relative of a
person referred to in clause (a) or clause (b) (which
speak of a convict or a detenu). Similarly, clause (d)
speaks of associates of such convict or detenu. If we
look to Explanation (3) which specifies who the
associates referred to in clause (d) are, the matter
becomes clearer. ‘Associates’ means — (i) any
individual who had been or is residing in the residential
premises (including outhouses) of such person [‘such
person’ refers to the convict or detenu, as the case may
be, referred to in clause (a) or clause (b)]; (ii) any
individual who had been or is managing the affairs or
keeping the accounts of such convict/detenu; (iii) any
association of persons, body of individuals, partnership
firm or private company of which such convict/detenu
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 of persons, body of individuals, partnership
firm or private company; (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) the
trustee of any trust where (a) the trust has been created
by such convict/detenu; or (b) the value of the assets
contributed by such convict/detenu to the trust
amounts, on the date of contribution not less than 20%
of the value of the assets of the trust on that date; and
(vii) where the competent authority, for reasons to be
recorded in writing, considers that any properties of
such convict/detenu are held on his behalf by any other
person, such other person. It would thus be clear that
the connecting link or the nexus, as it may be called, is
the holding of property or assets of the convict/detenu
or traceable to such detenu/convict. Section 4 is
equally relevant in this context. It declares that “as
from the commencement of this Act, it shall not be
lawful for any person to whom this Act applies to
said object.
(emphasis supplied)
27
hold any illegally acquired property either by
himself or through any other person on his behalf”.
All such property is liable to be forfeited. The
language of this section is indicative of the ambit of
the Act. Clauses (c) and (d) in Section 2(2) and the
Explanations (2) and (3) occurring therein shall have
to be construed and understood in the light of the
overall scheme and purpose of the enactment. The
idea is to forfeit the illegally acquired properties of
the convict/detenu irrespective of the fact that such
properties are held by or kept in the name of or
screened in the name of any relative or associate as
defined in the said two Explanations. The idea is not
to forfeit the independent properties of such
relatives or associates which they may have
acquired illegally but only to reach the properties of
the convict/detenu or properties traceable to him,
wherever they are, ignoring all the transactions with
respect to those properties. By way of illustration,
take a case where a convict/detenu purchases a
property in the name of his relative or associate — it
does not matter whether he intends such a person to
be a mere namelender 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
28
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 showcause 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. We do not think that Parliament ever
intended to say that the properties of all the relatives
and associates, may be illegally acquired, will be
forfeited just because they happen to be the relatives or
associates of the convict/detenu. There ought to be
the connecting link between those properties and
the convict/detenu, the burden of disproving which,
as mentioned above, is upon the relative/associate.
In this view of the matter, the apprehension and
contention of the petitioners in this behalf must be
held to be based upon a mistaken premise. The
bringing in of the relatives and associates or of the
persons mentioned in clause (e) of Section 2(2) is thus
neither discriminatory nor incompetent apart from the
protection of Article 31B.”
(emphasis supplied)
31. While examining the contention whether clauses (c) to (e) of
Section 2(2) is a case of overreach or overbreadth, it held that this
argument of excessive regulation was based on a misconception as
the Act is only directed towards forfeiture of “illegally acquired
properties of the person falling under clause (a) or clause (b) of
Section 2(2)”. The relative and associates are brought in only to
29
ensure that the ‘illegally acquired properties’ of the convict or the
detenu, acquired or kept in the names of relatives or associates do
not escape the net of the Act. There could be cases where the
persons mentioned in clauses (a) and (b) could transfer ‘illegally
acquired properties’ to their relatives and associates “and even
further”, with the intent to transfer the ownership and title.
Therefore, it is immaterial how such relative or associate holds the
illegally acquired property of the convict/detenu – whether as a
benami, or as a mere namelender or through transferee or in any
other manner. The objective and purpose of the Act is to counteract
devices that are or may be adopted by persons mentioned in
clauses (a) or (b) of Section 2(2), hence, their relatives or associates
mentioned in clauses (c) or (d) of the said subsection are also
brought within the purview of the Act. The relatives or associates
holding or possessing the illegally acquired property of the
convict/detenu is the link between the convict/detenu. The idea is
to forfeit the properties of the convict/detenu wherever they are,
and to reach properties in whosoever’s name they are kept or held.
30
32. In the backdrop of the dictum of the Constitution Bench and
the subsequent decisions of this Court, we may hasten to add that
pivot of the 1976 Act is to reach the “illegally acquired properties”
of the specified convict/detenu in whosoever’s name they are kept
or by whosoever they are held, whatever be the length of time.
33. Concededly, the dispensation under the 1976 Act applies only
to persons specified in Section 2(2)
.
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
(ii) who has been convicted under the Foreign
Exchange Regulation Act, 1947 (7 of 1947), or the
Foreign Exchange Regulation Act, 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:
31
34. Broadly stated, Section 2(2)(a) refers to the category of
persons who are convicted under the specified enactments.
Whereas, Section 2(2)(b) refers to persons detained under the
specified detention law. The expression “person” to whom the 1976
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 subsection (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 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,
32
Act applies, has been broadened by including every person who is a
relative of a person referred to in clause (a) being convict under the
specified laws or clause (b) being detenu under the Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act,
any one 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.— For the purposes of subclause (i) of clause (a), the
value of any goods in relation to which a person has been convicted of an
offence shall be the wholesale price of the goods in the ordinary course of
trade in India as on the date of the commission of the offence.
Explanation 2.— For the purposes of clause (c), "relative" in relation to a
person, means—
(i) spouse of the person;
(ii) brother or sister of the person;
(iii) brother or sister of the spouse of person;
(iv) any lineal ascendant or descendant of the person;
(v) any lineal ascendant or descendant of the spouse of
the person;
(vi) spouse of a person referred to in clause (ii),
clause (iii), clause (iv) or clause (v);
(vii) any lineal descendant of a person referred to in
clause (ii) or clause (iii).
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 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 firms, or private company within the meaning of
the Companies Act, 1956, of which such person had been or is
a member, partner or director;
33
1974. The expression “relative” has been further elaborated in
Explanation 2, of Section 2, so as to expand the scope of taking
corrective measures for reaching up to the illegally acquired
properties of a convict or detenu, as the case may be.
(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;
(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) the trustee of any trust, where,—
(a) the trust has been created by such person; or
(b) the value of the assets 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 the contribution is made, to not less than
twenty per cent. of the value of the assets of the trust on
that date;
(vii) where the competent authority, for reasons to be
recorded in writing considers that any properties of such
person are held on his behalf by any other person, such other
person.
Explanation 4.— For the avoidance of doubt, it is hereby provided
that the question whether any person is a person to whom the provisions
of this Act apply may be determined with reference to any facts,
circumstances or events (including any conviction or detention) which
occurred or took place before the commencement of this Act.
(emphasis supplied)
34
35. As regards the respondents herein, it is obvious that they are
covered under the ambit of relative — being son and wife of the
brother of the convict, to whom the 1976 Act applied.
36. Section 2(2)(d) further expands the sweep so as to include
associate of a convict or detenu, as the case may be; and Section
2(2)(e) takes within its ambit any holder (the present holder) of any
property, which was at any time previously held by a person
referred to in clause (a) or clause (b), namely, convict or detenu, as
the case may be.
37. The objective and purpose of the enactment is reinforced in
the encircling Explanation 4 as reproduced hereinbefore.
Obviously, the intent is to ensure that the convict/detenu cannot
get away by adopting camouflage or screening, including legal
transfer of properties in the name of his relative, associate or any
other person covered under clause (e) to Section 2(2) of the Act.
38. This expanded ambit of clauses (c) to (e) is to be interpreted in
the context of the object and purpose of the Act, but the scope of
the Act does not extend to include every property held by a relative
35
or an associate unless the link and the connection with the illegal
activities of the convict/detenu is established. For, the Act is only
directed to forfeiture of ‘illegally acquired properties’ of a person
falling under clause (a) or clause (b) of Section 2(2) including their
specified properties held by third party. Independent properties of
the relatives and friends which are not traceable to the illegal
activities of the convict/detenu are neither sought to be forfeited
nor are they within the purview of the Act.
39. Section 3 is the definition clause. The expression “illegally
acquired property” has been expounded in clause (c) of subSection
(1) thereof
.
3. Definitions.— (1) In this Act, unless the context otherwise requires,
(a) and (b)….
(c) "illegally acquired property", in relation to any person to whom this
Act applies, means,—
(i) any property acquired by such person, whether before
or after the commencement of this Act, wholly or partly out of
or by means of any income, earnings or assets derived or
obtained from or attributable to any activity prohibited by or
under any law for the time being in force relating to any
matter in respect of which Parliament has power to make
laws; or
(ii) any property acquired by such person, whether
before or after the commencement of this Act, wholly or partly
out of or by means of any income, earnings or assets in
respect of which any such law has been contravened; or
36
The other relevant definition clause is expression “property” in
Section 3(1)(e)
.
40. As aforementioned, in Amratlal Prajivandas
, whilst
interpreting the definition of “illegally acquired properties” in clause
(c) of Section 3(1) of the Act, it was held that the definition is very
wide as to include not only the property acquired after the
(iii) any property acquired by such person, whether
before or after the commencement of this Act, wholly or partly
out of or by means of any income, earnings or assets the
source of which cannot be proved and which cannot be shown
to be attributable to any act or thing done in respect of any
matter in relation to which Parliament has no power to make
laws; or
(iv) any property acquired by such person, whether
before or after the commencement of this Act, for a
consideration, or by any means, wholly or partly traceable to
any property referred to in subclauses (i) to (iii) or the income
or earnings 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 Act, for a
consideration, or by any means, wholly or partly traceable to
any property falling under item (A), or the income or earnings
therefrom;
(e) "property" includes any interest in property, movable or immovable;
Supra at Footnote No. 5
37
enactment of the Act but also property acquired before the Act,
whatever be the length of time, and further the illegal activity is not
confined to the laws mentioned in Section 2 of the Act but also
other laws which the Parliament is competent to make. At the
sametime it is clarified that the definition of ‘illegally acquired
properties’ does not include the properties of the relatives or
associates covered under clauses (c) and (d) of Section 2(2) even if
they have acquired the properties by illegal activities or in violation
of the laws made by the Parliament. For, the Act applies only to
‘illegally acquired properties’ of the convict/detenu held by or in
the name of the relative or associate or holder.
41. While answering Question No.5, the Constitution Bench held:
“44...Section 4 is equally relevant in this context. It
declares that “as from the commencement of this Act, it
shall not be lawful for any person to whom this Act
applies to hold any illegally acquired property either by
himself or through any other person on his behalf”. All
such property is liable to be forfeited. The language of
this section is indicative of the ambit of the Act. Clauses
(c) and (d) in Section 2(2) and the Explanations (2) and
(3) occurring therein shall have to be construed and
understood in the light of the overall scheme and
purpose of the enactment. The idea is to forfeit the
illegally acquired properties of the convict/detenu
irrespective of the fact that such properties are held by
or kept in the name of or screened in the name of any
38
relative or associate as defined in the said two
Explanations. The idea is not to forfeit the independent
properties of such relatives or associates which they
may have acquired illegally but only to reach the
properties of the convict/detenu or properties traceable
to him, wherever they are, ignoring all the transactions
with respect to those properties...”
On the issue of the applicability of the Act to holders mentioned in
Section 2(2)(e) of the Act, this Court held that they fall in a different
class from relatives and associates who are dealt with on a separate
footing. If a person covered under clause (e) to Section 2(2) proves
that he is a transferee in good faith without notice, for adequate
consideration, his property — even though purchased from a
convict/detenu — is not liable to be forfeited.
42. In the present judgment, it is not necessary for us to dilate on
the definition of “illegally acquired property” as the sole issue
involved is: whether it is mandatory to issue a primary notice
under Section 6 of the 1976 Act to the convict and not merely to
the relatives of the convict who hold the properties proposed to be
39
forfeited? Nevertheless, it may be useful to advert to Section 4
of
the 1976 Act which prohibits holding of illegally acquired property.
43. On the literal construction of this provision, it must follow
that it shall not be lawful for any person (as defined in Section 2(2)
of the 1976 Act) to whom the Act applies to hold any illegally
acquired property (as defined in Section 3(1)(c) of the 1976 Act)
either by himself or through any other person on his behalf. It is
well settled that when penalty (such as forfeiture of such property)
is imposed by statute for the purpose of preventing something from
being done on some ground of public policy, the thing prohibited, if
done, will be treated as void, even though the penalty if imposed is
not enforceable. Such acts of commission and omission become
void even without express declaration regarding its voidness,
because such penalty implies a prohibition
. Be it noted that
4. Prohibition of holding illegally acquired property.— (1) As from the
commencement of this Act, it shall not be lawful for any person to whom this
Act 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 subsection (1), such property shall be liable
to be forfeited to the Central Government in accordance with the provisions of
this Act.
see Mannalal Khetan & Ors. vs. Kedar Nath Khetan & Ors., (1977) 2 SCC 424
(paras 18 to 22) and Asha John Divianathan vs. Vikram Malhotra & Ors.,
40
Section 4 of the Act posits a clear mandate that the person to
whom the Act applies shall not hold any illegally acquired property
and there is a corresponding duty on the Competent Authority to
initiate process after due inquiry under Section 18 of the 1976 Act
for forfeiture of such property — whether acquired before the
commencement of the Act or thereafter.
44. That process has to be initiated by the Competent Authority
by issuing notice under Section 6
of the 1976 Act to such person
who holds the properties proposed to be forfeited being illegally
2021 SCC OnLine SC 147
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 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.
(2) Where a notice under subsection (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 also be served upon such other person.
(emphasis supplied)
41
acquired properties. That person may hold the property either by
himself or through any other person on his behalf. If the property
is held by person concerned, the notice under Section 6(1) needs to
be issued to such person to whom the Act applies calling upon him
to disclose 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.
45. Before we proceed to analyse Section 6 of the 1976 Act, it
would be apposite to reproduce Section 18
of the Act, which is
referred to in Section 6(1), being the preceding procedural steps to
18. Power of competent authority to require certain officers to exercise
certain powers.— (1) For the purposes of any proceedings under this Act or
the initiation of any such proceedings, the competent authority shall have
power to cause to be conducted any inquiry, investigation or survey in respect
of any person, place, property, assets, documents, books of account or any
other relevant matters.
(2) For the purposes referred to in subsection (1), the competent
authority may, having regard to the nature of the inquiry, investigation or
survey, require an officer of the Incometax Department to conduct or cause to
be conducted such inquiry, investigation or survey.
(3) Any officer of the Incometax Department who is conducting or is
causing to be conducted any inquiry, investigation or survey required to be
conducted under subsection (2) may, for the purpose of such inquiry,
investigation or survey, exercise any power (including the power to authorise
the exercise of any power) which may be exercised by him for any purpose
under the Incometax Act, 1961 (43 of 1961), and the provisions of the said Act
shall, so far as may be, apply accordingly.
42
be taken by the Competent Authority before issuing notice under
Section 6(1), upon having reason to believe that the concerned
properties are illegally acquired properties held by the noticee,
either by himself or through any other person on his behalf.
46. At this stage, we may also refer to the other relevant provision
being Section 8
of the 1976 Act provisioning for burden of proving
that the property referred to in the notice is legally acquired
property of the noticee.
47. On plain as well as contextual reading of Section 6, it is
crystal clear that the notice under Section 6(1) is required to be
issued to any person to whom the Act applies. As is evident from
Section 2(2) of the 1976 Act, the Act applies not only to convict or
detenu, but also to their relative, associate including holder of any
property being Section 2(2)(c), 2(2)(d) and 2(2)(e) respectively. The
purpose of issuing notice is to enable the person concerned
(noticee) to discharge the burden of proof as propounded in Section
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.
43
8 of the 1976 Act. It is then open to him to prove that the property
referred to in the notice is his legally acquired property.
48. In a given case, however, if the property is held by a person
owing to merely being in legal possession thereof, but the
ownership of the property at the relevant time is that of the convict
or detenu or his/her relative, as the case may be, it would become
necessary for the Competent Authority to not only give notice to the
person in possession of the property in question but also to the
person shown as owner thereof in the relevant records. Similarly,
in a case where the person shown as owner in the relevant records
had purchased the subject property from the convict or detenu and
is a subsequent purchaser, notice is required to be issued to both
— the present owner and the erstwhile owner (convict or detenu),
as the case may be. However, if the ownership of the property in
the relevant records at the relevant time is that of the person in
possession (as in these cases), and not being the convict or detenu,
the question of issuing notice to the latter would serve no purpose.
The convict or detenu cannot be heard to claim any right in such
property including proprietary rights and for the same reason, he is
44
not expected to discharge the burden of proof under Section 8 of
the 1976 Act as to whether it is his legally acquired property nor
can he be said to be the person affected with the proposed action of
forfeiture as such.
49. The expression “held” in Section 6 has to be understood to
mean that the person is entitled to possession of property being
owner of the property in the relevant record or even because he is
in legal possession thereof. In other words, a person may be
holding the property also when he (at the relevant time) is in legal
possession of the stated property, even if he is not a recorded
owner thereof. In either case, it would be a matter within the
ambit of expression “held” occurring in Section 6 of the 1976 Act.
50. The third facet of Section 6(1) of the 1976 Act is the noticee
may hold the property either by himself or through any other
person on his behalf. As noted earlier, a primary notice under
Section 6(1) can be issued only against person to whom the Act
applies. If the relative of a convict or detenu has acquired property
from the illegal sources of income, earnings or assets of the convict
45
or detenu, such person would be a person to whom the Act applies
vide Section 2(2)(c) read with Explanation 2. Such person may be
a recorded owner of the property — having acquired it wholly or
partly out of or by means of any income, earnings or assets derived
or obtained from or attributable to unlawful activity (whether
indulged into before or after the commencement of the 1976 Act) of
the convict or detenu which is prohibited by or under any law for
the time being in force relating to any matter in respect of which
Parliament has power to make laws.
51. In other words, going by the definition of “illegally acquired
property” in Section 3(1)(c) and of “person” in Section 2(2) to whom
the Act applies, if the property is held in the name of the relative of
the convict or detenu before or after the commencement of the Act,
the notice under Section 6(1) needs to be issued to such person
(recorded owner as well as in possession), who alone can and is
expected to discharge the burden of proof in terms of Section 8 of
the 1976 Act — so as to dissuade the Competent Authority from
proceeding further against such property. Indeed, if the illegally
acquired property is held in the name of the relative, but the de
46
facto possession thereof is with some other person, who is not
covered by the expression “person” as given in Section 2(2), in such
a case primary notice under Section 6 is required to be issued to
the relative of the convict or detenu and copy thereof served upon
“such other person” who is in de facto possession thereof (albeit for
and on behalf of the relative of the convict or detenu). Even in this
situation, notice to the convict or detenu may not be necessary
much less mandatory. For, the 1976 Act applies even to the
relative of the convict or detenu holding illegally acquired property
either by himself or through any other person on his behalf.
52. Learned counsel appearing for the parties had commended us
with the purport of Section 6(2) of the 1976 Act. Different
interpretation has been given by both sides to the expressions
occurring therein. Section 6(2) merely refers to the requirement of
issuing notice to “such other person”.
53. The expression “such person” is found not only in Section
6(1), but in other provisions of the Act including the definition
clause i.e., Section 3(1)(c) of illegally acquired property. The
47
expression “such person” and “such other person” occurring in
Section 6(2) may have to be understood in the context and the
setting in which it has been employed in the concerned provision.
A harmonious construction thereof is imperative.
54. In the first part of Section 6(2), the expression used is “any
person”. That is a person to whom primary notice under Section
6(1) is addressed. This person can be none other than person
referred to in Section 2(2) of the 1976 Act. He can be a convict or
detenu, his relative or associate including the person who is a
holder of the property in question at the relevant time. Section 6(2)
then refers to the subject property in the notice and the factum of
the property being held by concerned person (such person) —
either the primary noticee to whom the Act applies himself or
through “any other person” on his behalf. The latter is described
as “such other person”, in the concluding part of that subSection
[Section 6(2)]. That, “such other person”, is also covered within the
ambit of expression “any other person” mentioned earlier and
holding the property in question on behalf of the primary noticee.
In other words, “such other person” will be a person other than a
48
person to whom the Act applies being merely a holder of illegally
acquired property on behalf of the person to whom Act applies.
Thus, he may be a person other than a person referred to in
Section 2(2) of the 1976 Act. The legislative intent is to cover “such
other person” so as to reach up to “illegally acquired property” of
the convict/detenu and unravel/lift the veil created by the person
to whom the Act applies. We may usefully recapitulate the
enunciation of the Constitution Bench, wherein it is held that the
legislative intent is to reach to all illegally acquired properties in
whosoever’s name they are kept or by whosoever they are held
irrespective of the time period of such acquisition. This is to
ensure that the persons to whom the Act applies referred to in
Section 2(2), do not use mechanism to shield illegally acquired
properties from the proposed action of forfeiture.
55. Be it noted that the expression “such person” employed in
Section 6(2) is referable to the primary noticee, who is a person to
whom the Act applies. If, however, the notice mentions that the
properties referred to in the notice are held by the noticee through
any other person on his behalf, that may be a case of holding of
49
physical possession of the illegally acquired property by person
other than the person to whom the Act applies. In such a case,
subsection (2) triggers in enabling the Competent Authority to
issue notice even to “such other person” — not covered by the
definition of Section 2(2) of the Act. If that person is merely in
possession of the property and not its owner, he may not be able to
explain or prove the fact that the property is not illegally acquired
property of the primary noticee. Indeed, if “such other person” is
claiming ownership of the property through the relative of the
convict or detenu in relation to illegally acquired property, who was
earlier owner thereof upon receipt of notice under Section 6(2) can
certainly impress upon the Competent Authority that he is a
purchaser in good faith for adequate consideration of the stated
property. Such a plea can be considered by the Competent
Authority on its own merits.
56. Section 4 of the Act, which in subsection (1) uses similar
expression – “any person to whom this Act applies to hold any
50
illegally acquired property either by himself or through any other
person on his behalf” – which is similar to the
wordings/expressions used in Section 6 of the Act, reinforces the
above interpretation.
57. Notice under Section 6(1) cannot be issued in respect of
properties for which the Competent Authority has no evidence or
material to record “reasons to believe” that the properties were
acquired from the assets or money provided by the convict/detenu.
The expression ‘reasons to believe’ is a phrase used in several
enactments and interpreted by this court to mean not ‘mere
subjective satisfaction’ based on surmise and conjecture, but a
belief that is ‘honest and based upon reasonable grounds’. The
satisfaction should be based upon objective material and not mere
feeling or inkling. The requirement is deliberately legislated as a
check against frivolous and rowing inquiries based upon mere
suspicion and pretence. The reasons to believe to be valid should
refer to facts that have a rational connection or relevant bearing to
Tata Chemicals Ltd. v. Commissioner of Customs (Preventive), Jamnagar,
(2015) 11 SCC 628
Kewal Krishan v. State of Punjab, AIR 1967 SC 737
Bar Council of Maharashtra v. M. V. Dabholkar & Ors., (1976) 2 SCC 291
51
the formation of belief and should not be extraneous or irrelevant
for the purpose of initiation of inquiry under Section 6 of the Act.
58. Recording of the reasons to believe and satisfaction of the
aforesaid conditions is an important condition precedent – a sine
qua non – and its violation would have legal consequences. It is a
jurisdictional requirement, which, unlike a procedural
requirement, would affect the proceedings if not complied with.
Therefore, in such cases, the question of no prejudice is
unavailable as the provision for issue of notice and satisfaction of
the precondition for the issue of notice, i.e., “reasons to believe”, is
mandatory and not optional or directory.
59. G.P. Singh, in Principles of Statutory Interpretation, 14th
Edition, at page 430, has laid down principles and rules for
ascertaining the mandatory or directory nature of provisions, and
has noted that this depends on the intent of the legislature and not
necessarily on the language that the intent is clothed in. The
nature and design of the statute, the effects which would follow
S. Narayanappa & Ors. v. Commissioner of Incometax, Bangalore, AIR 1967
SC 523
52
from construing it one way or the other, and the severity or
triviality of consequences that flow therefrom have to be
considered. At times, the courts examine whether the statute
provides for the contingency of noncompliance and whether noncompliance is visited with some penalty etc., but this is not a
necessary or sufficient basis for determining whether the provision
is mandatory or directory in nature. Lastly, if a provision is
mandatory, it must be obeyed and followed. This is especially so in
case of jurisdictional requirements, i.e., preconditions that have to
be fulfilled before any action is taken.
60. In the context of the present enactment, it is unnecessary to
underscore that when a notice under Section 6 of the Act is issued,
the consequences entail forfeiture of property or fine in lieu of
forfeiture as envisaged by Sections 7 and 9, respectively, of the Act.
We have not quoted Section 11, but the said provision postulates
that transfer of property referred to in a notice under Section 6 is
null and void. Therefore, transactions after issuance of notice
under Section 6 or 10 (which applies to the procedure in respect of
certain trust properties) are void and are to be ignored.
53
61. Section 8
of the Act predicates that when proceedings in
respect of a property are initiated by way of notice under Section 6,
the burden of proving that the property is not illegally acquired
shall be on the person affected. The enactment, therefore, reverses
the burden of proof but only after the notice under Section 6 has
been validly issued. By virtue of Section 6, the enactment requires
the Competent Authority to form reasons to believe, which must be
rational and based upon some material which would show that the
conditions mentioned in Section 2(2) as explained and expounded
by this Court in Amratlal Prajivandas are satisfied. Section 8
does not apply at the initial stage or when the Competent Authority
decides whether or not notice under Section 6 should be issued.
The Competent Authority cannot, simply by relying upon Section 8,
reverse the burden of recording of reasons to believe and
mechanically issue notice under Section 6. For, Section 8 does not
apply at the stage when the Competent Authority forms and
records its reasons to issue notice.
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.
Supra at Footnote No. 5
54
62. Section 7
of the Act, which is titled ‘Forfeiture of property in
certain cases’, supports the above interpretation as it envisages
that the Competent Authority shall consider the explanation, if
any, to the showcause notice issued under Section 6 and the
material before it. After giving notice to the person affected, and in
case the person affected holds any property specified in the notice
through any other person, then to such other person, a reasonable
opportunity of being heard would be afforded to them. Thereafter,
the Competent Authority may pass an order, recording findings
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 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 showcause 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.
55
whether or not the listed properties are illegally acquired
properties.
63. In Kesar Devi
, this Court held that the language of Section
6(1) does not indicate any requirement of mentioning any link or
nexus between the convict or the detenu and the property
ostensibly standing in the name of the person covered under
clauses (c), (d) and (e) to Section 2(2) and also referred to Section 8
which incorporates reverse burden of proof. However, the said
observations must be read in light of the Constitution Bench
judgment in the case of Amratlal Prajivandas
, which is the
authoritative and binding precedent. Indeed, Kesar Devi’s
judgment observes that in some cases where the relationship is
close and direct, an inference can easily be drawn and no link or
nexus has to be indicated and may itself indicate some link or
nexus, which can be duly taken notice of and the reasons to believe
can be recorded in writing. That, however, may depend on facts of
the case and not be true in all cases.
Supra at Footnote No. 6
Supra at Footnote No. 5
Supra at Footnote No. 6
56
64. A priori, we are of the considered opinion that Section 6(1) of
the 1976 Act nowhere provides that it is “mandatory” to serve the
convict or detenu with a primary notice under that provision whilst
initiating action against the relative of the convict. Indubitably, if
the illegally acquired property is held by a person in his name and
is also in possession thereof, being the relative of the convict and
who is also a person to whom the Act applies, there is no need to
issue notice to the convict or detenu much less primary notice as
held by the High Court in the impugned judgment. For, Section
6(1) posits that notice must be given to the person who is holding
the tainted property and is likely to be affected by the proposed
forfeiture of the property. The person immediately and directly to
be affected is the person who is the recorded owner of the property
and in possession thereof himself or through some other person on
his behalf. In the latter case, the burden of proof under Section 8
is not to be discharged by the convict or detenu, but by the person
who holds the illegally acquired property either by himself or
through any other person on his behalf.
57
65. The expression “such other person” in Section 6(2) is, thus,
referable to a person falling in class “through any other person on
his behalf”. That is the person to whom the Act applies, as noted
in the opening part of Section 6(1) of the Act. In such a case, the
convict or detenu is not expected to nor can be called upon to
discharge the burden of proof under Section 8. Accordingly, we
may lean in favour of the view taken by the High Court of Kerala
and Calcutta High Court reproduced above, for independent
reasons delineated hitherto. The view taken by the Madras High
Court in the impugned judgment, therefore, does not commend to
us and is reversed.
66. The parties had invited our attention to other judgments of
this Court. However, those judgments have not dealt with the
question that arise for consideration in the present appeals.
67. Having said this, we need to set aside the impugned judgment
and relegate the parties before the High Court by restoring the writ
petitions to the file to its original number for being heard afresh on
all other issues and contentions as may be available to both sides
58
including the argument that there is an inordinate, undue and
unexplained delay in initiating the action against the respondents
(writ petitioners) and as a result of which it would be iniquitous to
call upon the respondents to offer explanation by reopening the
adjudication of the entire proceedings. We do not wish to dilate on
any other plea in these appeals. Further, we may not be
understood to have expressed any opinion either way on any other
contention available to the parties. We say so because even the
impugned judgment makes it amply clear that the writ petitions
filed by the respondents were being allowed on the sole ground that
the action against the respondents sans primary notice to the
convict is vitiated. That view having been reversed, the matter
needs to go back before the High Court for consideration of all
other aspects on its own merits.
68. During the course of the hearing, an issue arose whether the
convict, i.e., V.P. Selvarajan had expired before the issuance of
notice under Section 6 on 19th January 1994. The counsel, at the
time of argument, were not aware of the factual position. However,
in the written submissions, the appellant and the respondents
59
have accepted that the convict V.P. Selvarajan had expired before
impugned notices under Section 6 dated 19th January 1994 were
issued.
69. Be that as it may, in the present case, the properties in
question and subject matter of notice under Section 6 are in the
name of and held by the two respondents. No entitlement or right
has been claimed in these properties by the heirs of the deceased
convict V. P. Selvarajan. If the properties were in the name of the
deceased detenu or convict, then different considerations may have
applied. In the context of the present case as the convict V.P.
Selvarajan had expired before the issuance of notice under Section
6 on 19th January 1994, therefore, the need and requirement to
serve notice on him would not arise.
70. Accordingly, these appeals succeed. The common impugned
judgment and order dated 24.3.2008 passed by the Madras High
Court in Writ Petition Nos.1149 and 1150 of 2001 is set aside.
Instead, the writ petitions are restored to the file to its original
number for being considered afresh on its own merits in
60
accordance with law on all other issues and contentions available
to both sides except the question answered in this judgment.
Thus, all other contentions available to both parties are left open.
We request the High Court to expeditiously dispose of the
remanded writ petitions. No order as to costs.
Pending applications, if any, stand disposed of.
..……………………………J.
(A.M. Khanwilkar)
………………………………J.
(Sanjiv Khanna)
New Delhi;
December 14, 2021.
