Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976: ss. 6(1), (2), 2(2) – Notice of forfeiture – Illegally acquired property – Claim of the Competent Authority that the property to be forfeited is that of the convict and ostensibly held by the relatives of the convict – Issuance of primary notice u/s. 6(1) upon such convict with copy thereof to his relatives u/s. 6(2) – Requirement of – Held: Section 6(1) 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 – 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 – 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 – Burden of proof u/s. 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 – Thus, it is not mandatory to serve a primary notice u/s. 6(1) upon such convict with copy thereof to his relatives u/s. 6(2) – Non-service of such primary notice upon the convict would not vitiate the entire proceedings initiated only against his relatives – Order passed by the High Court that the action against the respondents-relatives of the convict, initiated by the Competent Authority was vitiated for lack of notice to the convict, set aside. Allowing the appeals, the Court
HELD: 1.1 Pivot of The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 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. [Para 32][178-H; 179-A]
1.2 The dispensation under the 1976 Act applies only to persons specified in Section 2(2) of the Act. 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 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, 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. 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. The objective and purpose of the enactment is reinforced in the encircling Explanation 4. 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. 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 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. [Paras 33, 34, 37, 38][179-A-B; 180-A-C; 181-C-E; 182-A]
1.3 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 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. [Para 47][186-B-C]
1.4 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 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. [Para 48][186-D-G]
1.5 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. [Para 49][186-G; 187-A-B]
1.6 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. 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 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. [Para 50][187-B-D]
1.7 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 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. [Para 51][187-E-H]
1.8 Section 6(2) merely refers to the requirement of issuing notice to “such other person”. 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 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. [Paras 52, 53][188-A-C]
1.9 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 sub-Section [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 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. 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. [Para 54] [188-C-H]
Attorney General for India v. Amratlal Prajivandas (1994) 5 SCC 54 : AIR 1994 SC 2179 : [1994] (1) Suppl. SCR 1 – followed.
1.10 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 physical possession of the illegally acquired property by person other than the person to whom the Act applies. In such a case, sub-section (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. [Para 55][189-A-D]
1.11 Section 4 of the Act, which in sub-section (1) uses similar expression- “any person to whom this Act applies to hold any 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. [Para 56][189-D-E]
1.12 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 the formation of belief and should not be extraneous or irrelevant for the purpose of initiation of inquiry under Section 6 of the Act. [Para 57][189-E-G; 190-A]
1.13 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. [Para 58][190-B]
1.14 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. [Para 61][190-G; 191-A-C]
1.15 The respondents are covered under the ambit of relative-being son and wife of the brother of the convict, to whom the 1976 Act applied. [Para 35][181-A]
1.16 A priori, 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. [Para 64][192-E-G]
1.17 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, this Court may lean in favour of the view taken by the High Court of Kerala and Calcutta High Court for independent reasons delineated hitherto. [Para 65][193-A-B]
Sajitha & Ors. vs. Competent Authority & Ors 2005 SCC OnLine Ker 101; The Competent Authority &
Administrator & Anr. vs. Manilal Jalal & Anr. 2013 SCC OnLine Cal 12911 – approved.
1.18 The impugned judgment is set aside and the parties are relegated before the High Court for being heard afresh on all other issues and contentions as may be available to both sides. Further, this Court may not be understood to have expressed any opinion either way on any other contention available to the parties. It is said 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. [Para 67][193-D-F]
1.19 During the course of the hearing, an issue arose whether the convict-VP 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 have accepted that the convict V.P. had expired before impugned notices under Section 6 dated 19th January 1994 were issued. Be that as it may, in the instant 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 VP. If the properties were in the name of the deceased detenu or convict, then different considerations may have applied. In the context of the instant case, as the convict VP 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. [Paras 68, 69][193-G-H; 194-A-B] Attorney General for India v. Amratlal Prajivandas (1994) 5 SCC 54 : AIR 1994 SC 2179 : [1994] (1) Suppl. SCR 1 – followed.
Shobha Suresh Jumani vs. Appellate Tribunal, Forfeited Property & Anr. (2001) 5 SCC 755 : [2001] 3 SCR 525; Fatima Mohd. Amin (Dead) through LRs. vs. Union of India & Anr. (2003) 7 SCC 436; Aslam Mohammad Merchant vs. Competent Authority & Ors. (2008) 14 SCC 186 : [2008] 10 SCR 332; Nazir Ahmad vs.
Emperor AIR 1936 PC 253; Chandra Kishore Jha vs. Mahavir Prasad & Ors. (2008) 14 SCC 186 : [1999] 2 Suppl. SCR 754; Mannalal Khetan & Ors. vs. Kedar Nath Khetan & Ors. (1977) 2 SCC 424 : [1977] (2) SCR 190; Asha John Divianathan vs. Vikram Malhotra & Ors. 2021 SCC OnLine SC 147; Tata Chemicals Ltd. v. Commissioner of Customs (Preventive), Jamnagar (2015) 11 SCC 628 : [2015] 7 SCR 132; Kewal Krishan v. State of Punjab AIR 1967 SC 737 : [1962] Suppl. SCR 613; Bar Council of Maharashtra v. M. V.
Dabholkar & Ors. (1976) 2 SCC 291 : [1976] 2 SCR 48; S. Narayanappa & Ors. v. Commissioner of Income tax, Bangalore AIR 1967 SC 523 : [1967] SCR 590 – referred to.
P. Ramanatha Aiyar’s The Major Law Lexicon; G.P. Singh, in Principles of Statutory Interpretation, 14th Edition, at page 430 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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