Quashed

FPA-9/MDS/2011 of H. Haja Sarabudeen v/s The Competent Authority, Chennai

ATFP1 Jun 2017FPA-9/MDS/2011

Case brief

AI extract

What is this about?

In a SAFE appeal against an order forfeiting 50% share of a property owned by H. Haja Sarabudeen, the Appellate Tribunal set aside the order because the show cause notice and the forfeiture petition failed to allege or establish any link or nexus between the appellant's property and the illegally acquired money of his detained brother.

What did the court decide?

Impugned order of forfeiture dated 03.10.2011 and the show cause notice dated 13.09.2005 are set aside. Consequential relief to the appellant granted. Interim application disposed of. No order as to c

FPA-9/MDS/2011 of H. Haja Sarabudeen v/s The Competent… — Property and Title | ATFP (2017)

¶1

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY NEW DELHI

¶2

Date: 01/06/2017

¶3

MP-24/MDS/2014 (Stay) & FPA-9/MDS/2011

¶4

H. Haja Sarabudeen … Appellant/Applicant Versus The Competent Authority, Chennai … Respondent

¶5

Advocates/Authorized Representatives who appeared

¶6

For the appellant	:	Shri. S. Selvathrumurgan, Advocate
For the respondent	:	Shri Ashok Kumar Srivastava, Joint Commissioner and Shri L. Christopher Vasanth, Inspecting Officer
CORAM
JUSTICE MANMOHAN SINGH	:	CHAIRMAN
SHRI KAUSHAL SRIVASTAVA	:	MEMBER
SHRI ANAND KISHORE	:	MEMBER

¶7

JUDGMENT

¶8

MP-59/MDS/2012 (Stay) & FPA-1/MDS/2011

¶9

This appeal is filed against the order dated 03.10.2011 passed by the Competent Authority, Madras under Section 7(1) of The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA for short) forfeiting the property namely “50% right, title and interest in the land and building of the house property T.S. No. 1529, Sultan Colony, Melakottai Basal Road, Nagapattinam” of Shri H. Haja Sarabudeen, the appellant, to the Central Government. The said order was passed in the proceedings initiated by the notice dated

¶10

FPA-9/MDS/2011 Page 1 of 22

¶11

13.09.2005 under Section 6(1) of SAFEMA issued to Shri H.Sarabudeen being the brother of H. Haja Allaudeen, a person against whom detention order under COFEPOSA, 1974 was issued and hence covered as an affected person (AP, for short) under Section 2(2)(b) of the SAFEMA.

¶12

It is stated in the appeal that the said Show Cause Notice dated 13.09.2005 under Section 6(1) of Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976 (SAFEMA) did not disclose any reasons warranting action against the appellant. There is no allegation regarding the existence of any link or nexus between the property sought to be forfeited and the illegally acquired money of the detenue (H. Haja Allaudeen) and on this ground alone the impugned order of forfeiture dated 03.10.2011, served on 15.11.2011, is liable to be set aside.

¶13

In this context, the appellant has referred to the Constitution bench judgment of the Hon‟ble Supreme Court of India in the matter of “ Attorney General for India and Ors. vs. Amratlal Prajivandas and Ors. reported in (1994) 5 SCC 54: MANU/SC/0774/1994, the relevant portion of which is as follows.

¶14

“50. Question No. 5: 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 over-reaching or of over-breadth, as it may be calleda 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 detenue or convict, as the case may be. It is pointed out that the definition of the 'relative' in Explanation (2) and of 'Associates' in Explanation (3) is so wide as to bring in a person even distantly related or associated with the convict/detenue, 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 detenue, acquired or kept in their

¶15

FPA-9/MDS/2011 Page 2 of 22

¶16

names, do not escape the net of the Act. It is a well-known fact that persons indulging in illegal activities screen the properties acquired from such illegal activity in the names of their relatives and associates. Sometimes they transfer such properties to them, may be, with an intent to transfer the ownership and title. In fact, it is immaterial how such relative or associate holds the properties of convict/detenue whether as a benami or as a mere name-lender or as a bona fide transferee for value or in any other manner. He cannot claim those properties and must surrender them to the State under the Act. Since he is a relative or associate, as defined by the Act, he cannot put forward any defence once it is proved that that property was acquired by the detenue-whether in his own name or in the name of his relatives and associates. It is to counter-act 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 sub-section are also brought within the purview of the Act. The fact of their holding or possessing the properties of convict/detenue furnishes the link between the convict/detenue and his relatives and associates. Only the properties of the convict/detenue are sought to be forfeited, wherever they are. The idea is to reach his properties in whosever'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/detenue, are not sought to be forfeited nor are they within the purview of SAFEMA. We may proceed to explain 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 detenue). Similarly, Clause (d) speaks of associates of such convict or detenue. 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 detenue, 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/detenue; (iii) any association of persons, body of individuals, partnership firm or private company of which such convict/detenue 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/detenue; or (b) the value of the assets contributed by such convict/detenue to the trust amounts, on the date of contribution, not less than 20% of the value of the assets of the trusts on that date; and (vii) where the competent authority, for reasons to be recorded in writing, considers that any properties of such convict/detenue 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/detenue or traceable to such detenue/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 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 FPA-9/MDS/2011 Page 3 of 22

¶17

(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/detenue 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/detenue 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/detenue purchases a property in the name of his relative or associate bit does not matter whether he intends such a person to be a mere name-lender or whether he really intends that such person shall be the real owner and/or possessor thereof-or gifts away or otherwise transfers his properties in favour of any of his relatives or associates, or purports to sell them to any of his relatives or associates-in all such cases, all the said transactions will be ignored and the properties forfeited unless the convict/detenue 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/detenue. So far as the holders (not being relatives and associates) mentioned in Section 2(2)(e) are concerned, they are dealt with on a separate footing. If such person proves that he is 'a' transferee in good faith for consideration, his property-even though purchased from a convict/detenue is not liable to be forfeited. It is equally necessary to reiterate that the burden of establishing that the properties mentioned in the show cause notice issued under Section 6, and which are held on that date by a relative or an associate of the convict/detenue, are not the illegally acquired properties of the convict/detenue, lies upon such relative/associate. He must establish that the said property has not been acquired with the monies or assets provided by the detenue/convict or that they in fact did not or do not belong to such detenue/convict. We do not think that the 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/detenue. There ought to be the connecting link between those properties and the convict/detenue, the burden of disproving which, as mentioned above, is upon the relative/associate.”

¶18

( emphasis supplied)

¶19

3.1 In view of the admitted position that the appellant was the brother of the detenu, the allegation regarding the existence of any link or nexus between the property of the appellant sought to be forfeited and the illegally acquired money of the detenu must have been expressly stated in the show cause notice and there must have been a categorical finding to the effect in the order of forfeiture. As the condition precedent for

¶20

FPA-9/MDS/2011

¶21

Page 4 of 22

¶22

initiating action against the appellant herein is absent, the impugned order of forfeiture is liable to be set aside.

¶23

It has been contended by/on behalf of the appellant that the show cause notice dated 13.09.2005 (Page No. 281 of Paper Book/typed set) did not contain the reasons for the belief that the properties are illegally acquired properties. Further, on perusal of the reasons recorded by the Competent Authority for the issuance of notice under Section 6(1) SAFEMA (Page No. 307 of Paper Book/typed set), copy of which was supplied to the counsel of the appellant to the year 2010, would show that there are no sufficient grounds to proceed against the appellant for forfeiting his property and also there is no allegation of any link or nexus between the property sought to be forfeited and the money alleged to have been acquired illegally by the appellant‟s brother

¶24

4.1 The reasons recorded for issue of the notice under Section 6(1) of SAFEMA simply says that a detention order dated 22.11.1993 came to be issued against Haja Allaudeen, because of which he is an affected person (AP) under SAFEMA;, that he is in possession of two properties at Nagapattinam and the licit sources of earnings have also not come to light and based on his antecedents in smuggling activities, the Competent Authority had got reasons to believe that the said properties were acquired out of illegal earnings. These reasons are clearly vague, unreasonable, arbitrary and not specific. The competent authority ought to have disclosed specific facts and events in the show cause notice itself or at least in the reasons supplied thereafter.

¶25

4.2 By merely relying upon the detention order dated 02.11.1993, and without any other single material available before the Competent FPA-9/MDS/2011 Page 5 of 22

¶26

Authority other than the order of detention, the Competent Authority could not have come to the conclusion that the properties in question are illegally acquired properties and hence issue of the notice under Section 6(1) of the Act was itself not as per law.

¶27

For the above proposition, the appellant has relied on the judgment of the Hon‟ble Apex Court delivered in the matter of Chandra Kumar Jain vs. Union of India reported in (2015) 11 SCC 427, in which it has been held as follows

¶28

“5. The preventive detention order is for the year 2003 for a period of one year. It expired by afflux of time. Chandra Kumar Jain had, in fact, been detained in custody for one full year under the abovementioned order.

¶29

6. Confronted with the question as to the need to examine the correctness of the detention order today, the learned Counsel for the Appellants submitted that proceedings under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (hereinafter being referred to as "SAFEMA") have been initiated for forfeiture of certain properties on the ground that these properties are the ill-gotten wealth of deceased Appellant Chandra KumarJain . Such proceedings could be initiated only against a limited class of persons. One of the classes being persons who had been detained under the provisions of COFEPOSA Act (Under Section 2(2b) of the Act). If the detention order is held to be illegal, such proceedings under the SAFEMA cannot be continued and, therefore, this Court is required to examine the legality of the detention order.

¶30

6. We are of the opinion that this appeal need not be examined because under the Scheme of the SAFEMA, properties of five classes of persons could be forfeited by the Government only after an appropriate inquiry contemplated under the provisions of the Act. The persons whose properties are liable for such forfeiture are:

¶31

-----------.

¶32

------------.

¶33

7. The identification of the persons against whom SAFEMA could be invoked is only the first step under the scheme of the SAFEMA Act. After such a person is identified in a given case, the competent authority must be satisfied that the properties held by such a person are illegally acquired properties of such person having regard to the known sources of income, earnings or assets, or any other information or material available to the competent authority. Only then, proceedings could be initiated for forfeiture of such properties by issuing a notice Under Section 6¹ . Upon receipt of the said notice, it is open² to the recipient of the notice to place all relevant material before the competent authority to establish that the property which is the subject matter of the notice is not illegally acquired property. Such a course of action is open to the noticee notwithstanding the fact that he is a person to whom the Act is applicable.

¶34

FPA-9/MDS/2011

¶35

Page 6 of 22

¶36

8. The identification of Chandra Kumar as a person against whom the SAFEMA Act could be invoked is established by the order of the preventive detention against him.”

¶37

4.3. It is further submitted by the appellant that the detention order could only be used to identify a person (the appellant in the present case) for purposes of action under SAFEMA and that this is only the first step and what is important is thereafter the Competent Authority must be satisfied that the properties held by the appellant are illegally acquired properties of such person(s) having regard to the known sources of income, earnings or assets, or any other information or material available to the Competent Authority. Only then, proceedings could be initiated for forfeiture of such properties by issuing a notice under Section 6(1) ibid .

¶38

4.4 A mere perusal of the show cause notice dated 13/09/2005 under section 6(1) of the Act ( enclosed at Page No. 281 of the typed set), the reasons recorded by the Competent Authority supplied to the counsel in the year 2010 (Page No. 307 of the typed set) and the order of forfeiture dated 03.10.2011 (Page no. 338 of the typed set) would clearly reveal that there are no sufficient grounds to proceed against the appellant for forfeiting his property and also there is no allegation of any link or nexus between the property sought to be forfeited and the money alleged to have been acquired illegally by the appellant.

¶39

4.4.1 The appellant has relied on the judgment of the Hon‟ble Supreme Court in the matter of P.P. Abdulla v. Competent Authority , reported in (2007) 2 SCC 510, wherein the confiscation orders passed against P.P. Abdulla, a person who was convicted under Customs Act, were set aside on the ground that in the show cause notice issued under

¶40

FPA-9/MDS/2011 Page 7 of 22

¶41

Section 6(1) of the Act, no link or nexus between the properties sought to be forfeited and the alleged illegally acquired money of the appellant therein was shown. The relevant portion of the judgment is extracted

¶42

hereunder:-

¶43

“6. Learned Counsel submitted that it has been expressly stated in Section 6(1) that the reason to believe of the competent authority must be recorded in writing. In the counter-affidavit it has also been stated in paragraph 8 that the reasons in the notice under Section 6(1) were recorded in writing. In our opinion this is not sufficient. Whenever the statute required reasons to be recorded in writing, then in our opinion it is incumbent on the respondents to produce the said reasons before the Court so that the same can be scrutinized in order to verify whether they are relevant and germane or not. This can be done either by annexing the copy of the reasons along with the counter- affidavit or by quoting the reasons somewhere in the counter-affidavit. Alternatively, if the notice itself contains the reason of belief, that notice can be annexed to the counter-affidavit or quoted in it. However, all that has not been done in this case.

¶44

It must be stated that an order of confiscation is a very stringent order and hence a provision for confiscation has to be construed strictly, and the statute must be strictly complied with, otherwise the order becomes illegal.

¶45

7. In our opinion, the facts of the case are covered by the decision of this Court in Fatima Mohd. Amina (dead) through LRs. v. Union of India and Anr. (supra). In the present case the contents of the notice, even if taken on face value, do not disclose any sufficient reason warranting the impugned action against the appellant as, in our opinion, the condition precedent for exercising the power under the Act did not exist. Hence, the impugned orders cannot be sustained.

¶46

8. In the present case, in the notice dated 15.3.1988 issued to the appellant under Section 6(1) of the Act (copy of which is annexed as Annexure P1 to this appeal), it has not been alleged therein that there is any such link or nexus between the property sought to be forfeited and the alleged illegally acquired money of the appellant. Hence, in view of the decision of this Court in Fatima Mohd. Amina's case (supra), the said notice dated 15.3.1988 has to be held to be illegal. Consequently the order passed in pursuance of the said notice is declared as null and void. The appeal is, therefore, allowed and the impugned orders of the High Court and the concerned Authorities are set aside. No costs.”

¶47

4.4.2 The appellant have also relied on the full bench judgment

¶48

rendered by the Hon‟ble Apex Court in the matter of Fatima Mohd. Amin

¶49

v. Union of India , reported in (2003) 7 SCC 436. In the operative portion

¶50

of the judgment, it was held as follows-

¶51

“8. The contents of the said notices, even if taken at their face value do not disclose any reason warranting action against the appellant. No allegation whatsoever has been made to this effect that there exists any link or nexus between the property sought to be forfeited and the illegally acquired money of the detenu(s).

¶52

FPA-9/MDS/2011

¶53

Page 8 of 22

¶54

9. As the condition precedent for initiation of the proceeding under SAFEMA did not exist, the impugned orders of forfeiture cannot be sustained. In that view of the matter, the appeals deserves to be allowed. The order under challenge is set aside.”

¶55

10. The appeals are allowed. There shall be no order as to costs.”

¶56

4.4.3 Another judgment referred by the appellant is that of the

¶57

Hon‟ble Supreme Court of India in Aslam Mohammad Merchant v. Competent Authority , reported in (2008) 14 SCC 186, the relevant portion of which is as follows:-

¶58

“14. The relevant provisions of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (for short "SAFEMA") and Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS) are in pari materia.

¶59

23. Before, however, an order of forfeiture can be passed, the Competent Authority must not only comply with the principles of natural justice, he is also required to apply his mind on the materials brought before him. It is also necessary that a finding that all or any of the properties in question were illegally acquired properties is recorded

¶60

30. A similar question again came up before a Three Judges' Bench of this Court in Fatima Mohd. Amin (Smt.) (Dead) Through LRs. v. Union of India and Anr. MANU/SC/0291/2003: 2003(85)ECC723 , wherein relying upon Amratlal Prajivandas (supra), it was held; 7. ...We do not find any averments to the effect that the property acquired by the appellant is a benami property of her son or the same was illegally acquired from her son.

¶61

8. The contents of the said notices, even if taken at their face value do not disclose any reason warranting action against the appellant. No allegation whatsoever has been made to this effect that there exists any link or nexus between the property sought to be forfeited and the illegally acquired money of the detenu(s).

¶62

9. As the condition precedent for initiation of the proceedings under SAFEMA did not exist, the impugned orders of forfeiture cannot be sustained. In that view of the matter, the appeals deserve to be allowed. The order under challenge is set aside.

¶63

31. Our attention, however, has been drawn to a decision of a two Judge Bench of this Court in Kesar Devi (Smt.) v. Union of India and Ors. MANU/SC/0528/2003: wherein Fatima Mohd. Amin (supra) was distinguished by a Bench of this Court, inter alia, opining that no nexus or link between the money of the debt and property sought to be forfeited is required to be established under the Scheme of the Act, stating;

¶64

10...The condition precedent for issuing a notice by the competent authority under Section 6(1) is that he should have reason to believe that all or any of such properties are illegally acquired properties and the reasons for such belief

¶65

FPA-9/MDS/2011

¶66

Page 9 of 22

¶67

have to be recorded in writing. The language of the section does not show that there is any requirement of mentioning any link or nexus between the convict or detenu and the property ostensibly standing in the name of the person to whom the notice has been issued....

¶68

13. We are, therefore, clearly of the opinion that under the scheme of the Act, there is no requirement on the part of the competent authority to mention or establish any nexus or link between the money of the convict or detenu and the property sought to be forfeited. In fact, if such a condition is imposed, the very purpose of enacting SAFEMA would be frustrated, as in many cases it would be almost impossible to show that the property was purchased or acquired from the money provided by the convict or detenu. In the present case, the appellant is the wife of the detenu and she has failed to establish that she had any income of her own to acquire the three properties. In such circumstances, no other inference was possible except that it was done so with the money provided by her husband.

¶69

32. We, with utmost respect to the learned Judges express our inability to agree to the said observations. The necessity of establishing link or nexus in our opinion is writ large on the face of the statutory provision as would appear from the definition of `illegally acquired property' as also that of 'property'. The purport and object for which the Act was enacted point out to the same effect.

¶70

33. Fatima Mohd. Amin (supra) was followed by a Bench of this Court in P.P. Abdulla v. Competent Authority MANU/SC/8782/2006: wherein it was observed:

¶71

7. Learned Counsel submitted that it has been expressly stated in Section 6(1) that the reason to believe of the competent authority must be recorded in writing. In the counter-affidavit it has also been stated in para 8 that the reasons in the notice under Section 6(1) were recorded in writing. In our opinion this is not sufficient. Whenever the statute requires reasons to be recorded in writing, then in our opinion it is incumbent on the respondents to produce the said reasons before the court so that the same can be scrutinised in order to verify whether they are relevant and germane or not. This can be done either by annexing the copy of the reasons along with the counter-affidavit or by quoting the reasons somewhere in the counter-affidavit. Alternatively, if the notice itself contains the reason of belief, that notice can be annexed to the counter-affidavit or quoted in it. However, all that has not been done in this case.

¶72

8. It must be stated that an order of confiscation is a very stringent order and hence a provision for confiscation has to be construed strictly, and the statute must be strictly complied with, otherwise the order becomes illegal.

¶73

It was also observed:

¶74

10. In the present case, in the notice dated 15-3-1988 issued to the appellant under Section 6(1) of the Act (copy of which is annexed as Annexure P-1 to this appeal), it has not been alleged therein that there is any such link or nexus between the property sought to be forfeited and the alleged illegally acquired money of the appellant.”

¶75

FPA-9/MDS/2011

¶76

Page 10 of 22

¶77

34. In the final order, the rule of evidence as envisaged under Section 68-I read with Section 68-J of the Act must be applied. A person affected would be called upon to discharge his burden provided a link or nexus is traced between the holder of the property proceeded against and an illegal activity of the detenu. Such a formation of belief is essential.”

¶78

It was submitted that in view of the law laid down in the above mentioned judgments and on the facts and circumstances of the case as mentioned earlier, the impugned order of forfeiture is liable to be set aside.

¶79

4.5 It has been further submitted that the expression “ reason to believe ” has been interpreted by the Courts to mean that even though formation of opinion may be subjective but it must be based on material on the record. It cannot be arbitrary, capricious or whimsical. On the date of issuance of the 6(1) Notice, the only material before the competent authority was the preventive detention order alone. The judgment of the Hon‟ble Apex Court in the matter of Sheo Nath Singh vs. Appellate CIT, reported in (1972) 3 SCC 234 has been referred in this context, the relevant portion of which is as follows:-

¶80

“9. It is abundantly clear that the two reasons which have been given for the belief which was formed by the Income Tax Officer hopelessly fail to satisfy the requirements of the statute. In a recent caseChhugamal Rajpal v. S. P. Chaliha and Ors. MANU/SC/0241/1971 : [1971]79ITR603(SC) which came up before this Court, a similar situation had arisen and under the directions of the Court, the Department produced the records to show that the Income Tax Officer had complied with the conditions laid down in the statute for issuing a notice relating to escapement of income. There also, the report submitted by the Officer to the Commissioner and the latter's orders thereon were produced. In his report, the Income Tax Officer referred to some communications received by him from the Commissioner of Income-tax, Bihar and Orissa from which it appeared that certain creditors of the assessee were mere name-lenders and the loan transactions were bogus and, therefore, proper investigation regarding the loans was necessary. It was observed that the Income Tax Officer had not set out any reason for coming to the conclusion that it was a fit case for issuing a notice under Section 148 of the Income Tax Act, 1961. The material that he had before him for issuing notice had not been mentioned. The facts contained in the

¶81

FPA-9/MDS/2011

¶82

Page 11 of 22

¶83

communications which had been received were only referred to vaguely and all that had been said was that from those communications it appeared that the alleged creditors were namelenders and the transactions were bogus. It was held that from 'the report submitted by the Income Tax Officer to the Commissioner it was clear that he could not have had reasons to believe that on account of assessee's omission to disclose fully and truly all material facts, income chargeable to tax had escaped assessment.

¶84

10. In our judgment, the law laid down by this Court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the Section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.

¶85

11. There is no material or fact which has been stated in the reasons for starting proceedings in the present case on which any belief could be founded of the nature contemplated by Section 34 (1-A). The socalled reasons are stated to be beliefs thus leading to an obvious selfcontradiction. We are satisfied that the requirements of Section 34 (1A) were not satisfied and, therefore, the notices which had been issued were wholly illegal and invalid.”

¶86

4.5.1 To the same effect is the judgment of the Hon‟ble Supreme Court in

¶87

N. Nagendra Rao & Co. Vs. State of A.P., (1994) 6 SCC 205

¶88

4.5.2 “Reason to believe” is not the same thing as “suspicion” or “doubt” and mere seeing also cannot be equated to believing. “Reason to believe” is a higher level of state of mind. Joti Parshad V. State of Haryana, 1993 Supp (2) SCC 497: 1993 SCC (Cri) 691: AIR 1993 SC 1167.

¶89

4.5.3 The expression “reason to believe” is not synonymous with subjective satisfaction of the Officer. The belief must be held in good faith, it cannot merely be a pretence. It is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not

¶90

FPA-9/MDS/2011

¶91

Page 12 of 22

¶92

extraneous or irrelevant to the purpose of the Section. Partap Singh (Dr) V. Director of Enforcement , (1985) 3 SCC 72: 1985 SCC (Cri) 312: AIR 1985 SC 989: (1985).

¶93

4.5.4 The words “reason to believe” means a belief which a reasonable person would entertain on facts before him. Jai Shanker V. State of H.P., (1973) 3 SCC 83: 1973 SCC (Cri) 145: AIR 1972 SC 2267:

¶94

4.5.5 The word “reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable ground and that the Income Tax Officer may act on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. Sheo Nath V. Appellate CIT , (1972) 3 SCC 234:

¶95

4.5.6 The expression “reason to believe” in S. 34 of the Income Tax Act does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put in differently it is open to the court to examine to question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. S. Narayanappa V. CIT, AIR 1967 SC 523: ITO v. Lakhmani Mewal Das , (1976) 3 SCC 757.

¶96

4.5.7. Both the show cause notice dated 27.09.2004 as well as the reasons for belief supplied on 04.05.2010 does not even whisper anything regarding smuggling or any other illegal activities of the appellant specifically except mentioning the word smuggling activities. Hence the show cause notice itself is not in accordance with law.

¶97

FPA-9/MDS/2011

¶98

Page 13 of 22

¶99

4.6 Apart from the above legal grounds, the impugned order was also contested on the ground of inordinate delay in initiating action. It was submitted that in the instant case, the property was acquired as early as in the year 1988 and construction was completed in 1991 and the detention order against AP was passed in 1993. However, in the show cause notice dated 13.09.2005, the only reason assigned by the Competent Authority for delay is that the respondent was unable to secure the presence of the appellant. It was submitted that the said reason could not be a ground for not initiating action in time. In this context, reliance was placed on the judgment of the Hon‟ble Tribunal in the case of Md. Golam Rasul Mia reported in Income Tax Reports, Volume – 181, Page no. 206.

¶100

4.7 It is also submitted that during the proceedings before the Competent Authority the appellant had provided the detailed sources of acquisition of the property in question alongwith the documentary evidence thereof but these have not been accepted on account of presumptions and assumptions. It was submitted that the plot of land in question was first acquired by the appellant in February, 1988 and 50% share in the land had been sold to his brother H. Haja Alaudeen by virtue of sale deed dated 19.09.1988 for a sale consideration of Rs. 12,500/- only. The construction in the plot was commenced from February, 1988 and was completed in March, 1991. 50% of the cost of land and construction of house property belonging to the appellants share (i.e. 50%)has been admitted as Rs. 2,89,575/-. The sources claimed for the same have been explained as under:

¶101

i. Accumulation of agricultural income from 01.04.1979

¶102

to 31.03.1991Rs. 60,875/Foreign Remittances from 01.04.1980 to 31.03.1990 Rs. 70,375/-

¶103

ii. Foreign Remittances from 01.04.1980 to 31.03.1990

¶104

FPA-9/MDS/2011

¶105

Page 14 of 22

¶106

iii. Income offered for income tax assessment as income. For which no proof available from 1.04.87 to 31.03.91 Rs. 95,800/-

¶107

iv Loans (banks, mother borother and others) Rs. 67,400/-

¶108

Various details alongwith documentary evidences have been submitted in support of each of the sources as above but these have not been accepted by the Competent Authority on account of presumptions and assumptions. According to the appellant, the legal sources of acquisition of the property in question have been fully explained and the property ought to be released.

¶109

In reply to the appellants submissions regarding the alleged delay in issue of the notice under Section 6(1) of the Act in 2004 when the detention order against the appellant was issued in 1993, it was submitted on behalf of the respondent that the intimation regarding issue of detention order dated 02.11.1993 in respect of the detenu H. Haja Alaudeen (AP) was received by the Competent Authority from the concerned authority only in 1999. Thereafter, and as the AP and also the appellant were not available in the country and did not appear before the investigating officers, some time was taken in the investigation. In these circumstances, the time taken in issue of Show Cause Notice to the appellant on 13.09.2005 could not be said to be unreasonable. Further, SAFEMA does not contain any provision laying down the period within which the Show Cause Notice is to be issued. The case cited by the appellant, supra , in this regard was distinguished.

¶110

5.1 It was further submitted that the involvement of Sh. H. Haja Allaudeen in smuggling of foreign currency was indicated from the

¶111

FPA-9/MDS/2011

¶112

Page 15 of 22

¶113

reasons recorded by the concerned authority which issued the detention order dated 29.11.1993 under COFEPOSA, 1974 in respect of the appellant which was also available to the Competent Authority. From the reasons for issue of the said detention order, it was clear that H. Haja Allaudeen, the brother of the appellant had been involved in smuggling of foreign currency in active collaboration with one Abdul Samat from whose house a large amount of Foreign Currency was recovered during the search on 15.07.1993. The statement given by Abdul Samat had elaborately brought out the involvement of the appellant in the smuggling of foreign currency and consequently, detention order dated 29.11.1993 came to be issued against him (H. Haja Allaudeen) under the provisions of COFEPOSA 1974 by the concerned authority. From the investigation conducted by the office of the respondent Competent Authority revealed that H. Haja Allaudeen was in possession of two properties at Nagapattinam. He also did not present himself to the authorities for the due process of law and investigation and was reportedly away from the country for a long time and in Singapore. Details regarding the licit source of his earning were also not forthcoming. Based on these facts and circumstances and the involvement of the AP in the smuggling of foreign currency, the Competent Authority had reasons to believe that the subject properties were illegally acquired property in terms of the SAFEMA and hence the notice under Section 6(1) of SAFEMA was issued to the appellant.

¶114

5.2 As regards the source of acquisition of the subject property, the findings as given in the impugned order in respect of each source of acquisition were re-iterated and it was argued that in the absence of legal sources of acquisition of the property having been explained by the appellant, the property was rightly forfeited.

¶115

FPA-9/MDS/2011

¶116

Page 16 of 22

¶117

5.3 The contention of the appellant regarding it being necessary to allege in the show cause notice regarding nexus of the property sought to be forfeited of the relative and the illegally acquired money of the detenu was contested on the basis of the Hon‟ble Supreme Court in the decision of Kesar Devi (Smt.) v. Union of India and Ors. MANU/SC/0528/2003

¶118

We have considered the rival contentions and gone through the case record. The primary challenge to the impugned order is on the ground that the show cause notice dated 13.09.2005 issued under section 6(1) of SAMFMA did not disclose any reasons why action for forfeiture of the appellant‟s property was warranted. It is contended that there is no allegation regarding the existence of any link or nexus between the property of the appellant sought to be forfeited and the illegally acquired money of the detenu (Haja Alaudeen) in either the notice, the reasons for issue of the notice or the impugned order and therefore, both the notice and the impugned order are liable to be set aside.

¶119

In this connection, the appellant has placed reliance on the judgment of the Constitution Bench of the Hon‟ble Supreme Court of India in the matter of Attorney General for India Vs. Amratlal Prajivandas, reported in (1994) 5 SCC 54 . The relevant portion of the judgment has already been re-produced earlier in this order- para-3 thereof. In this judgment the Hon‟ble Apex Court examined the constitutional validity of SAFEMA and upheld the same. While dealing with the apprehension expressed on behalf of the petitioners that extending the provisions of SAFEMA to the relatives, associates and other holders would be a case of overreach as it could take within its ambit, independently acquired properties of such relatives, associates etc., the Hon‟ble Apex Court held FPA-9/MDS/2011 Page 17 of 22

¶120

that such apprehension was misplaced. The following observation in the order are relevant in this context:

¶121

“Only the properties of the convit/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”

¶122

(Emphasis supplied)

¶123

6.1 The above judgment of the constitutional Bench of the Hon‟ble Apex Court has been followed in several subsequent judgments of the Hon‟ble Supreme Court. Mention has been made of the judgments in the case of Fatima Mohd. Amin Vs Union of India reported in (2003)7 SCC 436 and P.P. Abdulla v/s Competent Authority reported in (2007) 2 SCC 510 . In these judgments, it has been held that in order to sustain a proceeding for forfeiture of property under SAFEMA, the show cause notice under section 6(1) of the Act has to allege that there is nexus between such property and the illegally acquired money of the affected person/detenu and such allegation is required to be confirmed in the final order. In the light of the ratio of the Supreme Court judgments as above, it is required to be seen whether the notice and the impugned order meet the primary requirement of there being nexus between the property of the relative(s) sought to be forfeited and the money earned by the AP from his illegal activities. It is further observed that the judgment of the Hon‟ble Apex Court in the case of Kesar Devi, supra, which has been relied upon by the respondent in support of the case was specifically discussed and distinguished in a later judgment of the Hon‟ble Apex Court in the case of Aslam Mohammad Merchant v. Competent Authority , supra, which has already been re-produced in Para 4.4.3 above. The said judgment is therefore of no help to the respondent.

¶124

FPA-9/MDS/2011

¶125

Page 18 of 22

¶126

6.2 In the light of the ratio in the cases of Amrat Lal Prajivandas, supra, Fatima Md. Amin, supra P.P. Abdulla, supra and Aslam Mohammad Merchant, supra relied upon by the appellant, we may now examine the actual position in the present case. It is observed that the notice under Section 6(1) of SAFEMA in the present case was issued vide Competent Authority‟s letter dated 13.09.2005 (Page 281 of the Paper Book). The show cause notice states that whereas a detention order was issued in respect of H. Haja Alaudeen under the provisions of COFEPOSA Act 1974 and the appellant, being brother of the said detenu, he (i.e. the appellant) is covered as “affected preson” in terms of section 2(2)(C) of the Act. The notice further says that on the basis of relevant information and relevant material available to him, the Competent Authority had reasons to believe that the property mentioned in the show cause notice which are held by the appellant are illegally acquired property within the meaning of clause (c) of the sub-section (1) of section 3 of the said Act. The notice requires the appellant to indicate the sources of his income, earning or assets out of which or by means of which he had acquired the said property and to produce the evidence in that regard and why the property should not be declared to be illegally acquired property in terms of Section of SAFEMA and forfeited to the Government.

¶127

6.3 We have also gone through the reasons recorded for issue of notice u/s 6(1) of SAFEMA (hereinafter also referred to as “Reasons” for short) (page 307 and 308 of Paper Book). In the said “reasons”, after noting the issue of the detention order against the appellant‟s brother, the appellant being covered as „affected person‟ under SAFEMA and the appellant holding the referred property, it goes on to refer to a statement regarding source of funding for purchase of the referred property submitted by the appellant to the Income Tax Department, whereby the property in FPA-9/MDS/2011 Page 19 of 22

¶128

question was shown to have been acquired out of agricultural income, jewel loan, foreign remittance and income which was offered for income tax assessment under the head “other sources” with the explanation that “no strict proof is available” and says that the explanation was accepted without proper scrutiny and that the person affected (i.e. appellant in the present case) was required to be put to the strict proof as to the sources indicated before the Income Tax Department and thus required detailed scrutiny, it was therefore believed that the sources indicated for acquiring the property are only a façade to disguise the income which is not legally earned, in the stated circumstances of the case

¶129

6.4 On considering the notice and the reasons recorded for issue of notice u/s 6(1) of SAFEMA as referred above, we are of the view that neither of these two documents contain any allegation, much less bring out any material to show any link or nexus between the referred property of the appellant to the money earned by the detenu (AP) out of his illegal activities. While it is correct that the appellant, being brother of the detenu, falls within the preview of the “person affected” as per the provisions of 2(1) and clause (c) of the sub section 2 of Section 2 of the Act, as per the ratio of the Hon‟ble Supreme Court judgments in the cases of Amrat Lal Prajivandas, supra, Fatima Md. Amin, supra P.P. Abdulla, supra and Aslam Mohammad Merchant, supra as referred above, in order to initiate and sustain action for forfeiture of the properties of relatives of the detenu, it is essential that not only the notice and the „reasons‟ for issue of such notice contain the allegation that the property of relative of the detenu sought to be forfeited is linked to or has nexus with the money earned by the detenu out of illegal activities, such allegation is required to confirmed by the Competent Authority during the proceedings pursuant to the notice. This is for the reason that the FPA-9/MDS/2011 Page 20 of 22

¶130

objective of SAFEMA is to forfeit only the properties of the convict/detenu in whosoever‟s name they are kept and in whosoever‟s name they are held and independent properties of relatives and friend, which are not attached to the convict/detenu, are not sought to be forfeited and they are also not within the preview of SAFEMA. We find that there is no allegation either in the notice issued under section 6(1) of the Act or in the “reasons” for issue of such notice which may allege that the related property held in the name of the appellant was acquired through the money earned out of the illegal activities of the detenu or had any nexus with such illegal money. There is also no such finding in the impugned order.

¶131

6.5 The “Reasons” for issue of notice under section 6(1) of the Act as recorded by the Competent Authority only say that the source of acquisition of the said property as mentioned by the appellant before the Income Tax Authority are not acceptable and the appellant was required to be put to the strict proof thereof and hence the notice was issued in the facts of the case namely the appellant, being the brother of the detenu against the whom order detention under COFEPOSA was passed and hence covered under SAFEMA.

¶132

6.6 We are of the view that the above allegation is entirely different from an allegation alleging nexus of the concerned property with the illegally acquired money of the detenu. In the impugned order also, we find that it merely holds that the appellant has not discharged the onus of establishing that the property was acquired from licit sources. There is however, no finding in the impugned order establishing nexus of the property of the appellant with the money earned out of the illegal activities of the detenu. In view of the above, and following the ratio of FPA-9/MDS/2011 Page 21 of 22

¶133

the judgments of the Hon‟ble Apex Court in the cases of Amratlal Prajivandas, Fatima Md. Amin, P.P. Abdulla and Mohd Aslam Merchant, supra , we find that the subject showcause notice dated 13.09.2005 is not in accordance with the provisions of SAFEMA and consequently the subject show cause notice, as well as the impugned order arising out of such showcause, are required to be held to be not unsustainable.

¶134

As the show cause itself is found to be unsustainable on this preliminary ground itself, it is not necessary to go into the other pleas and contentions raised by the appellant and the source of funding for purchase of the property. In view of the findings above, we set aside the impugned order with consequential relief to the appellant. Interim application in the matter also stands disposed off accordingly. No order as to cost.

¶135

(Justice Manmohan Singh) Chairman

¶136

(Kaushal Srivastava) Member

¶137

(Anand Kishore) Member

¶138

New Delhi, 1^st June, 2017

¶139

„K‟

¶140

FPA-9/MDS/2011