Supreme Court: In a case where the bench of AM Khanwilkar* and Sanjiv Khanna, JJ was called upon to decide whether it is mandatory to issue a primary notice under Section 6 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 to the convict and not merely to the relatives of the convict who hold the properties proposed to be forfeited, the Court has elaborately interpreted the provision and has held 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.
The Court explained that,
“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.”
What does the law state?
Section 4 prohibits holding of illegally acquired property. It provides 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.
This process has to be initiated by the Competent Authority by issuing notice under Section 6 to such person who holds the properties proposed to be forfeited being illegally 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.
Analysis of Section 6
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.
“Held” – Explained
The expression “held” in Section 6 means 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.
Further, the noticee may hold the property either by himself or through any other person on his behalf.
Mere legal possession by the person holding the property
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.
Subsequent purchase of property from the convict or detenu
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, 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.
De facto possession by “such other person”
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.”
“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.”
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.
However, 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.
Requirement of “reasons to believe”
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 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.”
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.
Conclusion
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.
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.
[Income Tax Officer v. V. Mohan, 2021 SCC OnLine SC 1240, decided on 14.12.2021]
Counsels
For appellants: Additional Solicitor General of India Aman Lekhi and Senior Advocate AK Srivastava
For Respondents: Advocate Atul Shankar Vinod
*Judgment by: Justice AM Khanwilkar