THE INCOME TAX OFFICER, CIRCLE I (2), KUMBAKONAM & ANR. versus V. MOHAN & ANR. on 14 December 2021

[2021] 12 S.C.R.

ATHE INCOME TAX OFFICER, CIRCLE I (2), KUMBAKONAM& ANR.

v.

V. MOHAN & ANR.

B(Civil Appeal Nos. 8592-8593 of 2010)

DECEMBER 14, 2021

[A. M. KHANWILKAR AND SANJIV KHANNA, JJ.]

Smugglers and Foreign Exchange Manipulators (Forfeitureof Property) Act, 1976: ss. 6(1), (2), 2(2) – Notice of forfeiture –CIllegally acquired property – Claim of the Competent Authority thatthe property to be forfeited is that of the convict and ostensiblyheld 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 isDmandatory to serve the convict or detenu with a primary noticeunder that provision whilst initiating action against the relative ofthe convict – Section 6(1)posits that notice must be given to theperson who is holding the tainted property and is likely to be affectedby the proposed forfeiture of the property – Person immediatelyand directly to be affected is the person who is the recorded ownerEof the property and in possession thereof himself or through someother person on his behalf – Burden of proof u/s. 8 is not to bedischarged by the convict or detenu, but by the person who holdsthe illegally acquired property either by himself or through any otherperson on his behalf – Thus, it is not mandatory to serve a primaryFnotice u/s. 6(1) upon such convict with copy thereof to his relativesu/s. 6(2) – Non-service of such primary notice upon the convictwould not vitiate the entire proceedings initiated only against hisrelatives – Order passed by the High Court that the action againstthe respondents-relatives of the convict, initiated by the CompetentAuthority was vitiated for lack of notice to the convict, set aside.G

Allowing the appeals, the Court

HELD: 1.1 Pivot of The Smugglers and Foreign ExchangeManipulators (Forfeiture of Property) Act, 1976 is to reach the“illegally acquired properties” of the specified convict/detenu inH

whosoever’s name they are kept or by whosoever they are held,whatever be the length of time. [Para 32][178-H; 179-A]

Conclusion

1.2 The dispensation under the 1976 Act applies only topersons specified in Section 2(2) of the Act. Section 2(2)(a) refersto the category of persons who are convicted under the specifiedenactments. Whereas, Section 2(2)(b) refers to persons detainedunder the specified detention law. The expression “person” towhom the 1976 Act applies, has been broadened by includingevery person who is a relative of a person referred to in clause(a) being convict under the specified laws or clause (b) beingdetenu under the Conservation of Foreign Exchange andPrevention of Smuggling Activities Act, 1974. The expression“relative” has been further elaborated in Explanation 2, of Section2, so as to expand the scope of taking corrective measures forreaching up to the illegally acquired properties of a convict ordetenu, as the case may be. Section 2(2)(d) further expands thesweep so as to include associate of a convict or detenu, as thecase may be; and Section 2(2)(e) takes within its ambit any holder(the present holder) of any property, which was at any timepreviously held by a person referred to in clause (a) or clause(b), namely, convict or detenu, as the case may be. The objectiveand purpose of the enactment is reinforced in the encirclingExplanation 4. The intent is to ensure that the convict/detenucannot get away by adopting camouflage or screening, includinglegal transfer of properties in the name of his relative, associateor any other person covered under clause (e) to Section 2(2) ofthe Act. This expanded ambit of clauses (c) to (e) is to beinterpreted in the context of the object and purpose of the Act,but the scope of the Act does not extend to include every propertyheld by a relative or an associate unless the link and theconnection with the illegal activities of the convict/detenu isestablished. For, the Act is only directed to forfeiture of ‘illegallyacquired properties’ of a person falling under clause (a) or clause(b) of Section 2(2) including their specified properties held bythird party. Independent properties of the relatives and friendswhich are not traceable to the illegal activities of the convict/detenu are neither sought to be forfeited nor are they within thepurview of the Act. [Paras 33, 34, 37, 38][179-A-B; 180-A-C;181-C-E; 182-A]

AB

C

D

E

F

G

H

A

A1.3 On plain as well as contextual reading of Section 6, it iscrystal clear that the notice under Section 6(1) is required to beissued to any person to whom the Act applies. As is evident fromSection 2(2) of the 1976 Act, the Act applies not only to convictor detenu, but also to their relative, associate including holder ofany property being Section 2(2)(c), 2(2)(d) and 2(2)(e) respectively.BThe purpose of issuing notice is to enable the person concerned(noticee) to discharge the burden of proof as propounded inSection 8 of the 1976 Act. It is then open to him to prove that theproperty referred to in the notice is his legally acquired property.[Para 47][186-B-C]

C

C

1.4 In a given case, however, if the property is held by aperson owing to merely being in legal possession thereof, butthe ownership of the property at the relevant time is that of theconvict or detenu or his/her relative, as the case may be, it wouldbecome necessary for the Competent Authority to not only giveDnotice to the person in possession of the property in questionbut also to the person shown as owner thereof in the relevantrecords. Similarly, in a case where the person shown as owner inthe relevant records had purchased the subject property fromthe convict or detenu and is a subsequent purchaser, notice isrequired to be issued to both - the present owner and the erstwhileEowner (convict or detenu), as the case may be. However, if theownership of the property in the relevant records at the relevanttime is that of the person in possession (as in these cases), andnot being the convict or detenu, the question of issuing notice tothe latter would serve no purpose. The convict or detenu cannotFbe heard to claim any right in such property including proprietaryrights and for the same reason, he is not expected to dischargethe burden of proof under Section 8 of the 1976 Act as to whetherit is his legally acquired property nor can he be said to be theperson affected with the proposed action of forfeiture as such.[Para 48][186-D-G]G

1.5 The expression “held” in Section 6 has to be understoodto mean that the person is entitled to possession of propertybeing owner of the property in the relevant record or even becausehe is in legal possession thereof. In other words, a person may H

be holding the property also when he (at the relevant time) is inlegal possession of the stated property, even if he is not a recordedowner thereof. In either case, it would be a matter within theambit of expression “held” occurring in Section 6 of the 1976Act. [Para 49][186-G; 187-A-B]

1.6 The third facet of Section 6(1) of the 1976 Act is thenoticee may hold the property either by himself or through anyother person on his behalf. A primary notice under Section 6(1)can be issued only against person to whom the Act applies. If therelative of a convict or detenu has acquired property from theillegal sources of income, earnings or assets of the convict ordetenu, such person would be a person to whom the Act appliesvide Section 2(2)(c) read with Explanation 2. Such person may bea recorded owner of the property-having acquired it wholly orpartly out of or by means of any income, earnings or assets derivedor obtained from or attributable to unlawful activity (whetherindulged into before or after the commencement of the 1976 Act)of the convict or detenu which is prohibited by or under any lawfor the time being in force relating to any matter in respect ofwhich 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 theAct applies, if the property is held in the name of the relative ofthe convict or detenu before or after the commencement of theAct, the notice under Section 6(1) needs to be issued to suchperson (recorded owner as well as in possession), who alone canand is expected to discharge the burden of proof in terms ofSection 8 of the 1976 Act-so as to dissuade the CompetentAuthority 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 Section2(2), in such a case primary notice under Section 6 is required tobe issued to the relative of the convict or detenu and copy thereofserved upon “such other person” who is in de facto possessionthereof (albeit for and on behalf of the relative of the convict ordetenu). Even in this situation, notice to the convict or detenu A

BC

D

EF

G

H

A

BC

D

EF

G

H

Amay not be necessary much less mandatory. For, the 1976 Actapplies even to the relative of the convict or detenu holdingillegally acquired property either by himself or through any otherperson on his behalf. [Para 51][187-E-H]

1.8 Section 6(2) merely refers to the requirement of issuingBnotice to “such other person”. The expression “such person” isfound not only in Section 6(1), but in other provisions of the Actincluding the definition clause i.e., Section 3(1)(c) of illegallyacquired property. The expression “such person” and “such otherperson” occurring in Section 6(2) may have to be understood inthe context and the setting in which it has been employed in theCconcerned provision. A harmonious construction thereof isimperative. [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 underSection 6(1) is addressed. This person can be none other thanDperson referred to in Section 2(2) of the 1976 Act. He can be aconvict or detenu, his relative or associate including the personwho is a holder of the property in question at the relevant time.Section 6(2) then refers to the subject property in the notice andthe factum of the property being held by concerned person (suchEperson)-either the primary noticee to whom the Act applieshimself or through “any other person” on his behalf. The latteris described as “such other person”, in the concluding part ofthat sub-Section [Section 6(2)]. That, “such other person”, is alsocovered within the ambit of expression “any other person”mentioned earlier and holding the property in question on behalfFof the primary noticee. In other words, “such other person” willbe a person other than a person to whom the Act applies beingmerely a holder of illegally acquired property on behalf of theperson to whom Act applies. Thus, he may be a person otherthan a person referred to in Section 2(2) of the 1976 Act. TheGlegislative intent is to cover “such other person” so as to reachup to “illegally acquired property” of the convict/detenu andunravel/lift the veil created by the person to whom the Act applies.The legislative intent is to reach to all illegally acquired propertiesin whosoever’s name they are kept or by whosoever they are H

held irrespective of the time period of such acquisition. This isto ensure that the persons to whom the Act applies referred to inSection 2(2), do not use mechanism to shield illegally acquiredproperties 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 Section6(2) is referable to the primary noticee, who is a person to whomthe Act applies. If, however, the notice mentions that theproperties referred to in the notice are held by the noticee throughany other person on his behalf, that may be a case of holding ofphysical possession of the illegally acquired property by personother than the person to whom the Act applies. In such a case,sub-section (2) triggers in enabling the Competent Authority toissue notice even to “such other person”-not covered by thedefinition of Section 2(2) of the Act. If that person is merely inpossession of the property and not its owner, he may not be ableto explain or prove the fact that the property is not illegallyacquired property of the primary noticee. Indeed, if “such otherperson” is claiming ownership of the property through the relativeof the convict or detenu in relation to illegally acquired property,who was earlier owner thereof upon receipt of notice underSection 6(2) can certainly impress upon the Competent Authoritythat he is a purchaser in good faith for adequate consideration ofthe stated property. Such a plea can be considered by theCompetent Authority on its own merits. [Para 55][189-A-D]

1.11 Section 4 of the Act, which in sub-section (1) usessimilar expression- “any person to whom this Act applies to holdany illegally acquired property either by himself or through anyother person on his behalf”-which is similar to the wordings/expressions used in Section 6 of the Act, reinforces the aboveinterpretation. [Para 56][189-D-E]

1.12 Notice under Section 6(1) cannot be issued in respectof properties for which the Competent Authority has no evidenceor material to record “reasons to believe” that the properties A

BC

D

EF

G

H

Awere acquired from the assets or money provided by the convict/detenu. The expression ‘reasons to believe’ is a phrase used inseveral 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 notBmere feeling or inkling. The requirement is deliberately legislatedas a check against frivolous and rowing inquiries based upon meresuspicion and pretence. The reasons to believe to be valid shouldrefer to facts that have a rational connection or relevant bearingto the formation of belief and should not be extraneous orCirrelevant for the purpose of initiation of inquiry under Section 6of the Act. [Para 57][189-E-G; 190-A]

1.13 Recording of the reasons to believe and satisfactionof the aforesaid conditions is an important condition precedent -a sine qua non - and its violation would have legal consequences.DIt is a jurisdictional requirement, which, unlike a proceduralrequirement, would affect the proceedings if not complied with.Therefore, in such cases, the question of no prejudice isunavailable as the provision for issue of notice and satisfaction ofthe precondition for the issue of notice, i.e., “reasons to believe”,is mandatory and not optional or directory. [Para 58][190-B]E

1.14 Section 8 of the Act predicates that when proceedingsin respect of a property are initiated by way of notice under Section6, the burden of proving that the property is not illegally acquiredshall be on the person affected. The enactment, therefore,reverses the burden of proof but only after the notice underFSection 6 has been validly issued. By virtue of Section 6, theenactment requires the Competent Authority to form reasons tobelieve, which must be rational and based upon some materialwhich would show that the conditions mentioned in Section 2(2)as explained and expounded by this Court in Amratlal PrajivandasGare satisfied. Section 8 does not apply at the initial stage or whenthe Competent Authority decides whether or not notice underSection 6 should be issued. The Competent Authority cannot,simply by relying upon Section 8, reverse the burden of recordingof reasons to believe and mechanically issue notice under Section H

6. For, Section 8 does not apply at the stage when the CompetentAuthority forms and records its reasons to issue notice.[Para 61][190-G; 191-A-C]

1.15 The respondents are covered under the ambit ofrelative-being son and wife of the brother of the convict, to whomthe 1976 Act applied. [Para 35][181-A]

1.16 A priori, Section 6(1) of the 1976 Act nowhere providesthat it is “mandatory” to serve the convict or detenu with a primarynotice under that provision whilst initiating action against therelative of the convict. Indubitably, if the illegally acquiredproperty is held by a person in his name and is also in possessionthereof, being the relative of the convict and who is also a personto whom the Act applies, there is no need to issue notice to theconvict or detenu much less primary notice as held by the HighCourt in the impugned judgment. For, Section 6(1) posits thatnotice must be given to the person who is holding the taintedproperty and is likely to be affected by the proposed forfeiture ofthe property. The person immediately and directly to be affectedis the person who is the recorded owner of the property and inpossession thereof himself or through some other person on hisbehalf. In the latter case, the burden of proof under Section 8 isnot to be discharged by the convict or detenu, but by the personwho holds the illegally acquired property either by himself orthrough 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 otherperson 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 acase, the convict or detenu is not expected to nor can be calledupon to discharge the burden of proof under Section 8.Accordingly, this Court may lean in favour of the view taken bythe High Court of Kerala and Calcutta High Court for independentreasons delineated hitherto. [Para 65][193-A-B]

Sajitha & Ors. vs. Competent Authority & Ors 2005SCC OnLine Ker 101; The Competent Authority &Administrator & Anr. vs. Manilal Jalal & Anr. 2013 SCCOnLine Cal 12911 – approved.

AB

C

D

E

F

G

H

A1.18 The impugned judgment is set aside and the partiesare relegated before the High Court for being heard afresh on allother issues and contentions as may be available to both sides.Further, this Court may not be understood to have expressedany opinion either way on any other contention available to theparties. It is said so because even the impugned judgment makesBit amply clear that the writ petitions filed by the respondents werebeing allowed on the sole ground that the action against therespondents sans primary notice to the convict is vitiated. Thatview having been reversed, the matter needs to go back beforethe High Court for consideration of all other aspects on its ownCmerits. [Para 67][193-D-F]

1.19 During the course of the hearing, an issue arosewhether the convict-VP had expired before the issuance of noticeunder Section 6 on 19th January 1994. The counsel, at the timeof argument, were not aware of the factual position. However, inDthe written submissions, the appellant and the respondents haveaccepted that the convict V.P. had expired before impugnednotices under Section 6 dated 19th January 1994 were issued.Be that as it may, in the instant case, the properties in questionand subject matter of notice under Section 6 are in the name ofand held by the two respondents. No entitlement or right hasEbeen claimed in these properties by the heirs of the deceasedconvict VP. If the properties were in the name of the deceaseddetenu or convict, then different considerations may have applied.In the context of the instant case, as the convict VP had expiredbefore the issuance of notice under Section 6 on 19th JanuaryF1994, therefore, the need and requirement to serve notice onhim 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.

GShobha Suresh Jumani vs. Appellate Tribunal, ForfeitedProperty & Anr. (2001) 5 SCC 755 : [2001] 3 SCR525; Fatima Mohd. Amin (Dead) through LRs. vs. Unionof India & Anr. (2003) 7 SCC 436; Aslam Mohammad H

THE INCOME TAX OFFICER, CIRCLE I (2), KUMBAKONAMv. V. MOHAN

Merchant vs. Competent Authority & Ors. (2008) 14SCC 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] 2Suppl. SCR 754; Mannalal Khetan & Ors. vs. KedarNath 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 Krishanv. 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 SCR48; S. Narayanappa & Ors. v. Commissioner of Incometax, Bangalore AIR 1967 SC 523 : [1967] SCR 590 –referred to.

A

B

C

P. Ramanatha Aiyar’s The Major Law Lexicon; G.P.Singh, in Principles of Statutory Interpretation, 14thEdition, at page 430 – referred to.

D

Case Law Reference

H

ACIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8592-8593 of 2010.

From the Judgment and Order dated 24.03.2008 of the High Courtof Judicature at Madras in Writ Petition Nos.1149-1150 of 2001.

Aman Lekhi, ASG, A. K. Srivastava, Sr. Adv., Rupesh Kumar, S.BA. Haseeb, Adit Khorana, Advs. for the Appellants.

Atul Shankar Vinod, M. P. Vinod, Advs. for the Respondents.

The Judgment of the Court was delivered by

A. M. KHANWILKAR, J.C

1. The conundrum in these appeals is: when the CompetentAuthority[1] claims that the subject property (to be forfeited) is that of theconvict (V.P. Selvarajan) and ostensibly held by the relatives of the convict(respondents herein), whether it is mandatory to serve a primary noticeunder Section 6(1) of the 1976 Act upon such convict with copy thereofDto his relatives under Section 6(2) of the 1976 Act, and non-service ofsuch primary notice upon the convict would vitiate the entire proceedingsinitiated only against his relatives?

2. The High Court of Judicature at Madras[2] vide impugnedjudgment[3] held that Section 6 of the 1976 Act leaves no room for doubtEthat the primary notice must be served on the convict, wherein the convictis required to indicate the sources of his income, earnings or assets, outof which or by means of which he had acquired the properties sought tobe forfeited; and non-service of such notice upon the convict wouldvitiate the action initiated against his relatives, even if the forfeitedproperties are ostensibly held by or in the name of the relatives. TheFHigh Court rejected the argument of the appellants herein (CompetentAuthority) that only the person in whose name the property is held isrequired to be called upon to offer explanation regarding the sources ofhis income, earnings or assets, out of which or by means of which hehad acquired such property including the evidence on which he wouldGrely and other relevant information and particulars. If the property in 1 under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property)Act, 1976 (for short, “1976 Act”)

2 for short, “Madras High Court”

3 in Writ Petition Nos. 1149 & 1150 of 2001 decided on 24.3.2008 reported in 2008HSCC OnLine Mad 244

question is ostensibly held by the relatives in his name or through anyother person on his behalf, the convict or detenu is not expected to norcan offer any explanation in that regard. The High Court also rejectedthe argument of the appellants herein that no prejudice is likely to becaused to the noticees (respondents herein) being the relatives of theconvict, who had held the forfeited properties in their name. The HighCourt opined that the action against the respondents initiated by theCompetent Authority was vitiated for lack of notice to the convict and itwas, thus, pleased to set aside the entire action initiated against therespondents 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. CompetentAuthority & Ors.[4] wherein after analysing the relevant provisions, itheld as follows:

“11. Section 2(c) refers to every person who is a relative of aperson referred to in clause (a) or clause (b). Section 2(e) refersto any holder of any property which was at any time previouslyheld by a person referred to in clause (a) or clause (b). When weread Section 6(1) and 6 (2) along with Section 2 (2)(e) it isevident that notice contemplated under Section 6(2) is toany other person if the property does not stand in the nameof the detenu. So far as this case is concerned, propertystands in the name of wife and brothers. Admittedly noticeshave been issued to them as contemplated under Section6(1). We are of the view, non issue of notice to the detenuwill not vitiate the proceedings as against their relatives.

12. Petitioners also have raised a contention that more than sixyears have elapsed and the proceedings have not been initiatedwithin a reasonable period. No time limit has been prescribedunder the Act. The Apex Court in Attorney General for Indiav. Amratlal Prajivandas[5]has dealt with the scope and ambit ofthe Act which requires no reiteration. However we may refer tothe recent decision of the apex court in Kesar Devi v. Union ofIndia[6]. The apex court while dealing with Section 2(2)(c) ofthe Act has categorically held that the burden of proving 4 2005 SCC OnLine Ker 101

5 (1994) 5 SCC 54 : AIR 1994 SC 2179

6 (2003) 7 SCC 427

AB

C

DE

F

G

H

Athat such property is not illegally acquired property will beupon the person to whom notice has been issued. On factspetitioners could not establish that the properties were legallyacquired. Competent authority and the Tribunal concurrently foundso and this court in writ jurisdiction will not be justified in a takinga different view in the absence of any contra evidence. WeBtherefore find no infirmity in the orders passed by the competentauthority. The writ petition lacks merits and the same would standdismissed.”

CThe second decision is of the Calcutta High Court in TheCompetent Authority & Administrator & Anr. vs. Manilal Jalal &Anr.[7]. Even in this case, notice was issued only to the wife of the detenuand not to the detenu. The question was specifically dealt with by theCalcutta High Court after analysing the relevant provisions in the followingwords:D

“…..

A bare perusal of Section 2 of the Act would show that theAct not only applies to the detenu but also to the relationsand/or associates of such detenu. Nowhere the saidEprovision of law mandates that a proceeding against arelative of a detenu can be initiated only if such detenu isproceeded against under SAFEMA. Such right to proceedagainst the relative/associate is independent of any actiontaken against the detenu under SAFEMA. It is whollyfallacious to argue that the detenu must be proceededFagainst under SAFEMA as a condition precedent for anyaction against a relative of such detenu. The properties and/or assets which were sought to be forfeited were standingin the name of Sarbani Devi Jalan herself and thereforerespondent authorities rightly issued a notice under SectionG6 of the Act upon her as “person affected” for the purposeof initiating a proceeding of forfeiture of such property. Thereis nothing in the law that the property standing in the nameof a relation of a detenu which is sought to be proceededagainst must require a notice to be issued upon the detenu H7 2013 SCC OnLine Cal 12911

also. To infer such a requirement when the same is notprovided in law would amount to rewriting the statutoryprovision which is unwarranted. This submission of theappellants being unfounded must therefore fail.

…..”

4. In view of the above, these appeals not only involve questionregarding interpretation of Section 6 read with other provisions of the1976 Act, but also call upon us to expound the stated questionauthoritatively and resolve the conflicting view taken by different HighCourts.

5. Reverting to the facts of the present case, one V.P. Selvarajan(convict) — brother-in-law of respondent No.2 and paternal uncle ofrespondent No.1, was convicted for an offence punishable under theCustoms Act, 1962[8] on 23.11.1969. As a result of his conviction, hecame within the ambit of the expression “person” or “such person”occurring in the 1976 Act — Section 2 in particular. Respondents beingthe relatives of the convict in terms of Section 2(2) read with Explanation2 also came within the ambit of expression “person” defined in the 1976Act 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 toinquiry, investigation or survey under Section 18 of the Act and on thebasis of the information collated had reason to believe that certainproperties are illegally acquired properties having nexus to the unlawfulactivities of the convict. As a result, a notice under Section 6(1) of the1976 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 illegallyacquired properties of the convict referred to therein.

7. The Competent Authority, however, on the basis of informationgathered had reason to believe that some of the properties were held bythe respondents herein by themselves, which were illegally acquiredproperties within the meaning of Section 3(1)(c) of the 1976 Act.Accordingly, notice under Section 6(1) of the 1976 Act dated 19.1.1994was issued to V. Mohan, respondent No.1 herein being nephew of theconvict, calling upon him to disclose the sources of his income, earnings 8 for short, “1962 Act”

A

B

C

D

EF

G

H

Aor assets, out of which or by means of which he had acquired theproperties referred to in the stated notice by himself. The description ofthe properties had been given in the Schedule, which reads thus:

B

C

D

8. Similarly, a notice dated 28.2.1994 was issued to Smt. V.Padmavathy, respondent No.2 herein being the relative of the convict inrespect of properties referred to in the said notice purportedly illegallyEacquired properties. The Schedule reads thus:

F

G

H

9. The Competent Authority after giving opportunity to therespondent(s) eventually passed separate forfeiture order(s) on 30.4.1998against Smt. V. Padmavathy, respondent No.2 and on 28.5.1998 againstV. Mohan, respondent No.1 in exercise of powers under Section 7(1) ofthe 1976 Act. It held that an order of forfeiture of the stated propertieshad become inevitable as the respondent(s) had failed to produce anycredible evidence or explanation to discharge the burden of proving thatthe properties referred to in the impugned notice were legally acquiredproperties by them.

10. Being aggrieved, the respondents took the matter in appealbearing Nos. F.P.A.No.31/MDS/98 (of respondent No.2) andF.P.A.No.32/MDS/98 (of respondent No.1) before the Appellate Tribunalfor Forfeited Property, New Delhi-II, Camp: Bangalore[9]. These appealscame to be dismissed by the Appellate Tribunal vide common order dated15.11.2000. Resultantly, the order of forfeiture of subject properties passedby the Competent Authority was upheld.

11. The respondents then carried the matter before the MadrasHigh Court by way of Writ Petition No.1149 of 2001 (of respondentNo.1) and Writ Petition No.1150 of 2001 (of respondent No.2). Boththese writ petitions came to be allowed by common judgment and orderdated 24.3.2008 passed by the Division Bench of the Madras High Courttaking the view that the action initiated against the respondents had vitiatedowing to lack of notice to V.P. Selvarajan (convict), which in its viewwas mandatory requirement under Section 6 of the 1976 Act.

12. The appellants, being aggrieved by the said decision, haveapproached this Court by way of present appeals. According to theappellants, the view taken by the Madras High Court vide impugnedjudgment on the interpretation of Section 6 of the 1976 Act is untenable.Whereas, the issue has been rightly concluded in favour of the appellantsby two other High Courts, namely, High Court of Kerala and CalcuttaHigh Court.

13. It is urged that notice under Section 6 of the Act is required tobe given to the person to whom the 1976 Act applies in respect ofproperties held by him, either by himself or through any other person onhis behalf, being illegally acquired property within the meaning of theAct and proposed to be forfeited by the Central Government under theAct. It does not require issuing notice to the convict or detenu, as the 9 for short, “Appellate Tribunal”

A

B

C

D

E

F

G

H

Acase 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 onhis behalf, the notice is required to be given to such person. To buttressthis submission, reliance has been placed on Section 2 of the Act providingfor application of the Act to the persons specified in Section 2(2). Thespouse of the brother of the convict as well as the son of the brother ofBthe convict are plainly covered within the expression “relative” as clarifiedin Explanation 2 of Section 2 of the 1976 Act and for which reason, theAct applies to the respondents as well. Emphasis is placed on theexpression “held” occurring in Section 6 of the 1976 Act in particularwhich in terms of definition in P. Ramanatha Aiyar’s The Major LawCLexicon[10] would cover (i) those entitled to possession of property; and(ii) those in possession thereof.

14. It is urged that respondents were admittedly holding theproperties in their name and thus, they were entitled to possession ofsuch property and in fact they were in physical possession thereof.DTherefore, they alone were expected to offer explanation and dischargethe burden of proving that the properties are their legally acquiredproperties. They were, in fact, the persons directly affected by theproposed action of forfeiture and, hence, notice under Section 6 wasrequired to be issued to the respondents alone. There is no mandate inSection 6 that a primary notice be served on the convict to require him toEindicate his sources of income as noted by the Madras High Court.More so, the convict is not expected to offer explanation with regard tothe properties held by his relatives and not by him.

15. As regards the purport of Section 6(2) of the 1976 Act, it isurged that the plain and literal interpretation does not mandate issuingFnotice to the convict even if the property proposed to be forfeited is notheld by him at the relevant time. It is a different matter that the convictcan also be issued notice, but it is not a mandatory requirement when theproperties proposed to be forfeited were held by the relatives of theconvict at the relevant time when the action is initiated.

G16. The appellants have placed reliance on the decisions of theHigh Court of Kerala and Calcutta High Court referred to earlier. Inaddition, reliance has also been placed on the dictum of the ConstitutionBench of this Court in Amratlal Prajivandas[11], which has decoded the 10 4th Edition, Vol. 3 at pages 3050-51H11 Supra at Footnote No. 5

intent of the legislation and all relevant provisions while rejecting theargument regarding constitutional validity of the enactment. It held thatthe burden of establishing that the properties mentioned in Section 6notice held on that date by a relative or an associate of the convict ordetenu are not illegally acquired properties, lies upon such relative orassociate. Further, the Act is intended to frustrate all attempts at screeningproperties irrespective of how the relatives/associates hold the property(whether benami or as name-lender or through transferee) and whereinthe said relative/associate cannot disclose that the properties have notbeen acquired with the monies or assets belonging to a detenu/convict,but the failure to discharge the burden would justify their forfeiture therebeing a prohibition on any person to whom the Act applies from holdingillegally acquired properties.

17. Reliance has also been placed on the dictum in Shobha SureshJumani vs. Appellate Tribunal, Forfeited Property & Anr.[12], whereina show-cause notice under Section 6 was issued to the detenu SureshManoharlal Jumani and his wife Shobha Suresh Jumani. Right to fileappeal by Shobha Suresh Jumani was questioned by the competentauthority. Nevertheless, this Court upheld the action initiated against therelative (wife) of the detenu as the properties were held by her. It issubmitted that the impugned judgment be set aside and the contra viewtaken by the High Court of Kerala and Calcutta High Court be affirmed.

18. Per contra, learned counsel for the respondents has supportedthe view taken by the Madras High Court in the impugned judgment andwould urge that the appellants had all throughout proceeded against therespondents on the assumption that the respondents are only ostensibleowners and the properties in question, in fact, belonged to the convict.Further, the respondents were holding the subject properties on behalfof the convict. In that context, the Madras High Court examined thepurport of Section 6 and the interplay of two sub-sections therein toconclude that primary notice to the convict was a mandatory requirement,in such a fact situation. Now, in the present appeals, the appellants havetaken a completely different position, namely, that the respondents are,in fact, the recorded owners of the subject properties and, therefore, nonotice 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 AB

C

D

E

F

G

H

Aurged that the properties referred to in the impugned notices issued tothe respondents were not made subject matter of notice under Section 6issued to the convict on 2.2.1980. In other words, no notice had everbeen given to the convict in respect of properties referred to in theimpugned notices issued to the respondents as being his illegally acquiredproperties held through other person on his behalf.B

20. As a matter of fact, it is urged by the respondents that Section6(1) posits that when a notice is issued to a relative, it is imperative uponthe Department to allege and establish a nexus between the propertiesof 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,Cearnings or assets of the convict or detenu. The personal properties ofrelative or associate of the convict or detenu having no connection withthe convict or detenu, cannot be made subject matter of forfeiture underthe 1976 Act as held in Amratlal Prajivandas[13]; Kesar Devi[14]; FatimaMohd. Amin (Dead) through LRs. vs. Union of India & Anr.[15]; andDAslam Mohammad Merchant vs. Competent Authority & Ors.[16].

21. It is then urged that the subject properties cannot be forfeitedwithout substantiating the link or nexus between the properties of therelatives with the activity of the convict or detenu and more so when therelatives are not his immediate relatives such as parents or children orEspouse. For lack of nexus between the properties sought to be forfeitedbeing that of the convict, the statutory presumption is not attracted; andit must follow that Section 8 requiring burden of proof to be dischargedby the noticee being the relative of the convict, would not come intoplay. Moreover, the notice contains a bald unreasoned averment — thatthe properties in question were acquired during the time when the convictFwas engaged in gold smuggling, the only inescapable conclusion is thatthe said properties were acquired by the funds of such convict. As amatter of fact, the respondents had furnished copious materials beforethe Authorities to establish that the properties in question are, in fact,personal properties purchased by them out of their business earnings,Ggifts, etc. The plea so taken by the respondents has been completelydiscarded.

13 supra at Footnote No. 5 (para 44)

14 supra at Footnote No. 6 (paras 11 and 12)

15 (2003) 7 SCC 436 (paras 7 to 9)H16 (2008) 14 SCC 186 (para 45)

22. It is urged that neither the Competent Authority nor theAppellate Tribunal took into account that no reasons have been recordedon the basis of which it was believed that the properties of therespondents were illegally acquired. Relying on the dictum in NazirAhmad vs. Emperor[17]and Chandra Kishore Jha vs. Mahavir Prasad& Ors.[18], it is urged that when a statute provides something to be donein a particular manner it ought to be done in that manner alone and in noother manner. Whereas, the Competent Authority failed to record properreasons to believe as stipulated in Section 6 of the 1976 Act.

23. It is then contended that on account of inordinate and unduedelay, the proceedings suffer from the vice of arbitrariness andirrationality. In that, the convict was convicted on 23.11.1969 for anoffence punishable under the 1962 Act. The properties in questionbelonging 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 inthe criminal proceedings against the convict nor in the notice issued tohim on 2.2.1980. No explanation has been offered or forthcoming fromthe Competent Authority about the delay in issuing notice after 25 years,calling upon the respondents to explain and account for the sources offunds from which the properties in question have been acquired by them.This is not only unjustified, but also impractical and not meet the test ofa reasonable period of time. Now, further period of 25 years has lapsed.Thus, to reopen and re-adjudicate the entire proceedings afresh at thisdistance of time would not only be iniquitous, but also result in seriousirreparable harm and injury to the respondents and persons claimingthrough them.

24. It is urged that this Court may lean in favour of closure of theproceedings inasmuch as even the appellants succeed, the parties mayhave to be relegated to the High Court for consideration of all otheraspects raised by the respondents in the writ petitions and not dealt withby the High Court being of the view that initiation of the action againstthe respondents without primary notice to the convict vitiated the entireproceedings. As a matter of fact, the High Court in paragraph 21 of theimpugned judgment had left it open to the Authorities to initiate freshproceedings in accordance with law, which the appellants have not chosen 17 AIR 1936 PC 253

18 (1999) 8 SCC 266

AB

C

D

E

F

G

H

Ato initiate despite the fact that there was no interim stay given by thisCourt in that regard.

25. We have heard Mr. Aman Lekhi, learned Additional SolicitorGeneral of India, Mr. A.K. Srivastava, learned senior counsel for theappellants and Mr. Atul Shankar Vinod, learned counsel for theBrespondents.

26. Before we proceed to examine the different viewpoints inreference to the provisions of the 1976 Act, it is essential to notice thelegislative intent for enacting the 1976 Act. That can be discerned fromthe Preamble of the Act and also exhaustively dealt with by the nine-CJudges Constitution Bench of this Court, in Amratlal Prajivandas[19].

27. The Preamble of the 1976 Act reads thus:

“An Act to provide for the forfeiture of illegally acquiredproperties of smugglers and foreign exchange manipulators andfor matters connected therewith or incidental thereto.

D

WHEREAS for the effective prevention of smuggling activitiesand foreign exchange manipulations which are having a deleteriouseffect on the national economy it is necessary to deprive personsengaged in such activities and manipulations of their ill-gotten gains; AND WHEREAS such persons have been augmenting suchEgains by violations of wealth-tax, income-tax or other laws or byother means and have thereby been increasing their resourcesfor operating in clandestine manner; AND WHEREAS such persons have in many cases beenholding the properties acquired by them through such gainsFin the names of their relatives, associates and confidants;”

28. This Court dealt with the legislative intent in extenso. It alsoanalysed the relevant provisions of the 1976 Act which would reinforceGthe legislative intent. While dealing with the definition of “illegally acquiredproperties” (re: question No.4 in paragraph 43), it had noticed that thestated expression is quite expansive. It not only takes within its ambit theproperty acquired after the Act, but also the property acquired beforethe Act, “whatever be the length of time”. Secondly, it takes in the property H19 Supra at Footnote No. 5

H19 Supra at Footnote No. 5

which may have been acquired partly from out of illegal activity — inwhich case, of course, the provision of Section 9 would be attracted.Further, illegal activity is not confined to violation of the laws mentionedin Section 2 of the 1976 Act but all laws which Parliament has power tomake, such as if a smuggler has acquired some properties by evadingtax laws or by committing theft, robbery, dacoity, misappropriation orany other illegal activity prohibited by the Indian Penal Code or anyother law in force. All that would be liable to be forfeited.

29. The Constitution Bench negatived the challenge to theexpansive definition of expression “illegally acquired property” on thegrounds of unreasonableness, arbitrariness or for that matter on any ofthe 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 insmuggling and foreign exchange manipulations do not keep regularand proper accounts with respect to such activity or its income orof the assets acquired therefrom. If such person indulges in otherillegal activity, the position would be no different. The violation offoreign exchange laws and laws relating to export and importnecessarily involves violation of tax laws. Indeed, it is a well-known fact that over the last few decades, smuggling,foreign exchange violations, tax evasion, drugs and crimehave all got mixed-up. Evasion of taxes is integral to suchactivity. It would be difficult for any authority to say, in theabsence of any accounts or other relevant material thatamong the properties acquired by a smuggler, which of themor which portions of them are attributable to smuggling andforeign exchange violations and which properties or whichportions thereof are attributable to violation of other laws(which Parliament has the power to make). It is probablyfor this reason that the burden of proving that the propertiesspecified in the show-cause notice are not illegally acquiredproperties is placed upon the person concerned. May bethis is a case where a dangerous disease requires a radicaltreatment. Bitter medicine is not bad medicine. In law it isnot possible to say that the definition is arbitrary or is couched inunreasonably wide terms. Further, in view of clear and AB

C

DE

F

G

H

Aunambiguous language employed in clause (c) of Section 3, it isnot possible or permissible to resort to the device of reading down.The said device is usually resorted to save a provision from beingdeclared unconstitutional, incompetent and ultra vires. We are,therefore, of the opinion that neither the constitutional validity ofthe said definition can be questioned nor is there any warrant forBreading down the clear and unambiguous words in the clause. Sofar as justification of such a provision is concerned, there is enoughand more. After all, all these illegally acquired propertiesare earned and acquired in ways illegal and corrupt — atthe cost of the people and the State. The State is deprivedCof its legitimate revenue to that extent. These propertiesmust justly go back where they belong — to the State. …..”

A

30. After having said that while dealing with the ambit of Section2(2) of the Act, the Court observed thus:D

“Question No. 5

44. It is contended by the counsel for the petitioners that extendingthe provisions of SAFEMA to the relatives, associates and other‘holders’ is again a case of overreaching or of over-breadth, as itEmay be called — a case of excessive regulation. It is submittedthat the relatives or associates of a person falling under clause(a) or clause (b) of Section 2(2) of SAFEMA may have acquiredproperties of their own, may be by illegal means but there is noreason why those properties be forfeited under SAFEMA justbecause they are related to or are associates of the detenu orFconvict, 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 orassociated with the convict/detenu, within the net of SAFEMA,and once he comes within the net, all his illegally acquired propertiesGcan be forfeited under the Act. In our opinion, the saidcontention is based upon a misconception. SAFEMA isdirected towards forfeiture of “illegally acquired properties”of a person falling under clause (a) or clause (b) of Section2(2). The relatives and associates are brought in only forthe purpose of ensuring that the illegally acquired propertiesHof the convict or detenu, acquired or kept in their names, do not escape the net of the Act. It is a well-known fact thatpersons indulging in illegal activities screen the propertiesacquired from such illegal activity in the names of theirrelatives and associates. Sometimes they transfer suchproperties to them, may be, with an intent to transfer theownership and title. In fact, it is immaterial how such relativeor associate holds the properties of convict/detenu —whether as a benami or as a mere name-lender or as a bonafide transferee for value or in any other manner. He cannotclaim those properties and must surrender them to the Stateunder the Act. Since he is a relative or associate, as definedby the Act, he cannot put forward any defence once it isproved that that property was acquired by the detenu —whether in his own name or in the name of his relatives andassociates. It is to counteract the several devices that areor may be adopted by persons mentioned in clauses (a) and(b) of Section 2(2) that their relatives and associatesmentioned in clauses (c) and (d) of the said sub-section arealso brought within the purview of the Act. The fact of theirholding or possessing the properties of convict/detenufurnishes the link between the convict/detenu and hisrelatives and associates. Only the properties of the convict/detenu are sought to be forfeited, wherever they are. Theidea is to reach his properties in whosoever’s name theyare kept or by whosoever they are held. The independentproperties of relatives and friends, which are not traceableto the convict/detenu, are not sought to be forfeited norare they within the purview of SAFEMA[**]. We may proceedto explain what we say. Clause (c) speaks of a relative of aperson referred to in clause (a) or clause (b) (which speakof a convict or a detenu). Similarly, clause (d) speaks ofassociates of such convict or detenu. If we look to ** That this was the object of the Act is evident from para 4 of the preamble whichstates: “And whereas such persons have in many cases been holding the propertiesacquired by them through such gains in the names of their relatives, associatesand confidants.” We are not saying that the preamble can be utilised forrestricting the scope of the Act, we are only referring to it to ascertain the objectof the enactment and to reassure ourselves that the construction placed by usaccords with the said object.

AB

C

DEF

G

H

A

(emphasis supplied)

AB

C

DEF

G

H

A

AExplanation (3) which specifies who the associates referredto in clause (d) are, the matter becomes clearer. ‘Associates’means — (i) any individual who had been or is residing in theresidential premises (including outhouses) of such person [‘suchperson’ refers to the convict or detenu, as the case may be,referred to in clause (a) or clause (b)]; (ii) any individual whoBhad been or is managing the affairs or keeping the accounts ofsuch convict/detenu; (iii) any association of persons, body ofindividuals, partnership firm or private company of which suchconvict/detenu had been or is a member, partner or director; (iv)any individual who had been or is a member, partner or director ofCan association of persons, body of individuals, partnership firm orprivate company referred to in clause (iii) at any time when suchperson had been or is a member, partner or director of suchassociation of persons, body of individuals, partnership firm orprivate company; (v) any person who had been or is managingthe affairs or keeping the accounts of any association of persons,Dbody of individuals, partnership firm or private company referredto in clause (iii); (vi) the trustee of any trust where (a) the trusthas been created by such convict/detenu; or (b) the value of theassets contributed by such convict/detenu to the trust amounts,on the date of contribution not less than 20% of the value of theEassets of the trust on that date; and (vii) where the competentauthority, for reasons to be recorded in writing, considers that anyproperties of such convict/detenu are held on his behalf by anyother person, such other person. It would thus be clear that theconnecting link or the nexus, as it may be called, is the holding ofproperty or assets of the convict/detenu or traceable to such detenu/Fconvict. Section 4 is equally relevant in this context. Itdeclares that “as from the commencement of this Act, itshall not be lawful for any person to whom this Act appliesto hold any illegally acquired property either by himself orthrough any other person on his behalf”. All such propertyGis liable to be forfeited. The language of this section isindicative of the ambit of the Act. Clauses (c) and (d) inSection 2(2) and the Explanations (2) and (3) occurringtherein shall have to be construed and understood in thelight of the overall scheme and purpose of the enactment.The idea is to forfeit the illegally acquired properties of the D

H

THE INCOME TAX OFFICER, CIRCLE I (2), KUMBAKONAMv. V. MOHAN [A. M. KHANWILKAR, J.]

convict/detenu irrespective of the fact that such propertiesare held by or kept in the name of or screened in the nameof any relative or associate as defined in the said twoExplanations. The idea is not to forfeit the independentproperties of such relatives or associates which they mayhave acquired illegally but only to reach the properties ofthe convict/detenu or properties traceable to him, whereverthey are, ignoring all the transactions with respect to thoseproperties. By way of illustration, take a case where aconvict/detenu purchases a property in the name of hisrelative or associate — it does not matter whether heintends such a person to be a mere name-lender or whetherhe really intends that such person shall be the real ownerand/or possessor thereof — or gifts away or otherwisetransfers his properties in favour of any of his relatives orassociates, or purports to sell them to any of his relativesor associates — in all such cases, all the said transactionswill be ignored and the properties forfeited unless theconvict/detenu or his relative/associate, as the case maybe, establishes that such property or properties are not“illegally acquired properties” within the meaning of Section3(c). In this view of the matter, there is no basis for theapprehension that the independently acquired propertiesof such relatives and associates will also be forfeited evenif they are in no way connected with the convict/detenu. Sofar as the holders (not being relatives and associates) mentionedin Section 2(2)(e) are concerned, they are dealt with on a separatefooting. If such person proves that he is a transferee in good faithfor consideration, his property — even though purchased from aconvict/detenu — is not liable to be forfeited. It is equallynecessary to reiterate that the burden of establishing thatthe properties mentioned in the show-cause notice issuedunder Section 6, and which are held on that date by a relativeor an associate of the convict/detenu, are not the illegallyacquired properties of the convict/detenu, lies upon suchrelative/associate. He must establish that the said propertyhas not been acquired with the monies or assets providedby the detenu/convict or that they in fact did not or do notbelong to such detenu/convict. We do not think that Parliament AB

C

D

E

F

G

H

Aever intended to say that the properties of all the relatives andassociates, may be illegally acquired, will be forfeited just becausethey happen to be the relatives or associates of the convict/detenu.There ought to be the connecting link between thoseproperties and the convict/detenu, the burden of disprovingwhich, as mentioned above, is upon the relative/associate.BIn this view of the matter, the apprehension and contentionof the petitioners in this behalf must be held to be basedupon a mistaken premise. The bringing in of the relatives andassociates or of the persons mentioned in clause (e) of Section2(2) is thus neither discriminatory nor incompetent apart from theCprotection of Article 31-B.”

31. While examining the contention whether clauses (c) to (e) ofSection 2(2) is a case of overreach or overbreadth, it held that thisargument of excessive regulation was based on a misconception as theDAct is only directed towards forfeiture of “illegally acquired propertiesof the person falling under clause (a) or clause (b) of Section 2(2)”. Therelative and associates are brought in only to ensure that the ‘illegallyacquired properties’ of the convict or the detenu, acquired or kept in thenames of relatives or associates do not escape the net of the Act. ThereEcould be cases where the persons mentioned in clauses (a) and (b) couldtransfer ‘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 illegallyacquired property of the convict/detenu – whether as a benami, or as amere name-lender or through transferee or in any other manner. TheFobjective and purpose of the Act is to counteract devices that are ormay be adopted by persons mentioned in clauses (a) or (b) of Section2(2), hence, their relatives or associates mentioned in clauses (c) or (d)of the said sub-section are also brought within the purview of the Act.The relatives or associates holding or possessing the illegally acquiredGproperty of the convict/detenu is the link between the convict/detenu.The idea is to forfeit the properties of the convict/detenu wherever theyare, and to reach properties in whosoever’s name they are kept or held.

32. In the backdrop of the dictum of the Constitution Bench andthe subsequent decisions of this Court, we may hasten to add that pivotHof the 1976 Act is to reach the “illegally acquired properties” of the THE INCOME TAX OFFICER, CIRCLE I (2), KUMBAKONAMv. V. MOHAN [A. M. KHANWILKAR, J.]

specified convict/detenu in whosoever’s name they are kept or bywhosoever they are held, whatever be the length of time.33. Concededly, the dispensation under the 1976 Act applies onlyto persons specified in Section 2(2)[20].

20 2. Application.— (1) The provisions of this Act shall apply only to the personsspecified in sub-section(2).

(2) The persons referred to in sub-section (1) are the following, namely:—

(a) every person—

(i) who has been convicted under the Sea Customs Act, 1878 (8 of 1878), orthe Customs Act, 1962 (52 of 1962), of an offence in relation to goods of avalue 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 of1973), of an offence, the amount or value involved in which exceeds onelakh of rupees; or

(iii) who having been convicted under the Sea Customs Act, 1878 (8 of1878), or the Customs Act, 1962 (52 of 1962), has been convictedsubsequently 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 of1973), has been convicted subsequently under either of those Acts; (b) every person in respect of whom an order of detention has been made underthe Conservation of Foreign Exchange and Prevention of Smuggling ActivitiesAct, 1974:Provided that—

(i) such order of detention, being an order to which the provisions of section9 or section 12A of the said Act do not apply, has not been revoked on thereport of the Advisory Board under section 8 of the said Act or before thereceipt of the report of the Advisory Board or before making a reference tothe Advisory Board; or

(ii) such order of detention, being an order to which the provisions ofsection 9 of the said Act apply, has not been revoked before the expiry ofthe time for, or on the basis of, the review under sub-section (3) of section9, or on the report of the Advisory Board under section 8, read with sub-section (2) of section 9, of the said Act; or

(iii) such order of detention, being an order to which the provisions ofsection 12A of the said Act apply, has not been revoked before the expiryof the time for, or on the basis of, the first review under sub-section (3) ofthat section, or on the basis of the report of the Advisory Board undersection 8, read with sub-section (6) of section 12A, of that Act; or

(iv) such order of detention has not been set aside by a court of competentjurisdiction;

(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);

A

B

C

D

EF

G

H

A34. Broadly stated, Section 2(2)(a) refers to the category of personswho are convicted under the specified enactments. Whereas, Section2(2)(b) refers to persons detained under the specified detention law.The expression “person” to whom the 1976 Act applies, has beenbroadened by including every person who is a relative of a person referredto in clause (a) being convict under the specified laws or clause (b)Bbeing detenu under the Conservation of Foreign Exchange and Preventionof Smuggling Activities Act, 1974. The expression “relative” has beenfurther elaborated in Explanation 2, of Section 2, so as to expand thescope of taking corrective measures for reaching up to the illegallyacquired properties of a convict or detenu, as the case may be.C

(e) any holder (hereafter in this clause referred to as the present holder) of anyproperty which was at any time previously held by a person referred to inclause (a) or clause (b) unless the present holder or, as the case may be, any onewho held such property after such person and before the present holder, is orwas a transferee in good faith for adequate consideration.

Explanation 1.— For the purposes of sub-clause (i) of clause (a), the value of anyDgoods in relation to which a person has been convicted of an offence shall be thewholesale price of the goods in the ordinary course of trade in India as on the date of thecommission 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;E

(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).FExplanation 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 (includingout houses) of such person;

(ii) any individual who had been or is managing the affairs or keeping theaccounts of such person;

(iii) any association of persons, body of individuals, partnership firms, orGprivate company within the meaning of the Companies Act, 1956, of whichsuch person had been or is a member, partner or director;

(iv) any individual who had been or is a member, partner or director of anassociation of persons, body of individuals, partnership firm, or privatecompany referred to in clause (iii) at any time when such person had been or isa member, partner or director of such association, body, partnership firm orprivate company;H

35. As regards the respondents herein, it is obvious that they arecovered under the ambit of relative — being son and wife of the brotherof the convict, to whom the 1976 Act applied.

36. Section 2(2)(d) further expands the sweep so as to includeassociate 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 inthe encircling Explanation 4 as reproduced hereinbefore. Obviously,the intent is to ensure that the convict/detenu cannot get away by adoptingcamouflage or screening, including legal transfer of properties in thename 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 interpretedin the context of the object and purpose of the Act, but the scope of theAct does not extend to include every property held by a relative or anassociate unless the link and the connection with the illegal activities ofthe convict/detenu is established. For, the Act is only directed to forfeitureof ‘illegally acquired properties’ of a person falling under clause (a) orclause (b) of Section 2(2) including their specified properties held bythird party. Independent properties of the relatives and friends which

(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 privatecompany 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 valueof the assets, if any, contributed by him earlier) to the trust amounts, on thedate on which the contribution is made, to not less than twenty per cent. ofthe value of the assets of the trust on that date;

(vii) where the competent authority, for reasons to be recorded in writingconsiders that any properties of such person are held on his behalf by anyother person, such other person.

Explanation 4.— For the avoidance of doubt, it is hereby provided that the questionwhether any person is a person to whom the provisions of this Act apply may bedetermined with reference to any facts, circumstances or events (including anyconviction or detention) which occurred or took place before the commencementof this Act.

A

B

C

DE

F

G

H

Aare not traceable to the illegal activities of the convict/detenu are neithersought to be forfeited nor are they within the purview of the Act.

39. Section 3 is the definition clause. The expression “illegallyacquired property” has been expounded in clause (c) of sub-Section (1)thereof[21].BThe other relevant definition clause is expression “property” inSection 3(1)(e)[22].

40. As aforementioned, in Amratlal Prajivandas[23], whilstinterpreting 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 asC

21 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 commencementDof this Act, wholly or partly out of or by means of any income, earnings or assetsderived or obtained from or attributable to any activity prohibited by or under any lawfor the time being in force relating to any matter in respect of which Parliament haspower to make laws; or

(ii) any property acquired by such person, whether before or after the commencementof this Act, wholly or partly out of or by means of any income, earnings or assets inrespect of which any such law has been contravened; orE(iii) any property acquired by such person, whether before or after the commencementof this Act, wholly or partly out of or by means of any income, earnings or assets thesource of which cannot be proved and which cannot be shown to be attributable to anyact or thing done in respect of any matter in relation to which Parliament has no powerto make laws; or

(iv) any property acquired by such person, whether before or after the commencementof this Act, for a consideration, or by any means, wholly or partly traceable to anyFproperty referred to in sub-clauses (i) to (iii) or the income or earnings from suchproperty;and includes—(A) any property held by such person which would have been, in relation to anyprevious holder thereof, illegally acquired property under this clause if such previousholder had not ceased to hold it, unless such person or any other person who held theGproperty at any time after such previous holder or, where there are two or more suchprevious holders, the last of such previous holders is or was a transferee in good faithfor adequate consideration; (B) any property acquired by such person, whether before or after the commencementof this Act, for a consideration, or by any means, wholly or partly traceable to anyproperty falling under item (A), or the income or earnings therefrom; 22 (e) “property” includes any interest in property, movable or immovable;H23 Supra at Footnote No. 5

to include not only the property acquired after the enactment of the Actbut also property acquired before the Act, whatever be the length oftime, and further the illegal activity is not confined to the laws mentionedin Section 2 of the Act but also other laws which the Parliament iscompetent to make. At the same-time it is clarified that the definition of‘illegally acquired properties’ does not include the properties of therelatives or associates covered under clauses (c) and (d) of Section 2(2)even if they have acquired the properties by illegal activities or in violationof the laws made by the Parliament. For, the Act applies only to ‘illegallyacquired properties’ of the convict/detenu held by or in the name of therelative 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 forany person to whom this Act applies to hold any illegally acquiredproperty either by himself or through any other person on hisbehalf”. All such property is liable to be forfeited. The languageof this section is indicative of the ambit of the Act. Clauses (c)and (d) in Section 2(2) and the Explanations (2) and (3) occurringtherein shall have to be construed and understood in the light ofthe overall scheme and purpose of the enactment. The idea is toforfeit the illegally acquired properties of the convict/detenuirrespective of the fact that such properties are held by or kept inthe name of or screened in the name of any relative or associateas defined in the said two Explanations. The idea is not to forfeitthe independent properties of such relatives or associates whichthey may have acquired illegally but only to reach the propertiesof the convict/detenu or properties traceable to him, whereverthey are, ignoring all the transactions with respect to thoseproperties...”

On the issue of the applicability of the Act to holders mentioned inSection 2(2)(e) of the Act, this Court held that they fall in a differentclass from relatives and associates who are dealt with on a separatefooting. If a person covered under clause (e) to Section 2(2) proves thathe is a transferee in good faith without notice, for adequate consideration,his property — even though purchased from a convict/detenu — is notliable to be forfeited.

AB

C

DEF

G

H

A42. In the present judgment, it is not necessary for us to dilate onthe definition of “illegally acquired property” as the sole issue involvedis: whether it is mandatory to issue a primary notice under Section 6 ofthe 1976 Act to the convict and not merely to the relatives of the convictwho hold the properties proposed to be forfeited? Nevertheless, it maybe useful to advert to Section 4[24] of the 1976 Act which prohibits holdingBof illegally acquired property.

A

43. On the literal construction of this provision, it must follow thatit shall not be lawful for any person (as defined in Section 2(2) of the1976 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 throughCany other person on his behalf. It is well settled that when penalty (suchas forfeiture of such property) is imposed by statute for the purpose ofpreventing something from being done on some ground of public policy,the thing prohibited, if done, will be treated as void, even though thepenalty if imposed is not enforceable. Such acts of commission andDomission become void even without express declaration regarding its voidness, because such penalty implies a prohibition[25]. Be it noted thatSection 4 of the Act posits a clear mandate that the person to whom theAct applies shall not hold any illegally acquired property and there is acorresponding duty on the Competent Authority to initiate process afterdue inquiry under Section 18 of the 1976 Act for forfeiture of suchEproperty — whether acquired before the commencement of the Act orthereafter.

44. That process has to be initiated by the Competent Authorityby issuing notice under Section 6[26] of the 1976 Act to such person who F

24 4. Prohibition of holding illegally acquired property.— (1) As from thecommencement of this Act, it shall not be lawful for any person to whom this Actapplies to hold any illegally acquired property either by himself or through any otherperson on his behalf.

(2) Where any person holds any illegally acquired property in contravention of theprovisions of sub-section (1), such property shall be liable to be forfeited to theCentral Government in accordance with the provisions of this Act.G25 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., 2021 SCCOnLine SC 147

26 6. Notice of forfeiture.— (1) If, having regard to the value of the properties held byany person to whom this Act applies, either by himself or through any otherperson on his behalf, his known sources of income, earnings or assets, and any otherHinformation or material available to it as a result of action taken under section 18 or holds the properties proposed to be forfeited being illegally acquiredproperties. That person may hold the property either by himself or throughany 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 whomthe 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 acquiredsuch property, the evidence on which he relies and other relevantinformation and particulars.

45. Before we proceed to analyse Section 6 of the 1976 Act, itwould be apposite to reproduce Section 18[27] of the Act, which is referredto in Section 6(1), being the preceding procedural steps to be taken bythe Competent Authority before issuing notice under Section 6(1), uponhaving reason to believe that the concerned properties are illegally acquiredproperties held by the noticee, either by himself or through any otherperson on his behalf.

otherwise, the competent authority has reason to believe (the reasons for such belief tobe 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 personaffected) calling upon him within such time as may be specified in the notice, whichshall 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 toshow cause why all or any of such properties, as the case may be, should not bedeclared to be illegally acquired properties and forfeited to the Central Governmentunder this Act.

(2) Where a notice under sub-section (1) to any person specifies any property asbeing held on behalf of such person by any other person, a copy of the notice shall alsobe served upon such other person.

27 18. Power of competent authority to require certain officers to exercise certainpowers.— (1) For the purposes of any proceedings under this Act or the initiation ofany such proceedings, the competent authority shall have power to cause to be conductedany 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 sub-section (1), the competent authority may,having regard to the nature of the inquiry, investigation or survey, require an officer ofthe Income-tax Department to conduct or cause to be conducted such inquiry,investigation or survey.

(3) Any officer of the Income-tax Department who is conducting or is causing to beconducted any inquiry, investigation or survey required to be conducted under sub-section (2) may, for the purpose of such inquiry, investigation or survey, exercise anypower (including the power to authorise the exercise of any power) which may beexercised by him for any purpose under the Income-tax Act, 1961 (43 of 1961), and theprovisions of the said Act shall, so far as may be, apply accordingly.

A

B

C

D

E

F

G

H

A46. At this stage, we may also refer to the other relevant provisionbeing Section 8[28] of the 1976 Act provisioning for burden of proving thatthe property referred to in the notice is legally acquired property of thenoticee.

47. On plain as well as contextual reading of Section 6, it is crystalBclear that the notice under Section 6(1) is required to be issued to anyperson to whom the Act applies. As is evident from Section 2(2) of the1976 Act, the Act applies not only to convict or detenu, but also to theirrelative, 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 enablethe person concerned (noticee) to discharge the burden of proof asCpropounded in Section 8 of the 1976 Act. It is then open to him to provethat 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 personowing to merely being in legal possession thereof, but the ownership ofthe property at the relevant time is that of the convict or detenu or his/Dher relative, as the case may be, it would become necessary for theCompetent Authority to not only give notice to the person in possessionof the property in question but also to the person shown as owner thereofin the relevant records. Similarly, in a case where the person shown asowner in the relevant records had purchased the subject property fromEthe convict or detenu and is a subsequent purchaser, notice is required tobe issued to both — the present owner and the erstwhile owner (convictor detenu), as the case may be. However, if the ownership of the propertyin the relevant records at the relevant time is that of the person inpossession (as in these cases), and not being the convict or detenu, thequestion of issuing notice to the latter would serve no purpose. TheFconvict or detenu cannot be heard to claim any right in such propertyincluding proprietary rights and for the same reason, he is not expectedto discharge the burden of proof under Section 8 of the 1976 Act as towhether it is his legally acquired property nor can he be said to be theperson affected with the proposed action of forfeiture as such.G49. The expression “held” in Section 6 has to be understood tomean that the person is entitled to possession of property being owner ofthe property in the relevant record or even because he is in legal possession 28 8. Burden of proof.— In any proceedings under this Act, the burden of proving thatany property specified in the notice served under section 6 is not illegally acquiredHproperty shall be on the person affected.

thereof. In other words, a person may be holding the property also whenhe (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 amatter within the ambit of expression “held” occurring in Section 6 ofthe 1976 Act.

50. The third facet of Section 6(1) of the 1976 Act is the noticeemay hold the property either by himself or through any other person onhis behalf. As noted earlier, a primary notice under Section 6(1) can beissued only against person to whom the Act applies. If the relative of aconvict or detenu has acquired property from the illegal sources ofincome, earnings or assets of the convict or detenu, such person wouldbe a person to whom the Act applies vide Section 2(2)(c) read withExplanation 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 unlawfulactivity (whether indulged into before or after the commencement ofthe 1976 Act) of the convict or detenu which is prohibited by or underany law for the time being in force relating to any matter in respect ofwhich Parliament has power to make laws.

51. In other words, going by the definition of “illegally acquiredproperty” in Section 3(1)(c) and of “person” in Section 2(2) to whomthe Act applies, if the property is held in the name of the relative of theconvict or detenu before or after the commencement of the Act, thenotice under Section 6(1) needs to be issued to such person (recordedowner as well as in possession), who alone can and is expected todischarge the burden of proof in terms of Section 8 of the 1976 Act —so as to dissuade the Competent Authority from proceeding furtheragainst such property. Indeed, if the illegally acquired property is held inthe name of the relative, but the de facto possession thereof is withsome other person, who is not covered by the expression “person” asgiven in Section 2(2), in such a case primary notice under Section 6 isrequired to be issued to the relative of the convict or detenu and copythereof served upon “such other person” who is in de facto possessionthereof (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 necessarymuch less mandatory. For, the 1976 Act applies even to the relative ofthe convict or detenu holding illegally acquired property either by himselfor through any other person on his behalf.

A

BC

D

EF

G

H

A52. Learned counsel appearing for the parties had commended uswith the purport of Section 6(2) of the 1976 Act. Different interpretationhas been given by both sides to the expressions occurring therein. Section6(2) merely refers to the requirement of issuing notice to “such otherperson”.B53. The expression “such person” is found not only in Section6(1), but in other provisions of the Act including the definition clause i.e.,Section 3(1)(c) of illegally acquired property. The expression “suchperson” and “such other person” occurring in Section 6(2) may have tobe understood in the context and the setting in which it has been employedin the concerned provision. A harmonious construction thereof isCimperative.

A

54. In the first part of Section 6(2), the expression used is “anyperson”. That is a person to whom primary notice under Section 6(1) isaddressed. This person can be none other than person referred to inSection 2(2) of the 1976 Act. He can be a convict or detenu, his relativeDor associate including the person who is a holder of the property inquestion at the relevant time. Section 6(2) then refers to the subjectproperty in the notice and the factum of the property being held byconcerned person (such person) — either the primary noticee to whomthe Act applies himself or through “any other person” on his behalf. TheElatter is described as “such other person”, in the concluding part of thatsub-Section [Section 6(2)]. That, “such other person”, is also coveredwithin the ambit of expression “any other person” mentioned earlier andholding the property in question on behalf of the primary noticee. Inother words, “such other person” will be a person other than a person towhom the Act applies being merely a holder of illegally acquired propertyFon behalf of the person to whom Act applies. Thus, he may be a personother than a person referred to in Section 2(2) of the 1976 Act. Thelegislative intent is to cover “such other person” so as to reach up to“illegally acquired property” of the convict/detenu and unravel/lift theveil created by the person to whom the Act applies. We may usefullyGrecapitulate the enunciation of the Constitution Bench, wherein it is heldthat the legislative intent is to reach to all illegally acquired properties inwhosoever’s name they are kept or by whosoever they are heldirrespective of the time period of such acquisition. This is to ensure thatthe persons to whom the Act applies referred to in Section 2(2), do notuse mechanism to shield illegally acquired properties from the proposedHaction of forfeiture.

55. Be it noted that the expression “such person” employed inSection 6(2) is referable to the primary noticee, who is a person to whomthe Act applies. If, however, the notice mentions that the propertiesreferred to in the notice are held by the noticee through any other personon his behalf, that may be a case of holding of physical possession of theillegally acquired property by person other than the person to whom theAct applies. In such a case, sub-section (2) triggers in enabling theCompetent Authority to issue notice even to “such other person” — notcovered by the definition of Section 2(2) of the Act. If that person ismerely in possession of the property and not its owner, he may not beable to explain or prove the fact that the property is not illegally acquiredproperty of the primary noticee. Indeed, if “such other person” is claimingownership of the property through the relative of the convict or detenuin relation to illegally acquired property, who was earlier owner thereofupon receipt of notice under Section 6(2) can certainly impress upon theCompetent Authority that he is a purchaser in good faith for adequateconsideration of the stated property. Such a plea can be considered bythe Competent Authority on its own merits.

56. Section 4 of the Act, which in sub-section (1) uses similarexpression – “any person to whom this Act applies to hold any illegallyacquired property either by himself or through any other person on hisbehalf” – which is similar to the wordings/expressions used in Section 6of the Act, reinforces the above interpretation.

57. Notice under Section 6(1) cannot be issued in respect ofproperties for which the Competent Authority has no evidence or materialto record “reasons to believe” that the properties were acquired fromthe assets or money provided by the convict/detenu. The expression‘reasons to believe’ is a phrase used in several enactments and interpretedby this court to mean not ‘mere subjective satisfaction’ based on surmiseand conjecture, but a belief that is ‘honest and based upon reasonablegrounds’.[29] The satisfaction should be based upon objective materialand not mere feeling or inkling.[30] The requirement is deliberately legislated as a check against frivolous and rowing inquiries based upon meresuspicion and pretence.[31] The reasons to believe to be valid should referto facts that have a rational connection or relevant bearing to the formation 29 Tata Chemicals Ltd. v. Commissioner of Customs (Preventive), Jamnagar, (2015) 11SCC 628

30 Kewal Krishan v. State of Punjab, AIR 1967 SC 737

31 Bar Council of Maharashtra v. M. V. Dabholkar & Ors., (1976) 2 SCC 291

A

B

C

D

E

F

G

H

Aof belief and should not be extraneous or irrelevant for the purpose[32] ofinitiation of inquiry under Section 6 of the Act.

58. Recording of the reasons to believe and satisfaction of theaforesaid conditions is an important condition precedent – a sine quanon – and its violation would have legal consequences. It is a jurisdictionalBrequirement, which, unlike a procedural requirement, would affect theproceedings if not complied with. Therefore, in such cases, the questionof no prejudice is unavailable as the provision for issue of notice andsatisfaction of the precondition for the issue of notice, i.e., “reasons tobelieve”, is mandatory and not optional or directory.

59. G.P. Singh, in Principles of Statutory Interpretation, 14[th]CEdition, at page 430, has laid down principles and rules for ascertainingthe mandatory or directory nature of provisions, and has noted that thisdepends on the intent of the legislature and not necessarily on the languagethat the intent is clothed in. The nature and design of the statute, theeffects which would follow from construing it one way or the other, andDthe severity or triviality of consequences that flow therefrom have to beconsidered. At times, the courts examine whether the statute providesfor the contingency of non-compliance and whether non-compliance isvisited with some penalty etc., but this is not a necessary or sufficientbasis for determining whether the provision is mandatory or directory innature. Lastly, if a provision is mandatory, it must be obeyed and followed.EThis is especially so in case of jurisdictional requirements, i.e., pre-conditions that have to be fulfilled before any action is taken.

60. In the context of the present enactment, it is unnecessary tounderscore that when a notice under Section 6 of the Act is issued, theconsequences entail forfeiture of property or fine in lieu of forfeiture asFenvisaged by Sections 7 and 9, respectively, of the Act. We have notquoted Section 11, but the said provision postulates that transfer ofproperty referred to in a notice under Section 6 is null and void. Therefore,transactions after issuance of notice under Section 6 or 10 (which appliesto the procedure in respect of certain trust properties) are void and areto be ignored.G61. Section 8[33] of the Act predicates that when proceedings inrespect of a property are initiated by way of notice under Section 6, the 32 S. Narayanappa & Ors. v. Commissioner of Income-tax, Bangalore, AIR 1967 SC 52333 8. Burden of proof. In any proceedings under this Act, the burden of proving thatany property specified in the notice served under section 6 is not illegally acquiredHproperty shall be on the person affected.

burden of proving that the property is not illegally acquired shall be onthe person affected. The enactment, therefore, reverses the burden ofproof but only after the notice under Section 6 has been validly issued.By virtue of Section 6, the enactment requires the Competent Authorityto form reasons to believe, which must be rational and based upon somematerial which would show that the conditions mentioned in Section2(2) as explained and expounded by this Court in Amratlal Prajivandas[34]are satisfied. Section 8 does not apply at the initial stage or when theCompetent Authority decides whether or not notice under Section 6 shouldbe issued. The Competent Authority cannot, simply by relying uponSection 8, reverse the burden of recording of reasons to believe andmechanically issue notice under Section 6. For, Section 8 does not applyat the stage when the Competent Authority forms and records its reasonsto issue notice.

62. Section 7[35] of the Act, which is titled ‘Forfeiture of propertyin certain cases’, supports the above interpretation as it envisages thatthe Competent Authority shall consider the explanation, if any, to theshow-cause notice issued under Section 6 and the material before it.After giving notice to the person affected, and in case the person affectedholds any property specified in the notice through any other person, then 34 Supra at Footnote No. 5

35 7. Forfeiture of property in certain cases. (1) The competent authority may, afterconsidering 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 casewhere the person affected holds any property specified in the notice through any otherperson, 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 acquiredproperties.

(2) Where the competent authority is satisfied that some of the properties referred toin the show-cause notice are illegally acquired properties but is not able to identifyspecifically such properties then, it shall be lawful for the competent authority tospecify the properties which, to the best of its judgment, are illegally acquired propertiesand record a finding accordingly under sub-section (1).

(3) Where the competent authority records a finding under this section to the effect thatany 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 freefrom all encumbrances.

(4) where any shares in a company stand forfeited to the Central Government underthis Act, then, the company shall, notwithstanding anything contained in the CompaniesAct, 1956 (1 of 1956), or the articles of association of the company, forthwith registerthe Central Government as the transferee of such shares.

AB

C

D

E

F

G

H

Ato such other person, a reasonable opportunity of being heard would beafforded to them. Thereafter, the Competent Authority may pass anorder, recording findings whether or not the listed properties are illegallyacquired properties.

63. In Kesar Devi[36], this Court held that the language of SectionB6(1) does not indicate any requirement of mentioning any link or nexusbetween the convict or the detenu and the property ostensibly standingin the name of the person covered under clauses (c), (d) and (e) toSection 2(2) and also referred to Section 8 which incorporates reverseburden of proof. However, the said observations must be read in light ofthe Constitution Bench judgment in the case of Amratlal Prajivandas[37],Cwhich is the authoritative and binding precedent. Indeed, Kesar Devi’s[38]judgment observes that in some cases where the relationship is closeand direct, an inference can easily be drawn and no link or nexus has tobe indicated and may itself indicate some link or nexus, which can beduly taken notice of and the reasons to believe can be recorded in writing.DThat, however, may depend on facts of the case and not be true in allcases.

64. A priori, we are of the considered opinion that Section 6(1) ofthe 1976 Act nowhere provides that it is “mandatory” to serve the convictor detenu with a primary notice under that provision whilst initiating actionEagainst the relative of the convict. Indubitably, if the illegally acquiredproperty 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 theAct applies, there is no need to issue notice to the convict or detenumuch less primary notice as held by the High Court in the impugnedjudgment. For, Section 6(1) posits that notice must be given to the personFwho is holding the tainted property and is likely to be affected by theproposed forfeiture of the property. The person immediately and directlyto be affected is the person who is the recorded owner of the propertyand in possession thereof himself or through some other person on hisbehalf. In the latter case, the burden of proof under Section 8 is not to beGdischarged by the convict or detenu, but by the person who holds theillegally acquired property either by himself or through any other personon his behalf.

36 Supra at Footnote No. 637 Supra at Footnote No. 5H38 Supra at Footnote No. 6

65. The expression “such other person” in Section 6(2) is, thus,referable to a person falling in class “through any other person on hisbehalf”. That is the person to whom the Act applies, as noted in theopening part of Section 6(1) of the Act. In such a case, the convict ordetenu is not expected to nor can be called upon to discharge the burdenof proof under Section 8. Accordingly, we may lean in favour of theview taken by the High Court of Kerala and Calcutta High Courtreproduced above, for independent reasons delineated hitherto. The viewtaken 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 thisCourt. However, those judgments have not dealt with the question thatarise for consideration in the present appeals.

67. Having said this, we need to set aside the impugned judgmentand relegate the parties before the High Court by restoring the writpetitions to the file to its original number for being heard afresh on allother issues and contentions as may be available to both sides includingthe argument that there is an inordinate, undue and unexplained delay ininitiating the action against the respondents (writ petitioners) and as aresult of which it would be iniquitous to call upon the respondents tooffer explanation by reopening the adjudication of the entire proceedings.We do not wish to dilate on any other plea in these appeals. Further, wemay not be understood to have expressed any opinion either way on anyother contention available to the parties. We say so because even theimpugned judgment makes it amply clear that the writ petitions filed bythe respondents were being allowed on the sole ground that the actionagainst the respondents sans primary notice to the convict is vitiated.That view having been reversed, the matter needs to go back before theHigh Court for consideration of all other aspects on its own merits.

68. During the course of the hearing, an issue arose whether theconvict, i.e., V.P. Selvarajan had expired before the issuance of noticeunder Section 6 on 19[th] January 1994. The counsel, at the time ofargument, were not aware of the factual position. However, in the writtensubmissions, the appellant and the respondents have accepted that theconvict V.P. Selvarajan had expired before impugned notices underSection 6 dated 19[th] January 1994 were issued.

69. Be that as it may, in the present case, the properties in questionand subject matter of notice under Section 6 are in the name of and held A

B

C

D

E

F

G

H

Aby the two respondents. No entitlement or right has been claimed inthese properties by the heirs of the deceased convict V. P. Selvarajan. Ifthe properties were in the name of the deceased detenu or convict, thendifferent considerations may have applied. In the context of the presentcase as the convict V.P. Selvarajan had expired before the issuance ofnotice under Section 6 on 19[th] January 1994, therefore, the need andBrequirement to serve notice on him would not arise.

70. Accordingly, these appeals succeed. The common impugnedjudgment and order dated 24.3.2008 passed by the Madras High Courtin Writ Petition Nos.1149 and 1150 of 2001 is set aside. Instead, the writpetitions are restored to the file to its original number for being consideredCafresh on its own merits in accordance with law on all other issues andcontentions available to both sides except the question answered in thisjudgment. Thus, all other contentions available to both parties are leftopen. We request the High Court to expeditiously dispose of the remandedwrit petitions. No order as to costs.

DPending applications, if any, stand disposed of.

Nidhi Jain

Appeals allowed.

E

F

G

H