2016 (9) TMI 166 - HC - FEMA

Defective notice - Whether the Tribunal was right in holding that the notice is defective and unsustainable? - Whether the Tribunal was right in holding that the independent properties of a relative of a convict or detenu,cannot be forfeited? - Held that - As already held that the notice does not establish any link between the convict and the properties. It is also not the case of the petitioner that the properties were purchased out of illegal income earned in India by the convict. It is also pertinent to point out that the proceedings against the detenu was dropped on 10.02.1991. Had there been any nexus or link, the petitioner would not have dropped the proceedings. Though the burden of proof lies on the person affected under section 18, the statutory requirement for commencement of the proceedings cannot be forfeited to forfeit the properties. That stage would arise only when the notice is as per the statute. What by law requires to be express, cannot be left to be inferred. This court after careful consideration of the relevant provisions accepts the findings of the tribunal and holds that the notice under section 6 must establish the link or nexus and in the absence of the same, the entire proceedings would stand vitiated. The returns and the explanations must have been considered. The notice itself, proceeds on the basis that many properties are agricultural lands. There is also a reference to revenue records. The income tax authorities have also accepted the agricultural income. The conduct and the findings only reflect the non suiting of the legal norms by the authority. It is also not in dispute that the remittances from Malaysia was made through proper banking channel and the properties were purchased from agricultural income and remittances. Indisputably the properties are individual properties without any nexus to the convict/detenu. The object of the act is to ensure that the properties purchased out of smuggling activities or by illegal means in violation of the provision of the SAFEM Act cannot be permitted to be enjoyed by the convict/detenu or a relative holding the property as benami. The forfeiture of a relative s property has to be read in the context and objects of the Act. It is only when the link or nexus of the properties with the convict/detenue or to the income from such illegal activity is established, the properties standing even in the name of a relative can be forfeited. Therefore, this court concurring with the view of the tribunal holds that the individual properties of a relative, as defined under section 2 of the SAFEM Act cannot be forfeited.

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that the notice is defective and unsustainable?
2. Whether the Tribunal was right in holding that the independent properties of a relative of a convict or detenu cannot be forfeited?

Detailed Analysis:

Issue 1: Whether the Tribunal was right in holding that the notice is defective and unsustainable?

The petitioner sought to quash the order of the 2nd respondent dated 30.7.2010, which set aside the order of forfeiture dated 30.9.2005. The petitioner argued that the main object of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEM Act) is to forfeit illegally acquired properties of the convict and their relatives if the source of acquisition cannot be proved to be legal. The petitioner issued a show cause notice under section 6(1) of the Act, believing that the properties were illegally acquired, and subsequently passed an order of forfeiture under section 7(1).

The Tribunal, however, found the notice defective. Upon review, it was evident that the notice under section 6 of the SAFEM Act dated 10.01.1992 was a printed proforma and did not establish a link between the convict and the properties in question. The statement of reasons recorded by the petitioner was based on the income tax proceedings of the 1st respondent, but there was no indication that the properties were acquired by the convict in the name of the 1st respondent.

The court noted that the apex court in 2003 (7) SCC 427 stated that there is no requirement to establish a nexus between the convict's money and the property sought to be forfeited. However, the apex court in 2008 (14) SCC 186 held that a link must be found between the property sought to be forfeited and the income or assets acquired illegally. The court concluded that the notice must explicitly establish the link between the properties and the convict/detenu, and in the absence of such a link, the proceedings would be vitiated.

Issue 2: Whether the Tribunal was right in holding that the independent properties of a relative of a convict or detenu cannot be forfeited?

The petitioner contended that the 1st respondent failed to prove the legal source of income for acquiring the properties. The 1st respondent relied on income tax returns and explanations, which were rejected by the petitioner, arguing that the findings under the IT Act are not binding. However, the court noted that the proceedings were initiated based on the income tax returns, and therefore, the returns and explanations should have been considered.

The properties in question were agricultural lands, with income tax authorities accepting the agricultural income. The remittances from Malaysia were made through proper banking channels, and the properties were purchased from agricultural income and remittances. The court observed that the properties were individual properties without any nexus to the convict/detenu. The object of the SAFEM Act is to ensure that properties acquired through illegal activities are not enjoyed by the convict/detenu or their relatives holding the property as benami.

The court held that the forfeiture of a relative's property must be read in the context and objects of the Act. Only when the link or nexus of the properties with the convict/detenu or the illegal income is established can the properties standing in the name of a relative be forfeited. Thus, the court concurred with the Tribunal's view that the individual properties of a relative, as defined under section 2 of the SAFEM Act, cannot be forfeited.

Conclusion:

The writ petition was dismissed, and the Tribunal's decision was upheld. The court concluded that the notice under section 6 must establish the link between the properties and the convict/detenu, and in the absence of such a link, the proceedings are vitiated. Additionally, the independent properties of a relative of a convict or detenu cannot be forfeited unless a nexus is established.