1995 (6) TMI 185 - AT - FEMA

Summary

Issues Involved:
1. Initiation of proceedings under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976.
2. Identification of properties liable for forfeiture.
3. Explanation and evidence provided by the appellant regarding the source of funds.
4. Competent Authority's conclusions and order of forfeiture.
5. Appellant's grounds of appeal and defense.
6. Analysis of the nexus between the appellant's properties and the detenu, E. L. Francis.
7. Evaluation of individual properties subject to forfeiture.

Issue-Wise Detailed Analysis:

1. Initiation of Proceedings under the Act:
The proceedings against the appellant were initiated under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. A notice dated October 11, 1979, was issued under section 6(1), identifying the appellant as an "associate" of E. L. Francis, detained under the COFEPOSA Act.

2. Identification of Properties Liable for Forfeiture:
The properties identified included:
- 1 acre and 8 cents of land with a building in Edathurithi Amson Village, valued at Rs. 50,000.
- Rs. 10,000 advanced to V. A. Mohamed (brother).
- Chit amount due from Messrs. Elite Bankers, Tripayar, Kerala.
- Right, title, and interest in insurance policies claimed in income-tax returns from 1970-71 to 1975-76.

3. Explanation and Evidence Provided by the Appellant:
The appellant provided detailed explanations and evidence regarding the source of funds for the identified properties:
- The land was purchased from his brother for Rs. 11,800, funded by selling jointly owned property and business income.
- Rs. 10,000 advanced to his brother was adjusted against a loan and purchase consideration of land.
- Subscriptions to Messrs. Elite Bankers were funded through business income.
- Insurance policies were funded through business income and foreign remittances.
- Capital investment in Moly Fabrics was explained through loans and gifts from family members.
- Income from lorry business and foreign remittances were also cited as sources.

4. Competent Authority's Conclusions and Order of Forfeiture:
The Competent Authority concluded that the sources of payments for the properties, except the house construction, were from the partnership in Moly Fabrics. Since the initial investment in Moly Fabrics was not explained from known sources, the income from the partnership was treated as illegal. The Competent Authority ordered the forfeiture of all properties owned by the appellant.

5. Appellant's Grounds of Appeal and Defense:
The appellant argued that he had no connection with the illegal activities of E. L. Francis and provided evidence of legitimate sources of funds. He claimed that the Competent Authority failed to verify the evidence provided by family members and others who had advanced money to him.

6. Analysis of the Nexus Between the Appellant's Properties and the Detenu, E. L. Francis:
The judgment emphasized the need to establish a nexus between the properties and the detenu. The Supreme Court's judgment in Attorney-General for India v. Amratlal Prajivandas clarified that properties of relatives or associates are not liable for forfeiture unless a clear connection with the detenu is established. The Competent Authority's approach was found to be arbitrary and not justified.

7. Evaluation of Individual Properties Subject to Forfeiture:
- House Property: The payment for the land and construction was partly from the partnership income and partly from the sale of jointly owned property. The partnership income could not be treated as tainted without further evidence.
- Loan to Brother: The loan was adjusted against the purchase of land and repayment of a loan from the appellant's mother. The Competent Authority failed to verify the evidence provided by family members.
- Insurance Policies and Chit Fund: These were funded through legitimate business income and foreign remittances. The appellant had tangible sources of income to make these investments.

Conclusion:
The order of forfeiture was found to be unsustainable and was quashed. The appeal was allowed, and the order passed under section 7(1) of the Act on September 15, 1994, was set aside.