2011 (11) TMI 766 - HC - FEMA

Summary

Issues Involved:
1. Validity of the "reasons to believe" recorded by the competent authority u/s 6 of SAFEMA.
2. Nexus between the alleged smuggling activity and the acquisition of properties.
3. Burden of proof u/s 8 of SAFEMA.

Summary:

1. Validity of the "reasons to believe" recorded by the competent authority u/s 6 of SAFEMA:
The petitioner challenged the order dated 28-11-1994 passed u/s 7(1) and 7(3) of SAFEMA, the appellate Tribunal order dated 8-3-1996, and the rectification order dated 8-5-1996 u/s 20 of SAFEMA. The competent authority issued a notice dated 10-5-1978 u/s 6 of SAFEMA, stating that the properties listed in the schedule were acquired illegally. The "reasons to believe" were based on information from the Commissioner of Income Tax, which showed discrepancies in the petitioner's income tax returns and assessments. The competent authority concluded that the source of investments in properties and assets was not explained or proved, thus falling under sec. 3(1)(c)(iii) of SAFEMA.

2. Nexus between the alleged smuggling activity and the acquisition of properties:
The petitioner argued that the "reasons to believe" did not establish any nexus between the alleged smuggling activity and the acquisition of properties. The petitioner had never been convicted for any offense, and no source material connected the alleged smuggling activity to the funds used to acquire the properties. The respondent contended that the nexus need not be established for the detenu's own property, only for benami properties held in the name of others. The court referred to precedents, including Fatima Mohd. Amin (2003) and P.P. Abdulla (2007), which emphasized the need for a clear link between illegal activities and the properties sought to be forfeited.

3. Burden of proof u/s 8 of SAFEMA:
The respondent argued that u/s 8 of SAFEMA, the burden of proving that the properties were not illegally acquired lay on the petitioner. The petitioner failed to explain the source of income for the properties. However, the court noted that the "reasons to believe" did not establish a nexus between the income from alleged smuggling activities and the acquisition of properties. The court cited Shanti Devi v. Union of India (1998), which held that the burden of proof u/s 8 comes into play only when a nexus is established between the property and the illegal activity.

Conclusion:
The court found that the "reasons to believe" recorded by the competent authority were insufficient to establish a nexus between the alleged smuggling activity and the acquisition of properties. Consequently, the notice issued u/s 6(1) of SAFEMA was not valid, and the orders passed by the competent authority and the appellate Tribunal were quashed. The parties were left to bear their respective costs.