2007 (7) TMI 677 - HC - FEMA

Summary

Issues Involved:
1. Challenge to eviction under Section 19 of SAFEMA.
2. Lawful tenancy rights and due process of eviction.
3. Forfeiture of property under SAFEMA and its implications.
4. Principles of natural justice and right to be heard.
5. Applicability of precedents and interpretation of "free from all encumbrances."

Detailed Analysis:

1. Challenge to eviction under Section 19 of SAFEMA:
The petitioners contested the eviction action under Section 19 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA), arguing that they are lawful tenants and cannot be evicted without due process of law. The respondents argued that the property had been forfeited to the Central Government, which vests free from all encumbrances, thereby nullifying the petitioners' tenancy rights.

2. Lawful tenancy rights and due process of eviction:
The petitioners claimed protection under tenancy laws, asserting that they were not parties to the SAFEMA proceedings and had no opportunity to be heard. They argued that eviction without a show cause notice violates natural justice principles. The respondents contended that forfeiture under SAFEMA extinguishes all previous rights, including tenancy, and the competent authority is empowered to evict any person in possession of the forfeited property.

3. Forfeiture of property under SAFEMA and its implications:
The court examined the SAFEMA provisions, particularly Section 7(3), which states that forfeited property vests in the Central Government free from all encumbrances. The court held that once the property is forfeited, all prior rights, including tenancy, are extinguished. The court also noted that SAFEMA's objective is to deprive smugglers and foreign exchange manipulators of their ill-gotten gains, and the forfeiture process is distinct from compulsory purchase under the Income Tax Act.

4. Principles of natural justice and right to be heard:
The petitioners argued that they should have been given an opportunity to be heard before eviction, citing principles of natural justice. The court, however, held that once the property is forfeited under SAFEMA, the question of granting a hearing does not arise as the property vests in the government free from all encumbrances. The court distinguished this case from precedents where the right to be heard was emphasized, noting that those cases involved different statutory contexts.

5. Applicability of precedents and interpretation of "free from all encumbrances":
The petitioners relied on several Supreme Court decisions, including C.B. Gautam v. Union of India and others, to argue that "free from all encumbrances" should not negate tenancy rights. The court distinguished the SAFEMA context from the Income Tax Act, noting that the latter involves compulsory purchase with compensation, whereas SAFEMA involves forfeiture without compensation. The court also referred to the Supreme Court's decision in Attorney General for India v. Amratlal Prajivandas, which upheld SAFEMA's constitutionality, including the provision for forfeiture free from all encumbrances.

Conclusion:
The court dismissed the petition, holding that the forfeited property vests in the Central Government free from all encumbrances, nullifying the petitioners' tenancy rights. The court rejected the claim that the petitioners were entitled to a hearing before eviction, as the statutory framework of SAFEMA does not provide for such a right once forfeiture is finalized. The court also dismissed the argument that the principles from C.B. Gautam's case should apply, emphasizing the distinct statutory purposes of SAFEMA and the Income Tax Act. The court concluded that the petitioners must vacate the premises within eight weeks, during which the eviction order would not be executed.