2015 (8) TMI 1531 - HC - Customs

Proceeding for forfeiture of property - restrictions on import of steel or steel utensils from Nepal - Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976 - HELD THAT - It is not very necessary to hold this question because the notice that Bharat Prasad and Shyam Babu have been detained in COFEPOSA for indulging in several schemes that itself gives them jurisdiction. Further in the notice under Section 6 of the SAFEMA itself it is noticed that report in terms of Section 6 of the Act having been received from the Income Tax Authorities there was reason to believe that conditions existed for forfeiture of properties. It is well established that existence of materials is a condition precedent for forming a reason to believe but it is not open for the court to go into the question of sufficiency of materials - In the present case if we see the notice which gives the fact for reason to believe that Bharat Prasad and Shyam Babu had been detained under COFEPOSA and that a report about unexplained stocks of steel utensils had been received from the Income Tax Department. There was neither any inquiry nor any report nor any material suggested that the properties which were sought to be forfeited were illegally acquired properties. The substantive restrictions on import of steel utensils was brought about in 19th May 1969 and these purchases of properties partition in the family in the year 1962 were all much much prior to that. In our view applying the Wednesbury principle the decision of the Competent Authority and the Appellate Authority as well as the learned Single Judge who has not gone into the question of denial at all cannot be sustained. Petition allowed.

Summary

Issues:
Interlinked cases arising from forfeiture of property under SAFEMA

Analysis:
1. Background and Family Business: The judgment involves three interlinked cases arising from a proceeding for the forfeiture of property under SAFEMA. The cases revolve around the late Mewalal, a businessman in Patna, and his four sons who continued the business as a Hindu Undivided Family (HUF) firm. Two of the sons carried on businesses under different names dealing exclusively with steel utensils.

2. Customs and Income Tax Issues: The Customs Act restrictions on the import of steel utensils from Nepal under the Indo-Nepal Treaty in 1969 led to a raid on the brothers' premises. Subsequently, the Income Tax Authorities reopened issues under the Income Tax Act, leading to detention of the brothers under COFEPOSA. Challenges to their preventive detention were unsuccessful, citing the A.D.M. Jabalpur case.

3. Forfeiture Proceedings: The authorities issued notices under SAFEMA to the brothers' wives, alleging illegal acquisition of properties. Despite no Customs Act proceedings and Income Tax issues not implicating the wives' properties, forfeiture orders were made based on the wives' inability to explain the sources of property acquisition.

4. Legal Arguments and Reasoning: The appellants argued that the Competent Authority lacked a valid reason to believe for initiating proceedings under SAFEMA. The judgment discussed the requirement of a "reason to believe" and emphasized the need for a preliminary inquiry to establish grounds for forfeiture based on illegally acquired properties.

5. Judicial Findings and Conclusion: The court found that detention under COFEPOSA alone did not justify forfeiture without evidence of illegal property acquisition. The judgment highlighted the Competent Authority's failure to dispute the legitimate acquisition of properties by the wives. The court emphasized the need for a reasonable explanation and criticized the hyper-technical view taken by the Competent Authority.

6. Final Decision: Ultimately, the court set aside the orders of the Competent Authority, Appellate Authority, and the Single Judge, allowing the writ petition and overturning the forfeiture orders against the petitioners. The judgment concluded that the forfeiture of properties acquired long before the restrictive regulations could not be sustained solely based on the COFEPOSA detention orders.