1997 (11) TMI 100 - SC - FEMA

Whether the provisions of the SAFEMA apply to the sale transaction entered into between the widow of Talab Haji Hussein, COFEPOSA detenu and the purchaser, predecessor-in-interest of the appellants? Whether the purchaser was a bona fide purchaser for value without notice? Whether the forfeiture of purchaser s flat in Dharam Jyoti Building by the authorities can be treated as double forfeiture on the basis of the same tainted money of the COFEPOSA convict only because the subsequent property purchased by the purchaser s vendor in Shivasthan Co-operative Society has also been forfeited to the Government under the SAFEMA? Whether the transaction in favour of the purchaser could be cleared on principles analogous to section 9 of the SAFEMA by imposing fine in lieu of forfeiture on the peculiar facts of this case? Held that - The transaction of purchase by the appellants predecessor Tayab Ali was also hit by section 11 of the SAFEMA. Consequently, in 1981, when the purchaser purchased this property from Tahira Sultana, she had no interest in the said flat which she could convey to the appellants predecessor. In substance, it amounted to selling of the Central Government s property by a total stranger in favour of the purchaser. No title, therefore, in the said property passed to the appellants predecessor. The appellants predecessor, therefore, had no legal defence against the claim of the authorities in calling upon the appellants as heirs of the original purchaser to vacate and hand over the possession of the property to the Central Government as full owner thereof. Both the points 1 & 2 for determination, therefore, are answered against the appellants and in favour of the respondents. So far as point 3 at the time when the earlier order of October 12, 1977, was passed the said disputed property clearly reflected the utilisation of tainted money of ₹ 88,562. If subsequent dealing with the said property is found to be unauthorised and inoperative in law and if such subsequent transaction qua the said property remains a still-born one no life can be infused in it on account of the subsequent forfeiture of some other property of the original vendor when a subsequent forfeiture has stood on its own and has become final. The third point for determination, therefore, also is held against the appellants and in favour of the respondents. On pint 4 the transaction of purchase by Tayab Ali was an exercise in futility. Such a still-born transaction cannot be resurrected by passing an order of fine in lieu of forfeiture. The forfeiture of this very property had already taken place on October 12, 1977, and which order got ultimately confirmed by the Bombay High Court. Therefore, it is too late in the day for the appellants to contend that the clock should be put back and the October 12, 1977, order may be converted into fine in lieu of forfeiture especially when Tahira Sultana against whom that order has operated, has finally lost in her challenge to the said order. The fourth point for determination, therefore, has also to be rejected and stands decided against the appellants. Appeal dismissed.

Summary

Issues Involved:
1. Applicability of the SAFEMA to the sale transaction.
2. Bona fide purchaser for value without notice.
3. Double forfeiture of property.
4. Fine in lieu of forfeiture under principles analogous to section 9 of the SAFEMA.

Detailed Analysis:

Point 1: Applicability of the SAFEMA to the Sale Transaction
The SAFEMA (Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976) was enacted to provide for the forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators. Section 2(2) lists the persons to whom the Act applies, including relatives of COFEPOSA detenus. Tahira Sultana, being the wife of COFEPOSA detenu Talab Haji Hussein, was covered under section 2(2)(c). The competent authority issued a notice under section 6(1) of the SAFEMA and passed an order under section 7, forfeiting the property. Despite a stay order from the High Court conditional on non-alienation, Tahira Sultana sold the property, breaching her undertaking. The High Court's stay was conditional and did not permit alienation. Therefore, the purchaser, Tayab Ali, could not derive any benefit from the transaction. The property had vested in the Central Government by the order dated October 12, 1977, and the sale in 1981 was void. The transaction was also hit by section 11 of the SAFEMA, which nullifies transfers after a notice under section 6 or 10 and before the final order of forfeiture.

Point 2: Bona Fide Purchaser for Value Without Notice
The purchaser, Tayab Ali, claimed to be a bona fide purchaser for value without notice. However, the High Court found this claim improbable. The purchaser should have been aware of the property's history, given its connection to a COFEPOSA detenu. No due diligence was conducted to verify the property's title. The High Court's finding that the purchaser was not bona fide was upheld. The property had already vested in the Central Government by the forfeiture order of October 12, 1977. Consequently, when Tayab Ali purchased the property, it no longer belonged to Tahira Sultana, and no valid title could be transferred.

Point 3: Double Forfeiture of Property
The appellants argued that forfeiture of both the Dharam Jyoti Building flat and the Shivasthan Society flat constituted double forfeiture of the same tainted money. However, the court clarified that tainted money could be used to purchase multiple properties, each subject to forfeiture. The Dharam Jyoti flat was purchased for Rs. 88,562 and sold for Rs. 3,60,000, part of which was used to buy the Shivasthan flat. The original forfeiture of the Dharam Jyoti flat was independent of the subsequent forfeiture of the Shivasthan flat. The latter forfeiture did not invalidate the former. Thus, the argument of double forfeiture was rejected.

Point 4: Fine in Lieu of Forfeiture
Section 9 of the SAFEMA allows for a fine in lieu of forfeiture if only a part of the property's acquisition is from tainted money. This was not applicable here, as the entire purchase of the Dharam Jyoti flat was from tainted money. The appellants' counsel suggested an analogy to section 9, proposing a fine instead of forfeiture due to the passage of time and the Central Government's potential gain from the Shivasthan flat. However, the court rejected this, noting that the purchaser had acted in breach of an undertaking and the forfeiture order was already confirmed. The transaction was void, and no fine could substitute the forfeiture.

Conclusion:
The appeal was dismissed, and the interim stay was vacated. The appellants were granted time until May 31, 1998, to vacate the premises, contingent on filing an appropriate undertaking within four weeks. Failure to comply would nullify the granted time extension.