Karnataka High Court
Mr. Winston Tan S/O Winston Tan And Mr. ... vs The Union Of India (Uoi), Department Of ... on 17 September, 2007
Equivalent citations: ILR2008KAR411, 2008(3)KARLJ58
Author: Ajit J. Gunjal
Bench: Ajit J. Gunjal
ORDER Ajit J. Gunjal, J.
1. The short question which is required to be decided in these proceedings is whether the petitioners who are purchasers are entitled for a notice before any order of confiscation/forfeiture is passed under Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (for short the Act). The matter arises in the following manner:
The petitioners claim that they have purchased Flat No. 004 of Kamala Mansion, Ground Floor, Promenade Place, No. 45/2, Promenade Road pursuant to a registered sale deed dated 20th March 1997 for valuable consideration from respondents 3 and 4. According to the petitioners, the said deed is registered with the sub-registrar at Shivajinagar, Bangalore. It is not in dispute that certain proceedings were initiated against respondent No. 3 - Vendor under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974 (for short 'COFEPOSA Act'). In the said proceedings, he was directed to be detained and has suffered an order of detention. During the course of these proceedings it was revealed that the immovable property, which is the subject matter of these proceedings was acquired by him through illegal source. The present proceedings are initiated on the ground that the property, which is Purchased by the petitioners, is liable for forfeiture inasmuch as the sale consideration used for the purpose of purchase of this property by respondent No. 3 was from the illegal source.
2. As stated earlier proceedings were initiated under the Act. Initially, a show cause notice was issued to respondents 3 and 4 under Section 6(1) of the Act on 08.12.2003. But however, respondents 3 and 4 did not choose to enter appearance or file objections. A second notice was issued on 21.04.2004 asking the 3rd respondent to file her reply on or before 04.05.2004. But however, the 4th respondent came forward and made a request for extension of time pursuant to a communication dated 26.05.2004. But however, it appears on the said application no order was passed. The 3rd notice was issued on 02.06.2004 asking the 3rd respondent to appear before them on 14.06.2004. The 4th respondent sought for further extension of time pursuant to his representation dated 19.06.2004. Eventually, the Competent Authorities issued the first of the summons on 30.03.2005 to the 3rd and 4th respondents to appear before the Competent Authority. But however, the said summons was returned with an endorsement 'Left'. Second summons was issued on 03.05.2005. But however, they did not choose to enter appearance. During this interregnum, i.e., between 19.06.2004 before the second representation was given by the 4th respondent for extension of time to file his objections and 13.03.2005 i.e., before first of the summons was issued in respect of tender proceedings, the said property was sold on 10.02.2005 in favour of the petitioners both by respondents 3 and 4, who are wife and husband. The sale consideration is Rs. 26,00,000/- The Competent Authority pursuant to the impugned order, a copy of which is produced at Annexure 'P' has found that the purchase of the property by respondents 3 and 4 for the relevant period was through the ill-gotten money for which the proceedings were initiated against him under COFEPOSA Act and wherein he was detained. Consequently, on the totality of the circumstances and evidence gathered, the Enforcement Directorate held that the property acquired by respondents 3 and 4 is liable to be forfeited and accordingly has passed an order of forfeiture under Section 7(1) of the Act. The petitioners in these proceedings claim that they are the bonafide purchasers of the property forfeited, for valuable consideration. They would further submit that they were not aware of the proceedings before the Competent Authority. Aggrieved by the said forfeiture, they have questioned Annexure 'P' in this writ petition.
3. Mr. Gururaj Joshi, learned Counsel appearing for the petitioner vehemently submitted that the petitioners being bonafide purchasers for value were required to be heard before any order of forfeiture is passed under Section 7 of the Act. He would stress that under Sub-section (2) of Section 6 of the Act, the petitioners being classified as any person holding the property on behalf of such person are entitled for notice. According to him, the petitioners having purchased the property would certainly step into the shoes of respondents 3 and 4 and are entitled to defend the purchase of the property. Indeed he submitted that the petitioners are not questioning the order of detention of respondent No. 4. But however, he submits that the petitioners may be given an opportunity to justify that they are the bonafide purchasers of the property in question. He would submit that under Sub-section (2) of Section 6 of the Act, the petitioners are entitled for notice.
4. Mr. Arvind Kumar, learned Assistant Solicitor General appearing for respondents 1 and 2 submits that the Enforcement Authority, on an earlier occasion had prima facie found that the acquisition of the property by 3rd and 4th respondents was pursuant to an amount, which was not accounted for. Hence, the order of forfeiture under Section 7 of the Act is just and proper. He would submit placing reliance on Section 11 of the Act that certain transfers, which are made after the proceedings have commenced under Section 6 of the Act, shall be ignored and shall be deemed to be null and void. He submits that even assuming that the petitioners are entitled for notice under the Act, that by itself will not be of any advantage to them inasmuch as the transfer had taken place after the proceedings were initiated under Section 6 of the Act. It is also brought to my notice by the learned Assistant Solicitor General that the 4th respondent has undergone the entire tenure of detention and his whereabouts are not known.
5. In reply to the submission, Mr. Gururaj Joshi, learned Counsel appearing for the petitioners submits that the petitioners are entitled to state that it is open for them to show that the acquisition of the property was not from the amount, which was seized under the COFEPOSA Act but was from independent income of respondents 3 and 4.
6. I have given my anxious consideration to the submissions made by the learned Counsel appearing for the parties.
7. Before considering the rival submissions, it is necessary to notice certain provisions of the Act. The Act was promulgated and came into force on 25th January 1976. The object and reason for enacting this special enactment was for effective prevention of foreign exchange manipulations, which was having deleterious effect on the National Economy. Indeed the object of enactment was to prevent augmentation of such gains by violation of several provisions under the Wealth Tax, Income Tax and other laws, which would enable the persons operating to enrich themselves in a clandestine manner.
8. Indeed the provisions of the enactment are to be strictly enforced so as to bring the guilty persons, who have amassed wealth clandestinely. The Act is made applicable to every person under certain enactments, including the persons who have been detained under the COFEPOSA and also who have violated the Foreign Exchange Regulations.
9. Clause (e) of Sub-section (2) of Section 2 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act; 1976 would deal with a person who is classified as any holder of any property, which was at any time previously held by a person referred to in Clause (a) or Clause (b) unless the present holder or, as the case may be, any one who held such property after such person and before the present holder, is or was a transferee In good faith for adequate consideration.
10. Section 6 of the Act would contemplate issuance of notice of forfeiture to the person who owns the properties. Sub-section (2) of Section 6 of the Act would deal with the issuance of notice under Sub-section (1) to any person specifies any property as being held on behalf of such person by any other person, a copy of the notice shall also be served upon such other person. If the provisions of Sub-section (2) of Section 6 are read with Section 2(e) of Section 2 of the Act, it is abundantly clear that the phrase 'any holder' under Sub-section (2}(e) of Section 2 and any person under Sub-section (2) of Section 6 of the Act are synonyms.
11. To my mind, the petitioners would fall under the category of 'any holder' as contemplated under Sub-section (2)(e) of Section 2 and if it is read in tandem with Sub-section (2) of Section 6 of the Act, they would be classified as persons, who are interested in the proceedings only so far as to avoid the forfeiture of the property.
12. As contended by Mr. Arvind Kumar, learned Assistant Solicitor General appearing for respondents 1 and 2 that under Section 11 of the Act, certain transfers are to be treated as null and void. It is no doubt true that the first of the notice was issued to respondents 3 and 4 on 02.05.2003, which would necessarily mean that the proceedings under the Act had commenced and the Ball was set rolling. Indeed the sale has taken place on 10.02.2005 i.e., before the impugned order of forfeiture was passed. But however, what is required to be noticed is, that if a person is ultimately required to be hanged or to be crucified, he should be heard in the matter. Ultimately, the Competent Authority might come to a conclusion that all the transactions are null and void and the said transfer is to be ignored for the purpose of forfeiture.
13. Section 9 of the Act would also contemplate fine in lieu of forfeiture. Having regard to this, I am of the view that the impugned order at Annexure 'P' is in violation of the Principles of Natural justice inasmuch as on the date when the order was passed on 23.06.2005, the petitioners had purchased and had come into possession of the property in question. Consequently, the impugned order at Annexure T' dated 23.06.2005 is liable to be quashed and accordingly it is quashed.
The matter stands remitted to the Competent Authority to consider the case afresh.
It is made clear that the petitioners shall not travel beyond the scope of the Act and cannot in any way scrupulously question the order of detention of respondent No. 4. The order of remand is only confined to consider whether the petitioners are transferees in good faith for adequate consideration.
Annexure 'P' is quashed.
The petitioners shall take these proceedings as notice and summons to them and shall appear before the 2nd respondent on 23.10.2007.
14. Rule is issued and made absolute.
15. I.A. No. 2 for amendment does not survive for consideration. Accordingly, the application stands disposed of.