Muhammed Muneer P.C and N.A. Nasar V. Union of India and Competent Authority and Administrator, Smugglers and Foreign Exchange Manipulators, (Forfeiture of Property), Act 1976 and Superintendent (Administration), Office of the Smugglers and Foreign Exchange Manipulators, (Forfeiture of Property), Act 1976 and Income Tax Officer, Income Tax Office and Tahsildar, Taluk Office and Village Officer, Village Office

WP(C)/21261/2022

AI Insights

The case involves petitioners Muhammed Muneer P.C and N.A. Nasar, who challenged the e-auction of properties previously owned by their deceased fathers under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA). The petitioners argued that the properties were acquired before the enactment of SAFEMA and that the auction did not comply with the procedural requirements of Rule 19 of the SAFEMA Rules, 2006. The respondents, including the Union of India and the Competent Authority under SAFEMA, defended the auction process and the applicability of SAFEMA to properties acquired before its enactment. The court dismissed the petition, upholding the auction and the applicability of SAFEMA.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 821607 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 29-06-2022
• Assessment Year: misc
• Other Referred Cases: Attorney General for India v. Amratlal Prajivandas, Aisha v. Competent Authority, SAFEM (FOP)
• Laws Referred To: Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, Constitution of India
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: S MANU; SUVIN MENON; AMMINIKUTTY K
• Assessee Lawyers: ROSHEN ALEXANDER; TINA THOMAS; HARIMOHAN
• Keywords: Constitutional Validity; E-auction; Forfeiture of property; Illegally acquired property; SAFEMA
• Section: 7(1); 19(1); 6(1); 3(1)(c)

Judgement Text

" WP(C).21261/22 1 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY, THE 29TH DAY OF JUNE 2022 / 8TH ASHADHA, 1944 WP(C) NO. 21261 OF 2022 PETITIONER/S: 1 MUHAMMED MUNEER P.C, AGED 58 YEARS S/O. N.K. KUNHAVARU, NALAKATH KARUVATHIL HOUSE, CHOOLPURAM, KOTTAPPADY P.O, THRISSUR- 680 505. 2 N.A. NASAR, AGED 60 YEARS S/O. N.K. MOIDUNNI, NALAKATH ARACKAL, ORUMANAYUR, CHAVAKKAD, THRISSUR- 680 512. BY ADVS. ROSHEN.D.ALEXANDER TINA ALEX THOMAS HARIMOHAN RESPONDENT/S: 1 UNION OF INDIA, REPRESENTED BY ITS SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI 110 011. 2 THE COMPETENT AUTHORITY AND ADMINISTRATOR, SMUGGLERS AND FOREIGN EXCHANGE MANIPULATORS, (FORFEITURE OF PROPERTY), ACT 1976, SHASTRI BHAWAN, 4TH FLOOR, NEW BUILDING COMPLEX, NO. 26, HADDOWS ROAD, NUNGAMBAKKAM CHENNAI 600 006. 3 SUPERINTENDENT (ADMINISTRATION), OFFICE OF THE SMUGGLERS AND FOREIGN EXCHANGE MANIPULATORS, (FORFEITURE OF PROPERTY), ACT 1976, SHASTRI BHAWAN, 4TH FLOOR, NEW BUILDING COMPLEX, NO. 26 HADDOWS ROAD, NUNGAMBAKKAM CHENNAI 600 006. 4 INCOME TAX OFFICER, INCOME TAX OFFICE, AAYAKAR BHAVAN, SAKTHAN WP(C).21261/22 2 THAMPURAN RANGAR, THRISSUR 680 001. 5 TAHSILDAR, TALUK OFFICE, VANCHIKKADAVU ROAD, CHAVAKKAD 680 506. 6 VILLAGE OFFICER, VILLAGE OFFICE, MUTHUVATTOOR- GURUVAYUR RD, MUTHUVATTOOR, GURUVAYUR 680101. OTHER PRESENT: ASGI S. MANU; CGC SUVIN R. MENON; GP AMMINIKUTTY K. THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 29.06.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).21261/22 3 V.G.ARUN, J. ----------------------------------------------- W.P(C).No. 21261 of 2022 ----------------------------------------------- Dated this the 29th day of June, 2022 JUDGMENT The first petitioner’s father late N.K.Kunhavaru and the second petitioner’s father late N.K.Moidunny were proceeded against under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. As part of the proceedings, notices were issued to N.K.Knhavaru and N.K.Moidunny under Section 6(1) of SAFEMA. They challenged the proceedings before the High Court Madras in two separate writ petitions. The writ petitions were admitted and the proceedings stayed. While so, Kunhavaru died on 20.3.1992 and Moidunny expired on 15.4.1994. Thereafter, by its decision in Attorney General for India v. Amratlal Prajivandas, [(1994) 5 SCC 54], the Apex Court upheld the constitutional validity of SAFEMA. Consequently, the writ petitions filed by Kunhavaru and Moidunny were dismissed by the Madras High Court. Thereupon, notices were issued to the legal heirs and orders under Section 7(1) of SAFEMA passed, forfeiting the properties of Kunhavaru and Moidunny. Subsequently, orders under Section 19(1) were WP(C).21261/22 4 issued, requiring the recipients to surrender the forfeited properties. The legal heirs of Kunhavaru and Moidunni challenged the orders under Sections 6(1), 7(1) and 19(1) in O.P.No.13351 of 1999 and O.P.No.11811 of 1999. Both writ petitions were dismissed by this Court. The judgment in O.P.No.11811 of 1999 was challenged in writ appeal and the challenge was repelled by Exhibit P3 judgment. The further challenge before the Supreme Court met the same fate, as evidenced by Exhibit P4. The proceedings having thus attained finality, the second respondent issued Exhibit P5 e-auction notice dated 30.5.2022. The e-auction proposed under Exhibits P5 is under challenge in this writ petition. 2. Adv.Roshen D.Alexander, appearing for the petitioners raised the following contentions; (i). The sale is being conducted in violation of Rule 19 of the Smugglers and Foreign Exchange Manipulators (Receipt, Management and Disposal of Forfeited Property) Rules, 2006 ('the Rules', for short), which mandates wide publicity for the auction and invitation through advertisements in local newspapers. (ii). Kunhavaru and Moidunny had acquired the forfeited properties prior to the introduction of SAFEMA on 25.1.1976. WP(C).21261/22 5 This Court, in Aisha v. Competent Authority, SAFEM [(2009) 4 KLT 503] has held that, forfeiture proceedings under SAFEMA can be initiated only against properties acquired after the Act had come into force. 3. In reply, Adv.Suvin R Menon, learned CGC, submitted as under; The auction proposed under Exhibits P5 and P6 is being conducted after due publicity. The auction notice was published on 1.6.2022, in five editions of ‘Malayala Manorama’ daily and all editions of ‘The Hindu’ daily. The auction notice was also published in the Mstc Government of India Enterprise Website, which is the authorised auctioneer for the second respondent. 4. The contention that the properties cannot be proceeded against, since they were acquired prior to the introduction of SAFEMA, cannot be entertained in view of the declaration of law in Amratlal Prajivandas. The decision in Aisha was rendered without noticing the law laid down by the Apex Court and is therefore per incuriam. 5. The contention regarding violation of the procedure prescribed under Rule 19 is liable to be rejected, since sufficient materials are available to prove that e-auction is being conducted after publication of advertisements in vernacular and English WP(C).21261/22 6 dailies. 6. As regards the contention based on Aisha, it is essential to consider whether the findings therein is contrary to the relevant provisions and the decision in Amratlal Prajivandas. The contextually relevant portion of Aisha reads as under; “The records prove beyond doubt that besides detention under the provisions of the Foreign Exchange and Prevention of Smuggling Activities Act, there was no finding that the deceased husband of the petitioner did not have any other profession or source of income to purchase the property for Rs. 5,000/-. In the first place, valuation of the property declared in the document is also not disputed by the Competent Authority. In other words, apparent consideration is taken as actual value of the land. The consideration shown in the document for purchase of the land is only Rs. 5,000/- in December 1975. It is pertinent to note that during the lifetime of the person detained, namely, petitioner's husband, no proceedings were initiated under the provisions of the Act. In fact it is nearly after two years the provisions were initiated vide Ext. P3 dated 30.12.1988. Further, the impugned order is passed again after 10 years on 13.7.1999. In the first place, the Act came into force only in 1976, whereas the property involved in this case was purchased on 17.12.1974 (wrongly shown as 17.12.1984 in the notice). Even though the provisions of the Act authorises forfeiture of the property, I do not think the Act authorises proceedings against the property acquired prior to commencement in force of the Act. Besides this, proceedings were initiated 12 years after the commencement of the Act, though the WP(C).21261/22 7 property involved was purchased on 17.12.1974. Further, there is no explanation for the inordinate delay in passing the adjudication order on 13.7.1999. I do not think the petitioner who is not seriously educated will be in a position to defend the case in 1998 i.e. to prove the source of income of her late husband for the purchase of property he made on 19.12.1974. The apparent consideration of the property shown in the document is only Rs. 5,000/-. The respondent has no case that there is undervaluation of the property and that the deceased has no other engagement or profession except the nefarious activities he was stated to be involved in, i.e. smuggling and dealing in foreign exchange. In the circumstances, I am of the view that Ext. P5 cannot be sustained based on the reasoning therein. Considering the inordinate delay in initiating the proceedings and since the property involved was purchased prior to the commencement of the Act and since the person who purchased the property died prior to initiation of proceedings under the Act, I allow the O.P. quashing Exts. P5 and P9 orders issued by the Competent Authority. However, I make it clear that this judgment does not affect proceedings for recovery of income tax or other proceedings pending against the deceased assessee.” 7. In view of the finding that the Act does not authorise proceedings against property acquired prior to commencement of the Act, it is essential to have a careful scrutiny of the definition of the term ‘illegally acquired property’ in Section 3(1) (c) of SAFEMA, extracted hereunder; WP(C).21261/22 8 “illegally acquired property”, in relation to any person to whom this Act applies means— (i) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets derived or obtained from or attributable to any activity prohibited by or under any law for the time being in force relating to any matter in respect of which Parliament has power to make laws; or (ii) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets in respect of which any such law has been contravened; or (iii) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets the source of which cannot be proved and which cannot be shown to be attributable to any act or thing done in respect of any matter in relation to which Parliament has no power to make laws; or (iv) any property acquired by such person, whether before or after the commencement of this Act, for a consideration, or by any means, wholly or partly traceable to any property referred to in sub-clauses (i) to (iii) or the WP(C).21261/22 9 income or earnings from such property; and includes— (A) any property held by such person which would have been, in relation to any previous holder thereof, illegally acquired property under this clause if such previous holder had not ceased to hold it, unless such person or any other person who held the property at any time after such previous holder or, where there are two or more such previous holders, the last of such previous holders is or was a transferee in good faith for adequate consideration; (B) any property acquired by such person, whether before or after the commencement of this Act, for a consideration, or by any means, wholly or partly traceable to any property falling under item (A), or the income or earnings therefrom;” Even on a plain reading of the provision, it is evident that any property acquired by the person proceeded against, whether it be before or after commencement of SAFEMA, all within the definition of ‘illegally acquired property, if such property was wholly or partly acquired out of or by means of any income, earnings or assets derived or obtained from or attributable to any activity prohibited by or under any law for the time being in force. Even on a plain reading of othe definition, it is clear that, properties acquired before the commencement of the Act can WP(C).21261/22 10 also be proceeded against, if the other ingredients are also attracted. The legal position is no longer res integra in view of the categorical declaration of law on the point in Amratlal Prajivandas. Therein, the Supreme Court formulated four questions, of which the fourth question was whether the definition of ‘illegally acquired property’ in clause 3((1)(c) of SAFEMA is violative of the fundamental rights guaranteed by Articles 14, 19 and 21 and whether the inclusion of SAFEMA in the Ninth Schedule to the Constitution cures the violation, if any. The answer to this question, available at paragraph 43 of the judgment, reads as under; “43. The definition of “illegally acquired properties” in clause (c) of Section 3(1) of SAFEMA is undoubtedly quite wide. It means and includes “any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets derived or obtained from or attributable to any activity prohibited by or under any law for the time being in force relating to any matter in respect of which Parliament has power to make laws” [videsub-clause (i)]. Sub-clauses (ii), (iii) and (iv) of clause (c) further widen and elaborate its ambit. The definition thus takes in not only the property acquired after the Act but also the property acquired before the Act, whatever be the length of time. Secondly, it takes in property which may have been acquired partly from out of illegal activity — in which case, of course, the provision in Section 9 would be attracted. WP(C).21261/22 11 Illegal activity is not confined to violation of the laws mentioned in Section 2 but all laws which Parliament has power to make. To give an illustration, if a smuggler has acquired some properties by evading tax laws or by committing theft, robbery, dacoity, misappropriation or any other illegal activity prohibited by the Penal Code, 1860 or any other law in force (which Parliament has the power to make) all that would be liable to be forfeited. It is submitted by the petitioners that this is a case of excessive and disproportionate response by Parliament. The argument is that the Act is penal in nature and spreading its net as wide as is done by the definition of “illegally acquired properties” brings it in conflict with Articles 14, 19 and 21. Alternatively, it is submitted that if the said definition is unassailable on account of its inclusion in the Ninth Schedule, the definition may be read down so as to confine it only to the properties acquired by violating the prohibitions contained in the Acts mentioned in Section 2(a) of SAFEMA. We do not find it possible to give effect to either of these submissions. Both the enactments being placed in the Ninth Schedule, they enjoy the immunity conferred by Article 31-B. We have observed hereinbefore that the petitioners have not been able to substantiate their submission that the 39th (Amendment) Act and 40th (Amendment) Act, placing the said enactments in the Ninth Schedule are unconstitutional. It is not necessary to repeat the reasons for the said opinion here over again. In this view of the matter, the attack upon the validity of the said definition on grounds of unreasonableness, arbitrariness or for that matter on any of the grounds relatable to Part III is of no avail. Even apart from the protection of Article 31-B, we see no substance in the submission that the definition is WP(C).21261/22 12 arbitrary or discriminatory nor do we see any reason for reading down the said definition to confine it to the violation of the acts referred to in Section 2(2)(a) of SAFEMA. We can take note of the fact that persons engaged in smuggling and foreign exchange manipulations do not keep regular and proper accounts with respect to such activity or its income or of the assets acquired therefrom. If such person indulges in other illegal activity, the position would be no different. The violation of foreign exchange laws and laws relating to export and import necessarily involves violation of tax laws. Indeed, it is a well-known fact that over the last few decades, smuggling, foreign exchange violations, tax evasion, drugs and crime have all got mixed-up. Evasion of taxes is integral to such activity. It would be difficult for any authority to say, in the absence of any accounts or other relevant material that among the properties acquired by a smuggler, which of them or which portions of them are attributable to smuggling and foreign exchange violations and which properties or which portions thereof are attributable to violation of other laws (which Parliament has the power to make). It is probably for this reason that the burden of proving that the properties specified in the show-cause notice are not illegally acquired properties is placed upon the person concerned. May be this is a case where a dangerous disease requires a radical treatment. Bitter medicine is not bad medicine. In law it is not possible to say that the definition is arbitrary or is couched in unreasonably wide terms. Further, in view of clear and unambiguous language employed in clause (c) of Section 3, it is not possible or permissible to resort to the device of reading down. The said device is usually resorted to save a WP(C).21261/22 13 provision from being declared unconstitutional, incompetent and ultra vires. We are, therefore, of the opinion that neither the constitutional validity of the said definition can be questioned nor is there any warrant for reading down the clear and unambiguous words in the clause. So far as justification of such a provision is concerned, there is enough and more. After all, all these illegally acquired properties are earned and acquired in ways illegal and corrupt — at the cost of the people and the State. The State is deprived of its legitimate revenue to that extent. These properties must justly go back where they belong — to the State. What we are saying is nothing new or heretical. Witness the facts and ratio of a recent decision of the Privy Council in Attorney General for Hong Kong v. Reid [(1993) 3 WLR 1143 : (1994) 1 All ER 1] The respondent, Reid, was a Crown-prosecutor in Hong Kong. He took bribes as an inducement to suppress certain criminal prosecutions and with those monies, acquired properties in New Zealand, two of which were held in the name of himself and his wife and the third in the name of his solicitor. He was found guilty of the offence of bribe- taking and sentenced by a criminal court. The Administration of Hong Kong claimed that the said properties in New Zealand were held by the owners thereof as constructive trustees for the Crown and must be made over to the Crown. The Privy Council upheld this claim overruling the New Zealand Court of Appeals. Lord Templeman, delivering the opinion of the Judicial Committee, based his conclusion on the simple ground that any benefit obtained by a fiduciary through a breach of duty belongs in equity to the beneficiary. It is held that a gift accepted by a person in a fiduciary position as an WP(C).21261/22 14 incentive for his breach of duty constituted a bribe and, although in law it belonged to the fiduciary, in equity he not only became a debtor for the amount of the bribe to the person to whom the duty was owed but he also held the bribe and any property acquired therewith on constructive trust for that person. It is held further that if the value of the property representing the bribe depreciated the fiduciary had to pay to the injured person the difference between that value and the initial amount of the bribe, and if the property increased in value the fiduciary was not entitled to retain the excess since equity would not allow him to make any profit from his breach of duty. Accordingly, it is held that to the extent that they represented bribes received by the first respondent, the New Zealand properties were held in trust for the Crown, and the Crown had an equitable interest therein. The learned Law Lord observed further that if the theory of constructive trust is not applied and properties interdicted when available, the properties “can be sold and the proceeds whisked away to some Shangri La which hides bribes and other corrupt moneys in numbered bank accounts” — to which we are tempted to add — one can understand the immorality of the Bankers who maintained numbered accounts but it is difficult to understand the amorality of the Governments and their laws which sanction such practices — in effect encouraging them. The ratio of this decision applies equally where a person acquires properties by violating the law and at the expense of and to the detriment of the State and its revenues where an enactment provides for such a course, even if the fiduciary relationship referred to in Reid [(1993) 3 WLR 1143 : (1994) 1 All ER 1] is not present. It may be seen WP(C).21261/22 15 that the concept employed in Reid [(1993) 3 WLR 1143 : (1994) 1 All ER 1] was a common law concept, whereas here is a case of an express statutory provision providing for such forfeiture. May we say in conclusion that “the interests of society are paramount to individual interests and the two must be brought into just and harmonious relation. A mere property career is not the final destiny of mankind, if progress is to be the law of the future as it has been of the past”. (Lewis Henry Morgan : Ancient Society).” 8. The decision in Aisha was hence rendered per incuriam, without considering the definition of ‘illegally acquired properties’ in Section 3(1)(c) of SAFEMA or the binding declaration of law in Amratlal Prajivandas. 9. The factual contention urged on behalf of petitioners having been disproved and the legal contention found to be unsustainable, the writ petition is dismissed. Sd/- V.G.ARUN, JUDGE vgs WP(C).21261/22 16 APPENDIX OF WP(C) 21261/2022 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE JUDGMENT DTD. 21.05.2009 IN O.P. NO. 13351/1999 ON THE FILES OF THIS HON'BLE COURT. Exhibit P2 TRUE COPY OF THE JUDGMENT DTD. 29.10.2008 IN O.P. NO. 11811/1999 Exhibit P3 TRUE COPY OF THE JUDGMENT DTD. 27.05.2014 IN W.A. NO. 106/2009 ON THE FILES OF THIS HON'BLE COURT. Exhibit P4 TRUE COPY OF THE JUDGMENT DTD. 15.12.2014 IN SLP (C) CC NO. 20560/2014 ON THE FILES OF THE HON'BLE SUPREME COURT. Exhibit P5 TRUE COPY OF THE SALE NOTICE BEARING NO. 02/2022 DTD. 30.05.2022 ISSUED BY THE 2ND RESPONDENT. Exhibit P6 TRUE COPY OF THE AUCTION NOTICE DATED 30.05.2022 ISSUED BY THE 2ND RESPONDENT. Exhibit P7 TRUE COPY OF THE JUDGMENT DATED 13.08.2009 IN OP NO. 21021/1999 ON THE FILES OF THIS HON'BLE COURT REPORTED IN AISHA V. COMPETENT AUTHORITY, SAFEM(FOP), 2009 (4) KLT 503. "