M/S. PLATINUM THEATRE AND OTHERS VERSUS COMPETENT AUTHORITY SMUGGLERS & FOREIGN EXCHANGE MANIPULATORS (FORFEITURE OF PROPERTY) ACT, 1976

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 4369 OF 2009

M/S. PLATINUM THEATRE AND OTHERS ….APPELLANT(S)

VERSUS

COMPETENT AUTHORITY SMUGGLERS &

FOREIGN EXCHANGE MANIPULATORS

(FORFEITURE OF PROPERTY) ACT, 1976

AND ANOTHER ….RESPONDENT(S)

J U D G M E N T

Rastogi, J.

1. The instant appeal is directed against the judgment and order

dated 19th April, 2007 passed by learned Single Judge of the High

Court of Karnataka at Bangalore upholding the order passed by the

competent authority under Section 7 read with 19(1) of the

Smugglers and Foreign Exchange Manipulators(Forfeiture of

Property) Act, 1976(hereinafter being referred to as the “Act, 1976”)

dated 31st December, 1997.

2. Appellant no.1 is said to be a registered partnership firm

comprising of appellant nos. 2 to 5 and one N.A. Yusuf(not a party

herein) as its partners with the profit sharing ratio of the partners

as follows:

N.A. Yusuf 50%

P.M. Saheeda(appellant no. 2) 25%

Mohd. Ali(appellant no. 3) 8.33%

Shaukat Ali(appellant no. 4) 8.33%

Mumtaz(appellant no. 5) 8.33%

3. The background facts culled out from the record which led to

passing of the order forfeiting the subject property are that one of

the partners of the first appellant, namely, N.A. Yusuf, was ordered

to be detained by Conservation of Foreign Exchange and Prevention

of Smuggling Activities Act, 1974(hereinafter being referred to as

“COFEPOSA”) by order dated 21st January, 1985 by Government of

Maharashtra and later by the Central Government by order dated

27th August, 1991. The two detention orders against N.A. Yusuf

came to be challenged in the writ petition before Delhi High Court.

Both the petitions were allowed by judgments dated 15th October,

1991 and 11th May, 1992 respectively. In consequence thereof, the

forfeiture order passed by the competent authority on 23rd

November, 1977 came to an end.

4. On 16th October, 1994, a show cause notice was issued to the

first appellant firm and its partners calling upon them to provide an

explanation as to why the subject theatre (M/s. Platinum Theatre)

should not be forfeited. After affording opportunity of hearing, the

competent authority, in the first instance, passed an order of

forfeiture against the first appellant firm forfeiting M/s. Platinum

Theatre and its equipment by order dated 31st July, 1995.

However, on appeal being preferred at the instance of the

appellants, the matter was remanded back to the competent

authority for fresh consideration by order dated 17th July, 1997.

5. The competent authority after revisiting the matter afresh and

affording an opportunity of hearing to the parties, passed an order

dated 31st December, 1997 of forfeiture of M/s. Platinum Theatre

under Section 7 of the Act, 1976. Subsequently, the Appellate

Tribunal for Forfeited Property, New Delhi(hereinafter being referred

to as the “Tribunal”) dismissed the appeal and upheld the order of

forfeiture passed by the competent authority on 7th September,

1999 and, thereafter, the writ petition filed at the instance of the

appellants also came to be dismissed by judgment and order dated

19th April, 2007 which became a subject matter of challenge in

appeal before us.

6. Learned counsel for the appellant has challenged the order of

forfeiture particularly on the following submissions:

(i) The land on which the subject theatre was constructed is not

the property of the first appellant firm. It is owned by appellant no.

2(P.M. Saheeda w/o Ibrahim Soofi) through a registered sale deed

dated 16th April, 1969. Since the land was privately owned by

appellant no. 2, the order regarding forfeiture of land, in the facts

and circumstance of the case, is not legally sustainable.

(ii) The competent authority ought to have applied Section 9 of

the Act, 1976 in the present case and should have provided an

option to the appellants to pay fine in lieu of forfeiture, taking into

consideration the fact that the appellants had disclosed source of

more than 50% cost incurred in construction of the theatre. The

loan of Rs.12 lakhs obtained from Vijaya Bank by the appellants

constituted more than 50% of cost of the theatre’s construction. As

such, the authority was under an obligation to give an option to the

appellants to pay a fine in lieu of forfeiture in terms of Section 9 of

the Act, 1976.

(iii) The forfeiture proceeding initiated in 1995 was grossly

delayed. The partnership firm is of the year 1974, the construction

of the theatre was carried out during the period 19711974 and the

forfeiture order was passed in 1997, after more than two decades.

The competent authority ought to have considered the inordinate

delay in passing of an adverse order of forfeiture on the premise

that it could not have been possible because of long delay to trace

the relevant documents which, indeed, has caused prejudice to the

appellants.

7. Per contra, learned counsel for the respondents, while

supporting the finding returned by the competent authority, in the

first instance, forfeiting the subject property in question and later

confirmed by the Tribunal in the impugned judgment, in counter,

has made the following submissions:

(i) Section 8 of the Act, 1976 provides that the burden to proof, in

any proceedings under this Act, shall lie on the person affected.

The appellants have failed to discharge the said burden, in

consequence of which the finding recorded by the competent

authority duly supported with the material on record justify and

support the order of forfeiture passed by the competent authority

dated 31st December, 1997.

(ii) Both N.A. Yusuf and appellant no. 2(P.M.Saheeda) failed to

disclose any source of their capital contribution in the first

appellant firm and have failed to disclose any books of accounts for

the expenditure in construction of the subject theatre and also

failed to disclose any bank account from which money was

disbursed for building the said theatre. In addition, appellant no.

2(P.M. Saheeda) failed to substantiate with proof the claim that the

land was bought from her wedding gifts in 1969. In the facts and

circumstances, the finding of forfeiture recorded by the competent

authority has been rightly confirmed at all later stages in the course

of proceedings.

(iii) The contribution of N.A. Yusuf was more than half of the total

contribution of Rs.10.20 lakhs of capital infused in the partnership

firm. Since more than 50% of the value remained unexplained, the

appellants were not entitled to seek an option to pay a fine in lieu of

forfeiture as contemplated under Section 9 of the Act.

(iv) There was no delay which could be attributed to the authority

for the reason that proceedings were initiated in the first instance

against the appellant firm by issuance of show cause notice dated

13th January, 1977 and since then the proceedings were continued

one after the other. In reference to the instant proceedings, the

show cause notice was served to the appellant firm and its

partners(appellant nos. 2 to 5) on 16th October, 1994 which finally

culminated into forfeiture of the property under Section 7 by order

dated 31st December, 1997. In the given circumstances, there was

no delay on the part of the respondent authorities in initiating the

proceedings in reference to the forfeiture of the property under the

Act, 1976 which, in no manner, be said to be fatal in the given facts

and circumstances to interfere in the instant proceedings.

8. We have heard learned counsel for the parties and with their

assistance perused the material available on record.

9. The Act, 1976 has been enacted by the Parliament with an

object to provide for the forfeiture of illegally acquired properties of

smugglers and foreign exchange manipulators and for matters

connected therewith or incidental thereto. At the same time, to

provide an effective prevention of smuggling activities and foreign

exchange manipulations which are having a deleterious effect on

the national economy, it is necessary to deprive persons engaged in

such activities and manipulations of their illgotten gains. It also

provides that such persons have been augmenting such gains by

violations of wealthtax, incometax or other laws or by other means

and have thereby been increasing their resources for operating in a

clandestine manner and to nail such persons who are holding the

properties acquired by them through such gains in the name of

their relatives, associates and confidants.

10. Section 2(1) of the Act, 1976 applies to the persons specified in

subsection (2). Section 2(2) gives a long list of different categories

of persons to whom the Act applies and includes as defined in

Section 2(2)(b) that every person in respect of whom an order of

detention has been made under the COFEPOSA and also includes

every associate of a person referred to in clause (a) or clause (b) as

defined in subclause(d) read with Explanation 3, which refers to an

associate and covers all individuals who had been or is a member,

partner or director of an association of persons including

association, body, partnership firm or private company, etc.

11. Sections 2, 6, 7, 8 and 9 of the Act, 1976 which are relevant

for the purpose, are extracted hereinbelow:

“2. Application.

(1) The provisions of this Act shall apply only to the persons

specified in subsection (2).

(2) The persons referred to in subsection (1) are the following,

namely:

(a) every person

(i) who has been convicted under the Sea Customs Act,

1878 (8 of 1878), or the Customs Act, 1962 (52 of

1962), of an offence in relation to goods of a value

exceeding one lakh of rupees ; or

(ii) who has been convicted under the Foreign

Exchange Regulation Act, 1947 (7 of 1947), or the

Foreign Exchange Regulation Act, 1104 1973 (46 of

1973), of an offence, the amount or value involved in

which exceeds one lakh of rupees; or

(iii) who having been convicted under the Sea Customs

Act, 1878 (8 of 1878), or the Customs Act, 1962 (52 of

1962), has been convicted subsequently under either

of those Acts ; or

(iv) who having been convicted under the Foreign

Exchange Regulation Act, 1947 (7 of 1947), or the

Foreign Exchange Regulation Act, 1973 (46 of 1973),

has been convicted subsequently under either of those

Acts ;

(b) every person in respect of whom an order of detention has been

made under the Conservation of Foreign Exchange and Prevention

of Smuggling Activities Act, 1974 (52 of 1974);

Provided that

(i) such order of detention, being an order to which

the provisions of section 9 or section 12A of the said

Act do not apply, has not been revoked on the report of

the Advisory Board under section 8 of the said Act or

before the receipt of the report of the Advisory Board

or before making a reference to the Advisory Board; or

(ii) such order of detention, being an order to which

the provisions of section 9 of the said Act apply, has

not been revoked before the expiry of the time for, or

on the basis of, the review under subsection (3)of

section 9, or on the report of the Advisory Board under

section 8, read with sub section (2) of section 9, of the

said Act ; or

(iii) such order of detention, being an order to which,

the provisions of section 12A of the said Act apply, has

not been revoked before the expiry of the time for, or

on the basis of, the first review under subsection (3)

of that section, or on the basis of the report of the

Advisory Board under section 8, read with subsection

(6) of section 12A, of that Act ; or

(iv) such order of detention has not been set aside

by a court of competent jurisdiction ;

(a) or clause (b) ;

(d) every associate of a person referred to in clause (a) or clause (b);

(e) any holder (hereafter in this clause referred to as the present

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, anyone who held such property after

such person and before the present holder, is or was a transferee

in good faith for adequate consideration.

Explanation 1.

Explanation 2.

Explanation 3.For the purposes of clause (d), "associate", in

relation to a person, means

(i) any individual who had been or is residing in the

residential premises (including outhouses) of such

person;

(ii) any individual who had been or is managing the

affairs or keeping the accounts of such person;

(iii) any association of persons, body of individuals,

partnership firm, or private company within the

meaning of the Companies Act, 1956 ( 1 of 1956), of

which such person had been or is a member, partner

or director;

(iv) any individual who had been or is a member,

partner or director of an association of persons, body

of individuals, partnership firm or private company

referred to in clause (iii) at any time when such person

had been or is a member, partner or director of such

association, body, partnership firm or private

company;

(v) any person who had been or is managing the

affairs, or keeping the accounts, of any association of

persons, body of individuals, partnership firm or

private company referred to in clause (iii);

(vi) ….”

….

6. Notice of forfeiture.

(1) If, having regard to the value of the properties held

by any person to whom this Act applies, either by

himself or through any other person on his behalf, his

known sources of income, earnings or assets, and any

other information or material available to it as a result

of action taken under section 18 or otherwise, the

competent authority has reason to believe (the reasons

for such belief to be recorded in writting) that all or

any of such properties are illegally acquired properties.

it may serve a notice upon such person (hereinafter

referred to as the person affected) calling upon him

within such time as may be specified in the notice,

which shall not be ordinarily less than thirty days, to

indicate the sources of his income, earnings or assets,

out of which or by means of which he has acquired

such property, the evidence on which he relies and

other relevant information and particulars, and to

show cause why all or any of such properties, as the

case may be, should not be declared to be illegally

acquired properties and forfeited to the Central

Government under this Act.

(2) Where a notice under subsection (1) to any

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.

7. Forfeiture of property in certain cases.

(1) The competent authority may, after considering the

explanation, if any, to the show cause notice issued

under section 6, and the materials available before it

and after giving to the person affected (and in a case

where the person affected holds any property specified

in the notice through any other person, to such other

person also) a reasonable opportunity of being heard,

by order, record a finding whether all or any of the

properties in question are illegally acquired properties.

(2) Where the competent authority is satisfied that

some of the properties referred to in the show cause

notice are illegally acquired properties but is not able

to identify specifically such properties then, it shall be

lawful for the competent authority to specify the

properties which, to the best of its judgment, are

illegally acquired properties and record a finding

accordingly under subsection (1).

(3) Where the competent authority records a finding

under this section to the effect that any property is

illegally acquired property, it shall declare that such

property shall, subject to the provisions of this Act,

stand forfeited to the Central Government free from all

encumbrances.

(4) where any shares in a company stand forfeited to

the Central Government under this Act, then, the

company shall, notwithstanding anything contained in

the Companies Act, 1956 (1 of 1956), or the articles of

association of the company, forthwith register the

Central Government as the transferee of such shares.

8. Burden of proof.

In any proceedings under this Act, the burden of

proving that any property specified in the notice served

under section 6 is not illegally acquired property shall

be on the person affected.

9. Fine in lieu of forfeiture.

(1) Where the competent authority makes a declaration

that any property stands forfeited to the Central

Government under section 7 and it is a case where the

source of only a part, being less than onehalf of the

income, earnings or assets with which such property

was acquired has not been proved to the satisfaction of

the competent authority, it shall make an order giving

an option to the person affected to pay, in lieu of

forfeiture, a fine equal to one and onefifth times the

value of such part.

Explanation.For the purposes of this subsection, the

value of any part of income, earnings or assets, with

which any property has been acquired, shall be,

(a) in the case of any part of income or earnings, the

amount of such part of income or earnings;

(b) in the case of any part of assets, the

proportionate part of the full value of the

consideration for the acquisition of such assets.

(2) Before making an order imposing a fine under subsection (1), the person affected shall be given a

reasonable opportunity of being heard,

(3) Where the person affected pays the fine due under

sub section (1), within such time as may be allowed in

that behalf, the competent authority may, by order,

revoke the declaration of forfeiture under section 7 and

thereupon such property shall stand released.”

12. Taking into consideration the scope and ambit of Act, 1976 of

which a detailed reference has been made, forfeiture proceedings

could be initiated under Section 6 in reference to such illegally

acquired properties by such persons who are covered under Section

2 read with the explanation, appended thereto, by a show cause

notice and after due compliance of principles of natural justice, the

power vests in the competent authority to pass an order of forfeiture

of the property in exercise of power under Section 7 of the Act 1976.

13. Section 8 clearly postulates that burden of proof, in any

proceedings under this Act, in reference to the notice served under

Section 6 in regard to the illegally acquired properties shall lie on

the person affected and while exercising power under Section 7,

forfeiting the illegally acquired properties in a case where the source

of only a part, being less than onehalf of the income of which such

property is acquired, the acquisition has been subject to proof to

the satisfaction of the competent authority, can be offered an option

to the person affected to pay in lieu of forfeiture, a fine of the value

of such part, as indicated under Section 9 of the Act 1976.

14. The respondents have initiated the proceedings serving show

cause notice under Section 6 of forfeiture of the property which was

taken from illgotten gains to the first appellant firm and its

partners(Appellant nos. 2 to 5) dated 16th October, 1994. The

competent authority, in the first instance, after taking into

consideration the material on record returned a finding that the

total contribution of the partners in M/s. Platinum Theatre by way

of capital was Rs.10,20,000/ as could be seen from the

Partnership Deed as well as returns of M/s. Platinum Theatre that

clearly indicates that N.A. Yusuf contributed Rs.5 lakhs. Appellant

no.2 (P.M. Saheeda) and her minor son contributed Rs.5.20 lakhs.

The partners are the joint owners of the property of a firm by virtue

of their capital contribution in terms of Partnership Deed.

15. N.A. Yusuf has not disclosed any source from which he got

capital contribution of Rs.5 lakhs. In respect of contribution made

by Appellant no. 2(P.M. Saheeda) and her minor son to the tune of

Rs. 5.20 lakhs in the partnership firm, no explanation was tendered

about the source of funds infused in the partnership firm. The

authorities of the incometax department on assessment were able

to substantiate that neither the source of contribution made by N.A.

Yusuf nor anyone else and the entire sum of Rs.4.57 lakhs was

assessed as income of Appellant no. 2(P.M. Saheeda). From the

other documentary evidence which has come on record, it reveals

that the construction and decoration of the theatre was undertaken

by N.A. Yusuf as a proprietor. A finding was recorded that the

entire capital in M/s. Platinum Theatre in the names of N.A. Yusuf,

P.M. Saheeda(Appellant no. 2) and her minor children was created

through the illegally earned money by N.A. Yusuf through his

smuggling activities. It was supported by incometax returns for

the assessment year 197576. Appellant no. 2(P.M. Saheeda) which

claimed that the land was purchased by her for Rs.33,000/ in the

year 1969 from her own funds generated through wedding gifts in

support of which no proofs was produced, and with land, the value

of the theatre would work out to be Rs.25.12 lakhs. The appellants

failed to justify that the loan of Rs. 12 lakhs from Vijaya Bank was

ever invested in the subject theatre. There was no document placed

on record which could justify that Rs.12 lakhs was invested in the

construction of theatre. According to the finding recorded by the

competent authority, more than 50% of the value assessed(i.e. Rs.

13.12 lakhs) of the theatre has remained unexplained and

accordingly the theatre was liable for forfeiture under Section 7 of

the Act, 1976, free from all encumbrances, under Order dated 31st

December, 1997. On appeal being preferred, the finding stood

affirmed by order dated 7th September, 1999.

16. Against the said order, a writ petition was filed before the High

Court under Article 226 of the Constitution. The learned Single

Judge of the High Court revisited the factual matrix on record and

returned a finding that no documentary evidence was placed by

either of the appellants, during the proceedings initiated by the

competent authority, who are under an obligation to prove in terms

of Section 8 of the Act 1976. From the evidence which came on

record, it could be gathered that out of the investment made by the

partners(Appellant nos. 2 to 5) to the tune of Rs.10.20 lakhs, N.A.

Yusuf contributed Rs.5 lakhs and Appellant no.2(P.M. Saheeda) and

her children have contributed to the tune of Rs.5.2 lakhs each but

neither N.A. Yusuf has justified any source from where his capital

contribution was made nor the explanation was tendered by

Appellant nos. 2 to 5 regarding their source of income and it was

disbelieved at all stages and a finding was returned that major part

of the investment has been treated as income from undisclosed

sources. That apart, no evidence was placed by Appellant no.

2(P.M. Saheeda) on record to justify that the land in question was

purchased from the resources available at her command in the year

1969, through the sale deed dated 16th April, 1969. In the given

circumstances, the appellants are not entitled to seek protection of

Section 9 of the Act 1976.

17. That apart, as regards the submissions made by the counsel

for the appellants to impose fine in lieu of forfeiture, as

contemplated under Section 9 of the Act 1976, after noticing the

argument advanced by the appellants before the High Court, a

categorical finding has been recorded as to why the appellants are

not entitled to seek protection of Section 9 of the Act 1976, which is

as follows:

“The argument of petitioners’ counsel is, major contribution

is from the petitioners and that the land in question was acquired

in the year 1969 prior to the entering into a partnership agreement

out of the borrowings of 2nd petitioner Saheeda and that land in

question ought not have been taken into consideration to forfeit

the same, and as such, the Competent Authority and the Appellate

Tribunal ought to have taken note of the same into consideration

only to impose fine and not to forfeit the property and also the land

in question should be available to the petitioners and it should not

be the subject matter of forfeiture.

In this regard, it appears the Competent Authority as well as

the Appellate Tribunal having noted the transaction and also

having noted that there is no explanation offered by the 2nd

petitioner properly regarding acquisition of the land in question for

Rs.33,000/ in the year 1969, and also having doubted the

unsigned agreement between the 2nd petitioner and N.A. Yusuf,

and in the absence of any such proper explanation as to source of

acquisition, held that major investment remain unexplained and

also disbelieved the version of the 2nd petitioner on the ground that

the proof of gift from her marriage has not been produced. Thus,

according to the Competent Authority as well as the Appellate

Tribunal, even if the value of the land is taken only at Rs.33,000/,

the total value of the land and building will work out at

Rs.25,20,000/ and as such, it was of the view that major part of

the investment remained unexplained. Even the accounts are not

maintained in respect of the cost of construction of the building

and all other various installations made.”

18. Taking into consideration the submissions made, we find no

error being committed in the finding returned by the High Court

which may call for our interference.

19. Even before this Court, there is no material that has been

placed by Appellant no.2 (P.M. Saheeda) in rebuttal which may even

prima facie justify the sources of fund available at her command for

acquisition of the land in question to the tune of Rs.33,000/ in the

year 1969. In the absence of proper explanation as to the source of

acquisition and as majority of investment remains unexplained, the

authority disbelieved the version of Appellant no. 2(P.M. Saheeda)

as no proof was placed on record of gifts from her marriage. That

apart, if the value of the land is taken only of Rs.33,000/, the total

value of the land and building work out at Rs.25,20,000/, and as

such, the major part of the investment still remains unexplained.

Even the accounts were not maintained in respect of the cost of

construction of the building, in absence whereof, the authority has

not committed any manifest error in forfeiting the property in

exercise of power under Section 7 of Act 1976.

20. Suffice it to say that the proceedings were initiated in

reference to the appellants, in the first instance, pursuant to show

cause notice dated 13th January, 1977 and the competent authority

passed an Order of forfeiture on 23rd November, 1977. Later that

came to be set aside in the year 1991 and fresh forfeiture

proceedings were initiated pursuant to show cause notice under

Section 6 of the Act dated 16th October, 1994 which finally

culminated into passing of order of the competent authority on 31st

December, 1997 and on dismissal of appeal, the writ petition was

preferred at the instance of the appellants and the matter reached

to this stage. Thus, in the given facts and circumstances, the very

plea of so called alleged gross delay in initiating the proceedings for

forfeiture of the property is misconceived and deserves an outright

rejection.

21. Consequently, the appeal is without substance and

accordingly dismissed. No costs.

22. Pending application(s), if any, shall stand disposed of.

..…….………………….J.

(AJAY RASTOGI)

………………………….J.

(BELA M. TRIVEDI)

NEW DELHI;

MARCH 22, 2023.

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M/S. PLATINUM THEATRE AND OTHERS VERSUS COMPETENT AUTHORITY SMUGGLERS & FOREIGN EXCHANGE MANIPULATORS (FORFEITURE OF PROPERTY) ACT, 1976

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