Makanbhai Govanbhai Tandel & Anr. vs Union Of India & Others
2008 Latest Caselaw 1932 Del

*                   IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                        W.P.(C) 2317/1998

                                                     Reserved on:    27.08.2008
%                                                     Pronounced on: 03.11.2008

      Makanbhai Govanbhai Tandel & Anr.                          .... Petitioner
                       Through Mr. R.P. Bansal, Sr. Advocate with Mr. Rakesh
                       Mahajan, Mr. Prabhat Ranjan, Mr. Sheetesh Khanna &
                       Mr. Amit Singh, Advocates

                    versus


      Union of India & Others                              ..... Respondents
                         Through Mr. Rajendra with Mr. R.K. Chaufla, Advocates

CORAM:
MR. JUSTICE S. RAVINDRA BHAT

1.    Whether reporters of local papers may be
      allowed to see the judgment?                           Yes

2.    To be referred to the Reporter or not?                  Yes

3.    Whether the judgment should be reported                Yes

      in the Digest?

MR. JUSTICE S. RAVINDRA BHAT

1.    The writ petitioners in these proceedings under Article 226 of the Constitution are

aggrieved by orders     dated 14.5.1979, of the Competent Authority under the

Smugglers and Foreign Exchange Manuplators (Forfeiture of Property) Act, 1976

(hereafter variously called the "Act" and "SAFEMA") as well as the order of the

Appellate Tribunal, dated 8th April, 1997, confirming it. The effect of these impugned


WP(C) No.2317/1998                                                                Page 1
 orders is forfeiture of two house properties, a fishing vessel, and fixed deposit, the

proceeds of which the petitioners are entitled to.

2.     The facts, briefly are that Shri Makanbhai Govanbhai Tandel, the first petitioner,

was detained under the Conservation of Foreign Exchange and Prevention of Smuggling

Activities Act, 1974 (hereinafter referred to as COFEPOSA) by the Government of Goa,

by order dated 31.1.1976. Smt. Laxmiben Makanbhai, is the second petitioner, his wife.

The competent authority, Bombay issued notices to the petitioners under Section 6 of the

SAFEMA, in July, 1977. Later on, may be due to some jurisdictional changes, the

competent authority, Ahmedabad, after recording reasons afresh, issued fresh notices

under Section 6 on 6th December, 1978 calling upon both the petitioners, who were

'affected persons' to show cause to him the sources of income, earnings or assets out of

which or by means of which properties enumerated in the annexure to the notices were

enquired and as to why those said properties should not be declared to be "illegally

acquired" properties and forfeited under the said Act.

3.     In his reply dated 27.1.1979 Shri Makanbhai Govanbhai Tandel, first petitioner,

informed the Competent Authority that since the beginning of his life, he had been doing

business of fishing and out of income from fishing he had acquired the property in

question. The fact that he had income from fishing has been accepted by the Income Tax

Department while making assessment of his income. This was reiterated by him in his

subsequent letter dated 27.7.1979 in response to the Competent Authority's letter dated

7.2.1979. The second petitioner resisted the notice, informing the competent Authority

that after her marriage, she had been doing business of sale and purchase of fish and
WP(C) No.2317/1998                                                                Page 2
 whatever she earned was contributed to her husband (Shri Makanbhai Govenbhai Tandel)

in acquiring the immovable properties in question. The acquisition of the properties was

out of her and her husband's earning.                These facts were reiterated by her in her

subsequent letter dated 27.3.1979.

4.      In the absence of any evidence in support of their claims, the Competent Authority

did not accept the explanations offered by the petitioners.                   As regards income tax

assessment, the Competent Authority recorded that the concerned I.T.O.

        "Had simply accepted the returns filed by him (Shri Makanbhai Govanbhai
        Tandel) and Shri Makanbhai Govenbhai Tandel did not claim that he had fishing
        business before the Income Tax Officer nor did he produce any evidence to the
        Income Tax Officer".


The competent authority, therefore, forfeited following properties (out of six properties

mentioned in the annexure to the notices issued under Section 6) holding them to be

"illegally acquired" properties, by his two separate orders, dated 14.5.1979:-

Sl.No. Description of Properties                                          Holder's Name

(i)             Property bearing Registration No.143                      Smt. Laxmiben
                at Nani-Daman.                                            Makanbhai Tandel

(ii)            Property bearing Registration No.145
                at Nani-Daman                                                      -do-

(iii)           One Vessel M.P.V. 'Laxmi Prasad'                         Shri Makanbhai
                Registered under No.UMR-635.                            Govanbhai Tandel

(iv)            Fixed deposit in Account No.1365                                   -do-
                with Goa State Co-operative Bank,
                Daman.

------------------------------------------------------------------------------------------------------------

WP(C) No.2317/1998                                                                                  Page 3
 ---------

4. Being aggrieved, both Petitioners preferred two separate appeals, before the

Appellate Tribunal for Forfeited Property, constituted under SAFEMA (hereafter called

"the tribunal") which were dismissed on 28.11.1995 for non-appearance and for want of

prosecution. The petitioner's applications seeking restoration of the appeals were also

rejected by the tribunal. Thereafter, they preferred Civil Writ No.965/96 before this

Court which were disposed of, by directing the tribunal to give one 'last' opportunity to

the petitioners, to contest the proceedings before it. This Court also directed that the

petitioners to appear before the Tribunal on 25.3.97 for further proceedings in the matter.

5. The tribunal heard the appeals, as directed, and by the second impugned order,

rejected them. The relevant part of the tribunal's order is extracted below:

"7. Shri Bansal continued his arguments to state that the SAFEMA proceedings have not been initiated properly since in the show cause notices, no grounds have been furnished to show that the properties were "illegally acquired" and that the Competent Authority has not established the nexus between the two immovable properties owned by Smt. Laxmiben Makanbhai with her husband Shri Makanbhai Govanbhai Tandel. Thus, the notice is bad in law, he argued. We are not impressed by this argument.

Firstly, it is not legally incumbent on the part of the Competent Authority to furnish grounds on the basis of which he formed the opinion and secondly, as provided in Section 8 of the SAFEMA, the burden of proof to establish that the properties were not illegally acquired rests with the 'affected persons' and not on the Department. We find from Smt. Laxmiben Makanbhai Tandel's letter dated 27.3.1979 addressed to the said Competent Authority that the forfeited immovable properties were part financed by her husband Shri Makanbhai Govanbhai Tandel. Moreover, we also wish to put on record that in his letter dated 21.11.1976 addressed to the Commissioner of Income-Tax, Gujarat-IV, Ahmadabad wherein he had made a voluntary disclosure of his income and assets for settlement purposes, Shri Makanbhai Govanbhai Tendel has mentioned that these properties were his own. It is only independent properties of relatives and friends, which are not traceable to the convict/detenu, which are not sought

WP(C) No.2317/1998 Page 4 to be forfeited nor are they within the purview of the SAFEMA. In view of the facts and circumstances of the instant case, we feel that nothing further was required from the Competent Authority to establish the norms, if at all it was necessary for him to do.

8. Coming to the merits, Shri Bansal had nothing more except to reiterate that Shri Makanbhai Govanbhai Tandel was engaged in the business of fishing and out of the income from this he had acquired the properties in question. Similarly, Smt. Laxmiben Makanbhai Govanbhai Tandel was engaged in the business of purchase and sale of fish and she earned the income out of this business which was used to finance the properties in question. As for the documentary evidence, Shri Bansal informed that his clients, being engaged in petty business of fishing, did not maintain any accounts. The investments in the properties were made in different years, which fact according to the learned counsel, also indicated that the investments were done as and when savings were made out of fishing income. From the records, we observe that in 1973-74, Shri Makanbhai Govanbhai Tandel had purchased the immovable properties (under forfeiture) for Rs.62,000/-(Rs.52,000/-+Rs.10,000/-), besides a vessel, agricultural land and cash in hand aggregating to Rs.27,000/- (refer his letter dated 21.11.1974) to the Commissioner of Income-Tax, Gujarat- IV, Ahmadabad, claiming all these through savings out of the fishing business. This aspect has been fully dealt with by the Competent Authority in his impugned order dated 14.5.1979, particularly at paras 3,4,5 & 6 thereof, and we do not find any reasons to disagree with the grounds on which the appellants' contentions have been rejected by him. We accordingly fully endorse the findings of the Competent Authority. The two appeals are accordingly rejected."

8. The petitioner's grievance is that the findings of the competent authority and the

Tribunal are unsustainable. It is contended on his behalf by Mr. R.P. Bansal, learned

senior counsel that without disclosing reasons as to why stringent legislation could be

invoked, respondents could not have concluded on the basis of the existing material that

the properties forfeited were acquired through illegal, smuggling or such like

objectionable activities. It was contended that no "reasons to believe"constituting the

basis of the opinion formed for action, recorded on the file of the respondents were ever

WP(C) No.2317/1998 Page 5 disclosed by the competent authority. This resulted in grave prejudice to the petitioners.

Learned senior counsel contented that the reasons recorded by the authorities as the

rationale for forfeiture, were no doubt, furnished in the order; yet to see whether there

were grounds to initiate proceedings, the respondents should have disclosed the reasons

for the opinion, before issuance of notice, under Section 6. In these circumstances, the

petitioner ought to have been shown such reasons before the order was issued.

9. Learned senior counsel contended that the properties in question were acquired

long back and without any justifiable reason to link such acquisition with any illegal

activity, provisions of the Act could not have been legally invoked.In failing to see this

aspect the competent authority as well as the tribunal committed an error of law.

10. Learned senior counsel contended that the first petitioner had been detained under

provisions of COFEPOSA in 1976, during the internal emergency declared at that time.

That was the basis of the move to forfeit his properties. All blindly invoked provisions of

Act without applying their minds to whether there were any justifiable reasons to believe

that they were illegally acquired properties under Section 3(c) of the Act. Learned

counsel contended that due to Section 21 findings under other laws were not conclusive;

yet their relevance could not be doubted. Therefore, the competent authority and later the

Tribunal could not have completely ignored the orders of the ITO. It was urged that the

tribunal erred in not seeing, or even adverting to the order of the Central Board of Excise

and Customs, dated 24-11-1980, in respect of the allegation of smuggling, leveled against

the first petitioner, which prominently influenced the proceedings under SAFEMA and

WP(C) No.2317/1998 Page 6 culminated in the forfeiture order under Section 7.

11. Learned counsel submitted that the presumption raised under Section 8, in the

event of service of notice under Section 6 did not mean that the person concerned had to

satisfy the authorities beyond reasonable doubt about legitimacy of sources of income on

the basis of which properties were acquired; having regard to the consequences the

threshold of proof was one of preponderance of probabilities. In the facts of the case

having regard to the long and continued fishing business of the petitioner, since the early

1960's; a likelihood of savings over a sustained period of two decades; having declared

the income in 1974 for that assessment year and previous years and subsequently filing

returns, were all relevant facts. These as well as the orders of the ITO, constituted

relevant materials - although the competent authority was not bound by the orders of the

Income Tax Authorities, it could not exclude, their consideration. It was urged that the

petitioners were not convicted of any crime, and seizure of some vessel by the customs

authorities was an unconnected fact, having no relevance to this case.

12. Learned counsel relied upon the judgment of the Supreme Court reported as

Fatima Mohamed Amin Vs. Union of India (2003) 7 SCC 436 as well as P.P. Abdulla &

Anr. Vs. The Competent Authority & Ors. (2007) 2 SCC 510 and submitted that the

contents of the notice nowhere disclose sufficient reasons warranting the impugned

action against the petitioner. Learned counsel contended that beyond recording that the

competent authority had relevant material with him which constituted reasons to believe

that the properties described in the Schedule to the notice were held by the petitioners or

on his behalf, were illegally acquired, no cogent facts or reasons were ever disclosed.

WP(C) No.2317/1998 Page 7 Therefore, the very basis of the action, which resulted in stringent and penal

consequences was unfair and without disclosure of valid reasons.

13. Learned counsel for the respondent urged, on the other hand, that the petitioners

did not discharge the burden placed under Section 8. Learned counsel relied upon the

opinion of the Competent Authority and submitted that the nature of the business carried

on by them did not require any capital investment. It was submitted that in this

background, the re-opening of assessment on the basis of information by the Customs

Preventive staff and that he was involved in gold smuggling and that dalali was only a

smoke screening, was relevant. It was contended that the undoubtedly Appellate

Assistant Commissioner set aside the re-assessments on the basis of the opinion by the

Central Board of Central Excise; yet these were independently evaluated by the

respondent authorities who concluded that Shiv Shankar had not discharged the onus

under Section 8 or proved that the two properties were acquired out of legal sources. It

was contended that Smt. Shanti Devi's explanation of having acquired second property

by selling silver ornaments too was dubious and unacceptable.

17. Learned counsel contended that although the action seems stringent, the objective

of the enactment cannot be forgotten. It is a part of the larger scheme to prevent

smuggling and act as a deterrent to those thriving by such illegal activities. The Court

should defer to the conclusions arrived by the authorities, particularly in view of Section

14 which enacts a bar against jurisdiction. Learned counsel contended that having regard

to the assessment of the Tribunal which is headed by a High Court Judge ordinarily writ

jurisdiction should not re-examine factual findings. The Court should judicially review

WP(C) No.2317/1998 Page 8 the orders of the tribunal in rare and exceptional circumstances where the orders discloses

perversity or apparent illegality. In this case both pre-conditions do not apply. The

petition has to be therefore rejected.

18. Learned counsel contended that the mere fact that Income Tax Authorities,

accepted petitioner's explanation and dropped the move for re-opening assessments, did

not bind the competent authority, by virtue of Section 21. The authority, on an

independent appraisal of the material, concluded that there was no sufficient explanation

for the sources of income, to acquire the vessel. According to the first petitioner's

valuation, the vessel was purchased for Rs. 11,000/-. However, according to valuation by

the customs authorities, the value of the vessel "Laxmi Prasad" was Rs. 21,763/-.

Similarly, the explanation in support of acquisition of the house property, i.e income from

fishing for three years as Rs. 20,000/- each was without supporting evidence. Moreover,

no investment in house property was disclosed in the income tax returns. The explanation

for acquiring them, therefore, was inadequate. As far as the fixed deposit in the Goa Co-

operative Bank was concerned, the petitioner had claimed to possess cash in hand of Rs.

15,000/- in the declaration to income tax authorities, whereas the fixed deposit was Rs.

10,000/-.

19. Section 6(1) of the Act enacts that if, having regard to the value of the properties

held by any person to whom the Act applies, either by himself or through any other

person on his behalf, his known sources of income, earnings or assets, etc., and any other

information or material available to it as a result of action taken under Section 18 or

otherwise, the Competent Authority, after recording reasons to believe in writing that all

WP(C) No.2317/1998 Page 9 or any of them are illegally acquired properties may serve a notice upon such person

calling upon him to indicate the source of his income, earnings or assets, out of which or

by means of which the property had been acquired, etc. This presumes proper application

of mind and meaningful subjective satisfaction of the Competent Authority as to

existence of "reasons to believe". Those should be recorded in writing; they should also

be to the effect that the property sought to be proceeded against is illegally acquired.

Such opinion formation i.e "reasons to believe", the authority consider, not only the

disproportionate nature of the assets of the person concerned, in relation to known

sources of income, other information or material available as a result of action taken

under section 18 or otherwise. Section 18 empowers the Competent Authority to cause an

inquiry or investigation, regarding any person, place, property, etc. For this an officer of

the Income-tax Department can be asked to carry out such exercise or survey. This

should naturally precede the opinion formation, i.e "the reasons to believe" as well as

precede the issuance of notice under section 6(1). The facts disclose that no such inquiry

preceded the notice. This investigation under section 18 is a salutary principle, because it

is now well settled that the more stringent the procedure and consequences, the threshold

of safeguards have to be higher. This would prevent hasty and casual issuance of notices,

and avoidable hardship to citizens. In Prakash Kumar Vs. State of Gujarat, 2005 (2) SCC

409, the Supreme Court underscored the need to ensure strict interpretation of the

enactment, where penalties or sanctions are provided, in the following terms:

"The more stringent the law, the less is the discretion of the Court.

Stringent laws are made for the purpose of achieving those objectives. This being the intentment of the legislature, the duty of the

WP(C) No.2317/1998 Page 10 Court is to see that the intention of the legislature is not frustrated. If there is any doubt or ambiguity, the rule of purposive construction should be taken to recourse to, to achieve the objectives."

Investigation under Section 18, therefore should ordinarily precede the issuance of notice

under Seciton 6(1).

20. The "reasons to believe" before the issue of notice under section 6(1) of the

SAFEMA were recorded in the present cases by the Competent Authority on 6-12-1978.

It recorded that the appellants were assessed to income-tax; yet the source of income of

could not be established properly. It discounted the findings and assessments accepted

about 4 years before the notice. There is no whisper that any enquiry or investigation

under section 18 of the Act preceded the notice, or that the Income-tax Department had

enquired as to whether the petitioners wife actually were such assessees. No statements of

any witnesses were recorded. It is significant that investigation through agencies have

been created under the Competent Authorities, but there is nothing to disclose that any

inspector or other official was deputed to the Income-tax Department for Department for

enquiring in this regard or that the appellants were contacted for ascertaining whether

they had prima facie any explanation for their assets. Instead, on a priori assumptions in

the "reasons to believe" recorded by the Competent Authority that the assessee did not

have a legitimate source of income, notice was straightaway issued.

21. The competent authority's order discloses that he took into account the following

facts:

(i) Previous filing of statement, by the first petitioner before the Settlement

Commissioner, Income Tax;

WP(C) No.2317/1998                                                                         Page 11
 (ii)    Acceptance, without reasons, by the Income Tax Officer, of the returns for three

years, i.e 1971-72, 1972-73 and 1973-74, in 1976.

(iii) Absence of mention of the house property assets in the income tax returns;

(iv)    Disbelief about the source of income of the petitioner;

(v)     Alleged recovery of goods worth Rs. 1,50,000/- from the vessel belonging to the

first petitioner;

(v)     Alleged undervaluation of the vessel by the first petitioner;

22. A comparison of the notice, with the order of forfeiture would show that the

competent authority mechanically dealt with the petitioner's explanation about his source

of income. On the one hand, the forfeiture order encompasses a fishing vessel; yet the

competent authority rejected the petitioner's explanation that he was carrying on fishing

activity. The authority's insistence of proof of sales, for a period exceeding more than 5

years, (even in the face of the income tax authorities' acceptance of the income

statement) is, in the opinion of the court, unreasonable. One cannot expect those engaged

in such businesses to maintain records, of the standard expected of those who carry on

trade in other commodities, where regular books of account are kept, or where sales or

commercial tax returns have to be filed. Yet again, there is nothing on record to show that

the petitioners' complete statement to the income tax authorities, including the assets

disclosure, was seen by the competent authority, which proceeded to reject the

petitioners' explanation about annual income being Rs. 20,000/-.

23. Besides the above errors, the tribunal, in the opinion of the court, erred in ignoring

the findings of two competent authorities - one, the criminal court, before which the first

WP(C) No.2317/1998 Page 12 petitioner had been charged for offence under Section 135, Customs Act, on alleged

recovery of goods worth Rs. 1,50,000/-. The findings of the court, contained in the order

dated 5-4-1980 reveal that the petitioner was acquitted of the charges. Similarly, the

Board of Excise and Customs, in the order dated 24-11-1980, directed closure of the

assessment proceedings against the petitioner. These precluded, as a matter of law,

credence to the allegations of smuggling. The orders constituted vital and relevant

materials that could not have been ignored by the authorities. At least the tribunal should

have recorded why those orders were not relevant.

24. As far as the valuation of the vessel is concerned, the order of the competent

authority is based on the opinion of the customs authorities. In such proceedings, before

accepting such valuation, which was concededly higher than that given by the petitioner,

the latter should have been given a modicum of fair hearing, which included a copy of the

valuation, and the proposed reasons for their acceptance. These elements too were

singularly lacking. Their absence taints the order of forfeiture.

25. In cases where statutory power is premised on subjective satisfaction, courts

preclude themselves from substituting opinion of the executive agency. Yet, in judicial

review they are justified to inquire into whether, in arriving at such satisfaction, the

authority ignored material facts and circumstances. Whether those facts and material

could have still enabled him to come to the same conclusion is entirely irrelevant. It is the

non-consideration of such material which would render the action of forfeiture, so drastic

in consequence, unsustainable in law. Here, the non application of mind of the competent

authority to various aspects such as nature of the petitioners' business, probabilities of

WP(C) No.2317/1998 Page 13 maintenance of accounts in such activity; denial of fair procedure in accepting valuation

of the vessel by customs authorities, and the tribunal's ignoring orders of the competent

criminal court, as well as the Board of Customs and Central Excise, exonerating the

petitioners of charges of smuggling, are fatal flaws in the concurrent determinations

under SAFEMA.

26. There is one more material circumstance which according to this court, the

appellate Tribunal completely overlooked. Though Section 21 enacts that findings in

other Acts are not binding, that itself does not render such final orders completely

irrelevant. Here, the Central Board of Customs and Excise, concluded that there was no

material to show smuggling or illegal activities; the criminal charges against the first

petitioner led to his acquittal. All these cumulatively established that there were no

materials, in the eyes of law showing that he or his wife had indulged in smuggling -

primarily the suspect activity, having regard to the nature of his business. These findings

were relevant if not conclusively binding. In utterly ignoring such materials, the tribunal

fell into error.

27. For the foregoing reasons, the petition has to succeed. The orders of the competent

authority, dated 14-5-1979, forfeiting the petitioners' properties, and the order of the

tribunal, dated 8-4-1997, are hereby quashed. The writ petition and pending applications

are accordingly allowed. In the circumstances of the case, there shall be no order as to

costs.

3rd November, 2008                                              S. RAVINDRA BHAT, J

WP(C) No.2317/1998                                                                  Page 14