Incomplete Bank Trail Fails to Lift NDPS Property Freeze: SAFEMA Tribunal

Piyushbhai Ashokbhai Patel Vs Competent Authority (Appellate Tribunal under SAFEMA)

ITRs and CA Certificate Alone Cannot Prove Clean Source of Property: NDPS Tribunal Upholds Freezing of Flat

Summary: The Appellate Tribunal under SAFEMA has upheld the freezing of a residential flat under the Narcotic Drugs and Psychotropic Substances Act, 1985, holding that income-tax returns, a Chartered Accountant’s certificate and an incomplete loan statement cannot establish the legitimate source of property when the relevant bank statements, loan sanction documents and evidence of repayment are withheld. Once the property is identified within the statutory period and the person is covered as an “affected person,” the burden shifts upon him under Section 68-J to establish that the property was not acquired from illicit income.

Huge Recovery of Mephedrone and Alprazolam

On 16 August 2022, the Gujarat Police recovered 225.053 kilograms of Mephedrone, valued at approximately Rs.1,125.26 crore, from the premises of Nectar Chem, a partnership firm at Village Moksi, Vadodara. The police also recovered Rs.14 lakh in cash, stated to represent sale proceeds of contraband, and 1,753.300 kilograms of Alprazolam.

The appellant, along with four other persons stated to be partners of the firm, was arrested for allegedly manufacturing and selling narcotic substances without a licence. The authorities alleged that substantial quantities of Mephedrone had already been sold to other accused persons. Since the quantity recovered was commercial quantity and the alleged offences were punishable with rigorous imprisonment of ten years or more, the appellant was treated as an “affected person” under Section 68-A(2)(cc) of the NDPS Act.

During the financial investigation, the Deputy Superintendent of Police, ATS, identified a residential flat at Central Park Society, Manjalpur, Vadodara, belonging to the appellant. The flat had a proposed value of Rs.40.80 lakh, though its sale deed recorded consideration of Rs.12 lakh. The property was frozen under Section 68-F(1), and the Competent Authority subsequently confirmed the freezing order.

Appellant Claimed Purchase Through Explained Funds and Bank Loan

The appellant contended that the property had been purchased under a sale deed dated 18 January 2018 for Rs.12 lakh. The consideration had been paid in six instalments between January 2016 and February 2017 through banking channels.

The first three payments, aggregating to Rs.5 lakh, were made between January and May 2016. The balance payments of Rs.1 lakh, Rs.99,000 and Rs.5.01 lakh, aggregating to Rs.7 lakh, were made in January and February 2017.

It was argued that the first Rs.5 lakh had been paid more than six years before the appellant’s arrest on 16 August 2022 and therefore fell outside the statutory period contemplated by Section 68-C. As regards the remaining amount, the appellant claimed that he had obtained loans from HDFC Bank which were utilised to discharge the sale consideration. He also relied upon his income-tax returns for Assessment Years 2016-17 to 2018-19 and a certificate issued by a Chartered Accountant showing his income from various sources for Assessment Years 2015-16 to 2023-24.

The appellant further pointed out that Nectar Chem was constituted only on 15 September 2018, whereas the entire sale consideration had been paid by February 2017. According to him, no part of the alleged income from unlawful manufacture or trafficking of narcotics could therefore have been utilised for purchasing the flat.

Nature of Financial Investigation and Shifting Burden

The Tribunal explained that during a financial investigation under the NDPS Act, the investigating officer must examine the accused’s involvement in an NDPS offence, his sources of income, properties held by him and his family members, and the properties acquired within the relevant six-year period.

At the freezing stage, the investigating authority is not expected to establish a precise one-to-one link between a particular drug transaction and the property. Such direct tracing may often be practically impossible. Once the authority identifies the property and forms an opinion that it could have been acquired from illicit sources, the burden shifts to the affected person under Section 68-J of the NDPS Act, read with the general principle relating to facts especially within a person’s knowledge.

Missing Bank Trail Proved Fatal

The Tribunal accepted that the first three payments aggregating to Rs.5 lakh were made more than six years before the appellant’s arrest. However, the remaining Rs.7 lakh was paid within the relevant six-year period and therefore required a proper explanation.

The appellant had not produced the HDFC Bank loan sanction letter, loan agreement or documents showing whether the loan was a housing loan or a business loan. He also failed to produce the complete savings bank statements of SBI, HDFC Bank and Bank of Baroda through which the consideration was allegedly paid.

The payment of Rs.5.01 lakh had been made on 17 February 2017 from HDFC Bank, but the loan statement merely reflected an opening debit balance of Rs.8.75 lakh on 1 March 2017. In the absence of the underlying bank statement, the Tribunal found it impossible to connect the payment made to the seller with the alleged loan.

Another loan was shown in July 2017, several months after the entire sale consideration had already been paid. The Tribunal questioned how that subsequent loan could explain the acquisition of the flat. Although it was suggested that the later loan was taken for renovation, no sanction document or supporting material was produced.

The appellant also failed to establish the legitimate sources from which the loan EMIs were repaid. The CA certificate referred to agricultural income, but the appellant did not produce details of the agricultural lands or corresponding revenue records. The Tribunal therefore held that the possibility of repayment of the loans or EMIs out of illicit income had not been ruled out.

Appeal Dismissed with Liberty at Forfeiture Stage

The Tribunal upheld the freezing order and dismissed the appeal. However, it granted the appellant liberty to produce better and complete evidence if forfeiture proceedings were subsequently initiated.

Author’s Comments

The decision draws an important distinction between freezing and final forfeiture. At the freezing stage, the authority is required to preserve suspected property; it is not necessarily required to conclusively prove that every rupee used for its acquisition came from drug trafficking. The affected person must then establish the lawful source through a complete and verifiable financial trail.

Income-tax returns and CA certificates may support a claim, but they cannot substitute the primary evidence. Where purchase consideration is stated to have come from a bank loan, the safest evidence would include the sanction letter, loan agreement, disbursement statement, seller’s bank credit, complete bank statements and proof of EMI repayment from disclosed income. In the absence of this chain, a broadly worded certificate stating that sufficient income was available may not discharge the burden under Section 68-J.

The order nevertheless leaves the question of final forfeiture open. The appellant has specifically been permitted to produce better evidence at that stage, when the legitimacy of the property will require a fuller and more conclusive examination.

FULL TEXT OF THE ORDER OF APPELLATE TRIBUNAL UNDER SAFEMA

The present appeal u/s 68-O of the Narcotic Drugs & Psychotropic Substances Act, 1985, is filed by the appellant against the Confirmation Order dated 14.06.2023 passed by the Competent Authority, New Delhi, whereby the Freezing Order No. NDPS/ATS/68-F/446/2023 dated 17.05.2023 passed by the Freezing Authority/DSP, PS: Ahmedabad, Vadodara, was confirmed qua the following property of the appellant:-

2. As per the facts of the case on 16.08.2022, Gujarat Police recovered and seized 225.053 Kilograms of Mephedrone valued at Rs. 11,25,26,50,000/- from the premises of M/s Nectar Chem, a partnership firm located at Survey No. 307, Village: Moksi, Tehsil Savli, District: Vadodara, alongwith cash amount of Rs. 14,00,000/- stated to be received from sale of contraband. Apart from this ATS recovered & seized 1753.300 Kilograms of Alprazolam valued at Rs.35,42,200/-. AP-1 (herein appellant) was arrested with four more accused namely; Mahesh @ Mahesh Dhoraji, Dilip @ Dipak Laljibhai Vaghasia, Vijay @ Vijo Odhavji Vasoya & Rakesh Narssibhai Makani, being partners of the partnership firm M/s Nectar Cam Company and having hatched the conspiracy of manufacturing & selling the aforesaid narcotic substance without any permit or licence. They sold 192 Kilograms of MEPHEDRONE on different dates to another accused namely; Dineshbhai @ Diniyo Aalabhai Druv, who further sold it to other accused namely; Ibrahim Hussein Bhai, Baba Ibrahim Odiya and Ismail @ Ismail Painter. AP 1 and AP-2 also sold 112 Kilograms of MEPHEDRONE to Mohammad Jadev Fakaruddin. The seizure of 225.053 quantity of MEPHEDRONE and 1753.300 Kilograms of Alprazolam by the ATS, Gujarat is commercial quantity of contraband. Accordingly, case dated 16.08.2022 was registered against them for commission of offences u/s 8(c), 21(C) & 29 of the NDPS Act, 1985 at PS: Ahmedabad, District: Vadodara, Gujarat. They were arrested on 16.08.2022. As the said recovery is commercial quantity punishable with rigorous imprisonment for 10 years or more, they are covered u/s 68A(2)(cc), as affected persons, NDPS Act, 1985.

The DSP, ATS conducted the Financial Investigation into the illegally acquired property of the AP (herein appellant) as defined u/s 68B(g) of the Act and thereafter passed the Freezing Order No. NDPS/ATS/68-F/446/2023 dated 17.05.2023 u/s 68F(1) of the NDPS Act, 1985, and thereby, seized/frozen the property, as mentioned in para No.1 above.

Thereafter, in order to give an opportunity of being heard, notices dated 18.05.2023 was sent to the AP to defend his case before the Competent Authority, at Mumbai on 30.05.2023. On 30.05.2023, none appeared on behalf of AP. Next date of hearing was fixed for 07.06.2023. But, even on 07.06.2023, none appeared on behalf of AP. The case was adjourned for final hearing on 12.06.2023. Accordingly, on the basis of material on record, the Competent Authority confirmed the Freezing Order. Aggrieved by the said order, the appellant filed the present appeal

3. During the arguments, Ld. Counsel for appellant contended that flat frozen by the Freezing Authority without any proper Financial Investigation. There is nothing on record that the property in question was acquired from any illicit income of drug manufacturing /trafficking. He pointed out that this flat was purchased for sale consideration of Rs.12,00,000/-, vide sale deed no.989 dated 18.01.2018. Copy of the sale deed is at page 67 to 82 and translated copy of the same is at page 52-66. He pointed out that page 56 reflects the payment details as under:-

Accordingly, he submitted that first three payments, total amounting to Rs. 5 lacs were clearly paid 6 years prior to the date of arrest of the present appellant and hence, the same is covered u/s 68C of the NDPS Act. He argued that the Freezing Authority and the Competent Authority failed to appreciate the fact that appellant obtained the loan of Rs. 8,75,000/- and then Rs. 3,25,000/- from HDFC Bank, which was utilized for tendering the remaining payment for purchase of the impugned property. The loan statement is at page 132. He pointed out that M/s. Nectar Chem, a partnership firm was created vide partnership deed dated 15.09.2018 and thus, there is nothing on record that the alleged illicit income of unlicensed manufacturing was utilized for the purpose of tendering the balance payment of the flat. He stressed that in absence of any connection with alleged illicit income, the Freezing Order and impugned order passed by the Competent Authority, needs to be set aside. He also pointed out the Income Tax Returns of the appellant for the A.Y. 2016-17, 2017-18 & 2018-19 to prove the income from various sources and creditworthiness of the appellant. Ld. Counsel for appellant also pointed out the certificate issued by M/s. Shah Chetan & Associates, Chartered Accountants with respect to the income of the appellant for the A.Y. 2015-16 to 2023-24 and stressed that this reflects the year-to-year income of the appellant from various sources for acquiring the property, in question and repayment of EMI. Prayer is accordingly made to set aside the impugned order.

4. On the other hand, Ld. Counsel for respondent Competent Authority controverted the submissions made by the Ld. Counsel for appellant on each & every aspect, which will be discussed in our analysis and findings in the following paras.

5. After hearing the rival submission, we have given our thoughtful consideration to the same. During financial investigation, the Freezing Authority/IO has to see the following facts:

(i) The involvement of the accused in any NDPS case with respect to intermediate or commercial quantity of the contraband and his past antecedents. In case any accused is convicted, after of the passing freezing order, then forfeiture proceedings commence under Section 68H of the NDPS Act;

(ii) The sources of income of the accused and his family members;

(iii) The details of the properties in the possession of accused and his family members;

(iv) The approximate period of acquisition/construction of said properties within period of 6 years prior to the registration of FIR;

The above steps are sufficient to identify the property to form an opinion on the part of SHO/IO that the said properties are acquired from the illicit sources of money, as it is practically not possible to establish direct link with the illicit money of drugs trafficking. Thereafter, burden of proof shifts on the affected persons to controvert the allegations that the said properties are not acquired from any illicit income of drug trafficking and/or the said properties were acquired prior to 6 years before the arrest of the accused in FIR pertaining to NDPS Act. This particular burden lies on the affected persons as per Section 103 of the Indian Evidence Act (now Section 105 in BSA), as well as under Section 68-J of the NDPS Act, as only the affected persons are aware of the special and particular facts on above aspects. Section 103 of Indian Evidence Act, 1872, is reproduced as under:

103. Burden of proof as to particular fact. ––The burden of proof as to any particular fact lies on that person who wishes the Court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.

The SHO/IO is not bound to disclose the sources from where he collected the information regarding the properties in possession of the APs, so as to risk the informers by revealing their identity. Even otherwise, the appellants have not denied the ownership and possession of the property frozen by the Freezing Authority. Now, coming to the facts of the present case, as far as, payment of Rs.5 lacs, is concerned, vide three instalments on 29.01.2016, 20.03.2016 & 04.05.2016, the same are clearly 6 years prior to the date of arrest of the appellant in the present NDPS case and hence, the same are covered u/s 68C of the NDPS case. Now, the only issue arises with respect to the remaining payment of Rs. 1,00,000/-, Rs. 99,000/-, & Rs. 5,01,000/-, totalling to Rs. 7,00,000/-, is concerned, the same is clearly paid within the period of 6 years prior to the date of arrest of the appellant and hence, needs to be explained by the appellant. Appellant has not filed any loan sanction letter of HDFC Bank along with loan agreement. The nature of loan is not disclosed as housing or for business purpose. Appellant has not impleaded HDFC Bank as necessary party/Respondent. Appellant has not filed the statement of savings bank account of SBI & HDFC Bank. Appellant has not filed the complete statement of Bank account of Bank of Baroda, specifically reflecting payment of Rs. 99,000/- on 03.01.2017, to check & verify the source of the said payment. The last payment of Rs. 5,01,000/- was made by the appellant on 17.02.2017 vide cheque No. 863004 of HDFC Bank Ltd. as reflected in the sale deed in favour of appellant. In absence of the bank statement of HDFC Bank, it is not possible to connect the said amount of Rs. 5,01,000/- with the loan amount. Now, coming to the loan statement of HDFC Bank filed by the appellant, the same reflects the opening debit balance of Rs. 8,75,000/- on 01.03.2017. Further, loan of Rs. 3,75,000/- on 01.07.2017. We fail to understand, when the payment of sale consideration was already made to the vendor on & before 17.02.2017, then what was the purpose for taking loan in the month of July, 2017.

In this regard, Ld. Counsel for Respondent CA stressed that this particular amount was taken by the appellant for the renovation of the impugned property. However, in absence of the purpose of the sanction of this additional loan, we are unable to express anything on this aspect and the same needs to be verified from the documents, which are withheld by the appellant. To check and verify whether Rs. 3,25,000/- was taken for the purpose of renovation and even otherwise in the impugned order, the value of the flat is mentioned as Rs. 12,00,000/- and not as Rs. 15,25,000/-. During the arguments, Ld. Counsel for the Respondent CA has pointed out that perusal of the partnership deed reflects that principal place of business of the partnership firm is the address of the impugned property. The partnership also reflects the business of manufacturing and trading of fine chemicals, pharma products, etc. Accordingly, Ld. Counsel for Respondent CA stressed that manufacturing unit was operated by the accused persons without obtaining any licence from the concerned authorities and thereafter the illicit income was allegedly utilised for acquisition of property. The bank statement of the partnership firm is not annexed by the appellant. Appellant also failed to prove how he made the repayment of EMI. Perusal of the certificate issued by Chartered Accountant which is at page 133, reflects that the present appellant also purchased one agricultural land at Survey No. 307 & land at survey No. 307P, Mokshi, Savil, Vadodara for sum of Rs. 17,00,000/- during the year 2018-19. It is quite apparent that the Freezing Authority has neither enquired the appellant, nor frozen this property for the reasons best known to the Freezing Authority. The reconciliation sheet filed by the appellant reflects agricultural income from the A.Y. 2017-18, but he has not filed the details of the agricultural land along with Khasra Girdawri to corroborate this fact. Appellant has not shown any business income for the F.Y. 2018-19 to 2020-21, but he has only shown his agricultural income for this period without producing any corroborating evidence. Appellant failed to explain the legal sources of income for discharging the previous loan liability taken from HDFC Bank and additional loan liability taken from Bank of Baroda. The payment of EMI from the illicit income of drug trafficking is not ruled out.

6. In sequel to our discussion in the preceding para, the present appeal is hereby dismissed being devoid of any merits, with liberty to lead better evidence on the stage of forfeiture proceedings, if any.

Appeal Dismissed with liberty.

Pronounced on this 17^th Day of September, 2026.