SUPREME COURT OF INDIA
Winston Tan
Versus
Union of India
CIVIL APPEAL NO. 7207 OF 2012
OCTOBER 4, 2012
JUDGMENT
R.M. Lodha, J.
Leave granted.
2. The forfeiture of Flat No. 4, Kamala Mansion, Ground Floor, Promenade Place, No. 45/2, Promenade Road, Bangalore – 560 042 under Section 7 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, to be referred as ‘SAFEMA’, is the subject matter in this Appeal. Col. K. M. Somana (Retd.) was the original owner of that flat. On 20.3.1997, he sold the flat to Mohd. Ismail Shabandari and his wife Fathima Kauser Ismail by a sale deed which was registered in the office of the Sub-Registrar, Bangalore.
3. Mohd. Ismail Shabandari was detained under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (for short, ‘COFEPOSA’) on 2.5.2003. The detention order came to be passed at the instance of the Enforcement Directorate, Bangalore; his premises were searched on 31.7.2002. In that search Indian Currency of Rs. 13,50,000/- along with incriminating materials showing illegal transfer of money from abroad was seized. The documents seized from the residence of Mohd. Ismail Shabandari on 31.7.2002 by the Enforcement Directorate also indicated that he had received Rs. 92,09,480/- from different persons as instructed by one Hussain Sherrif of Dubai and he had made payments in India to various persons to the tune of Rs. 78,59,480/- leaving a balance of Rs. 13,50,000/- which was seized at the time of search. It was in this backdrop that the order dated 2.5.2003 for detention of Mohd. Ismail Shabandari came to be passed by the Competent Authority.
4. On 8.12.2003, a notice under Section 6(1) of SAFEMA in respect of subject flat was issued to Mohd. Ismail Shabandari. SAFEMA was applicable to him as he was a ‘person’ within the meaning of Section 2(2)(b) of SAFEMA. The Competent Authority having come to know that his wife, Fathima Kauser Ismail, was having 50 per cent share in the subject property, a notice under Section 6(1) was also issued to her as she happened to be ‘relative’ within the meaning of Section 2(2)(c) of SAFEMA. The above notices were served on them.
5. In response to the notice issued to him under Section 6(1), Mohd. Ismail Shabandari sent a letter to the Competent Authority on 26.5.2004 stating therein that the subject flat was purchased through legal earnings. By a subsequent letter, he stated that he had explained the sources of acquisition before the income tax authorities. He filed copies of the income tax returns and also stated that his wife Fathima Kauser Ismail received remittances from her brother in 1994. Mohd. Ismail Shabandari was asked by the Competent Authority to substantiate his claim in respect of sources from which he and his wife purchased the property. He and his wife were asked to appear personally but they did not appear and it transpired that the subject property has been sold by them for Rs. 26,00,000/- on 10.2.2005 to the present appellants.
6. On 17.5.2005, a notice was again issued to Mohd. Ismail Shabandari by the Competent Authority to explain the sources of his income and earnings relating to Savings Bank A/c No. 15802, Vijaya Bank, Brigade Road Branch, Bangalore. A copy of the said notice was also sent to the Branch Manager, Vijaya Bank, Brigade Road Branch, Bangalore. The appellants claim that they came to know of Section 6(1) notice issued to their vendors from Vijaya Bank, Brigade Road Branch, Bangalore and consequently sent their reply to the Competent Authority through their Advocate on 20.5.2005. In their reply, the appellants intimated to the Competent Authority that they had purchased the subject flat by a registered sale deed. As they were having insufficient funds to purchase the subject flat, they availed of loan from Vijaya Bank, Brigade Road Branch, Bangalore. The Bank sanctioned loan after proper examination and scrutiny of the documents and after obtaining legal opinion. The appellants claimed that they were in actual possession and enjoyment of the subject flat and they have also applied to the authorities of Bangalore Mahanagar Palika for mutation of their names in the records and for obtaining Khatha Certificate and assessment of taxes.
7. The Competent Authority, on 23.6.2005 passed an order under Sections 7(1) and (3) of SAFEMA forfeiting the subject flat and declaring that forfeited property stands vested in the Central Government free from all encumbrances. It was held in the order that the subject flat was not acquired by Mohd. Ismail Shabandari and Fathima Kauser Ismail out of any legal earnings. The said flat had been sold stealthily after the commencement of the proceedings under SAFEMA and the said transfer in favour of the appellants on 10.2.2005 was null and void by virtue of the provisions of Section 11 of SAFEMA.
8. Subsequent to the passing of the above order, a further order under Section 19(1) of SAFEMA was passed by the Competent Authority on 23.12.2005 directing Mohd. Ismail Shabandari and Fathima Kauser Ismail to surrender/deliver possession of the forfeited flat within 30 days of the receipt of order. In that order, it was reiterated that transfer/sale effected by them subsequent to the notice under Section 6(1) was null and void in view of Section 11 of SAFEMA. A copy of this order was sent by the Competent Authority to the present appellants.
9. It was then that the appellants filed a writ petition before the Karnataka High Court for quashing the order dated 23.6.2005 forfeiting the subject flat and for writ of mandamus to the Competent Authority not to interfere with their peaceful possession and enjoyment in respect of the subject flat. The above reliefs were sought on diverse grounds, including that they had purchased the subject flat after thorough verification and after obtaining encumbrance certificates for the period from 1.4.1990 to 4.1.2005 and after satisfying with the title of the vendors and also that there was no charge or encumbrance created over the subject flat. They claimed that they were bona fide purchasers for adequate consideration.
10. A counter affidavit was filed by the Competent Authority in opposition to the writ petition. The appellants filed rejoinder to the counter affidavit.
11. The learned Single Judge of the High Court heard the parties and considered the question that was raised before him as to whether the appellants (petitioners therein) were entitled to a notice from the Competent Authority before order of confiscation/forfeiture was passed under SAFEMA. The Single Judge in his order dated 12.9.2007 held that the sale in favour of the appellants had taken place on 10.2.2005, i.e., before the order of forfeiture was passed by the Competent Authority. Although it was a fact that the first notice was issued under SAFEMA to the transferors much before the sale had taken place, but in the opinion of the Single Judge, the order dated 23.6.2005 was violative of the principles of natural justice and, consequently, he quashed the same and remitted the matter to the Competent Authority for fresh consideration.
12. A writ appeal was preferred by the Union of India and the Competent Authority against the order of the Single Judge. The Division Bench of the High Court held that the sale transaction in favour of the appellants was subsequent to the issuance of notice under Section 6 and, accordingly, the transaction was null and void under Section 11 of SAFEMA. In the opinion of the Division Bench, the appellants were not entitled to any notice and non-issuance of notice to them had not vitiated the action taken by the Competent Authority.
13. Mr. S.B. Sanyal, learned senior counsel for the appellants, heavily relied upon the excepted clause of Section 2(2)(e) that protects a transferee in good faith for adequate consideration and the observations made by a 9-Judge Bench of this Court in Attorney General for India v. Amratlal Prajivandas [1994] 5 SCC 54 in para 44 (Pg. 92) of the Report observing, ‘So far as the holders (not being relatives and associates) mentioned in Section 2(2)(e) are concerned, they are dealt with on a separate footing. If such person proves that he is a transferee in good faith for consideration, his property – even though purchased from a convict/detenu – is not liable to be forfeited’. He referred to diverse documents to show that the appellants had purchased the property after due diligence and after obtaining certificates from Sub-Registrar, Bangalore, that the subject flat was not encumbranced in any manner whatsoever. Learned senior counsel would submit that the appellants had obtained loan from the Vijaya Bank, Brigade Road Branch, Bangalore and the title of the property was fully scrutinized by the Bank and its Panel Advocate. The adequate consideration of Rs. 26,00,000/- was paid by the Bank to the transferors which prima facie establishes that the appellants are transferees in good faith for adequate consideration. Learned senior counsel contended that the appellants were seeking an opportunity to be given to them to prove before the Competent Authority that they were transferees in good faith for adequate consideration and that is what was done by the Single Judge and there was no justification for the Division Bench to upset such a just order.
14. On the other hand, Mr. A.S. Chandhiok, Additional Solicitor General, would submit that the purchase of the subject flat by the appellants was after the issuance of notice under Section 6(1) to the vendors by the Competent Authority. SAFEMA is applicable to one of the vendors by virtue of Section 2(2)(b) and to the other vendor by virtue of Section 2(2)(c). He argued that transaction of sale was null and void under Section 11 and the appellants are not covered by the excepted category of the ‘holder’ under Section 2(2)(e). He placed reliance upon a decision of this Court in Aamenabai Tayebaly v. Competent Authority under SAFEMA [1998] 230 ITR 892 (SC) and a decision of Madras High Court in Competent Authority v. Parvathi Bai [2011] 6 MLJ 537.
15. SAFEMA came into effect from 05.11.1975. It, inter alia, provides for forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators. Its applicability is provided in Section 2. Sub-section (1) of Section 2 provides that the provisions of SAFEMA shall only apply to persons specified in sub-section (2). Clause (b), amongst others, covers the persons in respect of whom an order of detention has been made under COFEPOSA and such order has not been revoked or set aside in any of the situations set out in the four sub-clauses of the proviso. Clause (c) of sub-section (2) of Section 2 applies to the relatives of persons referred to in clauses (a) or (b) while clause (d) applies to the associates of persons referred to in clauses (a) or (b). Clause (e) of sub-section (2) of Section 2 refers to a holder of property. It reads as under :
