2007 (9) TMI 529 - HC - Indian Laws

Court quashes forfeiture order under Smugglers Act, emphasizes natural justice for innocent purchasers

WINSTON TAN Versus UNION OF INDIA

The court quashed the impugned order of forfeiture under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, finding a ... Whether the petitioners who are purchasers are entitled for a notice before any order of confiscation/forfeiture is passed under Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976? Held that:- The petitioners would fall under the category of ‘any holder’ as contemplated under sub-section (2)(e) of Section 2 and if it is read in tandem with sub-section (2) of Section 6 of the Act, they would be classified as persons, who are interested in the proceedings only so far as to avoid the forfeiture of the property. Section 9 of the Act would also contemplate fine in lieu of forfeiture. Having regard to this, I am of the view that the impugned order at Annexure ‘P’ is in violation of the Principles of Natural justice inasmuch as on the date when the order was passed on 23-6-2005, the petitioners had purchased and had come into possession of the property in question. Consequently, the impugned order at Annexure ‘P’ dated 23-6-2005 is liable to be quashed and accordingly it is quashed.The matter stands remitted to the Competent Authority to consider the case afresh. Issues:1. Entitlement of purchasers to notice before order of confiscation/forfeiture under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976.2. Validity of the order of forfeiture under Section 7 of the Act.3. Interpretation of Sections 2(e), 6, 9, and 11 of the Act.4. Compliance with the Principles of Natural Justice in passing the impugned order.Analysis:Issue 1:The petitioners, as purchasers, claimed entitlement to a notice before any order of confiscation/forfeiture under the Act. They argued that being bona fide purchasers, they should have been heard before the forfeiture order was passed. The petitioners contended that under Section 6(2) of the Act, they were entitled to notice as persons holding the property on behalf of the respondents. The Enforcement Directorate had found that the property was acquired through illegal means by the respondents, leading to the forfeiture order. The petitioners asserted that they were unaware of the proceedings before the Competent Authority and challenged the forfeiture order.Issue 2:The Assistant Solicitor General representing the respondents argued that the order of forfeiture was justified as the property acquisition by the respondents was linked to unaccounted funds. He relied on Section 11 of the Act, stating that transfers made after proceedings commenced under Section 6 would be deemed null and void. The transfer of the property to the petitioners occurred after the initiation of proceedings, rendering it ineffective. The Assistant Solicitor General highlighted the detention of one of the respondents under COFEPOSA Act and the unknown whereabouts of the other respondent.Issue 3:The judgment analyzed various provisions of the Act, including Section 2(e), which deals with property holders, Section 6 regarding notice of forfeiture, Section 9 concerning fines in lieu of forfeiture, and Section 11 on nullifying certain transfers. The court interpreted these sections to determine the rights and obligations of the parties involved. It emphasized the importance of enforcing the Act strictly to curb clandestine wealth accumulation through foreign exchange violations.Issue 4:The court found that the impugned order of forfeiture violated the Principles of Natural Justice as the petitioners had purchased and possessed the property before the order was passed. Considering the petitioners' status as bona fide purchasers, the court quashed the order and remitted the matter to the Competent Authority for reconsideration. The court clarified that the petitioners could not challenge the detention order but could contest being transferees in good faith for adequate consideration.In conclusion, the court quashed the impugned order, remitted the matter for fresh consideration, and directed the petitioners to appear before the 2nd respondent. The judgment emphasized adherence to legal procedures, protection of bona fide purchasers' rights, and the importance of upholding natural justice principles in forfeiture proceedings under the Act.