Biswanath Bhattacharya Vs Union of India .

Page 1

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 772-773 OF 2014 [Arising out of SLP (Civil) Nos.16872-16873 of 2007]

Biswanath Bhattacharya …Appellant

Versus

Union of India & Others …Respondents

J U D G M E N T

Chelameswar, J.

1. Leave granted.

2. These two appeals are preferred against the final

judgment dated 9th August 2007 passed by the Calcutta

High Court in FMA No.206 of 2003 and order dated 30th

August 2007 in Review Application bearing RVW No.2372

of 2007 dismissing the said review application filed by the

appellant herein.

3. The facts leading to the instant litigation are as

follows:

Page 2

4. The appellant was initially detained by order dated

19.12.1974 under the provisions of the Maintenance of

Internal Security Act, 1971 (since repealed) and later

under the provisions of the Conservation of Foreign

Exchange and Prevention of Smuggling Activities Act,

1974 (hereinafter referred to as the “COFEPOSA”) on the

ground that he in collaboration with his brother, who was

living in London at that point of time, was indulging in

activities which are prejudicial to the conservation of

foreign exchange. The appellant unsuccessfully

challenged the detention order. He was eventually

released in 1977.

5. While he was in custody, the second respondent

issued a notice dated 4th March 1977 under section 6(1) of

the Smugglers and Foreign Exchange Manipulators

(Forefeiture of Property) Act, 1976 (hereinafter referred to

as “the Act”) calling upon the appellant to explain the

sources of his income out of which he had acquired the

assets described in the schedule to the notice. Some

correspondence ensued between the second respondent

2

Page 3

on one hand and the wife of the appellant and the

appellant on the other hand, the details of which may not

be necessary for the time being.

6. Eventually on 27th November 1989, the second

respondent passed an order under section 7(1) of the Act

forfeiting the properties mentioned in the schedule to the

said order.

7. Aggrieved by the said order, an appeal was carried to

the Appellate Tribunal constituted under section 12 of the

Act. The appeal was partly allowed setting aside the

forfeiture of two items of the properties.

8. Not satisfied with the Appellate Authority’s

conclusion, the appellant challenged the same in writ

petition No. C.O. No.10543 (W) of 1991 before the High

Court of Calcutta. In the said writ petition, the appellant

also prayed for two declarations – (1) that the Act is illegal

and ultra vires the Constitution and (2) that the detention

of the appellant under the COFEPOSA by the order dated

19th December 1974 was illegal and void – a collateral and

second round of attack.

3

Page 4

9. Learned Single Judge of the Calcutta High Court by

an order dated 10th May 2002 partly allowed the writ

petition holding that the forfeiture of the property by the

second respondent as confirmed by the Appellate Tribunal

was illegal on the ground that the notice under section

6(1) of the Act dated 4th March 1977 was not in

accordance with the law as the notice did not contain the

reasons which constituted the basis for the belief of the

competent authority that the appellant illegally acquired

the scheduled properties.

10. Aggrieved by the order of the learned Single Judge,

the respondents herein carried the matter in appeal to the

Division Bench. By the judgment under appeal, the appeal

was allowed.

11. It appears from the judgment under appeal that

though the appellant sought a declaration that the Act

(SAFEMA) is unconstitutional, such a plea was not pressed

before the learned Single Judge.1 1 On perusal of the judgment and order of the Learned Single Judge it appears that although the vires of the said Act was under challenge the respondent No.1 only asked for cancellation of the order of detention issued under Section 3 of the COFEPOSA and the orders passed by the competent authority so merged in the appellate authority under section 6(1) of the SAFEMA as well as prayed for release of the properties confiscated by the appellate authority in terms of the order

4

Page 5

12. Before us, the appellant made three submissions –

(1) that the notice issued under Section 6 of the Act is

defective and therefore illegal as the notice did not

contain the reasons which made the competent authority

believe that the notice scheduled properties are illegally

acquired properties. In other words, the reasons were not

communicated to the appellant; (2) that the forfeiture,

such as the one provided under the Act, is violative of

Article 20 of the Constitution of India; and (3) in the

alternative, it is argued – that the High Court failed to

consider the question whether the decision of the

competent authority as confirmed by the appellate

authority is sustainable and therefore, the matter is

required to be remitted to the High Court for an

appropriate consideration of the legality of order of

forfeiture.

13. Regarding the non communication of the reasons,

the judgment under appeal recorded as follows:

“The matter may be looked into from another angle. In 1976 he was under detention. His wife replied to the said notice without complaining of non-supply of reasoning. After his

impugned therein.

5

Page 6

release the respondent No.1 gave a further rejoinder by adopting what had been said by his wife. The authority did not proceed against him until he was served with the reasoning in 1988. The respondent No.1 was also afforded opportunity to deal with the reasonings in his rejoinder. The competent authority after affording him opportunity of hearing passed a detailed reasoned order. He preferred an appeal. The appeal was allowed in part that too by a detailed reasoned order. Hence, we do not find any reason to hold that the fundamental right of the respondent No.1 was infringed.”

It appears from the record that initially notice dated

4.3.1977 under Section 6(1) was issued at a point of time

when the appellant was under preventive detention.

Subsequently, by a communication dated 1st June, 1988,

the recorded reasons for the belief which led to the

issuance of notice under Section 6(1) of the Act was

served on the appellant. The appellant not only filed a

rejoinder to the said notice but he was also given a

hearing before an order of forfeiture under Section 7 was

passed. It is in the background of the abovementioned

facts we are required to consider the submission that the

High Court erred in coming to the conclusion that notice

6

Page 7

under Section 6(1) did not vitiate2 the subsequent

proceedings.

14. In support of the submission, learned counsel for the

appellant very heavily relied upon a judgment of this Court

in Ajantha Industries and others v. Central Board of

Direct Taxes and others, (1976) 1 SCC 1001. It was a

case where this court had to consider the legality of the

order under Section 127 transferring the ‘case’ of the

Ajantha Industries.

15. Section 127 of the Income Tax Act, 1961 empowers

the authorities (mentioned therein) to transfer “any case”

(explained in the said section) from one Income Tax

Officer to another. Further, the section stipulates that

before such an order of transfer is made, two conditions

are required to be complied with – (1) that the assessee

must be given a reasonable opportunity to explain why his

case should not be transferred; and (2) the authority 2 The respondent No.1 for the first time in the writ petition contended that the notice under Section 6(1) was bad due to non-supply of reasons whereas it would appear that the reasons were supplied as and when asked for. Delayed supply of reasons, in our view, did not vitiate the subsequent orders of the competent authority as well as appellate authority. Show cause notice was served in 1976. It was not proceeded with till 1988 when reasons were supplied. Order was passed by the competent authority upon affording adequate opportunity of hearing. The respondent No.1 availed the remedy of appeal where his appeal was partly allowed. With deepest regard we have for the learned single Judge, His Lordship was perhaps not right in interfering with the show cause notice at the stage when the respondent No.1 availed of the remedies in law and became partly successful before the appellate authority.

7

Page 8

transferring the case is required to record the reasons

which led him to initiate the proceedings. It appears from

the judgment that though first of the abovementioned two

requirements was complied with, it was found that no

reasons were recorded much less communicated. Dealing

with the legality of such an order, this Court held that

there is a requirement of not only recording the reasons

for the decision to transfer the case but also such reasons

are required to be communicated to the assessee.

16. Though section 127 expressly provided for recording

of reasons it did not expressly provide communicating the

same to the assessee. Still, this Court held that such a

communication is mandatory.

“10. The reason for recording of reasons in the order and making these reasons known to the assessee is to enable an opportunity to the assessee to approach the High Court under its writ jurisdiction under Article 226 of the Constitution or even this Court under Article 136 of the Constitution in an appropriate case for challenging the order, inter alia, either on the ground that it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations. Whether such a writ or special leave application ultimately fails is not relevant for a decision of the question.

11. We are clearly of opinion that the requirement of recording reasons under Section 127(1) is a mandatory direction under the law.”

8

Page 9

17. In our view, such a conclusion must be understood in

the light of the observation of the Court that there was no

provision of appeal or revision under the Income Tax Act

against an order of transfer. For the same reason, this

Court distinguished and declined to follow an earlier

judgment in S. Narayanappa v. The Commissioner of

Income-tax AIR 1967 SC 523 where this Court on an

interpretation of Section 34 of the Income Tax Act, 1922,

opined to the contra. Section 34 provided for re-opening

of the assessment with the prior sanction of the

Commissioner, if the income tax officer has ‘reasons to

believe’ that taxable income had been under-assessed.

Dealing with the question whether the reasons which led

the Commissioner to accord sanction for the initiation of

proceedings under section 34 are required to be

communicated to the assessee, this Court held –

“There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under S.34 must be communicated to the assessee.”

18. In Ajantha Industries case, Narayanappa’s case

was distinguished on the ground –

9

Page 10

”When an order under Section 34 is made the aggrieved assessee can agitate the matter in appeal against the assessment order, but an assessee against whom an order of transfer is made has no such remedy under the Act to question the order of transfer. Besides, the aggrieved assessee on receipt of the notice under Section 34 may even satisfy the Income-tax Offier that there were no reasons for reopening the assessment. Such an opportunity is not available to an assessee under Section 127(1) of the Act. The above decision is, therefore, clearly distinguishable.”

19. We reject the submission of the appellant for the

following reasons. Firstly, there is no express statutory

requirement to communicate the reasons which led to the

issuance of notice under Section 6 of the Act. Secondly,

the reasons, though not initially supplied alongwith the

notice dated 4.3.1977, were subsequently supplied

thereby enabling the appellant to effectively meet the

case of the respondents. Thirdly, we are of the opinion

that the case on hand is squarely covered by the ratio of

Narayanappa case. The appellant could have

effectively convinced the respondents by producing the

appropriate material that further steps in furtherance to

the notice under Section 6 need not be taken. Apart from

that, an order of forfeiture is an appealable order where

the correctness of the decision under Section 7 to forfeit

10

Page 11

the properties could be examined. We do not see

anything in the ratio of Ajantha Industries case which

lays down a universal principle that whenever a statute

requires some reasons to be recorded before initiating

action, the reasons must necessarily be communicated.

20. Now, we deal with the second submission. The Act

enables the Government of India to forfeit “illegally

acquired property” of any person to whom the Act is made

applicable. The Act is made applicable to the persons

specified in section 2(2)3. Five categories of persons are 3 Section 2. Application—(1) The provisions of this Act shall apply only to the persons specified in sub-section (2).

(2) The persons referred to in sub-section(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, 1973 (46 of 1973), of an offence, the amount of value involved in which exceeds one lakh of rupees; or

(iii) who have 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 sub-section (3) of section 9

11

Page 12

covered thereunder. Clause (a) – persons who have been

convicted under various enactments referred to therein;

clause (b) - persons in respect of whom an order of

detention has been made under the COFEPOSA (subject to

certain conditions/exceptions the details of which are not 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 sub-section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12A, of that Act; or

(iv) such order of detention has not been set aside by a court of competent jurisdiction;

(c) every person who is a relative of a person referred to in clause (a) or clause (b);

(d) every associate of person referred to in clause (a) or clause (b); (e) any 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, any one 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.— For the purposes of sub-clause (i) of clause (a), the value of any goods in relation to which a person has been convicted of an offence shall be the wholesale price of the goods in the ordinary course of trade in India as on the date of the commission of the offence.

Explanation 2.— For the purpose of clause ©, “relative” in relation to a person, means—

(i) spouse of the person; (ii) brother or sister of the person; (iii) brother or sister of the spouse of person; (iv) any lineal ascendant or descendant of the person; (v) any lineal ascendant or descendant of the spouse of the person; (vi) spouse of a person referred to in clause (ii), clause (iii), clause (iv) or clause

(v); (vii) any lineal descendant of a person referred to in clause (ii) or clause (iii).

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 out houses) 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 firms, 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 within the meaning of the Companies when such person had been or is a member,

12

Page 13

necessary for our purpose); clause (c) – persons who are

relatives of persons referred to in clause (a) or clause (b).

Expression “relative” is itself explained in explanation 2.

Clause (d) – every associate of persons referred to in

clause (a) or clause (b). Once again the expression

“associate” is explained under explanation 3 to sub-

section (2). Clause (e) – subsequent holders of property

which at some point of time belonged to persons referred

to either in clause (a) or clause (b).

21. Section 4 makes it unlawful (for any person to whom

the Act applies) to hold any illegally acquired property and

it further declares that such property shall be liable to be

forfeited to the Central Government (following the

procedure prescribed under the Act). The procedure is partner or director of such association, body, partnership firm of a 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) the trustee of any trust, where,— (a) the trust has been created by such person; or (b) the value of the assets contributed by such person (including the

value of the assets, if any, contributed by him earlier) to the trust amounts, on the date on which the contribution is made, to not less than twenty per cent, of the value of the assets of the trust on that date;

(vii) where the competent authority, for reasons to be recorded in writing considers that any properties of such person are held on his behalf by any other person, such other person.

Explanation 4.— For the avoidance of doubt, it is hereby provided that the question whether any person is a person to whom the provisions of this Act apply may be determined with reference to any facts, circumstances or events including any conviction or detention which occurred or took place before the commencement of this Act.

13

Page 14

contained under sections 6 and 7 of the Act. Section 8

prescribes the special rule of evidence which shifts the

burden of proving that any property specified in the notice

under section 6 is not illegally acquired property of the

noticee. Section 6 inter alia postulates that having regard

to the value of the property held by any person (to whom

the Act applies) and his known sources of income, if the

“competent authority” (notified under section 5) has

reason to believe that such properties are “illegally

acquired properties”, the competent authority is

authorized to call upon the holder of the property to

‘indicate’ the source of his income etc. which enabled the

acquisition of such property along with necessary

evidence. It also authorizes the competent authority to

call upon the noticee to show cause as to why all or any of

such properties mentioned in the notice should not be

declared illegally acquired properties and be forfeited to

the Central Government. Section 7 provides for a

reasonable opportunity of being heard after the receipt of

response to the notice under section 6 to the noticee and

requires the competent authority to record a finding

14

Page 15

whether all or any of the properties in question are

illegally acquired properties. Section 7 also provides for

certain incidental matters the details of which are not

necessary for the present purpose.

22. Expression “illegally acquired property” is defined in

elaborate terms under the Act4. Broadly speaking the

definition covers two types of properties:

1) acquired by the income or earnings; and

2) assets derived or obtained

4 Section 3(c) “illegally acquired property”, in relation to any person to whom this Act applies, means, —

(i) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets derived or obtained from or attributable to any activity prohibited by or under any law for the time being in force relating to any matter in respect of which Parliament has power to make laws; or

(ii) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets in respect of which any such law has been contravened; or

(iii) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets the source of which cannot be proved and which cannot be shown to be attributable to any act or thing done in respect of any matter in relation to which Parliament has no power to make laws; or

(iv) any property acquired by such person, whether before or after commencement of this Act, for a consideration, or by any means, wholly or partly traceable to any property referred to in sub-clauses (i) to (ii) or the income or earnings from such property;

and includes—t (A) any property held by such person which would have been, in

relation to any previous holder thereof, illegally acquired property under this clause if such previous holder had not ceased to hold it, unless such person or any other person who held the property at any time after such previous holder or, where there are two or more such previous holders, the last of such previous holders is or was a transferee in good faith for adequate consideration;

(B) any property acquired by such person, whether before or after the commencement of this Act, for a consideration, or by any means, wholly or partly traceable to any property falling under item (A), or the income or earnings therefrom.

15

Page 16

from or attributable to any activity which is prohibited by

or under a law in force. Such law must be a law with

respect to which parliament has the power to make law. A

complete analysis of the definition in all its facets may not

be necessary for our purpose.

23. From the language and the scheme of the Act it does

not appear that the application of the Act is limited to

persons who either suffered a conviction under one of the

acts specified in section 2(2)(a) the Act or detained under

the COFEPOSA subsequent to the commencement of the

Act in question. On the other hand, explanation 4 to

section 2 expressly declares as follows:

“Explanation 4.—For the avoidance of doubt, it is hereby provided that the question whether any person is a person to whom the provisions of this Act apply may be determined with reference to any facts, circumstances or events (including any conviction or detention which occurred or took place before the commencement of this Act).”

Apart from that we have already taken note of the

fact that there are other categories of persons to whom

the Act applies.

24. The appellant happens to be a person to whom the

Act applies. He was detained under the provisions of the

16

Page 17

COFEPOSA. However, such a detention was anterior to the

commencement of the Act, which came into force on 25th

January 1976, while the detention order was passed on

19th December 1974. It appears from the judgment under

appeal that the appellant was eventually set at liberty in

1977.

25. Section 7(3) of the Act provides for forfeiture of the

illegally acquired property of the persons to whom the Act

is made applicable after an appropriate enquiry

contemplated under Sections 6 and 7 of the Act. In other

words, the Act provides for the deprivation of the (illegally

acquired) property of the persons to whom the Act

applies. The question which we were called upon to deal

with is whether such a deprivation is consistent with

Article 205 of the Constitution of India in the specific

factual setting of the case coupled with the explanation 4

to section 2 which reads as follows:

“Explanation 4.—For the avoidance of doubt, it is hereby provided that the question whether any person is a

5 20. Protection in respect of conviction for offences.— (1) No person shal l be convicted of any offence except for vio la t ion of a law in force at the t ime of the commission of the Act charged as an offence, nor be sub jected to a penalty greater than that which might have been in fl icted under the law in force at the t ime of the commission of the offence.

(2) No person shall be prosecu ted and punished for the same offence more than once.

(3) No person accused of any offence shall be compel led to be a wi tness agains t himsel f .

17

Page 18

person to whom the provisions of this Act apply may be determined with reference to any facts, circumstances or events (including any conviction or detention which occurred or took place before the commencement of this Act).”

The answer to the question depends upon whether such

deprivation is a penalty within the meaning of the said

expression occurring in Article 20.

26. Article 20 contains one of the most basic guarantees

to the subjects of the Republic of India. The Article in so

far as is relevant for our purpose stipulates two things:-

 That no person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence; and

 That no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

27. It is a well settled principle of constitutional law that

sovereign legislative bodies can make laws with

retrospective operation; and can make laws whose

operation is dependent upon facts or events anterior to

the making of the law. However, criminal law is excepted

from such general Rule, under another equally well settled

principle of constitutional law, i.e. no ex post facto

18

Page 19

legislation is permissible with respect to criminal law.

Article 20 contains such exception to the general authority

of the sovereign legislature functioning under the

Constitution to make retrospective or retroactive laws.

28. The submission of the appellant is that since the Act

provides for a forfeiture of the property of the appellant on

the ground that the appellant was detained under the

COFEPOSA, the proposed forfeiture is nothing but a

penalty within the meaning of the expression under Article

20 of the Constitution. Such an inference is inevitable in

the light of the definition of “illegally acquired property”

which by definition (under the Act) is property acquired

either “out of” or by means “of any income, earnings …”

“obtained from or attributable to any activity prohibited by

or under any law …”. On the other hand, if the forfeiture

contemplated by the Act is not treated as a penalty for the

alleged violation of law on the part of the appellant, it

would be plain confiscation of the property of the

appellant by the State without any factual justification or

the constitutional authority.

19

Page 20

29. The learned counsel for the appellant further argued

that the forfeiture contemplated under the Act whether

based on proven guilt or suspicion of involvement in a

certain specified activity prohibited by the Customs Act

can only be a ‘penalty’ attracting the prohibition of Article

20 of the Constitution of India. It is submitted that under

Section 536 of the Indian Penal Code, forfeiture of property

is one of the prescribed punishments for some of the

offences covered under the Indian Penal Code.

30. Learned counsel for the appellant placing reliance on

R.S. Joshi, Sales Tax Officer, Gujarat and Others v.

Ajit Mills Ltd. and Another, (1977) 4 SCC 98 submitted

that a Constitution Bench of this Court also opined the

expression “forfeiture” to mean “a penalty for breach of a

prohibitory direction”.7 6 Section 53. Punishments.—The punishments to which offenders are liable under the provisions of this Code are—

First—Death; Secondly.—Imprisonment for life; Thirdly.— Omitted Fourthly.—Imprisonment, which is of two descriptions, namely.—

(1) Rigorous, that is, with hard labour; (2) Simple;

Fifthly.—Forfeiture of property; Sixthly.—Fine.

7 18. Coming to “forfeiture’, what is the true character of a “forfeiture’? Is it punitive in infliction, or merely another form of exaction of money by one from another? If it is penal, it falls within implied powers. If it is an act of mere transference of money from the dealer to the State, then it falls outside the legislative entry. Such is the essence of the decisions which we will presently consider. There was a contention that the expression “forfeiture” did not denote a penalty. This, perhaps, may have to be decided in the specific setting of a statute. But, speaking generally, and having in mind the object of

20

Page 21

31. On the other hand, the learned Addl. Solicitor General

appearing for the respondent submitted that the forfeiture

contemplated under the Act is not a ‘penalty’ within the

meaning of that expression occurring in Article 20 but only

a deprivation of property of a legislatively identified class Section 37 read with Section 46, we are inclined to the view that forfeiture has a punitive impact. Black’s Legal Dictionary states that “to forfeit” is “to lose, or lose the right to, by, some error, fault, offence or crime’, “to incur a penalty’. “Forfeiture’, as judicially annotated, is “a punishment annexed by law to some illegal act or negligence . . .’. “something imposed as a punishment for an offence or delinquency’. The word, in this sense, is frequently associated with the word “penalty’. According to Black’s Legal Dictionary,

The terms “fine”, “forfeiture”, and “penalty”, are often used loosely, and even confusedly : but when a discrimination is made, the word “penalty” is found to be generic in its character, including both fine and forfeiture. A “fine” is a pecuniary penalty, and is commonly (perhaps always) to be collected by suit in some form. A “forfeiture” is a penalty by which one loses his rights and interest in his property.

More explicitly, the U.S. Supreme Court has explained the concept of “forfeiture” in the context of statutory construction. Chief Justice Taney, in the State of Maryland v. Baltimore & Ohio RR Co., 11 L.Ed. 714, 722 observed :

“And a provision, as in this case, that the party shall forfeit a particular sum, in case he does not perform an act required by law, has always, in the construction of statutes, been regarded not as a contract with the delinquent party, but as the punishment for an offence. Undoubtedly, in the case of individuals, the word forfeit is construed to be the language of contract, because contract is the only mode in which one person can become liable to pay a penalty to another for breach of duty, or the failure to perform an obligation. In legislative proceedings, however, the construction is otherwise, and a forfeiture is always to be regarded as a punishment inflicted for a violation of some duty enjoined upon the party by law ; and such, very clearly, is the meaning of the word in the act in question.”

19. The same connotation has been imparted by our Court too. A Bench has held [Bankura Municipality v.Lalji Raja & Sons, 1953 Cri LJ 1101] :

“According to the dictionary meaning of the word ‘forfeiture’ the loss or the deprivation of goods has got to be in consequence of a crime, offence or breach of engagement or has to be by way of penalty of the transgression or a punishment for an offence. Unless the loss or deprivation of the goods is by way of a penalty or punishment for a crime, offence or breach of engagement it would not come within the definition of forfeiture.”

This word “forfeiture” must bear the same meaning of a penalty for breach of a prohibitory direction. The fact that there is arithmetical identity, assuming it to be so, between the figures of the illegal collections made by the dealers and the amounts forfeited to the State cannot create a conceptual confusion that what is provided is not punishment but a transference of funds. If this view be correct, and we hold so, the legislature, by inflicting the forfeiture, does not go outside the crease when it hits out against the dealer and deprives him, by the penalty of the law, of the amount illegally gathered from the customers. The Criminal Procedure Code, Customs & Excise Laws and several other penal statutes in India have used diction which accepts forfeiture as a kind of penalty. When discussing the rulings of this Court we will explore whether this true nature of “forfeiture” is contradicted by anything we can find in Sections 37(1), 46 or 63. Even here we may reject the notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be preceded by mens rea. The classical view that “no mens rea, no crime” has long ago been eroded and several laws in India

21

Page 22

of persons – in the event of their inability to explain (to the

satisfaction of the State) that they had legitimate sources

of funds for the acquisition of such property. The learned

Addl. Solicitor General further submitted that while in the

case of that class of persons covered under Section 2(2)

(a) of the Act, the forfeiture though has a remote

connection with the commission of a crime and conviction;

with reference to the other four classes of persons to

whom the Act is made applicable under Section 2(2) (b) to

(e), the forfeiture has nothing to do with any crime or

conviction. Therefore, to say that the forfeiture under the

Act is hit by the prohibition under Article 20 is without any

basis in law. The learned Addl. Solicitor General also

relied upon The State of West Bengal v. S.K. Ghosh,

[AIR 1963 SC 255] and R.S. Joshi (supra) in support of his

submission. Alternatively, the learned Addl. Solicitor

General submitted that in view of the fact that the Act is

included in the Ninth Schedule, the Act is immune from

any attack on the ground that it violates any one of the

and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. Therefore, the contention that Section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty.

22

Page 23

fundamental rights contained in Part III of the Constitution

of India, as was held by a Constitution Bench of this Court

in Attorney General for India & Others v. Amratlal

Prajivandas and others (1994) 5 SCC 54.

32. Lord Green in Bidie v. General Accident, Fire and

Life Assurance Corporation [(1948) 2 All ER 995 at

998] said in the context of ascertaining the meaning of an

expression in any statute that “Few words in the English

language have a natural or ordinary meaning in the sense

that they must be so read that their meaning is entirely

independent of their context”.

33. Chief Justice Sikri in His Holiness Kesavananda

Bharati Sripadagalvaru v. State of Kerala and

another (1973) 4 SCC 225 dwelt on this subject referring

to two English decisions and one American decision

stating in substance that the meaning of a word occurring

in a statute cannot be ascertained without examining the

context and also the scheme of the Act in which the

expression occurs.8

8 56. In construing the expression “amendment of this Constitution” I must look at the whole scheme of the Constitution. It is not right to construe words in vacuum and then insert the meaning into an article. Lord Green observed in Bidie v. General Accident, Fire and Life Assurance Corporation (1948) 2 All ER 995, 998.

23

Page 24

34. The regime of forfeiture of property contemplated

under the Act is not new. At least from 1944 such a

regime (though not identical but similar to the impugned

one) is prevalent in this country. Two ordinances were

made in 1943 and 1944, subsequently amended by

another ordinance in 1945, all called Criminal Law

Amendment Ordinances, which continued to be in force in

this country by virtue of operation of Article 372 and some

anterior laws - the details of which may not be necessary

for the present purpose. Under the 1943 Ordinance, two

“The first thing one has to do, I venture to think, in construing words in a Section of an Act of Parliament is not to take those words in vacuo, so to speak, and attribute to them what is sometimes called their natural or ordinary meaning. Few words in the English language have a natural or ordinary meaning in the sense that they must be so read that their meaning is entirely independent of their context. The method of construing statutes that I prefer is not to take particular words and attribute to them a sort of prima facie meaning which you may have to displace or modify. It is to read the statute as a whole and ask oneself the question : ‘In this state, in this context, relating to this subject-matter, what is the true meaning of that words’.”

57. I respectfully adopt the reasoning of Lord Green in construing the expression “the amendment of the Constitution.”

58. Lord Green is not alone in this approach. In Bourne v. Norwich Crematorium, (1967) 2 ALL ER 576, 578 it is observed:

“English words derive colour from those which surround them. Sentences are not mere collections of words to be taken out of the sentence defined separately by reference to the dictionary or decided cases, and then put back again into the sentence with the meaning which you have assigned to them as separate words, so as to give the sentence or phrase a meaning which as a sentence or phrase it cannot bear without distortion of the English language.”

59. Holmes, J., in Towne v. Eisner, 245 US 418, 425 had the same thought. He observed :

“A word is not a crystal, transparent and unchanged; it is the skin of living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used.”

24

Page 25

special Tribunals were constituted to try cases allotted to

them “in the first Schedule in respect of such charges of

offence prescribed under the second Schedule etc.”.

Essentially, such cases were cases either of charge of

receipt of illegal gratification by a public servant or

embezzlement of public money etc. The 1944 Ordinance

provided for the attachment of the money or other

property which is believed to have been procured by

means of one of the above mentioned scheduled offences

by the offender. Such attached property is required to be

disposed of as provided under section 13 of the said

Ordinance. Under Section 12 of the Ordinance, the

Criminal Court trying a scheduled offence is obliged to

ascertain the amount or value of the property procured by

the accused by means of the offence. Under section 13(3),

it is provided that so much of the attached property

referred to earlier equivalent to the value ascertained by

the Criminal Court under section 12 is required to be

forfeited to the State.

35. Dealing with the question – whether such forfeiture

(in the factual setting of the case) violated Article 20 of

25

Page 26

the Constitution of India?, a Constitution Bench of this

Court held that the forfeiture contemplated in the

Ordinance was not a penalty within the meaning of Article

20 but it is only a speedier mode of recovery of the money

embezzled by the accused.9

36. In R.S. Joshi case, the question was whether it was

permissible for the State Legislature to enact that sums

collected by dealers by way of sales tax but are not

exigible under the State Law – indeed prohibited by it –

shall be forfeited to the exchequer.

37. The question - whether such a forfeiture was a

penalty violating Article 20 did not arise in the facts of that

case. The discussion revolved around the question -

whether such a forfeiture is a penalty for the violation of a

prohibition contained under section 46 of the relevant

Sales Tax Act? The contravention of section 46 is made

punishable with imprisonment and fine under section 63 of

the said Act. Apart from that, section 37 of the said Act 9 The State of West Bengal v. S.K. Ghosh, AIR 1963 SC 255

Para 15. .. We are therefore of opinion that forfeiture provided in S. 13(3) in case of offences which involve the embezzlement etc. of Government money or property is really a speedier method of realizing government money or property as compared to a suit which it is not disputed the Government could bring for realizing the money or property and is not punishment or penalty within the meaning of Article 20(1). Such a suit could ordinarily be brought without in any way affecting the right to realize the fine that may have been imposed by a criminal Court in connection with the offence.

26

Page 27

provided for a departmental proceeding against the

dealers who violated the prohibition under section 46. The

said departmental proceeding could result in the forfeiture

of “.. any sums collected by any person by way of tax in

contravention of section 46 ..”. The legal issue before this

Court was – whether the State Legislature had necessary

competence to provide for such forfeiture? The answer to

the query depended upon whether such a forfeiture is a

penalty for the violation of law made by the State for the

levy and collection of sales tax. If it is not a penalty but a

plain transfer of money (illegally collected by the dealer)

to the State it would be incompetent for the legislature to

make such a provision in the light of an earlier

Constitution Bench decision of this Court in R. Abdul

Quader & Co. v. STO, AIR 1964 SC 922.10

10 The first question therefore that falls for consideration is whether it was open to the State legislature under its powers under Entry 54 of List II to make a provision to the effect that money collected by way of tax, even though it was not due as a tax under the Act, shall be made over to Government. Now it is clear that the sums so collected by way of tax are not in fact tax exigible under the Act. So it cannot be said that the State legislature was directly legislating for the imposition of sales or purchase tax under Entry 54 of List II when it made such a provision, for on the face of the provision, the amount, though collected by way of tax, was not exigible as tax under the law. The provision however is attempted to be justified on the ground that though it may not be open to a State legislature to make provision for the recovery of an amount which is not a tax under Entry 54 of List II in a law made for that purpose, it would still be open to the legislature to provide for paying over all the amounts collected by way of tax by persons, even though they really are not exigible as tax, as part of the incidental and ancillary power to make provision for the levy and collection of such tax. Now there is no dispute that the heads of legislation in the various Lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topics mentioned therein. Even so, there is a limit to such incidental or ancillary power flowing from the legislative entries in the various Lists in the Seventh Schedule. These incidental and ancillary powers have to be exercised in aid of the main topic of legislation, which, in the present case, is a tax on sale or purchase of goods. All powers necessary for the levy and collection of the tax concerned and for seeing

27

Page 28

38. As explained above, the issue and the ratio decidendi

of R.S. Joshi case is entirely different and has nothing to

do with the application of Article 20 of the Constitution of

India.

39. To understand the exact nature of the forfeiture

contemplated under the (SAFEMA) Act it is necessary to

examine the nature of the property which is sought to be

forfeited and also the persons from whom such forfeiture

is sought to be made. As already noticed, the Act is made

applicable to five classes of persons specified under

section 2. In other words, the properties of persons

belonging to any one of the said five categories only could

be forfeited under the Act. Even with reference to the

that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental. But where the legislation under the relevant entry proceeds on the basis that the amount concerned is not a tax exigible under the law made under that entry, but even so lays down that though it is not exigible under the law, it shall be paid over to Government, merely because some dealers by mistake or otherwise have collected it as tax, it is difficult to see how such provision can be ancillary or incidental to the collection of tax legitimately due under a law made under the relevant taxing entry. We do not think that the ambit of ancillary or incidental power goes to the extent of permitting the legislature to provide that though the amount collected — may be wrongly — by way of tax is not exigible under the law as made under the relevant taxing entry, it shall still be paid over to Government, as if it were tax. The legislature cannot under Entry 54 of List II make a provision to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax. This is what Section 11(2) has provided. Such a provision cannot in our opinion be treated as coming within incidental or ancillary powers which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible. We are therefore of opinion that the provision contained in Section 11(2) cannot be made under Entry 54 of List II and cannot be justified even as an incidental or ancillary provision permitted under that entry.

28

Page 29

properties held by any one falling under any of the

abovementioned five categories, their entire property

cannot be forfeited except the property which is

determined to be illegally acquired property as defined

under section 3(c) of the Act. Of all the five categories of

persons to whom the Act is made applicable, only one

category specified under section 2(2)(a) happens to be of

persons who are found guilty of an offence under one of

the enactments mentioned therein and convicted. The

other four categories of persons to whom the Act is

applicable are persons unconnected with any crime or

conviction under any law while the category of persons

falling under section 2(2)(b) are persons who are believed

by the State to be violators of law. The other three

categories are simply persons who are associated with

either of the two categories mentioned in section 2(2)(a)

and (b). At least with reference to the four categories

other than the one covered by section 2(2)(a), the

forfeiture/deprivation of the property is not a consequence

of any conviction for an offence.

29

Page 30

40. Therefore, with reference to these four categories,

the question of violation of Article 20 does not arise.

Insofar as first category mentioned above, in our opinion,

Article 20 would have no application for the reason,

conviction is only a factor by which the Parliament chose

to identify the persons to whom the Act be made

applicable. The Act does not provide for the confiscation

of the properties of all the convicts falling under Section

2(2)(a) or detenues falling under Section 2(2)(b). Section

6 of the Act authorises the competent authority to initiate

proceedings of forfeiture only if it has reasons to believe

(such reasons for belief are required to be recorded in

writing) that all or some of the properties of the persons to

whom the Act is applicable are illegally acquired

properties. The conviction or the preventive detention

contemplated under Section 2 is not the basis or cause of

the confiscation but the factual basis for a rebuttable

presumption to enable the State to initiate proceedings to

examine whether the properties held by such persons are

illegally acquired properties. It is notorious that people

carrying on activities such as smuggling to make money

30

Page 31

are very clandestine in their activity. Direct proof is

difficult if not impossible. The nature of the activity and

the harm it does to the community provide a sufficiently

rational basis for the legislature to make such an

assumption. More particularly, Section 6 specifically

stipulates the parameters which should guide the

competent authority in forming an opinion, they are; the

value of the property and the known sources of the

income, earnings etc. of the person who is sought to be

proceeded against. Even in the case of such persons, the

Act does not mandate such an enquiry against all the

assets of such persons. An enquiry is limited to such of

the assets which the competent authority believes (to

start with) are beyond the financial ability of the holder

having regard to his known and legitimate sources of

income, earnings etc. Connection with the conviction is

too remote and, therefore, in our opinion, would not be hit

by the prohibition contained under Article 20 of the

Constitution of India.

41. If a subject acquires property by means which are not

legally approved, sovereign would be perfectly justified to

31

Page 32

deprive such persons of the enjoyment of such ill-gotten

wealth. There is a public interest in ensuring that persons

who cannot establish that they have legitimate sources to

acquire the assets held by them do not enjoy such wealth.

Such a deprivation, in our opinion, would certainly be

consistent with the requirement of Article 300A and 14 of

the Constitution which prevent the State from arbitrarily

depriving a subject of his property.

42. Whether there is a right to hold property which is the

product of crime is a question examined in many

jurisdictions. To understand the substance of such

examination, we can profitably extract from an article

published in the Journal of Financial Crime, 2004 by

Anthony Kennedy.11

“..It has been suggested that a logical interpretation of Art. 1 of the First Protocol of the European Convention on Human Rights is:

‘Everyone is entitled to own whatever property they have (lawfully) acquired …..’

hence implying that they do not have a right under Art. 1 to own property which has been unlawfully acquired. This point was argued in the Irish High Court in Gilligan v The Criminal Assets Bureau, namely that where a defendant is in possession or control over assets which directly

11 Head of Legal Casework, Northern Ireland for the Assets Recovery Agency in his Article ‘Justifying the civil recovery of criminal proceeds’ published in the Journal of Financial Crime, 2004 Vol.12, Iss.1.

32

Page 33

or indirectly constitute the proceeds of crime, he has no property rights in those assets and no valid title to them, whether protected by the Irish Constitution or by any other law. A similar view seems to have been expressed earlier in a dissenting opinion in Welch v United Kingdom : ‘in my opinion, the confiscation of property acquired by crime, even without express prior legislation is not contrary to Article 7 of the Convention, nor to Article 1 of the First Protocol.’ This principle has also been explored in US jurisprudence. In United States v. Vanhorn a defendant convicted of fraud and money laundering was not entitled to the return of the seized proceeds since they amounted to contraband which he had no right to possess. In United States v Dusenbery the court held that, because the respondent conceded that he used drug proceeds to purchase a car and other personal property, he had no ownership interest in the property and thus could not seek a remedy against the government’s decision to destroy the property without recourse to formal forfeiture proceedings. The UK government has impliedly adopted this perspective, stating that:

‘…. It is important to bear in mind the purpose of civil recovery, namely to establish as a matter of civil law that there is no right to enjoy property that derives from unlawful conduct.”

43. Non-conviction based asset forfeiture model also

known as Civil Forfeiture Legislation gained currency in

various countries: United States of America, Italy, Ireland,

South Africa, UK, Australia and certain provinces of

Canada.

44. Anthony Kennedy conceptualised the civil forfeiture

regime in the following words:-

“Civil forfeiture represents a move from a crime and punishment model of justice to a preventive model of justice.

33

Page 34

It seeks to take illegally obtained property out of the possession of organised crime figures so as to prevent them, first, from using it as working capital for future crimes and, secondly, from flaunting it in such a way as they become role models for others to follow into a lifestyle of acquisitive crime. Civil recovery is therefore not aimed at punishing behaviour but at removing the ‘trophies’ of past criminal behaviour and the means to commit future criminal behaviour. While it would clearly be more desirable if successful criminal proceedings could be instituted, the operative theory is that ‘half a loaf is better than no bread’.”

45. For all the above-mentioned reasons, we are of the

opinion that the Act is not violative of Article 20 of the

Constitution. Even otherwise as was rightly pointed out by

the learned Addl. Solicitor General, in view of its inclusion

in the IXth Schedule, the Act is immune from attack on the

ground that it violates any of the rights guaranteed under

Part III of the Constitution by virtue of the declaration

under Article 31-B.

46. Now we are required to consider the alternative and

last submission i.e., in view of the failure of the High Court

to examine the tenability of the order of the forfeiture as

confirmed by the appellate tribunal the matter is required

to be remitted to the High Court for appropriate

consideration. This submission is required to be rejected.

We have carefully gone through the copy of the writ

34

Page 35

petition (a copy of which is available on record) from

which the instant appeal arises.

47. Except challenging the order of forfeiture on the two

legal grounds discussed earlier in this judgement, there is

no other ground on which correctness of the order of

forfeiture is assailed in the writ petition. For the first time

in this appeal, an attempt is made to argue that the

conclusions drawn by the competent authority that the

properties forfeited are illegally acquired - is not justified

on an appropriate appreciation of defence of the

appellant. In other words, the appellant seeks

reappreciation of the evidence without even an

appropriate pleading in the writ petition. It is a different

matter that the High Court in exercise of its writ

jurisdiction does not normally reappreciate evidence.

Looked at any angle, we see no reason to remit the matter

to the High Court.

48. In the result, the appeals, being devoid of merit, are

dismissed.

35

Page 36

………………………………….J. (H.L. GOKHALE)

………………………………….J. (J. CHELAMESWAR )

New Delhi; January 21, 2014.

36