# ASLAM MOHD. MERCHANT ) v. COMPETENT AUTHORITY & ORS

- **Citation:** [2008] 10 S.C.R. 332
- **Court:** Supreme Court of India
- **Decided:** 2008-07-08
- **Case number:** Criminal Appeal No. 1053 of 2003
- **Bench:** S.B. Sinha, V.S. Sirpurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/aslam-mohd-merchant-v-competent-authority-ors-23466
- **Pages:** 35

## Headnote

Narcotic Drugs and Psychotropic Substances Act, 1985
- Chapter VA, ss 68A, 68C, 68E, 68F, 68H and 681- lnterprec tation and application of - Order of preventive detention
against a person - Forfeiture of property of relatives of the
person, having being derived from or used in illicit traffic -
Challenge to - High Court holding that the proceedings initiated validly against the relatives - On appeal,· held: Order of
~
D High Court not sustainable - Conditions precedent for initiat-
';j.
ing valid proceeding-formation of 'reason to believe' on part
of the authority wherefor reasons are to be recorded in writing
that properties are illegally acquired properties, not fulfilled -
There was non-application of mind on part of the Authority -
E Property sought to be forfeited did not have direct nexus with
the income or assets or properties illegally acquired by person concerned.
It is alleged that M was involved in illicit trafficking
under the Prevention of Illicit Traffic in Narcotic Drugs and
y.
F Psychotropic Substances Act, 1988. An order of preven-
...(
tive detention was passed against M, however, the order
could not be served on him as he had left the country. M
was a 'person' r~ferred to in s. 68A(C) of the Act. The appellants being relatives of M were issued notices to show
G cause as to why their properties, being 'illegally acquired
properties' should not be forfeited. Causes were shown
and the appellants were given opportunity of hearing.
-~5
Appellants contended that out of the 40 properties mentioned therein they were concerned only with 11 properH
332
ASLAM MOHD. MERCHANT v. COMPETENT
333
AUTHORITY &"ORS.
"'
ties. Some of the prop~rties belonging to the appellants A
were directed to be forfeited and some were released.
Appellate Tribunal upheld the findings. However, some
more properties were directed to be released as they were
not 'illegally acquired properties'. Aggrieved appellants
filed writ petitions on the ground that the proceedings B
were not validly initiated against them. The writ petitions
were dismissed. Hence the present appeals.
Allowing the appeals, the Court
HELD: 1.1 Chapter VA of the Narcotic Drugs and Psy- c
chotropic Substances Act, 1985 contains stringent provisions. It provides for forfeiture of property. Such property must be derived from or used in illicit traffic. Illegally
acquired property in relation to any person to whom the
chapter applies would mean only such property which D
was acquired wholly or partly out of or by means of any
income attributable to the contravention of any provision
of the Act or for a consideration wholly or partly traceable
to any property referred to in sub-clause (i) or the income
or earning from property. The property sought to be forE
feited must be the one which has a direct nexus with the
income etc. derived by way of contravention of any of the
provisions of the Act or any property acquired therefrom.
-
What is meant by identification of such property having
~~-
regard to the definition of 'identifying' is that the property
'
was derived from or used in the illicit traffic. The property
F
having regard to the said definition would include any of
the properties described therein and deeds of instruments evidencing interest derived from or used in the iilicit traffic. [Paras 17, 18 and 19] [352-C,D,E,F & G]
1.2 The word "person" leads to determining the naG
f'.J,
ture, source, disposition, movement, title or ownership
of the property. Direction to forfeiture of a property is in
two parts. Firstly, it has to be identified in terms of s.68-F
for which a satisfaction must be arrived at by the authorH
334
SUPREME COURT REPORTS
[2008] 10 S.C.R.
"
A ity specified therein to the effect that the person concerned
had been holding any illegally acquired property. Secondly, on the basis of such information, he is entitled to
take steps for tracing and identifying the property. [Para
19) [352-H; 353-A & BJ
B
1.3 Before the actual order of forfeiture of illegally
'l
ac

## Text

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[2008] 10 S.C.R. 332
ASLAM MOHD. MERCHANT
)..
A
v.
COMPETENT AUTHORITY & ORS.
(Criminal Appeal No. 1053 of 2003)
B
JULY 8, 2008
[S.B. SINHA AND V.S. SIRPURKAR, JJ.]
Narcotic Drugs and Psychotropic Substances Act, 1985
- Chapter VA, ss 68A, 68C, 68E, 68F, 68H and 681- lnterprec tation and application of - Order of preventive detention
against a person - Forfeiture of property of relatives of the
person, having being derived from or used in illicit traffic -
Challenge to - High Court holding that the proceedings initiated validly against the relatives - On appeal,· held: Order of
~
D High Court not sustainable - Conditions precedent for initiat-
';j.
ing valid proceeding-formation of 'reason to believe' on part
of the authority wherefor reasons are to be recorded in writing
that properties are illegally acquired properties, not fulfilled -
There was non-application of mind on part of the Authority -
E Property sought to be forfeited did not have direct nexus with
the income or assets or properties illegally acquired by person concerned.
It is alleged that M was involved in illicit trafficking
under the Prevention of Illicit Traffic in Narcotic Drugs and
y.
F Psychotropic Substances Act, 1988. An order of preven-
...(
tive detention was passed against M, however, the order
could not be served on him as he had left the country. M
was a 'person' r~ferred to in s. 68A(C) of the Act. The appellants being relatives of M were issued notices to show
G cause as to why their properties, being 'illegally acquired
properties' should not be forfeited. Causes were shown
and the appellants were given opportunity of hearing.
-~5
Appellants contended that out of the 40 properties mentioned therein they were concerned only with 11 properH
332
ASLAM MOHD. MERCHANT v. COMPETENT
333
AUTHORITY &"ORS.
"'
ties. Some of the prop~rties belonging to the appellants A
were directed to be forfeited and some were released.
Appellate Tribunal upheld the findings. However, some
more properties were directed to be released as they were
not 'illegally acquired properties'. Aggrieved appellants
filed writ petitions on the ground that the proceedings B
were not validly initiated against them. The writ petitions
were dismissed. Hence the present appeals.
Allowing the appeals, the Court
HELD: 1.1 Chapter VA of the Narcotic Drugs and Psy- c
chotropic Substances Act, 1985 contains stringent provisions. It provides for forfeiture of property. Such property must be derived from or used in illicit traffic. Illegally
acquired property in relation to any person to whom the
chapter applies would mean only such property which D
was acquired wholly or partly out of or by means of any
income attributable to the contravention of any provision
of the Act or for a consideration wholly or partly traceable
to any property referred to in sub-clause (i) or the income
or earning from property. The property sought to be forE
feited must be the one which has a direct nexus with the
income etc. derived by way of contravention of any of the
provisions of the Act or any property acquired therefrom.
-
What is meant by identification of such property having
~~-
regard to the definition of 'identifying' is that the property
'
was derived from or used in the illicit traffic. The property
F
having regard to the said definition would include any of
the properties described therein and deeds of instruments evidencing interest derived from or used in the iilicit traffic. [Paras 17, 18 and 19] [352-C,D,E,F & G]
1.2 The word "person" leads to determining the naG
f'.J,
ture, source, disposition, movement, title or ownership
of the property. Direction to forfeiture of a property is in
two parts. Firstly, it has to be identified in terms of s.68-F
for which a satisfaction must be arrived at by the authorH
334
SUPREME COURT REPORTS
[2008] 10 S.C.R.
"
A ity specified therein to the effect that the person concerned
had been holding any illegally acquired property. Secondly, on the basis of such information, he is entitled to
take steps for tracing and identifying the property. [Para
19) [352-H; 353-A & BJ
B
1.3 Before the actual order of forfeiture of illegally
'l
acquired property is passed, issuance of notice to show
cause is essential so as to fulfil the requirements of natural justice. Such a notice is to be_ issued by the Authority
having regard to the value of the property held by the
c person concerned; his known source of income, earning or assets; any other information or material made available as a result of a report from any officer making investigation u/s. 68-E of the Act or otherwise. When the conditions are satisfied, competent authority would be entitled
D to issue a show cause notice, if he has reason to believe,
"';i
wherefor reasons are to be recorded in writing that the
properties are illegally acquired properties. [Paras 20 and
21) [353-C,D,E & F]
1.4 Once the notice to show cause is found to be
E satisfying the statutory requirements which are condition
precedent therefor, a valid proceeding can be said to have
been initiated for forfeiture of the property. Only in a case
where a valid proceeding has been initiated, the burden
"
of proof that any property specified in the notice is not
F
illegally acquired property, would be on the 'person' af-
-('
fected. [Para 22] [353-G,H; 354-A]
1.5 Before, an order of forfeiture can be passed, the
Competent Authority must not only comply with the prinG ciples of natural justice, he is also required to apply his
mind on the materials brought before him. It is also neeessary that a finding that all or any of the properties in
-/.-"'
question were illegally acquired properties is recorded.
He has a vast power as is provided u/s. 68-R of the Act.
H
He is not bound by any finding of any officer or authority
•
~
ASLAM MOHD. MERCHANT v. COMPETENT
335
;.
AUTHORITY & ORS.
under any other law as the same would not be concluA
sive for the purpose of any proceeding under the said
chapter. [Paras 23 and 24] [354-A,B & C]
1.6 It is beyond any doubt or dispute that a proper
.I(
application of mind on the part of the competent authority is imperative before a show cause notice is issued. B
Section 68-H of the Act provides for two statutory requirements on the part of the authority viz: (i) he has to form
an opinion in regard to his 'reason to believe'; and (ii) he
must record reasons therefor. Both the statutory elements,
namely, 'reason to believe' and 'recording of reasons' c
must be premised on the materials produced before him.
Such materials must have been gathered during the investigation carried out in terms of s. 68-E or otherwise.
~
Indisputably therefore, he must have some materials before him. If no such material had been placed before him, D
he cannot initiate a proceeding. He cannot issue a show
cause notice on his own ipse dixit. A roving enquiry is not
contemplated under the said Act as properties sought to
be forfeited must have a direct nexus with the properties
illegally acquired. [Para 28] [355-E,F,G & H; 356-A]
E
1.7 The necessity of establishing link or nexus is writ
large on the face of the statutory provision as would ap-
'
pear from the definition of 'illegally acquired property' as
-}
also that of 'property'. The purport and object for which
the Act was enacted point out to the same effect. [Para
F
32] [360-A & B]
1.8 In the final order, the rule of evidence as envisaged u/s. 68-f r/w s. 68-J of the Act must be applied. A per.-
son affected would be called upon to discharge his burG
J~
den provided a link or nexus is traced between the holder
of the property proceeded against and an illegal activity
of the detenu. Such a formation of belief is essential. [Para
34] [361-A & B]
2.1 In the instant case, applying these tests, it is eviH
14,
336
SUPREME COURT REPORTS
[2008] 10 S.C.R.
A
A dent that the statutory requirements were not fulfilled. Nonapplication of mind on the part of the CfJmpetent officer
would also be evident from the fact that a property which
was the subject matter of the decision of this Court in
Fatima Amin case was also included herein. Once the show
'/
B cause notice is found to be illegal, the same would vitiate
all subsequent proceedings. [Para 38 & 39] [364-C,D & E]
2.2 Had the show cause notice been valid, the submission that appellants have not been able to discharge
the burden of proof which was on them from the imc pugned orders, might have been right, but if the proceedings themselves were not initiated validly, the competent
authority did not derive any jurisdiction to enter into the
merit of the matter. [Paras 41 and 42] [365-8,C & D]
D
2.3 Legality and/or validity of the notice had been
questioned at several stages of the proceedings. Despite
their asking, no reason was disclosed by the authority to
the appellants. They had asked for additional reasons, if
any, which were not reflected in the show cause notices.
E None was disclosed. When the authority was called upon
to disclose the reasons, it was stated that all the reasons
were contained in the show cause notices themselves.
They, however, did not contain any reason so as to sat-
,,,
isfy the requirements of s. 68H(1) of the Act. Till the said
date, no material had been brought on record to show
1
F that any nexus or a link between the properties sought to
be forfeited and thus in case of 'M' it was merely a perception of the competent authority alone. [Paras 26, 29
and 42) [365-D & E; 356-8 & C; 355-8]
G
2.4 The contention that only because a large num-
, ber of properties had been mentioned in the show cause
-)..~
'
notice, the same by itself is demonstration of complete
non-application of mind on the part of the competent authority cannot be accepted. Identification of such a propH erty although might have been made in an inquiry made
.._
,,.
ASLAM MOHD. MERCHANT v. COMPETENT
337
)
AUTHORITY & ORS.
by the officer in-charge of a Police Station; however, when
A
the proceeding was initiated, the question as to whether
such properties were illegally acquired properties or not,
was required to be ultimately determined by the compeI
~
tent authority alone. [Para 27] [355-C,D & E]
2.5 The High Court opined that there had been a B
proper application of mind on the part of the Competent
Authority and Appellate Tribunal as they had released some
items of properties. Application of mind on the part of the
Competent Authority and the Appellate Tribunal at the subsequent stage was not in question; what was in question c
was non application of mind on the part of the authority
prior to issuance of the notice. [Para 43] [365- e & F]
....-
2.6 The purport and object of the Act is known. Dealing in narcotics is a social evil that must be curtailed or D
prohibited at any cost. Chapter VA seeks to achieve a
salutary purpose. But, it must also be borne in mind that
right to hold property although no longer a fundamental
right is still a constitutional right. It is a human right. The
provisions of the Act must be interpreted in a manner so
E
that its constitutionality is upheld. The validity of the provisions might have received constitutional protection, but
...
when stringent laws become applicable as a result
whereof some persons are to be deprived of his/her right
-~
in a property, scrupulous compliance of the statutory requirements is imperative. Thus, the impugned judgments
F
cannot be sustained and are set aside. [Paras 44 and 45]
[365-G,H; 366-A,B & C]
Kesar Devi (Smt.) vs. Union of India and Ors. 2003 (7) SCC
427; Pandharinath Shridhar Rangnekar vs. Dy Commr. of PoG
•
i ~
lice, State of Maharashtra 1973 (1) SCC 372 - distinguished .
Attorney General for India and Ors. vs Amratlal
Prajivandas and Ors. 1994 (5) SCC 54; Fatima Mohd. Amin
(Smt.) (Dead) Through LRs. vs. Union"of India and Anr 2003
(7) SCC 436; PP Abdulla vs. Competent Authority 2007 (2)
H
.
I
338
SUPREME COURT REPORTS ·
[2008] 10 S.C.R.
'tA
A
SCC 510; State of Gujarat and Anr. Etc. vs. Mehboob Khan
Usman Khan Etc. 1968 (3) SCR 746; Phool Chand Bajrang
Lal vs. /TO 1993 (203) ITR 456; Income Tax Officer vs.
Lakshmani Mewal Das 1976 (103) ITR 437; Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers
f-
)'
\
B
Pvt. Ltd. 2007 (8) SCALE 396; Dilip N. Shroff vs. Joint Commissioner of Income Tax, Mumbai and Anr. 2007 (6) SCC 329
):::::
- referred to.
CRIMINALAPPELLATE JURISDICTION: Criminal Appeal
No. 1053 of 2003
c
From the final Judgment and Order dated 27.11.2002 of
the High Court of Judicature at Bombay in Criminal Writ Petition No. 1095 of 2002
,_ .
WITH
'>
D
Crl. A. Nos. 1054-1057 of 2003
Arvind Savant, Raju Ramchandran and VA. Mohta, S.V.
Pikale, G.S. Pikale, Mahesh Agarwal, Rishi Agrawala, E.C.
Agrawala, Amit Kumar Sharma, Saurabh Suman Sinha and
E
Nilkanta Nayak for the Appellant.
r
Vikas Singh and B. Dutta, ASGs., Sunil Roy, Vikas
Sharma, B.B. Singh, Arvind Sukla, Arbind Kr. Shukla, G.D.
.(--
Mishra, Alok Shukla, Parcham Mubarak, Sushma Suri, Sushil
'
Karanjkar and Ravindra Keshavrao Adsure for the Respon-
-t
F
dents.
The Judgment of the Court was delivered by
)
S.B. SINHA, J :
G
INTRODUCTION
1. Interpretation and application of Chapter VA of the Nar-
./--''
'
cotic Drugs and Psychotropic Substances Act, 1985 (for short,
"the Act") providing for forfeiture of property derived from or used
in illicit traffic, is in questibn in this batch of appeals which arise
H out of a judgment and order dated 27.11.2002 passed by the
't
ASLAM MOHD ME RC HANT v. COMPETENT
339
AUTHORITY & ORS. [S.B. SINHA, J ]
).
High Court of Bombay in Criminal Writ Petition No. 1095 of A
2002.
OVERVIEW
2. One Iqbal Mohammed Memon alias Iqbal Mirchi
("Mirchi'', for short) is related to the appellants. APPELLANT
~
No. 2 is his first wife, Appellant No.3 is second wife, Appellant
No. 4, Abdul Kadar Mohd. Merchant, is one of his brothers, Appellant No. 5, Shir Firoz Mohd. Memen, is his second brother
whereas Petitioner No. 6, Aslam Mohd. Merchant, is his third
brother. Appellant No.7, NazmaAslam Merchant, is his brother's c
wife, Appellant No.8, Zaibunnisa Memon, is his sister and Appellant No. 9, Arij Mohd. Merchant, is the brother-in-law of the
said Iqbal Mohammed Memon.
An order of preventive detention was passed against him
j
D
for his alleged involvement in illicit trafficking under t~e Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Sub~
stances Act, 1988 (for short the "PITNDPS") on or about
29.9.1994. The same, however, could not be served on him as
he had left India.
A pre execution writ petition filed on his behalf was disE
missed. The said order of detention is still operative.
3. The said Iqbal Mirchi is, thus, a 'person' within the meaning of Section 68A(C) of the Act. Appellants being his relatives
-)
in terms of Section 68H of the Act were issued with notices
F
directing them to show cause as to why the properties mentioned the.rein should not be forfeited being 'illegally acquired
properties'. Causes were shown pursuant thereto. Opportunities of hearing were also afforded. Whereas some of the properties belonging to the appellants were directed to be forfeited,
G
some were released.
~ .+
The Appellate Tribunal on appeals having been preferred
thereagainst by the appellants by a common order dated
26.7.2002 affirmed the said findings. Some more properties,
however, were directed to be released opining that they did not
H
340
SUPREME COURT REPORTS
[2008] 10 S. C.R.
~
A
come within the purview of the defainition of 'illegally acquired
properties'.
4. Writ Petitions preferred thereagainst by the appellants
have been dismissed by the High Court by reason of the imB
pugned judgment, holding that the proceedings were validly initiated against them.
,.
>
I
CONTENTIONS
'
'--
'
5. Whereas, on one hand, the submissions of the learned
-
I
counsel appearing on behalf of the appellants is that the condic tions precedent for initiating a valid proceeding, namely, formation of 'reason to believe' on the part of the authority wherefor
\
I
reasons are required to be recorded in writing had not been
' '
fulfilled, the submission of Mr. B.B. Singh, the learned counsel
appearing on behalf of the respondent on the other hand, is that
D a notice containing general allegations would meet the require-
~
ments of law. According to the learned counsel, once the noticees
were informed that they were relatives of the 'person' referred
.
to in Section 68A and valuable properties stand in their name,
\
'"
which were acquired beyond their known source. of income, it
i
E will be for them to satisfy the authority that acquisition of the
property by them has nothing to do with the purported income
derived by 'Mirchi' out of illicit trafficking of narcotic, drug and
psychotropic substances.
I
On behalf of the appellants, it was furthermore urged:
' I
F
-{-
'
(i)
Even a perusal of from the order passed by the
.____
·competent authority, it would appear that one of the
properties had been purchased by one of the
appellants herein much prior to her marriage to
G
'Mirchi' and as such the question of such a property
having been acquired out of the "illegally acquired
property" does not and cannot arise.
+- ~
(ii)
Appellants having filed their income tax returns and
wealth tax returns wherein the properties were shown
H
to have been purchased from their own income, the
f..
i
....-1'.--
ASLAM MOHD. MERCHANT v. COMPETENT
341
AUTHORITY & ORS. [S.B. SINHA, J )
impugned order is wholly unsustainable. Although
A
orders of assessment passed by an authority under
the said Act having regard to the provisions contained
in Section 68W thereof may not be conclusive, but,
the same carry a presumption of correctness and
thus were required to be treated as evidence.
B
{iii) The competent authority, on the basis of the purported
investigation report or otherwise, was required to
show that the properties in question were in fact
purchased from the tainted money and it was not for
the appellants to prove contra.
c
(iv) As the only relevant consideration for passing an
order in terms of Section 68H of the Act is that the
property had been acquired from the tainted income;
it is sufficient for the noticee to show that the said
D
allegations were not correct.
(v)
The competent authority was required to keep
distinction between his function and the one under
the Income Tax Act and the Wealth Tax Act in mind;
his jurisdiction being limited, that is, whether the
E
properties were illegally acquired properties or not,
wherefor he could not have gone further and hold
that only because the noticees had not been able to
trace the source of their income, the properties were
to be treated to be illegally acquired property, which
F
may be only a relevant factor but would not necessarily
lead to the said conclusion.
THE ACT
6. The Act was enacted to consolidate and amend the law G
relating to narcotic drugs, to make stringent provisions for the
'" ~
control and regulation of operation relating to narcotic drugs
arid psychotropic substances, to provide for the forfeiture of
property derived from, or used in, illicit traffic in ·narcotic drug
and psychotropic substances, to implement the ·provisions of H
342
SUPREME COURT REPORTS
[2008) 10 S.C.R.
A
the International Convention on Narcotic Drugs and Psychotropic Substances and for matters connected therewith.
7. Chapter VA was inserted in the Act by Act No. 2of1989.
It appears that the said amendment wa·s carried out having regard to the International Convention as referred to in Section
y ,
B 2(ix) of the Act, which read as under:~
c
D
E
F
G
H
"2. Definitions. - In this Act, unless the context otherwise
requires, - ·
(i)
*****
*****
111.****
*****
******
*****
*****
*****
.. (ix) "International Convention· ineans -
(a)
the Single Convention on Narcotic Drugs, 1961
adopted by the United Nations Conference at
New York in March, 1961;
(b)
the protocol, amending the Convention
mentioned in sub-clause (a}, adopted by the
United Nations Conference at Geneva in March,
1972;
(c)
the Convention on Psychotropic Substances,
1971 adopted by the United Nations
Conference at Vienna in February, 1971 ; and
(d)
any other international convention, or protocol
or other instrument amending an international
convention, relating to narcotic drugs or
psychotropic substances which may be ratified
or acceded to by India after the commencement
of this Act.•
8. Section 68A of the Act applies to persons specified in
sub-section (2) thereof which would, inter alia, include every
person in respect of whom an order of detention has been made
under the PITNDPS.
••
. ~
+
ASLAM MOHD. MERCHANT v. COMPETENT
AUTHORITY & ORS. [S.8. SINHA, J ]
343
9. It also applies to persons who are relatives of a person A
inter alia against whom an order of detention has been issued·
or his associate(s).
Section 688 is the interpretation section.
We may notice some of the provisions contained therein.
B
"Section 688. Definitions - In this Chapter, unless the
context otherwise requires -
****
****
****
****
****
(b) "Associate" in relation to a person whose property is C
liable to be forfeited under this Chapter, 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;
D
(iii) Any association of persons, body of individuals,
E .
partnership firm, or private company within the
meaning of the Companies Act, 1956, of which such
person had been or is a member, partner or director;
****
****
****
F
(vi)
The trustee of any trust, where, -
(1)
The trust has been created by such person; or
(2)
The, value of the asset contributed by such
person (including the value of the assets, if any,
G
contributed by him earlier) to the trust amounts
on the date on which contribution is made, to
not less than twenty per cent of the value of the
assets of the trust on that date,
H
344
SUPREME COURT REPORTS
[2008] 10 S.C.R.
*
A
(g)
"Illegally acquired property" in relation to any person
to whom this Chapter applies, means, -
(i)
Any property acquired by such person, whether
before or after the commencement of this
B
Chapter, wholly or partly out or by means of any
income, earnings or assets derived or obtained
from or attributable to the contravention of any
provisions of this Act; or
...
(ii)
Any property acquired by such person, whether
c
before or after the commencement of this
Chapter, for a consideration, or by any means
wholly or partly traceable to any property
'
~'
referred to in sub-clause (i) or the income or
earning from such property,
)-
D
And includes, -
(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
E
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
i
are two or more such previous holders, the last of
"
such previous holders is or was a transferee in good
F
faith for adequate consideration;
i-
(B) Any property acquired by such person, whether
before or after the commencement of this Chapter,
for a consideration or by any means, wholly or partly
traceable to any property falling under item (A), or
G
the income or earnings therefore;
(h) "Property" means property and assets of every
.
4"
.+'
description, whether corporeal or incorporeal, movable or
immovabl_e, tangible or intangible and deeds and
instruments, evidencing title to, or interest in, such property
H
or assets derived from, or used in, the illicit traffic,
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ASLAM MOHD. MERCHANT v. COMPETENT
345
AUTHORITY & ORS. [S.B. SINHA, J ]
(i) "Relative" means, -
A
(1)
Spouse of the person;
(2)
Brother or sister of the person;
(3)
Brother or sister of the spouse of the person;
B
(4)
Any lineal ascendant or descendant of the person;
(5)
Any lineal ascendant or descendant of the spouse of
the person;
(6)
Spouse of a person referred to in sub-clause (2) or c
sub-clause (3), sub-clause (4) or sub-clause (5);
(7)
Any lineal descendant of a person referred to in subclause (2) or sub-clause (3);
U) "Tracing" means determining the nature, source, 0
disposition, movement, title or ownership of property;
Sectjon 68(C) provides for prohibition in respect of holding illegally acquired property in the following terms:-
"68C. Prohibition of holding illegally acquired E
property- (1) As from the commencement of this Chapter,
it shall not be lawful for any person to whom this Chapter
applies to hold any illegally acquired property either by
himself or through any other person on his behalf.
(2) Where any person holds any illegally acquired property
F
in contravention of the provisions of sub-section (1) such,
property shall be liable to be forfeited to the Central
Government in accordance with the provisions of this
Chapter:
Provided that no property shall be forfeited under this G
Chapter if such property was acquired, by a person to
whom this Act"applies, before a period of six years from
the date he was arrested or against whom a warrant or
authorisation of arrest has been issued for the commission
of an offence punishable under this Act or from the date
H
A
B
c
D
E
F
G
H
346
SUPREME COURT REPORTS
[2008] 10 S.C.R.
the order or detention was issued, as the case may be."
Section 68E provides as to how illegally acquired property shall be identified, stating:
"68E. Identifying illegally acquired property - (1) Every
officer empowered under section 53 and every officer-incharge of a police station shall, on receipt of information
is satisfied that any person to whom this Chapter applies
holds any illegally acquired property, he may, after
recording reasons for doing so, proceed to take all steps
necessary for tracing and identifying such property.
(2) The steps referred to in sub-section (1) may include
any inquiry' investigation or survey in respect of any person,
place, property, assets, documents, books of account in
any Bank or public financial institution or any other relevant
matters.
(3) Any inquiry, investigation or survey referred to in subsection (2) shall be carried out by an officer mentioned in
sub-section (1) in' accordance. with such directions or
guidelines as the competent authority may make or issue
in this behalf."
Section 68F provides for seizure or freezing of illegally
acquired property in the following terms:-
"68F.
Seizure or freezing of illegally acq~ired
property - (1) Where any officer conducting an inquiry or
investigation under Section 68E has reason to believe
that any property in relation to which such inquiry or
investigation is being conducted is an illegally acquired
property and such property is likely to be concealed,
transferred or dealt with in any manner which will result in
frustrating any proceeding relating to forfeiture of such
property under this Chapter, he may make an order for
seizing such property and where it is not practicable to
seize such property, he may make an order that such
property shall not be transferred or otherwise dealt with,
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ASLAM MOHD. MERCHANT v. COMPETENT
347
AUTHORITY & ORS. [S.S. SINHA, J ]
except with the prior permission of the officer making such
A
order, or of the competent authority and a copy of such
order shall be served on the person concerned."
The procedure in relation to forfeiture of property is con-
~
tained in Sections 68H and 681 thereof in the following terms:-
B
"68H. Notice of forfeiture of property -(1) If, having
regard to the value of the properties held by any person to
whom this Chapter applies, either by himself or through
any other person on his behalf, his known sources of
income, earnings or assets, and any other information or c
material available to it as a result of a report from any ,
officer making an investigation under Season 68-E or
otherwise, the competent authority has reason to believe
(the reasons for such belief .to be recorded in writing) that
~
all or any of such properties are illegally acquired properties,
it may serve a notice upon such person (hereinafter D
referred to as the person affected) calling upon him within
a period of thirty days specified in the notice to indicate
the sources of his income, earning or assets, out of which
or by means of which he has acquired such property, the
E
evidence on which he relies and other relevant information
and particulars, and to show cause why all or any of such
properties, as the case may be, should not be declared to
be illegally acquired properties and forfeited to the Central
Government under this Chapter.
(2) Where a notice under sub-section (1) to any person
F
specifies any property as being held on behalf of such
person by any other person; a copy of the notice shall be
served upon such other person:
Provided that no notice for forfeiture shall be served upon G
~- +
any person referred to in clause (cc) of sub-section 68 A
or relative of a person referred to in that clause or associate
of a person referred to in that clause or holder of any
property which was at any time previously held by a person
referred to in that clause.
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348
SUPREME COURT REPORTS
[2008] 10 S.C.R.
A
681. Forfeiture of property in certain cases - (1) The
competent authority may, after considering the explanation,
to the show cause notice issued, under Section 68-H and
the materials available before it and after giving to the
person affected (and in a case where the person affected
B
holds any property specified in the notice through any other
person, to such other person also) a reasonable
opportunity of being heard, by order, record a finding
whether all or any·of the properties in question are illegally
acquired properties:
c
Provided that if the person affected (and in a case where
the person affected holds any property specified in the
notice through any other person such other person also)
does not appear before the competent authority or represent
his case before it within a period of thirty days specified in
~
D
the show-cause notice, the competent authority may
proceed to record finding under this sub-section ex parte
on the basis of evidence available before it.
(2) Where the competent authority is satisfied that some
E
of the properties referred to in show cause notice are
illegally acquired properties but is not able to identify
specifically such properties, then, it shall be lawful for the
competent authority to specify the properties which, to the
best of its judgment, are illegally acquired properties and
record a finding accordingly under sub-section (2).
..,..
F
(3) Where the competent authority records a finding under
this section to the effect that any property is illegally
acquired property, it shall declare that such property shall,
subject tq the provisions of this Chapter, stand forfeited to
G
the Central Government free from all encumbrances.
Provided that no illegally acquired property of any person
+~'
who is referred to in clause (cc) of sub-section (2) of section
68A or relative of a person referred to in that clause or
associate of a person referred to in that clause or holder
H
of any property which was at any time previously held by
~- +.
ASLAM MOHD. MERCHANT v. COMPETENT
AUTHORITY & ORS. [S.B. SINHA, J ]
349
a person referred to in that clause shall stand forfeited.
A
(4) Where any shares in a company stand forfeited to the
Central Government under this Chapter, then, the company
shall, notwithstanding anything contained in the Companies
Act, 1956 or the articles of association of the company,·
forthwith register the Central Government as the transferee 8
of such shares."
Section 68J provides for burden of proof as;
"68J. Burden of proof - In any proceedings under this
Chapter, the burden of proving that any property specified C
in the notice served under Section 68-H is not illegally
acquired property shall be on the person affected."
Section 68W provides:-
68W.
Findings under other laws not conclusive for D
proceedings under this Chapter - No finding of any
officer or authority under any other law shall be conclusive
for the purposes of any proceedings under this Chapter.
THE PROCEEDINGS
E
10. The Show Cause Notice was issued on 17 .12 .1999. It
detailed as many as forty items of properties. In their reply to
show cause notice, noticees-appellants contended that they were
concerned only with 11 properties which was accepted. Proceedings in respect of the unrelated properties were dropped
F
and, thus, continued in respect of the said 11 properties stating:-
"27. After the replies to the Show Cause Notice were
received from the affected person it was found that many
of the properties were disclaimed by them. This G
necessitated further verification and enquiries were
conducted and it was found that most of the properties
are under ownership/possession of different persons who
are not noticees. The affected person have disclaimed
the properties mentioned at SI. Nos. 6, 7, 13. 14, 15, 16,
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350
SUPREME COURT REPORTS
[2008] 10 S.C.R.
--\
A
17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27 and 38. It was
"
further informed that the properties at SI. No. 36 i.e., (i)
Rabia Mansion (ii) Mariam Lodge and (iii) Sea View are
owned by "Sir Mohammed Yusuf Trust".
It was further
stated that the properties at sr. nos. 3 and 33 are not
owned by them but are tenanted properties.
After
.,. .
. ,
B
...
preliminary inquiries conducted by office it was felt that in
these cases provisions of Section 68-H (2) I 68-L of the
NDPS Act need to be complied with and therefore, in the
interest of justice it has been decided to take up those
c
cases separately. This order, therefore, is confined only
to the properties which have been claimed by the affected
persons, i.e., properties at SI. Nos. 1, 2, 4, 5, 8, 9, 10, 11,
12, 28, 29, 30, 31, 32, 34, 35, 37 and 39."
The material part of the said show cause notice is con-
'f--
D tained in paragraphs 15 and 16 thereof which read as under:-
"15. Whereas AP1 had been absconding since the issue
of the detention order and is reportedly living in England
with AP3. Exhaustive investigations into the properties of
E
the AP1 by various enforcement agencies including the
Anti-Narcotic Cell, C.B. C.l.D. /C.B.I. Mumb~i had resulted
in issue of freezing orders in respect of 11 properties in
the name of AP1 & AP3 and 5 others. These freezing
orders were confirmed by the then Competent Authority,
SAFEMA/NDPS, Mumbai. The Aps filed detailed and
-fF
voluminous submissions before the Competent Authority
which included Income-tax and Wealth-tax returns and other
relevant documents. On the basis of these submissions,
the then Competent Authority released 7 properties and
forfeited the remaining 4 to the Central Government free
G
from all encumbrances. It is pertinent to note that the 4
properties which were finally forfeited were in the name of
-+ ~
AP3 with one property jointly held with AP1. The Aps could
not prove the legality of the sources by which these
properties were acquired by them. The property in question
H
now are jointly held by AP1 to AP11 in similar manner.
j. +
ASLAM MOHD. MERCHANT v. COMPETENT
351
AUTHORITY & ORS. [S.B. SINHA, J ]
These properties have never found any mention in the
A
submissions made by the APs nor they were declared by
the Aps in the proceedings under Chapter VA of the NDPS
Act considered by the then Competent Authority nor it was
disclosed to any enforcement agencies in any manner.
16. Whereas considering the above and the background
8
of AP1 ard his involvement in drug smuggling & in drug
trafficking on a massive scale and also the fact that AP2
to AP11 have no source of legal income of their own by
means of which they could have acquired such huge and
valuable properties mentioned hereinbefore, I have reason
C
to believe that the said properties and assets as mentioned
in para 14 have been acquired from the illegal income or
source generate or earned by AP1 through or out of drug
trafficking and have to be considered as illegally acquired
property as defined under sub-section (g) of section 688 D
. of the NDPS Act."
·11. From a perusal of the ~aid notice to show cause, it is
evident that admittedly another proceeding had been initiated
against them.
12. Four properties were directed to be forfeited; seven
were released.
E
13. The second proceedings with which we are concerned
h~rein continued in respect of the 11 properties. Indisputably
again in the earlier proceedings, income tax returns had been
F
brought on records.
14. The relevant provisions of the Smugglers and Foreign
Exchange Manipulators (Forfeiture of Property) Act, 1976 (for
short "SAFEMA") and Narcotic Drugs and Psychotropic SubG
stances Act, 1985 (NDPS) are in pari materia. ·
15. Contentions were raised that the show cause notice
shows complete non-application of mind on the part of the competent authority, as ;
H
352
SUPREME COURT REPORTS
[2008] 10 S.C.R.
A
(i)
28 unconnected properties including the property of
Late Fatima Amin which formed part of the separate
proceeding had been included.
8
(ii)
The properties mentioned therein had never been
mentioned by the appellants in the previous
proceedings, although they did not form part thereof.
ISSUE
16. The core question which, therefore, arises for consideration is what are the statutory requirements for initiating a valid
C proceeding.
INTERPRETATION
17. Chapter VA contains stringent provisions. It provides
for forfeiture of property. Such property, however, as the headD ing of the Chapter shows, must be derived from or used in illicit
traffic. Illegally acquired property in relation to any person to
whom the chapter applies would mean only such property which
was acquired wholly or partly out of or by means of any income
attributable to the contravention of any provision of the Act or for
E a consideration wholly or partly traceable to any property referred to in sub-clause (i) or the income or earning from property.
18. It is, therefore, evident that the property which is sought
to be forfeited must be the one which has a direct nexus with
F
the income etc. derived by way of contravention of any orthe
provisions of the Act or any property acquired therefrom. What
is meant by identification of such property having regard to the
definition of 'identifying' is, that the property was derived from
G
or used in the illicit traffic.
19. The property having regard to the said definition would
include any of the properties described therein and deeds of
instruments evidencing interest therein derived from or used in
the illicit traffic. ·
H
In the aforementioned context, the wo,·d "person" also as-
\ ,
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ASLAM MOHD. MERCHANT v. COMPETENT
353
AUTHORITY & ORS. [S.B. SINHA, J]
sumes importance which leads to determining the nature,
A
source, disposition, movement, title or ownership of the property. Direction to forfeiture of a property is in two parts. Firstly,
it has to be identified in terms of Section 68-F of the Act. For
the said purpose, a satisfaction must be arrived at by the authority specified therein to the effect that the person concerned
B
had been holding any illegally acquired property. Secondly, on
the basis of such information, he is entitled to take steps for
tracing and identifying the property.
The Authority is also entitled to seize or freeze such a property.
20. Before, however, the actual order of forfeiture of such
illegally acquired property is passed, issuance of a notice to
show cause is essential so as to fulfill the requirements of natural justice.
Such a notice is to be issued by the Authority having regard to:
(i)
The value of the property held by the person concerned,
(ii)
His known source of income, earning or assets,
(iii) Any other information or material made available as
a result of a report from any officer making an
investigation under Section 68-E of the Act or
otherwise.
21.