Smuggling & Foreign Exchange Manipulations - Necessary To Deprive Persons Engaged In Such Acts Of Their Ill Gotten Gains: Supreme Court

“…it is necessary to deprive persons engaged in such activities and manipulations of their ill gotten gains.It also provides that such persons have been augmenting such gains by violations of wealth tax, income tax or other laws or by other means and have thereby been increasing their resources for operating in a clandestine manner and to nail such persons who are holding the properties acquired by them through such gains in the name of their relatives, associates and confidants.”

A Bench comprising Justice Ajay Rastogi and Justice Bela M. Trivedi upheld the decision of the Karnataka High Court affirming order of forfeiture issued by the competent authority under Section 7 read with 19(1) of the Smugglers and Foreign Exchange Manipulators(Forfeiture of Property) Act, 1976

Factual Background

One of the partners of the appellant (a partnership form) was detained twice by the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974. The two detention orders were challenged before the Delhi High Court, and were allowed. Subsequently, a show cause notice was issued to the firm, M/s. Platinum Theatre and its partners asking to provide explanation as to why the theatre should not be forfeited. After hearing the parties involved an order of forfeiture was passed. On appeal, the matter was remanded back to the competent authority for fresh consideration. Again, after reconsideration, an order of forfeiture was issued. The Appellate Tribunal for Forfeited Property dismissed the appeal and upheld the order of forfeiture passed by the competent authority. Thereafter, writ petition was filed before the Karnataka High Court, which was dismissed.

Analysis by the Supreme Court

The Court observed that forfeiture proceedings could be initiated under Section 6 in reference to illegally acquired properties by persons covered under Section 2 by way of a show-cause notice. The authorities had issued notice under Section 6 to the firm and its partners. One of the partners had not disclosed the source of the capital contribution of Rs. 5 lakhs. Contribution made by another partner and his son remained unexplained. Eventually, the concerned authorities found that the entire capital in the firm in the name of these partners was created through money earned illegally in smuggling activities. The appellants also failed to justify a loan of Rs. 25.12 lakhs invested in the firm. Almost 50% of the value assessed of the theatre remained unexplained and therefore the order of forfeiture was issued. The Court noted that the answer to the questions pertaining to the funds was not forthcoming. The Apex Court found no error committed in the findings returned by the High Court, which requires intervention.

Case details

M/s. Platinum Theatre And Ors. v. Competent Authority Smugglers And Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 And Anr.| 2023 LiveLaw (SC) 226   |Civil Appeal No. 4369 of 2009| 22nd March, 2023| Justice Ajay Rastogi and Justice Bela M. Trivedi