Holding

The show‑cause notices were invalid as they did not record a reason to believe nor establish a nexus, rendering the forfeiture orders illegal.

Summary

The Supreme Court examined the forfeiture proceedings initiated against the relatives of Iqbal Mohammed Memon (alias Iqbal Mirchi) under Chapter VA of the Narcotic Drugs and Psychotropic Substances Act, 1985. The appellants challenged the validity of the show‑cause notices, contending that the Competent Authority had not recorded any "reason to believe" nor established a direct nexus between the properties and the illicit traffic. The Court held that Sections 68H and 68J require a reasoned belief based on material before the authority, and that the notices failed to satisfy this statutory prerequisite, amounting to non‑application of mind. Consequently, the forfeiture orders were declared illegal and set aside. The appeals were allowed, with the Court directing that fresh proceedings, if any, must comply strictly with the statutory requirements.

Issues considered

The statutory conditions precedent for initiating forfeiture proceedings under Chapter VA of the NDPS Act, particularly the requirement of a recorded 'reason to believe' under s.68H.
Whether the show‑cause notices issued to the appellants complied with the requirement of stating reasons and establishing a nexus between the properties and illicit traffic.
Whether non‑application of mind by the Competent Authority invalidates the forfeiture orders.
The burden of proof under s.68J and its impact on the appellants.

Legislation cited

Income Tax Act, 1961s. 147, s. 148
Narcotic Drugs and Psychotropic Substances Act, 1985s. 68-1, s. 68A, s. 68C, s. 68E, s. 68F, s. 68H, s. 68J, s. 68R, s. 68W
Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976

Subjects

NDPS Actforfeiture of propertyshow‑cause noticereason to believenatural justicenexus requirementpreventive detentionrelatives of convictstatutory interpretation

Judgment

[2008] 10 S.C.R. 332

)..
A ASLAM MOHD. MERCHANT
v.
COMPETENT AUTHORITY & ORS.
(Criminal Appeal No. 1053 of 2003)
JULY 8, 2008
B
[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- lnterpre-
c 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 initi-
~
ated validly against the relatives - On appeal,· held: Order of
High Court not sustainable - Conditions precedent for initiat-
D ';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 -
Property sought to be forfeited did not have direct nexus with
E the income or assets or properties illegally acquired by per-
son 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 ap-
pellants being relatives of M were issued notices to show
cause as to why their properties, being 'illegally acquired
G
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 men-
tioned therein they were concerned only with 11 proper-

H 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 pro-
visions. It provides for forfeiture of property. Such prop-
erty 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 for-
feited must be the one which has a direct nexus with the E
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 instru-
ments evidencing interest derived from or used in the ii-
licit traffic. [Paras 17, 18 and 19] [352-C,D,E,F & G]
G
1.2 The word "person" leads to determining the na-
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 author-
H
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. Sec-
ondly, 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 natu-
ral 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, earn-
ing or assets; any other information or material made avail-
able as a result of a report from any officer making inves-
tigation u/s. 68-E of the Act or otherwise. When the condi-
tions 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 prin-
ciples of natural justice, he is also required to apply his
G
mind on the materials brought before him. It is also nee-
essary 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.
He is not bound by any finding of any officer or authority
H
• ~

ASLAM MOHD. MERCHANT v. COMPETENT 335
;. AUTHORITY & ORS.

under any other law as the same would not be conclu- A
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 author-
ity is imperative before a show cause notice is issued. B
Section 68-H of the Act provides for two statutory require-
ments 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 in-
vestigation carried out in terms of s. 68-E or otherwise.
~ Indisputably therefore, he must have some materials be-
fore 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 envis-
aged 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 bur-
G
den provided a link or nexus is traced between the holder
J~
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 evi- H
14,
336 SUPREME COURT REPORTS [2008] 10 S.C.R.
A

A dent that the statutory requirements were not fulfilled. Non-
application 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 sub-
mission that appellants have not been able to discharge
the burden of proof which was on them from the im-
c pugned orders, might have been right, but if the proceed-
ings 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]
2.3 Legality and/or validity of the notice had been
D
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.
None was disclosed. When the authority was called upon
E 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 per-
ception 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 au-
thority cannot be accepted. Identification of such a prop-
erty although might have been made in an inquiry made
H
.._

,,. 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 compe-
I ~
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 sub-
sequent 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. Deal-
ing 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
that its constitutionality is upheld. The validity of the pro- E

... -~
visions 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 re-
quirements 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 Po-
G
• 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. 't-
A

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 Com-
missioner of Income Tax vs. Rajesh Jhaveri Stock Brokers f-
)' \

B Pvt. Ltd. 2007 (8) SCALE 396; Dilip N. Shroff vs. Joint Com-
):::::
missioner 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 Peti-
tion 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, Ap-
pellant 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 Ap-
pellant 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

for his alleged involvement in illicit trafficking under t~e Preven- D
tion 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 dis- E
missed. The said order of detention is still operative.
3. The said Iqbal Mirchi is, thus, a 'person' within the mean-
ing 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 men-
tioned the.rein should not be forfeited being 'illegally acquired
properties'. Causes were shown pursuant thereto. Opportuni-
ties of hearing were also afforded. Whereas some of the prop-
erties 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 im-

B
pugned judgment, holding that the proceedings were validly ini-
tiated 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 condi-
c tions precedent for initiating a valid proceeding, namely, forma-
tion 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
'Mirchi' and as such the question of such a property
G
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 Psychotro-
pic 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 re-
gard to the International Convention as referred to in Section y ,
B 2(ix) of the Act, which read as under:~
"2. Definitions. - In this Act, unless the context otherwise
requires, - ·
(i) ***** ***** 111.**** *****
c
****** ***** ***** *****
.. (ix) "International Convention· ineans -
(a) the Single Convention on Narcotic Drugs, 1961
D
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,
E 1972;
(c) the Convention on Psychotropic Substances,
1971 adopted by the United Nations
Conference at Vienna in February, 1971 ; and

F (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
G 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.
H
ASLAM MOHD. MERCHANT v. COMPETENT 343
AUTHORITY & ORS. [S.8. SINHA, J ]

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; D
**** . **** **** **** ****

(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, 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
Chapter, wholly or partly out or by means of any
B 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
previous holder had not ceased to hold it, unless
E
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 "
faith for adequate consideration; i-
F
(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
the income or earnings therefore;
G
. 4"
(h) "Property" means property and assets of every .+'
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,
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 sub-
clause (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 hold-
ing 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
346 SUPREME COURT REPORTS [2008] 10 S.C.R.
~

A the order or detention was issued, as the case may be."
Section 68E provides as to how illegally acquired prop-
erty shall be identified, stating:
"68E. Identifying illegally acquired property - (1) Every
B officer empowered under section 53 and every officer-in-
charge 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
c 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, I
~

place, property, assets, documents, books of account in
any Bank or public financial institution or any other relevant ¥--
D matters.
(3) Any inquiry, investigation or survey referred to in sub-
section (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
E 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
F 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,
G 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,
H
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,
D
it may serve a notice upon such person (hereinafter
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
evidence on which he relies and other relevant information E
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.
F
(2) Where a notice under sub-section (1) to any person
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. ~
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
of the properties referred to in show cause notice are
E 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
the Central Government free from all encumbrances.
G
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 349
AUTHORITY & ORS. [S.B. SINHA, J ]

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. Pro-
ceedings in respect of the unrelated properties were dropped F
and, thus, continued in respect of the said 11 properties stat-
ing:-
"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, H
\

' ,'
.....
.
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
B owned by them but are tenanted properties. After
.,. ...,
.
.

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
the AP1 by various enforcement agencies including the
E 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 -f-
F 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.
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.
E
12. Four properties were directed to be forfeited; seven
were released.
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 Sub- G
stances Act, 1985 (NDPS) are in pari materia. ·
j. +
15. Contentions were raised that the show cause notice
shows complete non-application of mind on the part of the com-
petent 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.
(ii) The properties mentioned therein had never been
mentioned by the appellants in the previous
8 proceedings, although they did not form part thereof.
ISSUE
16. The core question which, therefore, arises for consid-
eration 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 head-
)-- I
D 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 re-
ferred to in sub-clause (i) or the income or earning from prop-
erty.
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
or used in the illicit traffic.
G
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-
I
I
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 prop-
erty. 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 au-
thority 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 prop-
erty. c
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 natu-
-t ral justice.
D
Such a notice is to be issued by the Authority having re-
gard to:
(i) The value of the property held by the person concerned,
(ii) His known source of income, earning or assets, E

...... (iii) Any other information or material made available as
I' a result of a report from any officer making an
investigation under Section 68-E of the Act or
otherwise.

' 21. When the aforementioned conditions are satisfied, the
competent authority would be entitled to issue a show cause
F

notice, if he has reason to believe, wherefore reasons are to be
recorded in writing that the properties are illegally acquired prop-
erties.
G
~+ 22. Once the notice to show cause is found to be satisfy-
ing 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 pro-
ceeding has been initiated, the burden of proof that any prop- H
l
354 SUPREME COURT REPORTS [2008] 10 S.C.R. '

~
.A erty specified in the notice is not illegally acquired property, would
be on the 'person' affected.
23. Before, however, an order of forfeiture can be passed,
the Competent Authority must not only comply with the principles
of natural justice, he is also required to apply his mind on the
8 materials brought before him. It is also necessary that a finding '!'
that all or any of the properties in question were illegally ac-
quired properties is recorded
24. The competent authority has a vast power as is pro-
I
c vided under Section 68-R of the Act. He is not bound by any
finding of any officer or authority under any other law as the same
would not be conclusive for the purpose of any proceeding un-
der the said chapter.
Analysis of the aforementioned provisions clearly estab-
•i
D lish that a link must be found between the property sought to be "f-
'
forfeited and the income or assets or properties which were
illegally acquired by the person concerned.
25. We may, however, at this juncture also notice that dur-
ing the course of the proceedings, the learned advocate of the
E ~

appellants by a letter dated 19.2.2000 requested the compe-
tent authority to supply the reasons for issuing the notice. In
response thereto, the prescribed authority by a letter dated
,_
23.2.2000, stated that the reasons had been incorporated in
the respective show cause notices. Evidently, therefore, no other
F ..(-
reason was available for being supplied.
26. We may also notice some observations made in the
.
....
proceeding sheet of the Competent Authority dated 29.12 .2000
which is in the following terms :-
G "On going through the certificate in respect of SP/Satara
it may be seen that they have simply informed details of
+~
the ownership in re present and past only. Nowhere they
have mentioned in clear words whether nexus between
the present holder and sh. Iqbal mirchi is there nor are
H properties claimed by sh. Iqbal mirchi and his family
t•

1 ,-
I
ASLAM MOHD. MERCHANT v. COMPETENT 355
AUTHORITY & ORS. [S.S. SINHA, J]

members mentioned in Show Cause Notice dated 17/11. A
as per (illegible) association/ nexus of present holder of
properties between iqbal mirchi can't be established as
still they are silent on the issue. However, the matter shall
be decided on merits by C.A. during the course of
proceedings. Put up for instructions." s
It shows that till the said date, no material had been brought
on record to show that any nexus or a link between the proper-
ties sought to be forfeited and thus in case of 'Mirchi' it was
merely a perception of the competent authority alone.
c
27. We are unable to accept the contention of Mr. Raju
Ramchandran, the learned senior counsel appearing for the
• appellants that only because a large number 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
0
of the competent authority. Identification of such a property al-
though might have been made in an inquiry made by the officer
in-charge of a Police Station; however, when 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 competent authority alone. E
28. It is, however, beyond any doubt or dispute that a proper
application of mind on the part of the competent authority is
imperative before a show cause notice is issued.
Section 68-H of the Act provides for two statutory require- F
ments on the part of the authority viz: (i) he has to form an opin-
ion in regard to his 'reason to believe'; and (ii) he must record
reasons therefor.
Both the statutory elements, namely, 'reason to believe' G
and 'recording of reasons' must be premised on the materials
produced before him. Such materials must have been gathered
during the investigation carried out in terms of Section 68-E or
otherwise. Indisputably therefore, he must have some materi-
als before him. If no such material had been placed before him, H
356 SUPREME COURT REPORTS [2008] 10 S.C.R.

A he cannot initiate a proceeding. He cannot issue a show cause
notice on his own ipse dixit. A roving enquiry is not contem-
plated under the said Act as properties sought to be forfeited
must have a direct nexus with the properties illegally acquired.
29. It is now a trite law that whenever a statute provides for
8 'reason to believe', either the reasons should appear on the
face of the notice or they must be available on the materials
which had been placed before him.
We have noticed hereinbefore that when the authority was
c called upon to disclose the reasons, it was stated that all the
reasons were contained in the show cause notices themselves.
They, however, in our opinion, do not contain any reason so as
to satisfy the requirements of sub-section (1) of Section 68H of
the Act.
D A Constitution Bench of this Court in Attorney General for
India and Others Vs Amratlal Prajivandas and Others [(1994)
5 sec 54 while considering the validity of the provisions of the
Smugglers and Foreign Exchange Manipulators (Forfeiture of
Property) Act, 1976, opined:
E "44 ... The relatives and associates are brought in only for
the purpose of ensuring that the illegally acquired
properties of the convict or detenu, acquired or kept in
their names, do not escape the net of the Act. It is a well-
known fact that persons indulging in illegal activities screen
F the properties acquired from such illegal activity in the
names of their relatives and associates. Sometimes they
transfer such properties to them, may be, with an intent to
transfer the ownership and title. In fact, it is immaterial
how such relative or associate holds the properties of
G convict/detenu - whether as a benami or as a mere name-
lender or as a bona fide transferee for value or in any
other manner. He cannot claim those properties and must
surrender them to the State under the Act. Since he is a I
relative or associate, as defined by the Act, he cannot put ~-

H forward any defence once it is proved that that property
ASLAM MOHD. MERCHANT v. COMPETENT 357
.,,.. AUTHORITY & ORS. [S.B. SINHA, J ]

was acquired by the detenu - whether in his own name or A
in the name of his relatives and associates ... "
Holding that such provisions had been enacted to ooun-
' teract several devices that may be adopted by the persons con-
cerned, it was stated:-
~ B
"By way of illustration, take a case where a convict/detenu
purchases a property in the name of his relative or
associate - it does· not matter whether he intends sueh a
person to be a mere name lender or whether he really
intends that such person shall be the real owner and/or c
possessor thereof - or gifts away or otherwise transfers
his properties in favour of any of his relatives or associates,

• -f
or purports to sell them to any of his relatives or associates
- in all such cases, all the said transactions will be ignored
and the properties forfeited unless the convict/detenu. or
D
his relative/associate, as the case may be, establishes
that such property or properties are not "illegally acquired
properties" within the meaning of Section 3(c). In this view
of the matter, there is no basis for the apprehension that
the independently acquired properties of such relatives
and associates will also be forfeited even if they are in no E
way connected with the convict/detenu. So far as the
holders (not being relatives and associates) mentioned in
Section 2(2)(e) are concerned, they are dealt with on a
"
separate footing. If such person proves that he is a
--t transferee in good faith for consideration, his property~ F
even though purchased from a convict/detenu - is not
liable to be forfeited. It is equally necessary to reiterate
that the burden of establishing that the properties
mentioned in the show-cause notice issued under Section
6, and which are held on that date by a relative or an G
~-
associate of the convict/detenu, are not the illegally
" -+. acquired properties of the convict/detenu, lies upon such
relative/associa~e. He must establish that the said property
has not been acquired with the monies or assets provided
by the detenu/convict or that they in fact did not or do not H
358. SUPREME COURT REPORTS [2008] 10 S.C.R.
)

~
A belong to such detenu/convict."
The relevant portion of the summary of the said judgment
reads as under:-
/

"(4) The definition of "illegally acquired. properties". in
B clause (c) of Section 3 of SAFEMA is not invalid or -~
ineffective.
(5) The application of SAFEMA to the relatives and
associates [in clauses (c) and (d) of Section 2(2)] is
equally valid_ and effective inasmuc;h as the purpose
c and object of bringing such pefsor:is within the net of
SAFEMA ·is to reach the properties of the detenu or
convict, as the case may be, wherever they are, '
,· .
howsoever they are held and by whomso.ever they ~
a
are held. They are not conceived with view to forfeit
D the independent properti~s of such relatives and ~
associates as explained in this judgment. The position
of 'holders' dealt with by clause (e) of S.ection2(2) is
different as explained in the body 9f the ju_dgment."
. 30. A similar question again came up before a Three
E
Judges' Bench of this Court in Fatima Mohd. Amin (Smt.)
(Dead) Through LRs. Vs. Union of India and Another [(2003)
7 SCC 436], wherein relying upon Amratla/ Prajivandas (su-
pra), itwas held;

F "7 .... :.·.We do not find· any av~rmen~s t<? .the effe.ct that the 1-·
property a_cquired by the appellant is a benami property of
her son _or the same was illegally acquired from her son.
8. The contents of the said notices, even if taken at their
face value do not disclose any reason warranting action
G against the appellant. No allegation whatsoever:has been
made·to this .effect that there ·exists any link or nexus ..<(

. between the property sought to be forfeited and the illegally ·-+- ,....,
acquired money ofthe detenu(s).

9. As the condition precedent for initiation of the
H
ASLAM MOHD. MERCHANT v. COMPETENT 359
~ AUTHORITY & ORS. [S.B. SINHA, J ] ·

proceedings under SAFEMA did not exist, the impugned A
orders of forfeiture cannot be sustained. In that view of the
m.atter, the appeals deserve to be allowed. The order under
. challenge is set aside."
-·-~· 31. Our attention, however, has been drawn to a decision
of a two Judge Bench of this Court in Kesar Devi (Smt.) Vs. B
Union of India and Others [(2003) 7 SCC 427] wherein Fatima
Mohd. Amin (supra) was distinguished by a Bench of this Court,
inter alia, opining that no nexus or link between the money of
the debt and property sought to be forfeited is required to be
established under the Scheme of the Act, stating; c
) "10 ... The condition precedent for issuing a notice by the
competent authority under Section 6(1) is that he should
have. reason to believe that all or any of such properties
_are illegally acquired properties and the reasons for such
D
belief have to be recorded in writing. The language of the
section does not show that there is any requirement of
mentioning any link or nexus between the convict or detenu
and the property ostensibly standing in the name of the
person to whom the notice has been issued ...
E
"13. We are, therefore, clearly of the opinion that under
the scheme of the Act, there is no requirement on the part
of the competent authority to mention or establish any
nexus or link between the money of the convict or detenu
-- t-
and the property sought to be forfeited. In fact, if such a F
condition is imposed, the very purpose of enacting
SAFEMA would be frustrated, as in many cases it would
be almost impossible to show that the property was
purchased or acquired from the money provided by the
convict or detenu. In the present case, the appellant is the
G
wife of the detenu and she has failed to establish that she
./- _.._
' had any income of her own to acquire the three properties .
In such circumstances, no other inference was possible
except that it was done so with the money provided by her
husband."
H
360 . SUPREME COURT REPORTS [2008] 10 S.C.R.

A 32. We, with utmost respect to the learned Judges express
our inability to agree to the said observations. The necessity of
establishing link or nexus in our opinion is writ large on the face
of the statutory provision as would appear from the definition of
'illegally acquired property' as.also that of 'property'. The pur-
B port and object for which the Act was enacted point out to the
same effect.
33. Fatima Mohd. Amin (supra) was followed by a Bench
of this Court in PP Abdulla Vs. Competent Authority [(2007) 2
SCC 51 O], wherein it was observed :
c
"7. Learned counsel submitted that it has been expressly
stated in Section 6(1) that the reason to believe of the
competent authority must be recorded in writing. In the
counter-affidavit it has also been stated in para 8 that the
reasons in the notice under Section 6(1) were recorded in
D
writing. In our opinion this is not sufficient. Whenever the
statute requires reasons to be recorded in writing, then in
our opinion it is incumbent on the respondents to produce
the said reasons before the court so that the same can be
scrutinised in order to verify whether they are relevant and
E germane or not. This can be done either by annexing the
copy of the reasons along with the counter-affidavit or by
quoting the reasons somewhere in the counter-affidavit.
Alternatively, if the notice itself contains the reason of belief,
that notice can be annexed to the counter-affidavit or quoted -r-
F in it. However, all that has not been done in this case.
8. It must be stated that an order of confiscation is a very
stringent order and hence a provision for confiscation has
to be construed strictly, and the statute must be strictly
complied with, otherwise the order becomes illegal."
G
It was also observed:-
"10. In the present case, in the notice dated 15-3-1988
issued to the appellant under Section 6(1) of the Act (copy
of which is annexed as Annexure P-1 to this appeal). it
H
ASLAM MOHD. MERCHANT v. COMPETENT 361
AUTHORITY & ORS. [S.S. SINHA, J ]

has not been alleged therein that there is any .such link or A
nexus between the property sought to be forfeited and the
alleged illegally acquired money of the appellant."
34. In the final order, the rule of evidence as envisaged
under Section 68-1 read with Section 68-J of the Act must be
applied. A person affected would be called upon to discharge · B
his burden 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.
35. Mr. B.B. Singh, however, has drawn our attention to a
decision of this Court in State of Gujarat and Another Etc. Vs.
c
Mehboob Khan Usman Khan Etc. [1968 3 SCR 746].
This Court therein, was considering the provisions of the
Bombay Police Act of 1951. The said statute postulated
externment of the noticee on the basis of 'general allegations' D
made against him Keeping in view the statutory requirements,
this Court opined that 'general allegations' made in the notice
would subserve the statutory requirements stating:-
" ..... Without attempting to be. exhaustive we may state
that when a person is stated to be a "thief', that allegation E
is vague. Again, when it is said that "A stole a watch from
X on a particular day and at a particular place", the
allegation can be said to be particular. Again, when it is
stated that "Xis seen at crowded bus stands and he picks
pockets" it is of a general nature of a material allegation. F
Under the last illustration, given above, will come the
allegations, which, according to the Gujarat High Court,
suffer from being too general, or vague. Considering it
from the point of view of the party against whom an order
of externment is proposed to be passed, it must be G
emphasized that when he has to tender an explanation to
a notice, under Section 59, he can only give an explanation,
which can be of a general nature. It may be open to him
to take a defence, of the action being taken, due to mala
tides, malice or mistaken identity, or he may be able to H
362 SUPREME COURT REPORTS [2008] 10 S.C.R.

A tender proof of his general good conduct, or alibi, during
the period covered by the notice. and the like. The
allegations made in the notices, issued under Section 59,
as against the respective respondents, in our opinion,
contain the general nature of the material allegations
B made against each of them, in respect of which the
respondents had been given a reasonable opportunity of
tendering an explanation, regarding them ...... "
(emphasis supplied)
c This Court, therefore, in the fact situation obtaining in the
said case was satisfied as regards compliance of the statutory
requirements. General or vague allegations in a case of this
nature would not subserve the statutory purposes and objects. .
36. Reliance has also been placed on Pandharinath
•D Shridhar Rangnekar Vs. Dy. Commr. of Police, State of
Maharashtra [(1973) 1 SCC 372]. Therein again the provisions
of the Bombay Police Act were involved.
The said decision ex-facie has no application to the fad
E of the present case.
REASON TO BELIEVE
37. This brings us to the next question as to what does the
term "reason to believe" mean. We may in this behalf notice
some precedents operating in the field. -1-
F
38. In the context of the provisions of Section 147 of the
Income Tax Act, this Court in Phool Chand Bajrang Lal Vs. !TO
: [1993] 203 ITR 456] held:-
"From a combined review of the judgments of this court,
G it follows that an Income-tax Officer acquires jurisdiction
to reopen an assessment under section 147(a) read with
section 148 of the Income-tax Act, 1961, only if on the
basis of specific, reliable· and relevant information coming
to his possession subsequently, he has reasons, which he
H must record, to believe that, by reason of omission or
ASLAM MOHD. MERCHANT v. COMPETENT 363
AUTHORITY & ORS. [S.B. SINHA, J]

failure on the part of the assessee to make a true and full A
disclosure of all material facts necessary for his
assessment during the concluded assessment
proceedings, any part of his income, profits or gains
chargeable to income-tax has escaped assessment. He
may start reassessment proceedings either because B
some fresh facts had come to light which were not
previously disclosed or some information with regard to
the facts previously disclosed comes into his possession
which tends to expose the untruthfulness of those facts. In
such situations, it is not a case of mere change of opinion C
or the drawing of a different inference from the same facts
as were earlier available but acting on fresh information.
Since the belief is that of the Income-tax Officer, the
sufficiency of reasons for forming this belief is not for the
court to judge but it is open to an assessee to establish
that there in fact existed no belief or that the belief was not D
at all a bona fide one or was based on vague, irrelevant
and non-specific information. To that limited extent, the
court may look into the conclusion arrived at by the Income-
tax Officer and examine whether there was any material
available on the record from which the requisite belief E
could be formed by the Income-tax Officer and further
whether that material had any rational connection or a live
link for the formation of the requisite belief."
- \. See also Income Tax Officer Vs. Lakshmani Mewal Das F
[(1976) 103 ITR 437].
In Assistant Commissioner of Income Tax v. Rajesh
Jhaveri Stock Brokers Pvt. Ltd. [2007 (8) SCALE 396], inter-
preting the term 'reason to believe' as used under Section 247
(a) of the Income Tax Act, 1961, it was opined: G
''To confer jurisdiction under Section 247(a) two conditions
were required to be satisfied firstly the AO must have
reason to believe that income profits or gains chargeable

- to income tax have escaped assessment, and secondly
H
364 SUPREME COURT REPORTS [2008] 10 S.C.R.

A he must also have reason to believe that such escapement
has occurred by reason of either (i) omission or failure on
the part of the assessee to disclose fully or truly all material
facts necessary for his assessment of that year. Both
these conditions were conditions precedent to be satisfied
B before the AO could have jurisdiction to issue notice under .
Section 148 re~d with Section 147(a). But under the
substituted Section 147 existence of only the first condition
suffices. In other words, if the assessing officer for whatever
reason has reason to believe that income has escaped
c assessment, it confers jurisdiction to reopen the
assessment."

NON APPLICATION OF MIND ...
Applying these tests, it is evident that the statutory require-
ments have not been fulfilled in the present case. i-
D
39. Non- application of mind on the part of the competent
officer would also be evident from the fact that a property named
'Rose Villa' which was the subject matter of the decision of this
Court in Fatima Amin (supra), was also included herein.
E
Once the show cause notice is fo_und to be illegal, the same
would vitiate all subsequent proceedings.
40. In Dilip N. Shroff Vs. Joint Commissioner of Income
Tax, Mumbai and Another [(2007) 6 SCC 329], this Court
held: -1-
F
"86. It is of some significance that in the standard pro
forma used by the assessing officer in issuing a notice
despite the fact that the same postulates_ that inappropriate
words and paragraphs were to be deleted, but the _same
G had not been done. Thus, the assessing off1cer himself
was not sure as to whether he had proceeded on the
-\r-- -\
basis that the assessee had concealed his income or he
had furnished inaccurate particulars. Even before u~. the
learned Additional Solicitor General while placing the order
H of assessment laid emphasis that he had dealt with both
.. /

ASLAM MOHD. MERCHANT v. COMPETENT 365
AUTHORITY & ORS. [S.B. SINHA, J]

the situations. The impugned order, therefore, suffers from A
non-application of mind. It was also bound to comply with
the principles of natural justice. (See Malabar Industrial
....... Co. Ltd. Vs. CIT)"
RECORDING OF REASONS
--~ 8
41. Submission of Mr. Singh that the appellants have not
been able to discharge the burden of proof which was on them .
from the impugned orders, it would appear that they have utterly
failed to prove their own independent income; they being close
relative of the detune as in terms of the statutory requiremen·ts , c
it was for them to show that they' had sufficient income from
those properties .
.....
42. Had the show cause notice been valid, Mr. B.B. Singh,
might have been right, but if the proceedings themselves were
-t not initiated validly, the competent authority did not derive any D
jurisdiction to enter into the merit of the matter.
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
E
in the show cause notices. None was disclosed.
43. It is also relevant to notice that the High Court opined
that there had been a proper application of mind on the part of
--\- the Competent Authority and Appellate Tribunal as they had re- F
leased 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 ques-
tion was non application of mind on the part of the authority prior
to issuance of the notice.
G
! CONCLUSION
"'--
44. We are not unmindful of the purport and object of the
Act. Dealing in narcotics is a social evil that must be curtailed
...... or prohibited at any cost. Chapter VA seeks to achieve a salu-
H
366 SUPREME COURT REPORTS [2008] 10 S.C.R.

A tary purpose. But, it must also be borne in mind that right to hold
property although no longer a fundamental right is still a consti-
tutional r"ight. It is a human right.
The provisions of the Act must be interpreted in a manner
so that its constitutionality is upheld. The validity of the provi- .,._,_.
B sions 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, scru-
pulous compliance of the statutory requirements is imperative .. ·
c 45. For the reasons aforementioned, the impugned judg-
ments cannot be sustained. They are set aside accordingly. The
appeals are allowed. However, it would be open to the respon-
dents to initiate fresh proceeding(s) in accordance with law, if
they :are so advised. In the facts and circumstances of the case,
we:make no order as to costs.
N.J. Appeals allowed.