All you need to know about Smugglers and Foreign Exchange Manipulators Act,1976

By Khushi Rastogi

The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 came into force on 25th January ,1976. This Act was formulated for the prevention of smuggling activities along with the foreign exchange manipulation which negatively affected the national economy.

This Act contains 27 sections, in total. It was enacted by the Parliament to prevent evil malpractices such as – violation of the provisions of income tax and wealth tax. And holding of illegally acquired properties in the name of and relatives etc.

These malpractices together endangered the growth of Indian economy. associates In Delhi Development Authority v. Skipper Construction Co. (P) Ltd^[1], the Supreme Court observed that “that the crying necessity in the present state of our society is that once it is proved that the holders of the property have indulged in corrupt act and the law should place the burden of proving that such properties were not acquired with the aid of tainted money on the persons who are proceeded against”.

Other major objectives of the Act were to make crime non-profitable and to constitute the establishment of competent authority and appellate Tribunal, under the statute. Both of these statutory bodies will be discussed in detail, in the later sections of this article.

Application

Provisions of The Smugglers and Foreign Exchange Manipulators (Forfeiture Of Property) Act, 1976 apply only to the persons specified in section 2(2), namely who has been-

• Convicted under the Sea Customs Act ,1878 of an offence with the relation to goods of a value exceeding 1 lakh rupees.
• Convicted under the Customs Act ,1962 of an offence with the relation to goods of a value exceeding 1 lakh rupees.
• Convicted under Foreign Exchange Regulation Act, 1947or Foreign Exchange Regulation Act ,1973 of an offence with the relation to goods of a value exceeding 1 lakh rupees.
• Convicted under Sea Customs Act, 1878 or the Customs Act, 1962
• To whom and order of detention has been made under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

The provisions of this Act do not apply to the properties which are held by trust or an institution created or established wholly for religious and charitable purposes. Given that such property is held by or is traceable to be held by such trust, prior to the date of commencement.

Under section 4, this Act prohibits holding of “illegally acquired property” by any person to whom this Act applies or through any other person on his behalf. Such property shall be liable to be forfeited to the Central Government in accordance with the provisions of this Act.

Competent Authority

As defined under s.3(b) of the Act, a competent authority means “an officer of the Central Government authorised by it under sub- section (1) of section 5 to perform the functions of a competent authority under this Act;”.

Officers of the Central Government (not below the rank of a joint authority) can be authorized by the Central Government, by an order published in the Official Gazette, to perform the functions of the competent authority under this Act.

There is no limit to as how many officers can be appointed, it depends upon the discretion of Central Government, as it thinks fit. As per s.5(2), competent authorities perform their functions in respect of such persons or classes of persons as the Central Government may, by order, direct.

Powers of a Competent Authority:

• Notice of Forfeiture- Under s.6(1), if the competent authority has reasons to believe (these reasons must be reduced in a written form) that any or all such properties of a person (to whom this Act is applicable) are illegally acquired, then the competent authority has the power to serve a show-cause notice^[2] to the person, to show or indicate his sources of income or earnings, out of which he has acquired such property, the 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 Act. Generally, at least 30 days are given to the person to show-cause.

• Forfeiture of Property- In certain cases, the competent authority also has the power to forfeit the show-caused property. This property will be forfeited under the name of Central Government. Under s. 7(1), after considering the explanation in the show-cause and referring to the material available before it, the competent authority will record a finding whether all or any of the properties in question are illegally acquired. However, it must be ensured that the other party had reasonable opportunity of being heard. Under s.7(3), the competent authority if records a finding (on the basis of the show-cause and material available) that the property in question is an illegally acquired property, then it is empowered to make a declaration such property shall, subject to the provisions of this Act, stand forfeited to the Central Government free from all encumbrances. Even if the competent authority cannot identify the properties but is satisfied that such property is illegally acquired, it is empowered to record a finding under s.7(1), that it is illegally acquired.

• Certain Trust Properties- If the competent authority has reasons to believe that any property held in trust is illegally acquired property, the it can serve a show-cause notice under section 6, to the author of the trust or as the context requires, and the provisions of this Act will apply accordingly.

• Fine in lieu of Forfeiture – Where under section 7, the competent authority has already made a declaration that the property stands forfeited to the Central Government, but it is a case where the source of only a part, being less than one-half of the income, earnings or assets with which such property was acquired has not been proved to the satisfaction of the competent authority, under section 9, it shall make an order giving an option to the person affected to pay, in lieu of forfeiture, a fine equal to one and one-fifth times the value of such part.

• Power to take Possession- If the person affected, fails to pay the fine in lieu of forfeiture under section 9, then the person in possession must surrender or deliver the possession to the competent authority within 30 days of the service of order. If any person refuses to do so or fails to comply, then under section 19 (2), the competent authority may take possession of the property and may for that purpose use such force as may be necessary. If there is requisition by the competent authority, for assistance of a police officer, then such officer must comply with that requisition.

• Information to the Competent Authority- Under section 16, the competent authority has power to require any officer or authority of the Central Government or a State Government or a local authority to furnish information that will be useful and relevant to the Competent authority, the purposes of this Act.

• Power of competent authority to require certain officers to exercise certain powers- Under section 18, for the purpose of proceedings under this Act, the competent authority is empowered to require an Officer of the of the Income-tax Department to conduct or cause to be conducted such inquiry, investigation or survey.

Constitution of Appellate Tribunal

The Appellate Tribunal for Forfeited Property is constituted by the Central Government, by the notification in the Official Gazette.

This Appellate Tribunal consists of a Chairman and other such members (being officers of the Central Government not below the rank of a Joint Secretary to the Government), appointed by the Central government for hearing appeals against the orders made under section 7, sub-section (1) of section 9 or section 10.

Any person aggrieved from an order made by competent authority under any afore-mentioned sections, may prefer an appeal to the appellant tribunal, within 45 days of being served that order.

The Chairman of the Appellate Tribunal shall be a person who is or has been or is qualified to be a Judge of the Supreme Court or of a High Court.

The powers and functions of the Appellate Tribunal may be exercised and discharged by Benches consisting of three members and is constituted by the Chairman of the Appellate Tribunal.

On receipt of an appeal, after giving a reasonable opportunity to the appellant of being heard, the appellant tribunal may confirm, modify or set aside order of competent authority, which has been appealed against.

Common Powers of Appellate Tribunal and Competent Authority:

• Bar of Jurisdiction – Under section 14, no civil Court can have any jurisdiction in the matters which under this Act, the Appellate Tribunal or any competent authority is empowered to determine. And no injunction can be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

• Powers of a Civil Court – Under section 15, Competent authority and Appellate tribunals, both have the powers of a civil court while trying a suit under the Code of Civil Procedure, 1908 (5 of 1908).

• Certain officers to assist competent authority and Appellate Tribunal – Under Section 17, these bodies, for the purpose of proceedings under this Act, are empowered to have assistance of – Officers of the Customs Department, Central Excise Department, Income-tax Department, Officers of Police and such other officers specified in the Official Gazette notification made by the Central Government.

• No notice or order made by the competent authority or appellate tribunal can be held invalid merely on the ground of error in description of any person or property mentioned in such notice or order, if such property or person is identifiable from the description so mentioned.

Other Astounding Features of the Act

• Findings under other laws not conclusive for proceedings under this Act. This means that no finding of any authority under any law or an Officer will be considered conclusive for the purposes of any proceedings being conducted under this Act.

• This Act has an Over-riding effect. Provisions under this Act will not withstand anything inconsistent contained in any other law for the time being in force.

• Protection of action taken in good faith. Under section 23, no suit, prosecution or other proceeding shall lie against the Central Government or any officers of the Central or State Government for anything which is done or intended to be done, in good faith in pursuance of this Act or the rules made thereunder.

• Certain transfers to be null and void. If after the issue of notice under s.6 or s.10, the property mentioned in such notice is of transferable, and has been transferred to another person, by any mode. Under section 11 of the Act, such transfer, for the purposes of any proceedings under this Act, will be ignored or if the same property has been forfeited by the Central Government under s.7, then the transfer will be deemed as null and void.

• Under section 26, Central Government has power to make rules regarding- terms and conditions of service of the Chairman and other members of the Appellate Tribunal; Inspection fee for the records and registers of the Appellate tribunal; powers of the Civil court that can be exercised by the competent authority and appellate tribunal under section 15; and the other matters as prescribed.

Important Cases

1. Attorney General for India v. Amratlal Prajivandas^[3]

In the given case, the constitution bench of Nine judges dealt with various legal questions about the validity of The Smugglers And Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA). The most important question that the Bench dealt with was –

Is SAFEMA a valid legislation?

To this, the Bench conferred that, SAFEMA is a valid piece of legislation and held that “As a result of its inclusion in 9^th Schedule of the Indian Constitution, the provisions of SAFEMA are not violative of Article 14, 19 and 21”. It further elaborated that, SAFEMA may not be a law relating to preventive detention but it is designed “to achieve the very same objective by different means”. SAFEMA seeks to punish them by depriving them of their ill-gotten gains and thus is a measure “designed to protect the economy of the country as also a measure to discourage the law breaking in particular economic violation”.

1. Shyam babu and Ors. v. Union of India (UOI) and Ors^[4]

In one of the petitions dealt in this case individually, the petitioner, Ms. Kamala Devi had appealed in the Appellate Tribunal against the order of the Competent Authority. However, the Appellate Tribunal had affirmed the order of competent authority and dismissed the appeal. Later through a Special Leave Petition, she challenged the decision of Appellate tribunal before the Supreme Court. Now the question of law that SC here dealt with was – Whether Court can interfere with the Judgement or Decision of the Appellate Tribunal under this Act?

To answer this, the Bench referred to the elaborate guidelines laid down in Tata Cellular v. Union of India^[5]. “It is not for the Court to determine whether a particular decision taken by the Tribunal in the fulfilment of the statutory policy is fair or not. The Court is merely concerned with the manner in which those decisions have been taken.” The Court had shortlisted broad grounds for interference-

(i) Illegality;

(ii) Irrationality;

(iii) Procedural impropriety.

Following the aforesaid principles in relation to judicial review of the action of the competent authority and that of the Appellate Tribunal, the Bench concluded that no interference is called for in the given facts and circumstances of the case.

1. Delhi Development Authority v. Skipper Construction Co. (P) Ltd, (1996) 4 SCC 622 (India). ↑

2. It must be noted that in any proceedings under this Act, the burden of proof lies upon the affected person to prove that the property mentioned in the show-cause notice furnished under s.6 is not illegally acquired. ↑

3. Attorney General for India v. Amratlal Prajivandas, A.I.R. 1994 S.C. 2179 (India). ↑

4. Shyam babu and Ors. v. Union of India (UOI) and Ors, (1997) BLJR 1170 (India). ↑

5. Tata Cellular v. Union of India, (1994) 6 S.C.C. 65 (India). ↑