Forfeiture of properties in respect of economic offences: the Indian experience

Sections

ABSTRACT
Provisions on forfeiture of property contained in the Act of 1976
Extracts from the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
Illegally acquired property
Burden of proof
Certain transfers to be null and void
Powers to take possession
Appeals
Extracts from the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
Confiscation of goods under the Customs Act, 1962
Confiscation of goods under the Foreign Exchange Regulation Act, 1973
Confiscation provisions under the existing central laws on narcotics
The Opium Act, 1878
The Dangerous Drug Act, 1930

Details

Author: M.V. N RAO
Pages: 101 to 109
Creation Date: 1984/01/01

Forfeiture of properties in respect of economic offences: the Indian experience

M.V. N RAO * Additional Secretary to the Government of India, Ministry ofFinance, Department of Revenue, New Delhi, India

ABSTRACT

India has on its statute book a number of enactments providing for seizure and forfeiture or confiscation of illegally acquired property.The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, provides for forfeiture of both movable and immovable property illegally acquired by smugglers and foreign exchange manipulators and their relatives and associates. The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, contains provisions for the detention of certain persons to prevent them from undertakingcertainprejudicialactivities. The normal maximum period of detention under the Act is one year, but in respect of certain activities and in specified areas highly vulnerable to smuggling, it may be extended to two years. The Customs Act, 1962, provides for penal sanctions against infringement of its provisions, including departmental adjudication in respect of smuggled goods, imposition of penalties and prosecution by a court of law, which in certain cases may impose a sentence of imprisonment of up to seven years. The Foreign Exchange Regulation Act, 1973, provides for confiscation of securities, moneys and properties arising from such offences as the unauthorized export or import of currency and non banking foreign exchange transactions. The existing central laws on narcotics - the Opium Acts, 1857 and 1878, and the Dangerous Drugs Act, 1930 -contain provisions for confiscation of narcotics and related goods under certain circumstances.

Since stringent measures generally lead to greater ingenuity and sophistication in methods of drug trafficking, India has evolved legislationthatenableslawenforcementauthorities to take penal action notonlyagainstmerecarriersandminorlinksindrugtraffickingchains, but also against the organizers and financiers of such trafficking, including international drug traffickers.All the laws provide for suitable appellate and other remedies in comformity with the constitutional requirements.

*The views expressed in this article are the responsibility of the author and do not necessarily represent those of the Government of India.

Provisions on forfeiture of property contained in the Act of 1976

The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, provides for forfeiture of the illegally acquired property of smugglers and foreign exchange manipulators and their relatives and associates.

The Act makes it unlawful for any person to hold any illegally acquired property, both movable and immovable. lt is unlawful to hold such property not only in the names of smugglers and traffickers, but on their behalf under the name of other persons as well. ln accordance with the provisions of the Act, the illegally acquired property is liable to be forfeited to the Central Government.

The Act provides that a competent authority shall make the forfeiture order and in so doing shall be required to follow the procedure established by the Act. A competent authority studies and examines income tax and related records and makes inquiries into the activities of various persons associated with an infringement of the Act. lf a competent authority has reason to believe that all or any of the properties being investigated are illegally acquired, it may give a "show-cattse" notice to a person possessing such property. The authority calls upon such a person to indicate the sources of his or her income, earnings and assets, out of which or by means of which he or she has acquired such property. The suspected person is also called upon to exhibit the evidence on which he or she 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 and forfeited under the Act. After receiving an explanation of the showcause notice, the per.son is given an opportunity to be heard. ln a case where the person involved holds, through another person, any property specified in the notice, the other person is also given an opportunity to be heard.

lt is only after consideration of the evidence and allowing the persons concerned to be heard that a competent authority can conclude whether all or any of the properties under investigation have been illegally acquired. lf a competent authority concludes on the basis of the evidence that any of the investigated property has been illegally acquired, it declares that such property shall, subject to the provisions of the Act, be forfeited to the Central Government free from all encumbrances. ln certain cases, a competent authority gives the person an option to pay a fine in lieu of forfeiture.

The Act provides for the right of appeal to the Appellate Tribunal for Forfeited Property appointed by the Central Government.

Up to the end of June 1984. the competent authorities had issued notices for investigation of property suspected of being derived from illegal sources in approximately 2.420 cases.

Extracts highlighting the main features of the Act are summarized below.

Extracts from the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976

The preamble of the Act includes the following:

". . . for the effective prevention of smuggling activities and foreign exchange manipulations, which are having a deleterious effect on the national economy, it is necessary to deprive persons engaged in such activities and manipulations of their ill-gotten gains;

"And whereas 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 clandestine manner;

"And whereas such persons have in many cases been holding the properties acquired by them through such gains in the names of their relatives, associates and confidants;

"Be it enacted by Parliament in the Twenty-sixth Year of the

Republic of India . . ."

The provisions of the Act apply to the persons specified below:

  1. A person convicted under the Customs Act of 1878 or 1962 of an offence in relation to goods of a value exceeding R.s 100,000, if convicted for the first time. For a second or subsequent conviction. the value of the goods is not relevant;

  2. A person convicted under the Foreign Exchange Regulation Acts of 1947 or 1973 of an offence involving an amount or value exceeding Rs l()0,00(). if it is a case of first conviction. For a second or subsequent conviction the amount or value is not relevant;

  3. A detainee under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act who is not released by the detaining authority before the expiry of the period during which his case has to be placed before an advisory board, or whose detention is not revoked by the advisory board, or whose detention order is not set aside by a court of competent jurisdiction ;

  4. Any person who is a relative of a person referred to in paragraphs (a), (b) or (c)above;

  5. Every associate of a convicted person or detainee;

  6. Any holder of property which was at any time previously held by a convicted person or detainee unless the holder was a transferee in good faith for a consideration.

Under the Customs Acts or the Foreign Exchange Regulation Acts, the term "conviction" means a conviction by a court of law where the convicted person is sentenced to imprisonment or payment of a fine or both. A penalty levied by the departmental authorities in adjudication proceedings does not amount to a conviction.

The term "relatives", in relation to persons convicted under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, means the following:

  1. (a)Spouses;

  2. (b)Brothers or sisters;

  3. (c)Brothers or sisters of spouses;

  4. (d)Any lineal ascendants or descendants;

  5. (e)Any lineal ascendants or descendants of spouses;

  6. (f)Spouses of persons referred to in clauses (b), (c), (d) or (e);

  7. (g)Any lineal descendants of persons referred to in clause (b)or (c).

The term "relatives" under this Act covers a much wider number of individuals than under the Income-tax Act, in which the term relatives mean spouses, brothers, sisters or any lineal ascendants or descendants of those individuals.

The term "associates", in relation to persons convicted under this Act, means:

  1. (a)Any individuals who were or are residing in the residential premises of such persons;

  2. (b)Any individuals who were or are managing the affairs or keeping the accounts of such persons;

  3. (c)Any association of persons, body of individuals, partnership firms, or private companies, of which such convicted persons were or are members, partners, or directors;

  4. (d)Any individuals who were or are members, partners, or directors of an association of persons. body of individuals, partnership firm or private company referred to in clause (c)at any time when such convicted persons were or are members, partners or directors of such associations, bodies, partnership firms or private companies;

  5. (e)Any persons who were or are managing the affairs or keeping the accounts of any association of persons, body of individuals, partnership firm or private company referred to in clause (c);

  6. (f)The trustees of any trusts, where:

  7. The trust has been created by such persons; or

  8. The value of the assets contributed by such persons to the trust

amounts to not less than 25 per cent of the value of the assets of the trust on the date of contribution ;

  1. (g)Where a competent authority, for reasons to be recorded in writing, considers that any properties of such persons are held on their behalf by any other persons.

The term "associates" includes a private limited company. The private company would be liable to investigation in respect of its property, though the individual action may be taken in respect of one of its directors.

Illegally acquired property

Broadly, the property that is liable to forfeiture under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, includes any property acquired by a person to whom the Act applies, either before or after its entry into force:

  1. (a)Wholly or partly out of or by means of income, earnings or assets derived or obtained from or attributable to any activity prohibited by laws relating to any matter in respect of which Parliament has power to make laws; or

  2. (b)Wholly or partly out of or by means of income, earnings or assets in respect of which any such law has been contravened; or

  3. (c)Wholly or partly out of or by means of income, earnings or assets, the source of which cannot be proved and which cannot be attributable to any act or thing done in connection with any matter in respect of which Parliament has no power to make laws; or

  4. (d)For consideration or by any means wholly or partly traceable to any property referred to in clauses (a), (b) or (c)above or the income or earnings from such property.

The definition also includes any interest in property, either movable or immovable.

Burden of proof

The Act explicitly places the burden of proof on the persons involved who must prove that their property and assets indicated in the show-cause notice have not been illegally acquired. This requirement is based on the principle that the source of acquisition of a property is within the knowledge of the property holder. The person involved must, by production of the necessary evidence, explain the source and nature of the property under investigation.

Certain transfers to be null and void

If, after the issue of a show-cause notice, any property referred to in that notice is transferred by any mode whatsoever, such transfer shall for the purposes of the proceedings under the Act be ignored. If such property is subsequently forfeited by order of the competent authority, the transfer of such property shall be deemed to be null and void. A bank or a debtor who has received an intimation from the competent authority should not pay monies to the person involved without obtaining a clearance from the competent authority.

Powers to take possession

Where any property is forfeited under the Act the competent authority may order the person involved or any other persons who may be in possession of the property to surrender or deliver possession thereof to a person duly authorized by the competent authority within 30 days of the order. lf the person involved refuses or fails to surrender or deliver the property within the stipulated period, the competent authority may take possession of the property and use such force as may be necessary for that purpose.

Appeals

The Appellate Tribunal for Forfeited Property hears appeals against orders passed by the competent authority. The appeal must be filed within 45 days from the date of service of the order, subject to an extension of 15 days for sufficient cause to the satisfaction of the Tribunal. The Tribunal is the last forum of appeal. The only remedy is a writ petition either to the Supreme Court of lndia, under article 32 of the Constitution, or to a High Court under article 226.

Extracts from the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

The preamble of the Act includes the following:

"An Act to provide for preventive detention in certain cases for the purposes of conservation and augmentation of foreign exchange and prevention of smuggling activities and for matters connected therewith.

"Whereas violations of foreign exchange regulations and smuggling activities are having an increasingly deleterious effect on the national economy and thereby a serious adverse effect on the security of the

State;

"And whereas having regard to the persons by whom and the manner in which such activities or violations are organized and carried on, and having regard to the fact that in certain areas which are highly vulnerable to smuggling, smuggling activities of a considerable magnitude are clandestinely organized and carried on, it is necessary for the effective prevention of such activities and violations to provide for detention of persons concerned in any manner therewith."

With regard to the power to make orders to detain certain persons, the Act includes the following provisions:

"3 (l) The Central Government or the State Government or any officer of the Central Government, not below the rank of a Joint

Secretary to that Government, specially empowered for the purposes of this section by that Government or any officer of a State Government, not below the rank of a Secretary to that Government, specially empowered for the purposes of this section by that Government, may, if satisfied, with respect to any person (including a foreigner), that, with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange or with a view to preventing him from

"(i) smuggling goods, or

"(ii) abetting the smuggling of goods, or

"(iii) engaging in transporting or concealing or keeping smuggled goods, or

"(iv) dealing in smuggled goods otherwise than by engaging in trans porting or concealing or keeping smuggled goods, or

"(v) harbouring persons engaged in smuggling goods or in abetting the smuggling of goods,

"it is necessary so to do, make an order directing that such persons be detained."

Under the provisions of this Act, the maximum period of detention varies according to the category of detainees, but does not exceed two years.

Confiscation of goods under the Customs Act, 1962

The penal action against smuggling offences comprises a departmental adjudication and in certain cases prosecution by a court of law. The departmental adjudication is carried out by appropriate officers and leads to action against the smuggled goods and to imposition of a penalty, which may in certain cases be five times the value of the goods. The court of law may punish a smuggler by a sentence to imprisonment that may in certain cases extend to seven years.

If adjudication provides evidence that the goods have been imported or that attempts have been made to export them in contravention of the Customs Act, 1962, or any other law in force, the goods may be confiscated. ln order to make the penal provisions more effective and to deter accomplices, the Act provides for confiscation of such goods as vessels, vehicles and aircraft used by the owner or any person in command who knows or is in a position to know that the goods carried out are smuggled. In addition, goods that are used for concealing smuggled goods are also liable to confiscation as well as those that are mixed with smuggled goods in such a manner that the latter cannot be separated. Smuggled goods, even after they are changed in their form, are liable to confiscation. The proceeds of the sale of smuggled goods are also in given circumstances liable to confiscation.

Goods Suspected of having been smuggled are first seized by authorized officers for further investigation and enquiry, and if these show that such goods have been smuggled, a formal order is issued for their confiscation. The confiscated goods are taken over and kept in custody by the Government. According to the magnitude and extent of the offence, the adjudicating authority is empowered to release the goods on payment of an appropriate fine. The adjudicating authority is required to give such an option to the owner in all cases, except in respect of goods Subject to import or export prohibition.

lt should be noted that prior to the issuance of the confiscation order the owner of the goods must be given an explanation of the ground upon which the proposal for confiscation is made and also an opportunity to file objections in his defence or be heard personally, if so desired. If adjudication results in an order of confiscation, the owner has the right to appeal before an appellate body and for revision before a tribunal. The owner of the goods has also the right to approach the higher judiciary if he can make a prima facieCase of miscarriage of justice.

When all the proceedings are completed the confiscation order is executed. The Government becomes the owner of the goods and disposes of them to the best advantage of the State, such as selling or destroying them, as the case may be.

Confiscation of goods under the Foreign Exchange Regulation Act, 1973

This Act is closely related to the Customs Act, 1962. Its objectives are, inter alia, to prevent the following: any non-banking transactions in foreign exchange; unauthorized export or import of currency; and underinvoicing or overinvoicing for imports or exports, or fictitious payment for non receipt of goods. Unauthorized foreign exchange is liable to confiscation not only at the time of import or attempted export at the frontier, but also if it is found in the possession of any person at any place in the country. The Act provides for confiscation of securities, monies or properties in respect of which the Act has been contravened.

The penal provisions and procedures relating to adjudication, appeals, revisions and recourse to the higher judiciary are similar to those described above under the Customs Act.

Confiscation provisions under the existing central laws on narcotics

The Opium Act, 1857

This Act, in addition to providing for control of legal cultivation of opium poppy and for preventing and dealing with cases of illicit poppy cultivation and related offences, contains provisions relating to confiscation.

Forfeiture of properties in respect of economic offences.. the Indian experience 109

Under these provisions, if opium tendered by a cultivator is found to be adulterated, it will be liable to confiscation on the order of the opium agent and Such orders are not open to question by any court. If any cultivator of poppy under licence of the Central Government embezzles or otherwise disposes of any part of his opium production, he will be liable to penalties, and the opium, if found, will be confiscated. Apart from the penalty to which a person is liable for illegal purchase of opium from a cultivator and for illegal connivance or embezzlement, the opium, if found, is liable to confiscation. Opium obtained from unlicensed cultivation is subject to seizure and Confiscation and a person responsible for such cultivation is liable to penalties. .

The Opium Act, 1878

This Act deals with the power of the State Government to make rules to regulate possession, transport, inter-state import and export, and sale of opium. Opium involved in the contravention of this Act is liable to confiscation. The vessels, packages and Coverings in which opium liable to confiscation is found and other contents, if any, in which opium may be concealed, as well as animals and Conveyances used in carrying it, shall likewise be liable to confiscation. Unclaimed opium is also subject to confiscation. Confiscation in all such cases is ordered by a magistrate. The State Government has the power to make rules to regulate the disposal of all things confiscated under this Act.

The Dangerous Drug Act, 1930

This Act, which deals with the entire range of narcotic drugs, contains a number of provisions regarding confiscation of smuggled narcotic drugs and related goods. It provides, interalia, that dangerous drugs, materials, apparatus and utensils in respect of which or by means of which an offence punishable under the Act has been committed shall be liable to confiscation. In addition, the Act provides that the receptacles, packages and coverings in which dangerous drugs, materials, apparatus or utensils liable to confiscation are found and the other contents, if any, and the animals, vehicles, vessels and other conveyances knowingly used in carrying the same shall be liable to confiscation. There is also a provision for confiscation of unclaimed narcotic drugs. The order of confiscation in such cases is issued by the court trying the offence. The Central Government is empowered to make rules to regulate the disposal of all articles confiscated under this Act.