ORDER
J. Eswara Prasad J. (Chairman)
1. This appeal under section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA), is by Sanjeev M. Deshmukh and Mrs. A. S. Deshmukh against the order of the competent authority, New Delhi, dated January 31, 1996, made under section 7(1) and (3) of the SAFEMA, whereby Flat No. 115-B in the 11th floor of Avinash Building situated in Andheri, Bombay, was forfeited.
2. Ashok Kumar Kapoor (since deceased) was detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1976 (COFEPOSA), by an order dated August 28, 1978. As he was considered as a person falling within the definition of section 2(2)(b) of the SAFEMA, a notice under section 6(1) of the Act dated September 27, 1980, was issued to him as an affected person, calling upon him to show cause as to why the properties mentioned in the said notice including Flat No. 115-B should not be forfeited. A reply to the said show-cause notice was issued by the detenu. With reference to Flat No. 115-B which was item No. 4 in the reply, the detenu stated that the same was sold on October 24, 1980, for Rs. 60,000. In spite of several notices and opportunities given to the detenu, there was no response from him and finally by a letter dated May 6, 1981, the name of the present owner of the flat was revealed as Sanjeev M. Deshmukh, who is appellant No. 1 in the present appeal.
3. Owing to the pendency of the writ petition filed by the detenu, the proceedings before the competent authority could not be completed for a long time. Ultimately, after the dismissal of the writ petition, it was found that the detenu had died. Fresh notices were issued to the legal heirs of the detenu who contested the forfeiture proceedings. However, they again reiterated that Flat No. 115-B was sold under the agreement dated October 24, 1980.
4. The competent authority, relying on section 11 of the Act, ignored the transaction relating to the sale of the flat and holding that the same is null and void, directed the forfeiture of the flat. The appellants being the purchasers of the flat have filed this appeal against the order of the competent authority with regard to the forfeiture of the flat. We are, therefore, not concerned with the rest of the order of the competent authority.
5. Shri Shyam B. Keshwani, learned counsel for the appellants, firstly submitted that the competent authority ought to have given notices to the appellants who are the purchasers of the flat and also to the West Coast Co-operative Housing Society Ltd., Mumbai, as the title to the flat remained with the society and non-issuance of notices vitiated the proceedings. It was next submitted by him that the appellant is a bona fide purchaser for value without notice and does not fall within the definition of “person” contained in clause (e) of sub-section (2) of section 2 of the Act and his property cannot be forfeited. His further submission was that the competent authority was in error in holding that the agreement of sale between the appellant and the detenu was a collusive transaction.
6. In reply, the Deputy Director, appearing for the competent authority, contended that the appellant was not entitled to issuance of any notice as the agreement in favour of the appellant was subsequent to issuance of notice under section 6(1) and was rightly ignored. She contended that there was no need to give any notice to the society as the forfeiture related to whatever right, title or interest that was vested in the appellant by virtue of the agreement. It was further submitted by her that the question of the appellant being a bona fide purchaser did not arise, inasmuch as the agreement of sale was entered into subsequent to the issuance of the notice under section 6(1).
7. In view of the rival contentions of the parties, the questions that are for consideration are : (1) Whether the appellants and the society were entitled to be issued with notice under section 6(1) ? (2) Whether the appellants were bona fide purchasers for value without notice and do not fall within the definition of “person” under section 2(2)(e) ?
8. Learned counsel for the appellants firstly submitted that it was incumbent on the part of the competent authority to have issued notice to the appellant, having come to know that the detenu parted with the flat in question and was no longer concerned with the same. Admittedly, the notice under section 6(1) was issued on September 27, 1980, to the detenu. Thereafter, an agreement between the detenu and the appellant was entered into on October 24, 1980. As the agreement is subsequent to the issuance of notice under section 6(1), the provisions of section 11 are attracted. Section 11 reads as follows :
“Certain transfers to be null and void. – Where after the issue of a notice under section 6 or under section 10, any property referred to in the said notice is transferred by any mode whatsoever such transfer shall, for the purposes of the proceedings under this Act, be ignored and if such property is subsequently forfeited to the Central Government under section 7, then, the transfer of such property shall be deemed to be null and void.”
9. From a reading of the above provision, it is clear that any transfer of property made subsequent to the issue of a notice under section 6 or section 10 shall be ignored and shall become null and void, after the properties are subsequently forfeited to the Central Government under section 7. The use of the word “shall” in section 11 makes it clear that there is no option but to ignore any transfer of property made subsequent to the issue of the notice under section 6. In the face of the mandatory nature of the provision in section 11, it was not open to the competent authority to take note of the agreement dated October 24, 1980, in favour of the appellant which was entered into subsequent to the notice dated September 27, 1980. The competent authority was, therefore, correct in ignoring the agreement in favour of the appellant. Once the transaction is ignored as non-existent in the eye of the law, the question of issue of notice to the transferee did not arise. It was perhaps unnecessary for the competent authority to have observed that the transaction was the result of collusion between the parties. By virtue of the final order under section 7, the transfer of the flat shall be deemed to be null and void.
10. Having regard to the next submission of learned counsel for the appellant, namely, that the society ought to have been heard, as the society remained to be the owner of the flat, we called upon the first respondent to furnish the bye-laws of the society. It was the contention of counsel for the appellant that the society purchased the land on which the flats were constructed and the members have only the right to remain in possession of the flats allotted to them and that the ownership of the flats remained with the society. It is not necessary to go into the nature of the title held by the detenu in the flat as the forfeiture will be confined only to the extent of the right, title and interest held by the detenu. Our attention was drawn by Mrs. Ingle to the agreement of sale dated October 24, 1980, between the late detenu and the appellant, wherein the detenu described himself as the owner of the flat and held out that he has an absolute right and authority in him to assign and transfer flat No. 115-B to the purchaser together with the shares. As per the form of a letter of allotment of the flat to the member of the society, the flat is allotted under bye-laws Nos. 26 and 78(a). The purchaser of the flat becomes a member of the society and is entitled to be in possession of the flat and to use the flat for which purpose it is allotted to him, subject to the restrictions contained therein. Even his successor-member by virtue of further transfer from a member will get possession of the flat, subject to the same terms and conditions. Be that as it may, we make it clear that the forfeiture of flat No. 115-B will be confined only to the right, title and interest the detenu held in the said flat. In this view of the matter, we are of the considered view that it was not necessary for the competent authority to issue any notice to the society.
11. Learned counsel for the appellant as well as the Deputy Director referred to the decision in CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC). It was contended by counsel for the appellant that a property cannot be owned by two persons, each one having independent and exclusive right over it and the owner must be that person who can exercise the rights of the owner and not on behalf of the owner but his own right. Relying on the same decision, Mrs. Ingle submitted that by virtue of section 53A of the Transfer of Property Act, the doctrine of part performance has to be applied to the agreement and, therefore, the detenu became the owner of the flat, though there was no sale transaction in his favour and the society has not completed the transaction by registration. We are unable to appreciate the contention of learned counsel for the appellant for the reason that at one stage he contends that the title remained with the society and in another breath he asserts that the appellant became the owner of the flat by virtue of the agreement of sale executed by the detenu and not by the society. However, we do not find that we are called upon to decide this question in view of the clarification given by us earlier, that the forfeiture will be confined only to the right, title and interest of the detenu in the flat.
12. The last submission of learned counsel for the appellant is that the appellant being a bona fide purchaser, is not covered by the provisions of the Act. Apart from the fact that there was no such ground raised in the grounds of appeal, the question whether the appellant was a bona fide purchaser does not arise when the transaction in favour of the appellant was subsequent to the issuance of the notice under section 6(1). It was strenuously argued by learned counsel for the appellant that the provisions of the SAFEMA which are draconian in nature should be read so as not to cause undue hardship to a bona fide purchaser for value without notice. He, therefore, contended that clause (e) of sub-section (2) of section 2 should be interpreted in such a manner as to cover the bona fide purchaser not falling within the mischief of section 11. We are unable to agree with the contention of the learned counsel in the face of the clear language in section 2(2)(e) and section 11, which cover different situations. Section 2(2)(e) saves the transaction entered into between the bona fide purchaser and the previous holder prior to the issue of notice under section 6(1). Section 11 deals with a different situation, where the transfer takes place subsequent to the notice under section 6(1) and does not cover even if the transferee is a bona fide purchaser.
13. The plea of the bona fide purchaser will be available only where the transaction is entered into before the issuance of the notice under section 6(1), but not after the notice is issued. We have, therefore, no hesitation in rejecting this contention of the appellant.
14. The decision in W.P. No. 3476 of 1991 of the High Court of Bombay dated July 18, 1995, has no bearing on the facts of the present case. The learned judges upheld the transaction in favour of the petitioner.
15. For all the aforesaid reasons, we dismiss the appeal and confirm the order of the competent authority.