Case: Winston Tan  Vs. Union Of India

3. Mohd. Ismail Shabandari was detained under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (for short,on 2.5.2003. The detention order came to be passed at the instance of the Enforcement Directorate, Bangalore; his premises were searched on 31.7.2002. In that search Indian Currency of Rs. 13,50,000/- along with incriminating materials showing illegal transfer of money from abroad was seized. The documents seized from the residence of Mohd. Ismail Shabandari on 31.7.2002 by the Enforcement Directorate also indicated that he had received Rs. 92,09,480/- from different persons as instructed by one Hussain Sherrif of Dubai and he had made payments in India to various persons to the tune of Rs. 78,59,480/- leaving a balance of Rs. 13,50,000/- which was seized at the time of search. It was in this backdrop that the order dated 2.5.2003 for detention of Mohd. Ismail Shabandari came to be passed by the Competent Authority.4. On 8.12.2003, a notice under Section 6(1) of SAFEMA in respect of subject flat was issued to Mohd. Ismail Shabandari. SAFEMA was applicable to him as he was awithin the meaning of Section 2(2)(b) of SAFEMA. The Competent Authority having come to know that his wife, Fathima Kauser Ismail, was having 50 per cent share in the subject property, a notice under Section 6(1) was also issued to her as she happened to bewithin the meaning of Section 2(2)(c) of SAFEMA. The above notices were served on them.5. In response to the notice issued to him under Section 6(1), Mohd. Ismail Shabandari sent a letter to the Competent Authority on 26.5.2004 stating therein that the subject flat was purchased through legal earnings. By a subsequent letter, he stated that he had explained the sources of acquisition before the income tax authorities. He filed copies of the income tax returns and also stated that his wife Fathima Kauser Ismail received remittances from her brother in 1994. Mohd. Ismail Shabandari was asked by the Competent Authority to substantiate his claim in respect of sources from which he and his wife purchased the property. He and his wife were asked to appear personally but they did not appear and it transpired that the subject property has been sold by them for Rs. 26,00,000/- on 10.2.2005 to the present appellants.6. On 17.5.2005, a notice was again issued to Mohd. Ismail Shabandari by the Competent Authority to explain the sources of his income and earnings relating to Savings Bank A/c No. 15802, Vijaya Bank, Brigade Road Branch, Bangalore. A copy of the said notice was also sent to the Branch Manager, Vijaya Bank, Brigade Road Branch, Bangalore. The appellants claim that they came to know of Section 6(1) notice issued to their vendors from Vijaya Bank, Brigade Road Branch, Bangalore and consequently sent their reply to the Competent Authority through their Advocate on 20.5.2005. In their reply, the appellants intimated to the Competent Authority that they had purchased the subject flat by a registered sale deed. As they were having insufficient funds to purchase the subject flat, they availed of loan from Vijaya Bank, Brigade Road Branch, Bangalore. The Bank sanctioned loan after proper examination and scrutiny of the documents and after obtaining legal opinion. The appellants claimed that they were in actual possession and enjoyment of the subject flat and they have also applied to the authorities of Bangalore Mahanagar Palika for mutation of their names in the records and for obtaining Khatha Certificate and assessment of taxes.7. The Competent Authority, on 23.6.2005 passed an order under Sections 7(1) and (3) of SAFEMA forfeiting the subject flat and declaring that forfeited property stands vested in the Central Government free from all encumbrances. It was held in the order that the subject flat was not acquired by Mohd. Ismail Shabandari and Fathima Kauser Ismail out of any legal earnings. The said flat had been sold stealthily after the commencement of the proceedings under SAFEMA and the said transfer in favour of the appellants on 10.2.2005 was null and void by virtue of the provisions of Section 11 of SAFEMA.8. Subsequent to the passing of the above order, a further order under Section 19(1) of SAFEMA was passed by the Competent Auhority on 23.12.2005 directing Mohd. Ismail Shabandari and Fathima Kauser Ismail to surrender/deliver possession of the forfeited flat within 30 days of the receipt of order. In that order, it was reiterated that transfer/sale effected by them subsequent to the notice under Section 6(1) was null and void in view of Section 11 of SAFEMA. A copy of this order was sent by the Competent Auhority to the present appellants.9. It was then that the appellants filed a writ petition before the Karnataka High Court for quashing the order dated 23.6.2005 forfeiting the subject flat and for writ of mandamus to the Competent Authority not to interfere with their peaceful possession and enjoyment in respect of the subject flat. The above reliefs were sought on diverse grounds, including that they had purchased the subject flat after thorough verification and after obtaining encumbrance certificates for the period from 1.4.1990 to 4.1.2005 and after satisfying with the title of the vendors and also that there was no charge or encumbrance created over the subject flat. They claimed that they were bona fide purchasers for adequate consideration.10. A counter affidavit was filed by the Competent Authority in opposition to the writ petition. The appellants filed rejoinder to the counter affidavit.11. The learned Single Judge of the High Court heard the parties and considered the question that was raised before him as to whether the appellants (petitioners therein) were entitled to a notice from the Competent Authority before order of confiscation/forfeiture was passed under SAFEMA. The Single Judge in his order dated 12.9.2007 held that the sale in favour of the appellants had taken place on 10.2.2005, i.e., before the order of forfeiture was passed by the Competent Authority. Although it was a fact that the first notice was issued under SAFEMA to the transferors much before the sale had taken place, but in the opinion of the Single Judge, the order dated 23.6.2005 was violative of the principles of natural justice and, consequently, he quashed the same and remitted the matter to the Competent Authority for fresh consideration.12. A writ appeal was preferred by the Union of India and the Competent Authority against the order of the Single Judge. The Division Bench of the High Court held that the sale transaction in favour of the appellants was subsequent to the issuance of notice under Section 6 and, accordingly, the transaction was null and void under Section 11 of SAFEMA. In the opinion of the Division Bench, the appellants were not entitled to any notice and non-issuance of notice to them had not vitiated the action taken by the Competent Authority.

Reasoning:
28. It is true that the appellants had obtained encumbrances certificates from the Sub-Registrar prior to purchase which show that there were no encumbrances to the subject flat. It is also true that the appellants had obtained loan from Vijaya Bank, Brigade Road Branch, Bangalore for purchase of the said flat. It is a fact that sale consideration to the tune of Rs. 26 lakhs was paid directly by the Bank to the vendors after the Bank was satisfied about the title of the vendors. The appellants had also mortgaged the flat with the Vijaya Bank as a security towards loan. But unfortunately these facts are of no help to the appellants as the sale in their favour was effected after notices under Section 6(1) were issued to the vendors. Such sale has no legal sanction. The sale is null and void on the face of Section 11; it is not protected so as to enable the purchaser to prove that he is transferee in good faith for adequate consideration. As a matter of law, no title came to be vested in the appellants by virtue of sale-deed dated 10.02.2005 as the vendors could not have transferred the property after service of the notice under Section 6(1) and during pendency of forfeiture proceedings under SAFEMA. The title in the subject flat is deemed to have vested in the Central Government on or about 08.12.2003 when the first notice under Section 6(1) was issued and served on one of the vendors. The vendors ceased to have any title in the subject flat on the date of transfer i.e. 10.02.2005. They had no transferable right. The appellants cannot claim any right in the flat. In the circumstances, question of according any opportunity to the appellants to prove that they are transferees in good faith with adequate consideration does not arise.