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Prohibition of Benami Property Transactions Act,1988
(Amended by Benami Transactions (Prohibition) Amendment Act 2016 w.e.f
1/11/2016)
Posers
Question 1: What is the nature of proceedings under existing Benami Law?
Answer: Since the consequence of treating a transaction a benami transaction
includes penalty and prosecution (section 53,54,55) apart from confiscation
(section 27) it is palpable that same are criminal or quasi criminal in nature.
Accordingly, the degree of proof which shall be required should be beyond
reasonable doubt. That is, There must be a clear cut case. That is, The case should
not rest on conjectures and surmises. Further it seems benami law is a penal
statute.
Question 2: On whom burden lies to prove benami transaction and what is the
essence of the same?
Answer:
Supreme Court of India
Jaydayal Poddar (Deceased) ... vs Mst. Bibi Hazra And Ors on 19 October,
1973
1 | P a g e
Equivalent citations: 1974 AIR 171, 1974 SCR (1) 70
CT:
Benami Transaction-Burden of proving that a particular
transaction is benami lies on the person who asserts it-This
burden has to be discharged by definite proof-Essence of
benami is the intention of parties-Circumstances to be taken
into consideration for determining whether a transaction is
benami or real-Source of purchase money if the most
important test.
HEADNOTE:
The burden of proving that a particular sale is benami and
the apparent purchaser is not the real owner, always rests
on the person asserting it to be so. This burden has to be
strictly discharged by adducing legal evidence of a definite
character which would either directly prove the fact of
Benami or establish circumstances unerringly raising an
inference of that fact. The essence of a benanii is the
intention of the party or parties concerned; and not
unoften, such intention is shrouded in a thick veil which
cannot be easily pierced through. But such difficulties do
not relieve the person asserting the transaction to be
benami of any part of the serious onus that rests on him;
nor justify the acceptance of mere conjectures or surmises,
as a substitute for proof. Though the question, whether a
2 | P a g e
particular sale is Benami or not, is largely one of fact,
and for determining this question, no absolute formulae or
acid tests, uniformally applicable in all situations, can be
laid down; yet in weighing the probabilities and for
gathering the relevant indicia, the Courts are usually
guided by these circumstances : (1) the source from which
the purchase money came; (2) the nature and possession of
the property, after the purchase; (3) motive, if any, for
giving the transaction a benami color; (4) the position of
the parties and the relationship if any, between the
claimant and the alleged benamidar; (5) the custody of the
title-deeds after the sale and (6) the conduct of the
parties concerned in dealing with the property after the
sale.
These indicia are not exhaustive and their efficacy varies
according to the facts of each case. Nevertheless the
source whence the purchase money came. is by far, the most
important test for determining whether the sale standing in
the name of one person, is in reality for the benefit of
another. [91H-92E]
Benami transactions:
N THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS. 300-303 OF 2017
(Arising out of SLP(Crl.) Nos.6117-6120 of 2015)
STATE OF KARNATAKA … … APPELLANT(S)
3 | P a g e
:Versus:
SELVI J. JAYALALITHA & ORS. … RESPONDENT(S)
FEBRUARY 14, 2017
232. This Court in Jaydayal Poddar (Deceased) through
LRs. (supra), enunciated that it is well settled that the burden
of proving that a particular sale is benami and the apparent
purchaser is not the real owner, always rests on the person
asserting it to be so. The burden has to be strictly discharged
by adducing legal evidence of a definite character which would
either directly prove the fact of benami or establish
circumstances unerringly and reasonably raising an inference
of that fact. It was propounded that the essence of a benami is
the intention of the party or parties concerned and not
unoften, such intention is shrouded in a thick veil which
cannot be easily pierced through. However such difficulties do
not relieve the person asserting the transaction to be benami,
of any part of the serious onus that rests on him nor justify
the acceptance of mere conjectures or surmises, as a
substitute for proof. It was exposited that the reason is that a
deed is a solemn document prepared and executed after
considerable deliberation, and the person expressly shown as
the purchaser or transferee in the deed, starts with the initial
presumption in his favour that the apparent state of affairs is the real state of
affairs. It was held that though the question,
whether a particular sale is benami or not, is largely one of
4 | P a g e
fact and for determining this question, no absolute formula or
acid test, uniformly applicable in all situations, can be laid
down; yet in weighing the probabilities and for gathering the
relevant indicia, the courts are usually guided by the following
circumstances:
(1) The source from which the purchase money came;
(2) The nature of possession of the property, after the
purchase;
(3) Notice, if any, for giving the transaction a benami colour;
(4) The position of the parties and the relationship, if any,
between the claimant and the alleged benamdar;
(5) The custody of the title-deeds after the sale and
(6) The conduct of the parties concerned in dealing with the
property after the sale.
233. That the above indicia are not exhaustive and their
efficacy varies according to the facts of each case was however
underlined. The emphasis of the decision on benami purchase,
therefore, is that there has to be either some direct evidence
r strong circumstantial evidence to raise an inference that the
property alleged to be benami had been purchased with the
funds/resources of someone other than the person in whose
name the property is shown in the document.
234. In the present case, there is also a charge of conspiracy
and abetment and, therefore, the factors as above would have
to be tested on the anvil of the overall circumstances to
ascertain as to whether a reasonable inference therefrom can
be drawn of a benami transaction as alleged. This is more so
5 | P a g e
as by the very nature of the offence of conspiracy, the activities
in connection therewith are expectedly hatched in secrecy.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 8609-8610 OF 2009
Om Prakash Sharma @ O.P. Joshi ... Appellant (s)
Versus
Rajendra Prasad Shewda & Ors. ... Respondent (FOLLOWED Jay dayal case)
Calcutta High Court
Smt. Usha Bhar vs Sanat Kumar Bhar on 29 November, 2002
Equivalent citations: 2004 135 TAXMAN 526 Cal
3. In a suit claiming a property as Benami, there must be cogent and sufficient
evidence to conclude that the apparent is not the real. In order to ascertain whether
a particular sale is benami and the apparent purchaser is not the real owner, the
burden lies on the person asserting to prove so. Such burden has to be strictly
discharged through legal evidence of definite character. Such evidences either
directly prove the fact of benami or establish circumstances unerringly and
reasonably raising an inference of that fact. It is the intention of the parties, which
is to be discovered. Very often such intention is shrouded in a thick veil. It is not
possible to pierce the veil easily. But such difficulties would not relieve the person
asserting the transaction to be benami of any part of the serious onus that rests on
him. The difficulty would not justify the acceptance of mere conjecture or surmise
as a substitute for proof. The proof has to be weighed against a document prepared
and executed showing the person expressly as purchaser or transferee. This follows
6 | P a g e
the initial presumption in favour of the apparent state of affairs being the real state
of affairs. However, the question is largely one of facts. For determining this
question, no absolute formula could be evolved nor can a formula so evolved be
uniformly applied in all situations. But in such circumstances, it is the probabilities
and inferences, which are to be gathered in order to discover the relevant indicia. It
is not sufficient to show circumstances, which might create suspicion. The court
cannot decide on the basis of suspicion. It has to act on legal grounds established
by evidence. There have been various decisions by different High Courts, and the
Supreme Court on these questions. By now these propositions are well settled
through those decisions. In order to determine whether a transaction was or is a
benami one, the following guidelines may be followed:
(1) The source from which the purchase money came; (2) the nature and
possession of the property, after the purchase; (3) motive, if any, for giving the
transaction a benami colour; (4) the position of the parties and the relationship, if
any, between the claimant and the alleged benamidar; (5) the custody of the title
deeds after the sale; and (6) the conduct of the parties concerned in dealing with
the property after the sale.
Delhi High Court
The Commissioner Of Income Tax-Ii vs Jds Apparels Private Limited on 18
November, 2014
Author: Sanjiv Khanna
7 | P a g e
17. Another reason why we feel Section 40(a)(ia) of the Act should not have been
invoked in the present case is the principle of doubtful penalization which requires
strict construction of penal provisions. The said principle applies not only to
criminal statutes but also to provisions which create a deterrence and results in
punitive penalty. Section 40(a)(ia) is a deterrent and a penal provision. It has the
effect of penalising the assessee, who has failed to deduct tax at source and acts to
the detriment of the assessee‟s property and other economic interests. It operates
and inflicts hardship and deprivation, by disallowing expenditure actually incurred
and treating it as disallowed. The Explanation, therefore, requires a strict
construction and the principle against doubtful penalization would come into play.
The detriment in the present case, as is noticeable, would include initiation of
proceedings for imposition of penalty for concealment, as was directed by the
Assessing Officer in the present case. The aforesaid principle requires that a
person should not be subjected to any sort of detriment unless the obligation is
clearly imposed. When the words are equally capable of more than one
construction, the one not inflicting the penalty or deterrent may be preferred. In
Maxwell‟s The Interpretation of Statutes, 12th edition (1969) it has been
observed:-
"The strict construction of penal statutes seems to manifest itself in four ways: in
the requirement of express language for the creation of an offence; in interpreting
strictly words setting out the elements of an offence; in requiring the fulfilment to
the letter of statutory conditions precedent to the infliction of punishment; and in
insisting on the strict observance of technical provisions concerning criminal
procedure and jurisdiction."
Madras High Court
8 | P a g e
V.Ramaiah vs The Commissioner Of Income Tax on 26 June, 2013
41. It is well settled that the burden of proving that a transaction was benami is on
the Revenue and the ordinary presumption of law is that the apparent state of fact
is real unless the contrary is proved and therefore the burden of proving that a
transaction is sham or that the person in whose name the property stands is not the
real owner but is only a benamidar for another, is on the taxing authorities. In the
present case, the Assessing Officer has opined that the amount of Rs.3 crores
credited in the account of Shri S.M.Pandian on 5.11.94, really constitutes the
undisclosed income of the assessee and requires to be assessed under Section 68 of
the Income Tax Act for the block period. However, the Tribunal, by going one step
ahead, had observed that the very transaction is a benami transaction, which we are
not able to appreciate.
50. In CIT vs. Mohim Udma [(2000) 158 CTR (Ker) 100], the Kerala High Court
has held as follows:
"The decision whether a benami transaction was involved is one of fact. The
burden of showing that a particular transaction is benami and the owner is not the
real owner always rests on the person asserting it to be so and this burden has to be
strictly discharged by adducing legal evidence of a definite character which would
either directly prove the fact of benami or establish circumstances unerringly and
reasonably raising an inference of that fact. The essence of benami is the intention
of the parties and not unoften, such intention is shrouded in a thick veil which
cannot be easily pierced through. But, such difficulties do not relieve the person
asserting the transaction to be benami of the serious onus that rests on him, nor
justify the acceptance of mere conjectures or surmises as a substitute for proof. It is
not enough merely to show circumstances which might create suspicion, because
9 | P a g e
the court cannot decide on the basis of suspicion. It has to act on legal grounds
established by evidence."
5 Judge Constitution bench ruling in case of of Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851 .
Last but not the least, we humbly submit that validity of aforesaid
assessment order needs to be judged on basis of grounds mentioned
in assessment order only as held by Constitution Bench of the Hon'ble Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851. In para 8 of the
judgment it has been observed as under:
“The second equally relevant matter is that when a statutory
functionary makes an order based on certain grounds, its validity
must be judged by the reasons so mentioned and cannot
be supplemented by fresh reasons in the shape of affidavit or
otherwise. Otherwise, an order bad in the beginning may, by the time
it comes to court on account of a challenge, get validated by
additional grounds later brought out.
We may here draw attention to the observations of Bose J.
in Gordhandas Bhanji (AIR 1952 SC 16) (at p. 18):
Public orders publicly made, in exercise of a
statutory authority cannot be construed in the light of
explanations subsequently given by the officer making
the order of what he meant, or of what was in his
10 | P a g e
mind, or what he intended to do. Public orders made
by public authorities are meant to have public effect
and are intended to affect the acting and conduct of
those to whom they are addressed and must be
construed objectively with reference to the language
used in the order itself. Orders are not like old wine becoming better
as
they grow older.”
Question 3: What is the basic difference between sham and benami transaction?
Answer: As per Supreme court in Meenakshi Mills 31 ITR 28,52 has observed:
"The word benami is used to denote two classes of transactions which differ from
each other in their legal character and incidents. In one sense, it signifies a
transaction which is real, as for example, when A sells properties to B but the sale
deed mentions X as the purchaser. Here, the sale itself is genuine, but the real
purchaser is B, X being his benamidar. This is the class of transactions which is
usually termed as benami. But the word 'benami' is also occasionally used, perhaps
not accurately, to refer to a sham transaction, as for example, when A purpose to
sell his property to B without intending that his title should cease or pass to B. The
fundamental difference between these two classes of transactions is that,
whereas in the former there is an operative transfer resulting in the vesting of
title in the transferee, in the latter there is none such, the transferor continuing
to retain the title notwithstanding the execution of the transfer deed. It is only in
the former class of cases that it would be necessary, when a dispute arises as to
11 | P a g e
whether the person named in the deed is the real transferee or B, to enquire into the
question as to who paid the consideration for the transfer, X or B,"
Question 4: Whether new clauses added in definition of benami transaction u/s
2(9) and its expansion thereto are retrospective in nature or prospective in
operation. Where does the concept of ex-post facto penal law under article 20(1) of
Indian consitituion shall apply?
Answer: It seems that additions made are prospective and article 20(1) protection
shall apply.
Delhi High Court
M/S Mahanivesh Oils & Foods Pvt. ... vs Directorate Of Enforcement on 25
January, 2016
Author: Vibhu Bakhru
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 25.01.2016
+ W.P.(C) 1925/2014 & CM No.4017/2014
M/S MAHANIVESH OILS & FOODS PVT. LTD. ..... Petitioner
versus
DIRECTORATE OF ENFORCEMENT ..... Respondent
29. The Act (PMLA) is a penal statute and, therefore, can have no retrospective or
retroactive operation.Article 20(1) of the Constitution of India expressly forbids
that no person can be convicted of any offence except for the violation of a law in
force at the time of the commission of the act charged as an offence. Further, no
12 | P a g e
person can be inflicted a penalty greater than what could have been inflicted under
the law at the time when the offence was committed. Clearly, no proceedings under
the Act can be initiated or sustained in respect of an offence, which has been
committed prior to the Act coming into force. However, the subject matter of the
Act is not a scheduled offence but the offence of money-laundering. Strictly
speaking, it cannot be contended that the Act has a retrospective operation because
it now enacts that laundering of proceeds of crime committed earlier as an offence.
In The Queen v. The Inhabitants of St. Mary, Whitechapel (1848) 12 QB 120, the
Court pointed out that "The Statute which in its direct operation of prospective
cannot be properly be called a retrospective statute because a part of the requisites
for that action is drawn from the time antecedent to its passing". Thus, with effect
from 1st June, 2009 laundering proceeds of crime under Section 420 of the IPC is
enacted as an offence of money-laundering punishable underSection 4 of the Act.
It is important to note that the punishment under Section 4 of the Act is not for
commission of a scheduled offence but for laundering proceeds of a scheduled
crime. The fact that the scheduled crime may have been committed prior to the Act
coming into force would not render the Act a retrospective statute as only the
offence of money-laundering committed after the enforcement of the Act can be
proceeded against under the Act.
A law which seeks to impose penalty for any act constituting an offence which
when done or committed was not an offence would itself fall foul of Article
20(1) of the Constitution of India . In Rao Shiv Bahadur Singh & Another v. State
of Vindhya Pradesh (supra) the Supreme Court had unequivocally held thatArticle
20 of the Constitution of India was not confined to the validity of the law but
extended to conviction or the sentence. The Supreme Court drew a distinction
between the Sections 9(3) and 10 of Article 1 of the American Constitution which
13 | P a g e
prohibited passing of ex-post facto law and Article 20 of the Indian Constitution.
The Court held that the language of Article 20 was much wider and the prohibition
under the Article was not confined to passing of validity of the law but extended to
conviction or the sentence. The relevant passage from the said decision is extracted
below:-
"8. ........On a careful consideration of the respective articles, one is struck by the
marked difference in language used in the Indian and American Constitutions.
Sections 9(3) and 10 of Article 1 of the American Constitution merely say that "No
ex post facto law shall be passed ..." and "No State shall pass ex post facto law ..."
But in article 20 of the Indian Constitution the language used is in much wider
terms, and what is prohibited is the conviction of a person or his subjection to
a penalty under ex post facto laws. The prohibition under the article is not confined
to the passing or the validity of the law, but extends to the conviction or the
sentence and is based on its character as an ex post facto law. The fullest effect
must therefore be given to the actual words used in the article. Nor does such a
construction of Article 20 result in giving retrospective operation to the
fundamental right thereby recognised."
37. In that case the, the first and the second appellants before the Supreme Court
were Minister of Industries and the Secretary to the Government, Commerce and
Industries Department respectively of the then United State of Vindhya Pradesh.
The prosecution alleged that on 31st October, 1947 Panna Durbar (Panna being a
part of the United States of Vindhya Pradesh) had directed Panna Diamond Mining
Syndicate to stop the mining work. It is alleged that the appellants entered into a
conspiracy at the beginning of February, 1949 to obtain illegal gratification for
reviewing the previous order directing stoppage of mining work. The appellants
before the Supreme Court were charged with criminal conspiracy for taking illegal
14 | P a g e
gratification by a public servant for doing an official act and also commission of
forgery in connection therewith. They were charged under Sections 120-
B, 161, 465 and 466 of the Indian Penal Code, as adapted by the Vindhya Pradesh
Ordinance 48 of 1948. The appellants were tried by a Special Judge under the
Vindhya Pradesh Criminal Law Amendment (Special Court) Ordinance 5 1949 and
were acquitted. The State filed an appeal to the Judicial Commissioner which led
to the conviction of the appellants. The validity of the convictions and sentences
were challenged on the ground of violation of Articles 14 and 20 of the
Constitution. The appellants contended that the trial conducted under the Special
Procedure prescribed by the aforesaid Ordinance was discriminatory and therefore
unconstitutional.
38. The challenge in relation to Article 20 of the Constitution arose as the
appellants had been convicted for offences under various Sections of the Indian
Penal Code as adapted in the United States of Vindhya Pradesh by Ordinance 48 of
1949 which was passed on 11th September, 1949. The said Ordinance was passed
on 11th September, 1949 while the offences were found to have been committed in
the month of February, March and April, 1949 - prior to the Ordinance. It is in this
context that it was urged that the convictions which were made after the
constitution came into force were in respect of an ex post facto law creating
offences after the commission of the acts charged as offences and, therefore, were
unconstitutional. The Supreme Court observed that the aforesaid contention raised
two important questions -"(1) the proper construction of Article 20 of the
Constitution and (2) whether the various acts in respect of which the appellants
were convicted constituted offences in this area only from the date when
Ordinance 48 of 1949 was passed or were already so prior thereto." In the context
of the trial itself having been conducted under a procedure which was different
15 | P a g e
from the procedure as was prevalent at the time of commission of the alleged
offences, the Supreme Court observed that:
"what is prohibited under Article 20 is only conviction or sentence under an ex
post facto law and not the trial thereof. Such trial under a procedure different from
what obtained at the time of the commission of the offence or by a court different
from that which had competence at the time cannot ipso facto be held to be
unconstitutional. A person accused of the commission of an offence has no
fundamental right to trial by a particular court or by a particular procedure, except
insofar as any constitutional objection by way of discrimination or the violation of
any other fundamental right may be involved."
39. The Supreme Court next considered the States's contention that since Vindhya
Pradesh Ordinance 48 of 1949 - though enacted on 11th September, 1949 - was
made retrospective from 09th August, 1948, the offences for which the appellants
were charged were offences under the said ordinance. Thus, the convictions could
not be stated to be in respect of a law not in force at the time when the offences
were committed. This contention was rejected by the Supreme Court in the
following words:-
"This, however, would be to import a somewhat technical meaning into the phrase
"law in force" as used in Article 20. "Law in force" referred to therein must be
taken to relate not to a law "deemed" to be in force and thus brought into force but
the law factually in operation at the time or what may be called the then existing
law. Otherwise, it is clear that the whole purpose of Article 20 would be
completely defeated in its application even to ex post facto laws passed after the
Constitution. Every such ex post facto law can be made retrospective, as it must be,
if it is to regulate acts committed before the actual passing of the Act, and it can
16 | P a g e
well be urged that by such retrospective operation it becomes the law in force at
the time of the commencement of the Act. It is obvious that such a construction
which nullifies Article 20 cannot possibly be adopted. It cannot therefore be
doubted that the phrase "law in force" as used in Article 20 must be understood in
its natural sense as being the law in fact in existence and in operation at the time of
the commission of the offence as distinct from the law "deemed" to have become
operative by virtue of the power of legislature to pass retrospective laws. It follows
that if the appellants are able to substantiate their contention that the acts charged
as offences in this case have become such only by virtue of Ordinance 48 of 1949
which has admittedly been passed subsequent to the commission thereof, then they
would be entitled to the benefit of Article 20 of Constitution and to have their
convictions set aside. This leads to an examination of the relevant pre-existing law.
"
Further, five judge constitution bench in Vatika Township 367 ITR 466 is also
helpful and apposite.
Question 5: Word reasons to believe is used in section 24 which requires initiating
officer to record reasons to believe in writing whether income tax law judgments
on reasons to believe u/s 148 are applicable here? Whether reasons recorded are to
be communicated to affected person and whether SC ruling in GKN Driveshaft
shall apply here?
Answer Requirement of live nexus is most important and crucial. It seems that
GKN Driveshaft 259 ITR Page 19, shall totally apply mutatis mutandis to section
24(1) of benami law.
17 | P a g e
Refer:
Supreme Court of India
Aslam Mohd. Merchant vs Competent Authority & Ors on 8 July, 2008
Author: S.B. Sinha
Bench: S.B. Sinha, V.S. Sirpurkar
Interpretation and application of Chapter VA of the Narcotic Drugs
and Psychotropic Substances Act, 1985 (for short, "the Act") providing for
forfeiture of property derived from or used in illicit traffic, is in question in this
batch of appeals which arise out of a judgment and order dated 27.11.2002 passed
by the High Court of Bombay in Criminal Writ Petition No. 1095 of 2002.
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 requirements 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'
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 materials before him. If no
such material had been placed before him, he cannot initiate a proceeding. He
18 | P a g e
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.
29. It is now a trite law that whenever a statute provides for `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 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.
30. A similar question again came up before a Three 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 Amratlal Prajivandas (supra), it was
held;
"7. ......We do not find any averments to the effect that the property acquired 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 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 of the detenu(s).
9. As the condition precedent for initiation of the proceedings under SAFEMA did
not exist, the impugned orders of forfeiture cannot be sustained. In that view of the
matter, the appeals deserve to be allowed. The order under challenge is set aside."
19 | P a g e
33. Fatima Mohd. Amin (supra) was followed by a Bench of this Court in P.P.
Abdulla Vs. Competent Authority [(2007) 2 SCC 510], wherein it was observed :
"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
underSection 6(1) were recorded in 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 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 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."
It was also observed:-
"10. In the present case, in the notice dated 15-3-1988 issued to the appellant
underSection 6(1) of the Act (copy of which is annexed as Annexure P-1 to this
appeal), it has not been alleged therein that there is any such link or nexus between
the property sought to be forfeited and the alleged illegally acquired money of the
appellant."
REASON TO BELIEVE
20 | P a g e
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.
38. In the context of the provisions of Section 147 of the Income Tax Act, this Court
in Phool Chand Bajrang Lal Vs. ITO : [1993] 203 ITR 456] held:-
"From a combined review of the judgments of this court, 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 must record, to believe that, by reason of omission or
failure on the part of the assessee to make a true and full 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 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 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 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 could be formed by the Income-tax Officer and further whether
21 | P a g e
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 [(1976) 103 ITR 437].
In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd .
[2007 (8) SCALE 396], interpreting the term `reason to believe' as used
under Section 247 (a) of the Income Tax Act , 1961, it was opined :
"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 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 before the AO could have jurisdiction to issue
notice under Section 148 read 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 assessment, it confers jurisdiction to reopen the assessment."
NON APPLICATION OF MIND Applying these tests, it is evident that the statutory
requirements have not been fulfilled in the present case.
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.
22 | P a g e
Once the show cause notice is found 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:
"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 had not
been done. Thus, the assessing officer himself was not sure as to whether he had
proceeded on the basis that the assessee had concealed his income or he had
furnished inaccurate particulars. Even before us, the learned Additional Solicitor
General while placing the order of assessment laid emphasis that he had dealt with
both the situations. The impugned order, therefore, suffers from 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
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 requirements , 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 not initiated validly, the competent
authority did not derive any jurisdiction to enter into the merit of the matter.
23 | P a g e
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
in the show cause notices. None was disclosed.
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 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 provisions 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 requirements is imperative.
45. For the reasons aforementioned, the impugned judgments cannot be sustained.
They are set aside accordingly. The appeals are allowed. However, it would be
open to the respondents to initiate fresh proceeding”
IN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTIONCIVIL APPEAL NOS.7439-7440 OF 2004M/S. TATA CHEMICALS LTD. …APPELLANTVERSUSCOMMISSIONER OF CUSTOMS
24 | P a g e
(PREVENTIVE) JAMNAGAR ...RESPONDENT
15. Statutes often use expressions such as “deems itnecessary”, “reason to believe” etc. Suffice it to say that theseexpressions have been held not to mean the subjective
satisfaction of the officer concerned. Such power given to the
concerned officer is not an arbitrary power and has to beexercised in accordance with the restraints imposed by law.That this is a well settled position of law is clear from thefollowing judgments. See: Rohtas Industries Ltd. v. S.D.Agarwal, (1969) 3 S.C.R. 108 at 129. To similar effect is thejudgment in Sheo Nath Singh v. Appellate AssistantCommissioner of Income Tax, Calcutta, (1972) 1 SCR 175 at182. In that case it was held as under:“…There can be no manner of doubt that the words“reason to believe” suggest that the belief must bethat of an honest and reasonable person basedupon reasonable grounds and that the Income TaxOfficer may act on direct or circumstantial evidencebut not on mere suspicion, gossip or rumour. TheIncome Tax Officer would be acting withoutjurisdiction if the reason for his belief that theconditions are satisfied does not exist or is notmaterial or relevant to the belief required by thesection. The Court can always examine this aspectthough the declaration or sufficiency of the reasonsfor the belief cannot be investigated by the Court.”See also Bar Council of Maharashtra v. M.V. Dabholkar,[1976] 2 S.C.R. 48 at 51. N. Nagendra Rao & Co. v. State of
A.P. (1994) 6 SCC 205 at 216.
So income tax law jurisprudence is fully applicable to reasons to believe aspect u/s
24(1) as per aforesaid Apex court decision.
25 | P a g e
Delhi High Court
M/S Mahanivesh Oils & Foods Pvt. ... vs Directorate Of Enforcement on 25
January, 2016
Author: Vibhu Bakhru
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 25.01.2016
+ W.P.(C) 1925/2014 & CM No.4017/2014
M/S MAHANIVESH OILS & FOODS PVT. LTD. ..... Petitioner
versus
DIRECTORATE OF ENFORCEMENT ..... Respondent
41. The next aspect that is to be examined is whether the necessary conditions for
passing the impugned order under Section 5(1) had been met. As discussed
hereinbefore, a concerned officer (a Director or any other officer not below the
rank of Deputy Director, so authorised by the Director) may order for provisional
attachment of property only where the twin conditions as specified in Section
5(1) are satisfied, namely, the concerned officer has reason to believe, on the basis
of material in his possession, that (i) any person is in possession of any proceeds of
crime; and (ii) such proceeds of crime are likely to be concealed, transferred or
dealt with in any manner which may result in frustrating any proceedings relating
26 | P a g e
to confiscation of such proceeds of crime under Chapter III of the Act. In addition,
the concerned officer records the reasons in writing.
42. In the present case, the respondent could not point out any material to counter
the petitioner's contention that there was no material on record, which could
possibly lead to a belief that the petitioner is likely to transfer or conceal the
property in any manner. As indicated earlier, the concerned officer must have a
reason to believe on the basis of material in his possession that the property sought
to be attached is likely to be concealed, transferred or dealt with in a manner which
may result in frustrating any proceedings for confiscation of their property under
the Act.
43. The expression 'reason to believe' has been defined under Section 26 of the
Indian Penal Code as under:-
"26. "Reason to believe".-A person is said to have "reason to believe" a thing, if he
has sufficient cause to believe that thing but not otherwise."
Thus, on a plain reading of the aforesaid definition, the Deputy Director,
Directorate of Enforcement - the concerned officer who passed the impugned order
- would require to have sufficient cause to believe that the property sought to be
attached would be transferred or dealt with in a manner which would frustrate
proceedings relating to confiscation of such property. Further, the officer was also
required to record the reasons for such belief. However, there is nothing in the
impugned order, which indicates that the concerned officer had any cause to so
believe.
44. The expression 'reason to believe' has also been the subject matter of several
decisions of the Supreme Court albeit in the context of other laws. In the case
27 | P a g e
of Aslam Mohd. Merchant v. Competent Authority & Ors: (2008) 14 SCC 186, the
Supreme Court considered the meaning of the expression 'reason to believe' in the
context of Narcotic Drugs and Psychotropic Substances Act, 1985. The Supreme
Court referred to its earlier decisions rendered in the context of Section 147 of the
Income Tax Act, 1961 where a similar expression has been used to clothe an
Assessing Officer with the power to reopen income tax assessments. In Phool
Chand Bajrang Lal v. ITO: (1993) 203 ITR 456 (SC), the Supreme Court held as
under:
"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 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 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."
45. In Income Tax Officer v. Lakhmani Mewal Das: 1976 SCR (3) 956, the
Supreme Court explained that powers of Income Tax Officer to reopen an
assessment, though wide, are not plenary as the words used are 'reason to believe'
and not 'reason to suspect'. The Court held that there should be a "live link or close
nexus" between the material before the Income Tax Officer and the formation of
his belief that the income had escaped assessment.
28 | P a g e
46. In the present case, there is no material that could suggest that the property
sought to be attached was likely to be dealt with in a manner which would frustrate
the confiscation of the property under the Act.
47. In Calcutta Discount Company v. Income Tax Officer: 1961 SCR (2) 241, the
Supreme Court held as under:-
"The expression "reason to believe" postulates belief and the existence of reasons
for that belief. The belief must be held in good faith: it cannot be merely a
pretence. The expression does not mean a purely subjective satisfaction of the
Income Tax Officer: the forum of decision as to the existence of reasons and the
belief is not in the mind of the Income Tax Officer. If it be asserted that the Income
Tax Officer had reason to believe that income had been under assessed by reason
of failure to disclose fully and truly the facts material for assessment, the existence
of the belief and the reasons for the belief, but not the sufficiency of the reasons,
will be justiciable. The expression therefore predicates that the Income Tax Officer
holds the belief induced by the existence of reasons for holding such belief. It
contemplates existence of reasons on which the belief is founded, and not merely a
belief in the existence of reasons inducing the belief; in other words, the Income
Tax Officer must on information at his disposal believe that income has been under
assessed by reason of failure fully and truly to disclose allmaterial facts necessary
for assessment. Such a belief, be it said, may not be based on mere suspicion: it
must be founded upon information"
48. Although, the impugned order records that the concerned officer has reason to
believe that the property in question is likely to be concealed, transferred or dealt
with in a manner, which may result in frustrating the proceedings relating to
confiscation of the said proceeds of crime, there is no reference to any fact or
29 | P a g e
material in the impugned order which could lead to this inference. A mere
mechanical recording that the property is likely to be concealed, transferred or
dealt with would not meet the requirements of Section 5(1) of the Act.
Consequently, the impugned order is likely to be set aside.”
So above leaves no doubt that reasons to believe u/s 24(1) shall be governed by
GKN DriveShaft dicta 259 ITR Page 19 the ruling under income tax law u/s 148,
which requires four steps to be followed. Otherwise also, principle of natural
justice must apply with more force.
Section 57 dealing with certain transfers to be null and void protects revenue in
present case.
Question 6: How far provisional attachment u/s 24(3) can be resorted to under
benami law?
Answer: First crucial Word used is “opinion” which must be held and formed in
good faith , on relevant considerations. Second word used is “possession of
property held benami” which is also a jurisdictional condition. Previous “approval”
is required from adjudicating authority in “writing”. Further there must be genuine
belief that person may “alienate” the property concerned. So there must be live
nexus between alienation of property and property held benami.
It seems that parallel attachment u/s 24(3) with notice u/s 24(1) may not be valid in
eyes of law as held in Mahavinesh Oils case.
30 | P a g e
Question 7: Whether by any means it can be stated that proceedings under income
tax law needs to be completed first to initiate benami law proceedings?
Answer : It is highly contentious. In authors personal view, since there is lot of
overlapping in section 2(9) of benami law (definition of benami transaction Part A
to Part D) and provisions of section 68 to 69D of income tax law, it seems that first
findings and satisfaction are recorded in assessment order/proceedings by AO then
only benami law proceedings may be initiated.
Question 8: Whether there is parallel provision to section 179 in benami law?
Answer: No
Question 9: Whether there is any time limit for any action u/s 24(1) of benami law
for initiation and thereafter for completion of proceedings.
Answer : there is no time limit specified in law. But doctrine of reasonable time
limit may apply as held in various places under income tax law. (may be section
149 can be outer limit or section 153A revised 10 years time limit may be outer
limit)
Question 10: Whether strict principles of Indian evidence law shall apply in
benami law unlike income tax law?
31 | P a g e
Answer: Given the draconian nature of penal and criminal proceedings, answer
seems Yes.
Questions 11: Whether principle of natural justice and cross examination are to be
adhered to strictly?
Answer: As per apex court in Andaman case, yes cross examination must be
followed strictly.
Question 12 : How show cause notice under benami law may be drafted?
Answer:
THE SUPREME COURT OF INDIA
CIVIL APPELLANT JURISDICTION
CIVIL APPEAL NOS. 7167-7168 OF 2014
[Arising out of Special Leave Petition (Civil) No. 38898-
38899 of 2013)
GORKHA SECURITY SERVICES .....APPELLANT(S)
VERSUS
GOVT. OF NCT OF DELHI & ORS. .....RESPONDENT
Contents of Show Cause Notice
19) The Central issue, however, pertains to the requirement of
stating the action which is proposed to be taken. The
32 | P a g e
fundamental purpose behind the serving of Show Cause Notice
is to make the noticee understand the precise case set up
against him which he has to meet. This would require the
statement of imputations detailing out the alleged breaches and
defaults he has committed, so that he gets an opportunity to
rebut the same. Another requirement, according to us, is the
nature of action which is proposed to be taken for such a
breach. That should also be stated so that the noticee is able to
point out that proposed action is not warranted in the given
case, even if the defaults/ breaches complained of are not
satisfactorily explained. When it comes to black listing, this
requirement becomes all the more imperative, having regard to
the fact that it is harshest possible action.
20) The High Court has simply stated that the purpose of
show cause notice is primarily to enable the noticee to meet the
grounds on which the action is proposed against him. No doubt the High Court is
justified to this extent. However, it is equally
important to mention as to what would be the consequence if
the noticee does not satisfactorily meet the grounds on which
an action is proposed. To put it otherwise, we are of the opinion
that in order to fulfil the requirements of principles of natural
justice, a show cause notice should meet the following two
requirements viz:
i) The material/ grounds to be stated on which
according to the Department necessitates an
action;
ii) Particular penalty/action which is proposed to
33 | P a g e
be taken. It is this second requirement which
the High Court has failed to omit.
we may hasten to add that even if it is not specifically
mentioned in the show cause notice but it can be clearly
and safely be discerned from the reading thereof, that
would be sufficient to meet this requirement
Question 13: What are the useful guidelines in passing orders under benami law?
Being judicial/quasi judicial orders :
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5173 OF 2006
NATIONAL SECURITIES DEPOSITORY LTD. … Appellant
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA … Respondent
After setting out Lord
Justice Atkin’s passage in Advani’s case (supra), this Court held that three
requisites were necessary in order that the act of an administrative body be
characterized as quasi-judicial :
(i) There must be legal authority;
(ii) This authority must be to determine questions affecting the rights of
subjects; and
(iii) There must be a duty to act judicially.
So orders passed under benami law are quasi judicial.
34 | P a g e
40. The Hon'ble Apex Court in the case of Kranti Associates
(P) Ltd. v. Masood Ahmed Khan: MANU/SC/0682/2010 :
(2010)9 SCC 496, while dealing with the requirement of
passing reasoned order by an authority whether
administrative, quasi-judicial or judicial, has laid down as
under:--
a. In India the judicial trend has always been to record
reasons, even in administrative decisions, if such decisions
affect anyone prejudicially.
b. A quasi-judicial authority must record reasons in support
of its conclusions.
c. Insistence on recording of reasons is meant to serve the
wider principle of justice, that justice must not only be done
it must also appear to be done as well.
d. Recording of reasons also operates as a valid restraint on
any possible arbitrary exercise of judicial and quasi-judicial
or even administrative power.
e. Reasons reassure that discretion has been exercised by
the decision maker on relevant grounds and by disregarding
extraneous considerations.
f. Reasons have virtually become as indispensable a
component of a decision making process as observing
principles of natural justice by judicial, quasi-judicial and
even by administrative bodies.
g. Reasons facilitate the process of judicial review by
superior Courts.
h. The ongoing judicial trend in all countries committed to
35 | P a g e
rule of law and constitutional governance is in favour of
reasoned decisions based on relevant facts. This is virtually
the life blood of judicial decision making justifying the
principle that reason is the soul of justice.
i. Judicial or even quasi-judicial opinions these days can be
as different as the judges and authorities who deliver them.
All these decisions serve one common purpose which is to
demonstrate by reason that the relevant factors have been
objectively considered. This is important for sustaining the
litigants' faith in the justice delivery system.
j. Insistence on reason is a requirement for both judicial
accountability and transparency.
k. If a Judge or a quasi-judicial authority is not candid
enough about his/her decision making process then it is
impossible to know whether the person deciding is faithful
to the doctrine of precedent or to principles of
incrementalism.
l. Reasons in support of decisions must be cogent, clear and
succinct. A pretence of reasons or 'rubber-stamp reasons' is
not to be equated with a valid decision making process.
m. It cannot be doubted that transparency is the sine qua
non of restraint on abuse of judicial powers. Transparency in
decision making not only makes the judges and decision
makers less prone to errors but also makes them subject to
broader scrutiny. (See David Shapiro in Defence of Judicial
Candor (1987) 100 HLR 731-737)
n. Since the requirement to record reasons emanates from
36 | P a g e
the broad doctrine of fairness in decision making, the said
requirement is now virtually a component of human rights
and was considered part of Strasbourg Jurisprudence. See
(1994) 19 EHRR 553, at 562 para 29 and Anya v. University
of Oxford MANU/UKWA/0114/2001 : 2001 EWCA Civ 405,
wherein the Court referred to Article 6 of European
Convention of Human Rights which requires, "adequate and
intelligent reasons must be given for judicial decisions".
o. In all common law jurisdictions judgments play a vital
role in setting up precedents for the future. Therefore, for
development of law, requirement of giving reasons for the
decision is of the essence and is virtually a part of "Due
Process".
Question 14: What is the correlation between four parts of benami transaction?
Answer: There may be some overlapping. But charge u/s 24 must be specific in
reasons recorded by initiating officer.
Further Part B and Part D uses phrase fictitious same must be interpreted
harmoniously in light of other provisions of benami law.
Question 15: Whether before holding offender of benami transaction u/s 53(1) and
imposing penalty u/s 53(2) separate and independent natural justice needs to be
followed under chapter VI (special courts)?
Answer Yes
Conclusion:
37 | P a g e
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.3415 OF 2007
Oil & Natural Gas Corporation Ltd . …Appellant
Versus
Western Geco international Ltd. …Respondent
What then would constitute the ‘Fundamental policy of Indian
Law’ is the question. The decision in Saw Pipes Ltd. (supra) does not
elaborate that aspect. Even so, the expression must, in our opinion,
include all such fundamental principles as providing a basis for
administration of justice and enforcement of law in this country.
Without meaning to exhaustively enumerate the purport of the
expression “Fundamental Policy of Indian Law”, we may refer to three
distinct and fundamental juristic principles that must necessarily be
understood as a part and parcel of the Fundamental Policy of Indian
law. The first and foremost is the principle that in every
determination whether by a Court or other authority that affects the
rights of a citizen or leads to any civil consequences, the Court or
authority concerned is bound to adopt what is in legal parlance called
a ‘judicial approach’ in the matter. The duty to adopt a judicial
approach arises from the very nature of the power exercised by the
Court or the authority does not have to be separately or
38 | P a g e
additionally enjoined upon the fora concerned. What must be
remembered is that the importance of Judicial approach in judicial
and quasi judicial determination lies in the fact so long as the Court,
Tribunal or the authority exercising powers that affect the rights or
obligations of the parties before them shows fidelity to judicial
approach, they cannot act in an arbitrary, capricious or whimsical
manner. Judicial approach ensures that the authority acts bonafide
and deals with the subject in a fair, reasonable and objective
manner and that its decision is not actuated by any extraneous
consideration. Judicial approach in that sense acts as a check
against flaws and faults that can render the decision of a Court,
Tribunal or Authority vulnerable to challenge. In Ridge v. Baldwin
[1963 2 All ER 66], the House of Lords was considering the question
whether a Watch Committee in exercising its authority under Section
191 of the Municipal Corporations Act, 1882 was required to act
judicially. The majority decision was that it had to act judicially and
since the order of dismissal was passed without furnishing to the
appellant a specific charge, it was a nullity. Dealing with the
appellant’s contention that the Watch Committee had to act
judicially, Lord Reid relied upon the following observations made by
Atkin L.J. in [1924] 1 KB at pp. 206,207:
“Wherever any body of persons having legal authority to
determine questions affecting the rights of subjects, and having the
duty to act judicially, act in excess of their legal authority, they are
39 | P a g e
subject to the controlling jurisdiction of the King’s Bench Division
exercised in these writs.”
The view taken by Lord Reid was relied upon by a Constitution
Bench of this Court in A.C. Companies Ltd vs. P.N. Sharma and Anr.
(AIR 1965 SC 1595) where Gajendragadkar, C.J. speaking for the
Court observed :
“In other words, according to Lord Reid’s judgment, the
necessity to follow judicial procedure and observe the principles of
natural justice, flows from the nature of the decision which the watch
committee had been authorised to reach under S.191(4). It would
thus be seen that the area where the principles of natural justice have
to be followed and judicial approach has to be adopted, has become
wider and consequently, the horizon of writ jurisdiction has been
extended in a corresponding measure. In dealing with questions as to
whether any impugned orders could be revised under A. 226 of our
Constitution, the test prescribed by Lord Reid in this judgment may
afford considerable assistance.”
Equally important and indeed fundamental to the policy of
Indian law is the principle that a Court and so also a quasi-judicial
authority must, while determining the rights and obligations of
parties before it, do so in accordance with the principles of natural
justice. Besides the celebrated ‘audi alteram partem’ rule one of the
facets of the principles of natural justice is that the Court/authority
deciding the matter must apply its mind to the attendant facts and
40 | P a g e
circumstances while taking a view one way or the other . Non-
application of mind is a defect that is fatal to any
adjudication. Application of mind is best demonstrated by
disclosure of the mind and disclosure of mind is best done by
recording reasons in support of the decision which the Court or
authority is taking. The requirement that an
adjudicatory authority must apply its mind is,
in that view, so deeply embedded in our
jurisprudence that it can be described as a
fundamental policy of Indian Law .
No less important is the principle now recognised as a salutary
juristic fundamental in administrative law that a decision which is
perverse or so irrational that no reasonable person would have
arrived at the same will not be sustained in a Court of law. Perversity
or irrationality of decisions is tested on the touchstone of
Wednesbury’s principle of reasonableness. Decisions that fall short of
the standards of reasonableness are open to challenge in a Court of
law often in writ jurisdiction of the Superior courts but no less in
statutory processes where ever the same are available.”
It will be useful to reproduce from judicial discretion (1989) by
Aharon Barak which is as follows:
41 | P a g e
Discretion assumes the freedom to choose among
several lawful alternatives. Therefore, discretion does not exist when
there is but one lawful option. In this situation, the judge is required
to select that option and has no freedom of choice. No discretion is
involved in the choice between a lawful act and an unlawful act. The
judge must choose the lawful act, and he is precluded from choosing
the unlawful act. Discretion, on the other hand, assumes the lack of
an obligation to choose one particular possibility among several”
42 | P a g e