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

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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

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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)

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: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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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."

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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

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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