Section 68L: Procedure in relation to certain trust properties

1[68L. Procedure in relation to certain trust properties.– In the case of any person referred to in sub-clause (vi) of clause (b) of section 68B, if the competent authority, on the basis of the information and materials available to it, has reason to believe (the reasons for such belief to be recorded in writing) that any property held in trust is illegally acquired property, it may serve a notice upon the author of the trust or, as the case may be, the contributor of the assets out of or by means of which such propery was acquired by the trust and the trustees, calling upon them within a period of thirty days specified in the notice, to explain the source of money or other assets out of or by means of which such property was acquired or, as the case may be, the source of money or other assets which were contributed to the trust for acquiring such property and thereupon such notice shall be deemed to be a notice served under section 68H and all the other provisions of this Chapter shall apply accordingly.

Explanation.— For the purposes of this section “illegally acquired property”, in relation to any property held in trust, includes–

(i) any property which if it had continued to be held by the author of the trust or the contributor of such property to the trust would have been illegally acquired property in relation to such author or contributor;

(ii) any property acquired by the trust out of any contributions made by any person which would have been illegally acquired property in relation to such person had such person acquired such property out of such contributions.]

1. Ins. by Act 2 of 1989, s. 19 (w.e.f. 29-5-1989)

Simplified Explanation

Section 68L deals with the procedures when a trust property is suspected to be illegally acquired property. It specifically applies in situations where there is a trust, and the competent authority suspects that the property held in trust has been acquired through illegal means.

Key Provisions of Section 68L:

1. Notice to Trust Author/Contributor/Trustees:
   • If the competent authority believes that any property held in trust is illegally acquired, it can serve a notice to the following parties:
     • The author of the trust (the person who created the trust),
     • The contributor of the assets (the person who contributed assets to the trust), and
     • The trustees (the individuals managing the trust).
   • The notice will demand that they explain the source of the money or assets used to acquire the property in question.
2. Time Period for Response:
   • The notice will specify a period of 30 days within which the recipients (author, contributor, or trustees) must respond, explaining the source of funds or assets used to acquire the trust property.
3. Application of Other Provisions:
   • Once the notice is served, it will be treated as a notice under Section 68H (related to forfeiture of illegally acquired property), and all provisions of this Chapter will apply accordingly.
   • This means that the process of investigating the property’s origin, determining its legality, and possible forfeiture will follow the same procedures as those applied to other cases of illegally acquired property.

Explanation of “Illegally Acquired Property” in the Context of Trusts:

• The definition of illegally acquired property in relation to trust property is broader. It includes:
  1. Property that would be illegal if it had remained with the author or contributor. For example, if the author of the trust had held the property themselves, it would have been deemed illegally acquired.
  2. Property acquired by the trust through contributions from individuals whose contributions would be considered illegal if those individuals had acquired the property themselves. Essentially, this means that if the contributions to the trust were themselves illegally acquired, the property acquired by the trust from those contributions is also tainted.

Purpose and Significance of Section 68L:

1. Targeting Trusts with Illegally Acquired Property:
   • This section provides the competent authority with the legal framework to investigate trusts where there are suspicions that the property in the trust has been acquired through illegal means.
   • It holds the author, contributors, and trustees responsible for explaining the legitimacy of the sources of funds or assets, ensuring that illegal assets are not hidden under the guise of a trust.
2. Expanding the Scope of Investigation:
   • Trusts are sometimes used to hide illegally acquired property, and this section ensures that trustees and contributors are held accountable, not just the person who created the trust.
   • The definition of “illegally acquired property” in this context ensures that any property tainted by illegal acquisition remains within the purview of the law, even if the property has been transferred to a trust.
3. Ensuring Compliance:
   • This section gives the competent authority the power to initiate proceedings against trust properties, potentially leading to forfeiture of such properties if the sources are found to be illegal.
   • The requirement for trustees, contributors, or authors to explain the source of the property is intended to deter the use of trusts for money laundering or hiding ill-gotten gains.

Practical Implications

1. For Trusts and Their Trustees:
   • Trustees must maintain records and be prepared to explain the legitimate origin of the trust property.
   • Trusts that have received contributions from suspicious sources could find their property subject to legal scrutiny and potential forfeiture.
2. For Legal Professionals:
   • Lawyers advising clients with trusts should ensure that any property contributed to the trust is sourced legally to avoid potential investigations under this section.
   • Affected individuals (trust authors, contributors, or trustees) must respond promptly to notices under this section, offering satisfactory explanations and evidence to avoid forfeiture.

Section 68L ensures that trusts are not used as tools for hiding illegally acquired property, holding those responsible for managing or contributing to the trust accountable. This helps in maintaining transparency and integrity, especially when such properties are suspected to have been illegally acquired.