The Supreme Court held as under:
1) To understand the exact nature of the forfeiture contemplated under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA) it is necessary to examine the nature of the property which is sought to be forfeited and also the persons from whom such forfeiture is sought to be made. The Act is made applicable to five classes of persons specified under section 2;
2) Of the five categories of persons to whom the Act has been made applicable, only one category specified under section 2(2)(a) happens to be of persons who are found guilty of an offence under one of the enactments mentioned therein and convicted;
3) The other four categories of persons to whom the Act is applicable are persons unconnected with any crime or conviction under any law. Section 6 of the Act authorises the competent authority to initiate proceedings of forfeiture only if it has reasons to believe that all or some of the properties of the persons to whom the Act is applicable are illegally acquired properties?;
4) It is well known fact that people carrying on activities such as smuggling to make money do it in a clandestine manner. Direct proof is difficult to get if not impossible. The nature of the activity and the harm it does to the community provide a sufficiently rational basis for the Legislature to make such an assumption;
5) Conviction is only a factor by which persons can be identified to whom Act can be made applicable. Connection with the conviction is too remote and, therefore, in our opinion, would not be hit by the prohibition contained under Article 20 of the Constitution of India;
6) If a subject acquires property by means which are not legally approved, sovereign State would be perfectly justified to deprive such persons of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot establish that they have legitimate sources to acquire the assets held by them do not enjoy such wealth;
7) Such a deprivation, in our opinion, would certainly be consistent with the requirements of Article 300A and 14 of the Constitution which prevent the State from arbitrarily depriving a subject of his property.