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SC quashes retrospective use of Benami Transactions (Prohibition) Amendment Act 2016


New Delhi: In a landmark order, the Supreme Court ruled on Tuesday that the forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively, thus firewalling benami properties transacted between 1988, when the original law was enacted, and 2016, when the amended law came into being, from confiscation and shielding perceived offenders from the mandatory three-year jail term.

‘In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively’, said a bench comprising of Chief Justice of India NV Ramana, along with Justices Krishna Murari and Hima Kohli. The court declared some provisions of the Benami Transactions (Prohibition) Act of 1988 and the 2016 amendments to the Act unconstitutional. ‘Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, October 25, 2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed’, the court held.

SC declared that the forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment act, was unconstitutional for being manifestly arbitrary. ‘This brings us to the last aspect as to the retroactive operation of confiscation (forfeiture) under Section 5 read with Chapter IV of the 2016 Act. It is the argument of the Union of India that civil forfeiture being in the domain of civil law is not punitive in nature. Therefore, it does not attract the prohibition contained under Article 20(1) of the Constitution’, the court noted. It means, thereby, that if this Court holds that the civil forfeiture prescribed under the 2016 Act is punitive, only then will the prohibition under Article 20(1) apply. If not, then the prohibition does not apply.

The 2016 Act, which amends the 1988 Act, expanded the 1988 Act to 72 sections (from 9 sections), divided into 8 chapters. Section 5 has been modified and it presently stands as ‘Property held benami liable to confiscation. — Any property, which is the subject matter of Benami transaction, shall be liable to be confiscated by the Central Government’. The 2016 Act provides for provisional attachment of the property where the concerned officer has genuine reason to believe, based on the material gathered, that the person in possession of the property held in Benami may alienate the property.

‘Such provisional attachment cannot be taken recourse to every time. Recourse under Section 24(3) of the 2016 Act should be exercised in exceptional circumstances after the previous approval of the Approving Authority. Such interim provisional attachment is strictly limited by time’, the court said. ‘When we come to the present enactment, history points to a different story wherein Benami transactions were an accepted form of holding in our country. In fact, the Privy Council had, at one point in time, praised the sui generis evolution of the doctrine of trust in the Indian law’, the court said.

The court noted that the response by the Government and the Law Commission to curb Benami transactions was also not sufficient as it was conceded before this Court that Sections 3 and 5 of the 1988 Act in reality, dehors the legality, remained only on paper and were never implemented on the ground. ‘Any attempt by the legislature to impose such restrictions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of the Constitution’, the court said.

The court held that Section 3(2) of the unamended 1988 Act is declared unconstitutional for being manifestly arbitrary and, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution. As per Section 3 (2) whoever enters into any Benami transaction shall be punishable with imprisonment for a term which may extend to three years or with a fine or both. The bench also clarified that as this Court is not concerned with the constitutionality of such independent forfeiture proceedings contemplated under the 2016 Amendment Act on the other grounds, the aforesaid questions are left open to be adjudicated in appropriate proceedings.

The court order came on Centre appeal challenging Calcutta High Court order. In the Calcutta High Court in 2019 said ruled that the 2016 amendment cannot be given retrospective effect since there is no express provision granting retrospectively. While pronouncing its order, the court said that Indian jurisprudence has matured through years of judicial tempering, and the country has grown to be a jurisdiction having ‘substantive due process’. The bench also observed that the courts have read down the provisions of civil forfeiture to be dependent on the underlying criminal prosecution to temper the harsh consequences envisaged under such provisions.

The court opined that such reading down was mandated to ameliorate harsh consequences of confiscatory laws which otherwise would have allowed the State agencies to take over the property without seriously pursuing criminal prosecutions. The court said that at this stage, it can only recommend that the utility of independent provisions of forfeiture, distinct from criminal prosecution, needs to be utilised in a proportional manner, looking at the gravity of the offence. The court also noted that a few examples which may pass the muster of proportionality for having such stringent civil forfeiture may relate to crimes involving terrorist activities, drug cartels or organised criminal activities.

‘As we have discussed, the application of such a provision to numerous other offences which are not of such grave severity would be of serious risk of being disproportionate, if procedures independent of criminal prosecution are prescribed. We may note that the proportionality of the separate confiscation procedure prescribed under the 2016 Amendment Act, has not been argued herein. Accordingly, we leave the aforesaid question of law open’, the court said.

The Benami Act empowers the authorities to provisionally attach properties. The amendment to Benami Act, 2016 was designed to curb black money and passed by parliament in August 2016, came into effect in November 2016. The ‘Benami property’ means any property which is the subject matter of a Benami transaction and also includes the proceeds from such property and ‘Benami transaction’ means,– a transaction or an arrangement where a property is transferred to or is held by, a person, and the consideration for such property has been provided or paid by, another person.


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