As per the case facts, a company purchased a property, and later, its shareholdings were mostly acquired by other entities whose directors were also involved in the purchasing company. Subsequently, ...
No Acts & Articles mentioned in this case
N THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 5783 of 2022
[@ SPECIAL LEAVE PETITION (C) NO. 2784/2020]
UNION OF INDIA & ANR. … APPELLANT(S)
VERSUS
M/s. GANPATI DEALCOM PVT. LTD. … RESPONDENT(S)
JUDGMENT
N.V. RAMANA , CJI
1.Leave granted.
2.This case involves a tussle between the normative and
positivist positions regarding the nature of a crime and
punishment. Treating the Constitution as a flag post, a
result of this tussle is sought in the following deliberation.
3.This appeal is filed against the impugned judgment dated
12.12.2019 passed by the High Court of Judicature at
Calcutta in APO No. 8 of 2019 along with Writ Petition No.
687 of 2017.
1
REPORTABLE
4.The short legal question which arises for this Court’s
consideration is whether the Prohibition of Benami Property
Transactions Act, 1988 [for short ‘the 1988 Act’], as
amended by the Benami Transactions (Prohibition)
Amendment Act, 2016 [for short the ‘2016 Act’] has a
prospective effect. Although a purely legal question arises in
this appeal, it is necessary to have a brief factual
background in mind before we advert to the analysis.
5.On 02.05.2011, the respondent–company purchased a
property in its name from various sellers for a total
consideration of Rs.9,44,00,000/. It is said that the
consideration for the aforesaid purchase was paid from the
capital of the company. On 31.03.2012, 99.9% of the
respondent–company shareholdings were acquired by M/s
PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd.
at a discounted price of Rs.5/ per share for a total amount
of Rs.19,10,000/. It is a matter of fact that the two
directors of the respondentcompany (viz. Shruti Goenka
and Ritu Goenka) also held directorship in the subsequent
purchaser company.
2
6.Accordingly, on 29.08.2017, the Deputy Commissioner of
Income Tax (Adjudicating Authority) issued a notice to the
respondent–company invoking Section 24(1) of the 2016 Act
to show cause as to why the aforesaid property should not
be considered as Benami property and the respondent
company as Benamidar within the meaning of Section 2(8)
of the 2016 Act. On 06.09.2017, the respondent–company
replied to the aforesaid showcause notice denying that the
scheduled property is a Benami property.
7.The Adjudicating Authority, by order dated 24.11.2017,
passed an order under Section 24(4)(b)(i) of the 2016 Act,
provisionally attaching the property.
8.Aggrieved by the aforesaid attachment order, the
respondentcompany filed a Writ Petition (being W.P. No.
687 of 2017) before the High Court of Calcutta. The
aforesaid writ petition was disposed of by the learned Single
Judge by an order dated 18.12.2018 with a direction to the
Adjudicating Authority to conclude the proceedings within
12 weeks.
9.Aggrieved, the respondentcompany filed an appeal against
the aforesaid order being APO No. 8 of 2019.
3
10.The High Court, vide impugned order dated 12.12.2019,
while quashing the showcause notice dated 29.08.2017,
held that the 2016 Act does not have retrospective
application.
(i)The 2016 Amendment Act, which came into force on
01.11.2016, was a new and substantive legislation,
inter alia, substituting and widening the definition of
‘benami property and benami transaction’, and in
order to have retrospective operation for the period or
transactions entered into prior to 01.11.2016, a
provision to that effect should have been specifically
providing under the said Act; in the absence of any
express provision to that effect, simply by virtue of the
provisions contained in subsection (3) of Section 1 of
the 1988 Act [which remained unaltered by the 2016
Amendment Act, and have consequently been retained
under the Benami Act], the provisions of the 2016
Amendment Act cannot be impliedly construed as
retrospective;
(ii)Reference was made to and reliance was placed on the
unreported ruling of the learned Single Judge of the
Rajasthan High Court dated 12.07.2019 in the case of
Niharika Jain v. Union of India [S.B.C.W.P. No.
2915/2019], wherein, following the ruling of the Single
Judge of the Hon’ble Bombay High Court in the case of
Joseph Isharat v. Mrs. Rozy Nishikant Gaikwad
[S.A. No. 749/2015; decided on
01.03.2017/30.03.2017], it was held that in terms of
the protection enshrined under clause (1) of Article 20
of the Constitution of India, the 2016 Amendment Act,
amending, inter alia, the definition of “benami
transaction”, could not be given retrospective effect,
and the amendments brought about vide the said
(amendment) Act would be enforceable only with effect
from the date of the enactment / coming into force of
the said amendment Act i.e., on or after 01.11.2016 –
reliance in this regard was also placed on the ruling of
4
this Court in the case of Rao Shiv Bahadur Singh vs.
State of Vindhya Pradesh, AIR 1953 SC 394;
(iii)The 1988 Act, which came into force on 19.05.1988
[except Section 3, 5 and 8 thereof which came into
force on 05.09.1988], provided for punishment for
persons entering into a “benami transaction”, which
was made noncognizable and bailable, and also
however, provided for acquisition of property held to be
benami; provisions of the 1988 Act, were never
operationalized since the rules and procedure required
to be framed under Section 8 of the said Act bringing
into existence the machinery for implementation of the
1988 Act, were never notified – therefore, although the
1988 Act was part of the statute book, the same was
rendered a “dead letter”, and all transactions and
properties alleged ‘benami’, carried out / acquired
between the period of 19.05.1988 and 01.11.2016,
were deemed to have been accepted by the
Government as valid ‘vesting rights’ in the parties to
such alleged transactions; ergo, the Central
Government, having waived its right of implementation
and operationalisation of the 1988 Act for the period
prior to 01.11.2016, cannot now do so indirectly by
way of retrospective operation of the 2016 Amendment
Act.
11.Aggrieved by the aforesaid impugned order, the Union of
India is in appeal before this Court.
12.SUBMISSIONS
12.1Shri S.V Raju, learned Additional Solicitor General (‘ASG’)
has contended as under:
5
i.As per the preamendment Act, there was no
machinery or procedure in place to effectuate
proceedings against Benami transactions. It is
submitted that in order to remedy this mischief of
lack of procedure, the Amendment Act, which was a
consolidating Act, was brought in.
ii.It was not an offence that is sought to be
implemented retrospectively, but merely the
procedures are laid down to implement the Act of
1988. He stated that the preamendment Act already
recognizes Benami transactions as contrary to law,
and hence no new or substantive law is being made.
iii.It is settled law that procedural law can be applied
retrospectively, and the bar against retrospective
application is only applicable to substantive law.
iv.The legislative intent for bringing an amendment to
the existing act, and not enacting a new law, was to
ensure that no immunity is granted to persons who
engaged in benami transactions while the pre
amendment Act was in operation.
6
v.It was further submitted that Section 5 and Section
27 of the Act are to be read together as the latter
provides the mechanism through which the Benami
property may be confiscated by the Adjudicating
Authority. As per Section 27(3), once the confiscation
order is passed by the Authority, the rights in the
property are vested in the Central Government. It
was reiterated that confiscation is not a penal
provision, as the same has civil consequences. Both,
acquisition and confiscation are civil in nature, and
therefore, they can be used interchangeably.
Therefore, any amendment act which is
consolidating in nature, can have provisions which
are confiscatory in nature and the same can be
applied retrospectively. For this, the learned ASG
referred to Yogendra Kumar Jaiswal v. State of
Bihar, (2016) 3 SCC 183, para 149, and submitted
that in this judgment, this Court has held that
confiscation is not a punishment, and that Article
20(1) is not attracted. The Court also held that
confiscation as imposed by the Adjudicating
7
Authority would not amount to any punishment, and
is only a deprivation of the property of the person in
question.
vi.The learned ASG also referred to Mithilesh Kumari
v. Prem Behari Khare, (1989) 2 SCC 95, para 21, to
submit that by necessary implication, the machinery
and procedural provisions of the amended Act are
retrospective in nature.
12.2Shri Vikramjit Banerjee, learned ASG has submitted as
under:
i.The Parliament has the power to enact retrospective
legislation even in case of a criminal Statute, as long as
it complies with Article 20(1) of the Constitution of
India. He further argued that as per Article 20(1),
prohibition exists only on conviction and sentencing of
the expost facto law, and not against passing such a
law.
ii.Forfeiture, acquisition, and confiscation are not
punishments and therefore not subject to Article 20(1)
8
restrictions. He then pointed out that the adjudication
proceedings are also not in the nature of prosecution,
and hence cannot be restricted by Article 20.
iii.That acquisition of property without paying
compensation amounts to confiscation, and
confiscation envisages a civil liability.
12.3Dr. Abhishek Manu Singhvi, learned Senior Advocate
appearing for the respondent has contended as under:
i.The 1988 Act did not make its provisions applied
retrospectively. The Parliament purposely ensured
that when the 1988 Ordinance was replaced by the
parent Act, only the provisions from the 1988
Ordinance were continued from the date of the
promulgation of the ordinance. The other provisions
introduced by the parent Act, namely Sections 3, 5
and 8, were made only prospectively applicable from
the date on which the parent Act was brought into
effect.
ii.The 2016 Act was not intended to be retrospectively
applicable as the same is not explicitly stated.
9
Parliament deemed it fit to leave it to the Central
Government to enforce the 2016 Act from an
appointed date by notifying it in the official gazette, as
mentioned in Section 1(2) of the 2016 Act.
iii.It was further argued that when the statute carves out
distinct penalties in respect of benami transactions
entered into in the unamended regime visavis the
benami transactions entered into after the
amendment Act of 2016, it clearly indicates that the
amended Act is prospective in nature.
iv.Learned Senior Advocate also relied on the cases of R.
Rajagopal Reddy v. Padmini Chandrasekharan,
(1995) 2 SCC 630 and Mangathai Ammal v.
Rajeswari, (2020) 17 SCC 496, in the context of
Sections 4(1), 4(2) and 3(2) of the parent Act, to
contend that the abovementioned provisions are
prospective in nature.
v.It is also argued that insertion of Section 2(9) by an
amendment to the parent Act provides a new
definition to benami transactions and has
10
substantially changed the scope of the offence by
enlarging its ambit. In the unamended Act, only
transfer of property was an offence. However, the
2016 Act has added multiple other actions as offences
under the category of benami transactions. It is a well
settled principle of law that any enactment which
substantially affects the rights of people cannot be
applied retrospectively, and therefore, the amended
2016 Act can only be prospective in nature. For this,
the judgment of this Court in the case of
Commissioner of Income Tax (Central)I, New
Delhi v. Vatika Township Pvt. Ltd, (2015) 1 SCC 1
was relied on.
13.INTRODUCTION TO PRACTICE OF PROPERTIES HELD BENAMI IN INDIA
13.1Having heard the parties, it is necessary for this Court to trace
the history of benami transactions in India. The term
‘benami transaction’ generally implies that one purchases
the property in the name of somebody else, i.e., a name
lender, and the purchaser does not hold beneficial interest
11
in the property. Literally, ‘benami’ means ‘without a name’.
The simplest of example is if person ‘A’ (real owner)
purchases a property from ‘B’ in the name of ‘C’
(benamidar/ostensible owner), wherein ‘A’ exercise
rights/interest over the property.
13.2 The term ‘benami’, which was alien to statutory law during
the colonial regime and in the early days of the Republic,
was known in the legal parlance of lawyers. Even in
Mohammedan law, such transactions were commonly
referred as furzee or farzi, derived from Arabic word furaz.
1
Over the passage of time, this nebulous concept appeared in
cases without much clarity with respect to its basic
contours. Conceptually, there are two views which arise
from the Doctrine of Benami. The first view is that the
benamidar does not hold title over the property, and the
second view is that although the title passes to the
benamidar, he holds it in trust.
13.3 Eventually, there developed two loose categories of
transactions that were colloquially termed as benami, which
can be explained through the following examples:
1 McNaughten’s Selected Report Vol. I, Reporter’s Note at p. 368.
12
(i.)Tripartite: ‘B’ sells a property to ‘A’ (real owner),
but the sale deed mentions ‘C’ as the
owner/benamidar.
(ii.)Bipartite: ‘A’ sells property to ‘B’ without
intending to pass the title to ‘B’.
The first instance was usually termed as a real benami
transaction, and the second transaction was considered
either as a sham transaction or “loosely” benami
transaction. In Sree Meenakshi Mills Ltd. v.
Commissioner of Income Tax, Madras , AIR 1957 SC 49,
speaking for the Bench, Venkatarama Ayyar, J., stated that
the first category of transactions is ‘usually’ termed as
benami, while the second category is ‘occasionally’
considered a benami transaction. He added that it is
“perhaps not accurately so used”. In Thakur Bhim Singh
v. Thakur Kan Singh, AIR 1980 SC 727, Venkataramiah,
J. straightway called the first category as benami but chose
to describe the second category as “loosely” termed benami.
This distinction is relevant and will be adverted to later.
13
13.4 Numerous reasons, some desirable and some undesirable,
were contributory factors for the proliferation of such a
practice in India. Some of them are as follows:
(i)Secret provisions for families within Hindu Joint
family system;
2
(ii)Mitigation of political and social risk;
3
(iii)Defrauding creditors;
4
(iv)Evasion of taxes.
13.5 Judicial recognition of such transactions came about in the
early 19
th
century under the colonial courts. In Mt. Bilas
Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96, the Privy
Council observed as under:
“Down to the taluqdar’s death the natural
inference is that the purchase was a benami
transaction; a dealing common to Hindus and
Muhammadans alike, and much in use in
India; it is quite unobjectionable and has a
curious resemblance to the doctrine of our
English law that the trust of the legal estate
results to the man who pays the purchase
money, and this again follows the analogy of
our common law, that where a feoffment is
made without consideration the use results to
the feoffer.”
2 West and Buhler, ‘Hindu Law’, (Fourth Edition), Pg. 157, 563.
3 Pollock, The Law of fraud, Misrepresentation and Mistake in British India (1894), page 83
84.
4 K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (188485) Pg. 469470.
14
In Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38,
the Federal Court, while evaluating the propriety of such
transactions, observed as under:
“A notion has sometimes prevailed in this
country that all benami transactions must be
regarded as reprehensible and improper if not
illegal; but, as late as in 1915, Sir George
Farwell, delivering the judgment of the Judicial
Committee in 37 ALL. 557 spoke of them as
‘quite unobjectionable’ and as having their
analogues in the English law; and Mr. Amreer
Ali, delivering the judgment of the Committee
in 46 Cal. 566, observed that “there is nothing
inherently wrong in it, and it accords, within
its legitimate scope, with the ideas and habits
of the people”. As indicated by the qualifying
words “within its legitimate scope”, their
Lordships’ observations were clearly not meant
to countenance transactions entered into for
fraudulent or illegal purposes.”
13.6 In Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171, this
Court laid down a test to determine whether a transaction is
benami or not. The following factors were to be considered:
(i)The source from which the purchase money came;
(ii)The nature and possession of property after purchase;
(iii)Motive, if any, for giving the transaction a benami
colour;
(iv)The position of the parties and the relationship, if any,
between the Claimant and the alleged Benamidar.
(v)The custody of the titledeeds after the sale, and
15
(vi)The conduct of the parties concerned in dealing with
the property after the sale.
13.7 The judiciary came to establish the general principle that in
law, the real owner is recognized over the ostensible owner.
5
This principle had certain statutory exceptions, albeit
limited, such as Section 66 of Civil Procedure Code, 1908
with respect to properties wherein sale certificates are
issued by courts; and Section 281A of the Income Tax Act,
1961, which allows filing of suit by the original owner to
enforce his right over a benami property, only if the same is
declared for taxing purpose, as provided thereunder. Such
provision under the Income Tax Act did not bar such
benami transactions completely, rather it only attempted to
legitimize and bring them into the net of taxation. Such
provision, while disincentivizing transactions beyond the
taxation net, had also inevitably accepted the positive
factors in recognizing the same. Further, it is a matter of
fact that the Indian Trusts Act has recognized and accepted
the principle behind benami transactions.
5 Murlidhar Narayandas v. Paramanand Luchmandas , AIR 1932 Bom. 190; Radhakishan
Brijlal v. Union of India, AIR 1959 Bom. 102 (V46 C40); Gur Prasad v. Hansraj, AIR (33)
1946 Oudh. 144.
16
13.8 The 57
th
Report of the Law Commission (1973) succinctly
captures the general principles prevailing as on that date, in
the following manner:
“5.2 Summary of present position in generalA few
basic points concerning benami transactions may be
stated, as follows:
(a)Benami transfer or transaction means the transfer
by or to a person who acts only as the ostensible
owner in place of real owner whose name is not
disclosed;
(b)The question whether such transfer or transaction
was real or benami depends upon the intention of
the beneficiary;
(c)The real owner in such cases may be called the
beneficiary, and the ostensible owner the
benamidar.
…
5.3. Effect of benami transfer. The effect of a benami
transfer is as follows:
(a)A person does not acquire any interest in property
by merely leading his name;
(b)The benamidar has no beneficial interest though he
may represent the legal owner as to third person.
(c)A benami transaction is legal, except in certain
specified situations.
(Emphasis supplied)
13.9 Prior to the 1973 Report, the broad position on the legality
of various kinds of benami transactions can be captured as
follows:
SL.
NO.
NATURE OF TRANSFER LEGALITY AND
CONSEQUENCES
A Transfer in favour of wife or
child (whether or not with
Governed by Section
64, Incometax Act
17
the object of transferring title
to the wife or child) without
adequate consideration
(also see point G in
table). [No criminal
liability unless the
case falls within
Section 415 to 424 or
Section 206207 of
Indian Penal Code]
B Transfer in favour of wife or
child for consideration, but
for a fraudulent purpose and
not in good faith
Governed by Section
6(h)(2) and Section 58
of Transfer of Property
Act. [Criminal liability
if the case falls within
Section 415 to 424 or
Section 206207 of
Indian Penal Code]
C Transfer in favour of wife or
child for consideration, and
with genuine object of
transferring title to the wife
or child
Not covered by any
provision (No criminal
liability)
D
(i)
Transfer in favour of a
person other than wife
or child without
consideration, but with
the genuine object of
transferring title and
with no fraudulent
purpose
Not covered by any
provision. (No criminal
liability)
(ii)
Transfer in favour of a
person other than wife
or child without
consideration, and
without intent to
transfer title, but with
no fraudulent purpose.
Governed by Section
281A of Income Tax
Act, 1961 (also see
point G in table). [No
criminal liability]
(iii)Transfer in favour of a
person other than wife
or child without
consideration, and with
Governed by Section
6(h)(2) and Section 53
of Transfer of Property
Act. [Criminal liability
18
intent to transfer title,
but for a fraudulent
purpose and not in good
faith.
if the case falls within
Section 415 to 424 or
Section 206207 of
Indian Penal Code]
(iv)Transfer in favour of a
person other than wife
or child without
consideration, without
intent to transfer title
and for fraudulent
purpose.
Governed by Section
281A of Income Tax
Act, 1961 (See point G
in table). Also section
6(h)(2) and Section 59,
Transfer of Property
Act. (Criminal liability
if case falls within
Section 415 to 424 of
Indian Penal Code or
Section 206207 of
that Code)
E Transfer in favour of person
other than wife or child for
consideration, with intent to
transfer title, but for a
fraudulent purpose and not
in good faith.
Governed by Section
6(h)(g) and Section 53,
Transfer of Property
Act. (criminal liability
if case falls within
Section 415 to 424 of
Indian penal Code or
Section 206207 of
that Code
F Transfer in favour of person
other than wife or child with
consideration, but with
genuine object of transferring
ownership and with no
fraudulent intent
Not covered by any
provision.
G Transfer in favour of any
person benami (i.e., without
consideration and with no
genuine intent to transfer)
Object of checking tax
evasion substantially
achieved by barring a
suit instituted without
informing the taxing
authorities. See
Section 231A, Income
Tax Act (inserted by
Act 45 of 1972)
19
13.10It may be necessary to note that the Law Commission,
through its aforementioned 57
th
Report, did not find it
suitable to accept the stringent provision of making benami
transactions liable to criminal action. Rather, it
recommended adoption of certain less stringent, civil
alternatives in the following manner:
“6.3. Possible alternative for regulating benami
transaction. Several possible alternatives could be
thought of, with reference to prohibiting or regulating
benami transactions for avoiding prejudice to private
individuals or minimising litigation:
(i) Entering into a Benami transactions could be
made an offence;
(ii) A provision may be enacted to the effect that
in a civil suit a right shall not be enforced against
the benamidar or against a third person, by or on
behalf of the person claiming to be the real owner
of the property on the ground of benami; a similar
provision could be made to bar defences on the
ground of benami.
(This provision would be based on the principle on
which the existing provisions in the Civil Procedure
Code and the new provision in the Incometax Act are
based but could be wider in scope and more radical).
(iii) The present presumption of a resulting trust in
favour of the person who provided the consideration
may be displaced (as in England) by the presumption
of advancement, in cases where the person to whom
property is transferred is a near relative of the person
who provided the consideration. (This would bring in
the doctrine of advancement, so as to rebut the
presumption of resulting trust under section 82 of the
Trusts Act).
20
Whichever alternative is adopted, it may be desirable
to make an exception for an acquisition made by the
manager of a joint Hindu family in the name of one of
the coparceners, and similar cases.
…
6.24. First alternative not likely to be effectiveThe
first alternative referred to above, namely, the
imposition of a criminal prohibition against benami
transactions, is the most drastic alternative, but it is
not likely to be more effective than the others. A
prohibition backed by criminal sanctions would not,
moreover, be desirable, unless the mens rea is also
included in the provision to be enacted.
If this alternative is to be adopted, a provision could
be enacted on the following lines:
"Where property is transferred to one person for a
consideration paid or provided by another person, and
it appears that such person did not intend to pay or
provide such consideration for the benefit of the
transferee, the person paying or providing the
consideration shall be guilty of an offence punishable
with imprisonment upto three years, or with fine, or
both.
Provided that this section shall not apply where the
transferee is a coparcener in a Hindu undivided family
in which such other person is also a coparcener, and
it is proved that such other person intended to pay or
provide such consideration for the benefit of the co
parceners in the family.
ExceptionNothing in this section shall be deemed to
affect section 66 of the Code of Civil Procedure, 1908
or any provision similar thereto."
Yet another device for giving effect to the first
alternative, with a requirement of mens rea, would be
to have a law on the following lines:
"Where property is transferred to one person for a
consideration paid or provided by another person,
and it appears that such person did not intend to
pay or provide such consideration for the benefit
21
of the transferee, the person paying: or providing
the consideration shall, if he has caused the
transfer to be entered into with the intention of
facilitating the evasion of any law, or defeating
the claims of his creditors, or the creditors of any
other person be guilty of an offence punishable
with imprisonment upto three years, or with fine,
or with both."
Yet another device to give effect to the first alternative
would be to add a section in the Indian Penal Code as
follows
"421A. Whoever, dishonestly or fraudulently
causes to be transferred to any person, any
property, for which transfer he has paid or
provided the consideration, intending thereby to
prevent, or knowing to be likely that he will
thereby prevent, the distribution of that property
according to law among his creditors or the
creditors of any other person, or intending
thereby to facilitate, or knowing it to be likely that
he will thereby facilitate, the evasion of any law,
shall be punished with imprisonment of either
description for a term which may extend to two
years, or with fine. or with both."
6.25. Second alternative. The second alternative is
less drastic than. the first. In form. it could follow the
existing statutory provision limiting the judicial
recognition of benami transactions, such as, section
66. Code of Civil Procedure, 1908. But its scope would
be much wider. The provision' could be to the effect
that no suit shall lie to enforce a right in respect of any
property held benami, either against the person in
whose name 'the property is held or against any other
person, by or on behalf of a person who claims to be
the real owner 'of the property on the ground that the
person in whose name the property is held is a
benamidar of the claimant. (If necessary, a defence can
also be barred).
…
22
6.27. Second alternative refusal to recognise
Benami preferred. In our opinion, the simplest
alternative would be the second alternative. The law
should refuse to recognise the Benami character of
transactions, without making them an offence. The law
should, in effect, provide that where property is
transferred benami, the benamidar will become the
real owner. The result of such a provision will be that
the fact that the benamidar did not provide the
consideration, or that the consideration was provided
by a third person, will not be a ground for recognising
a person other than the benamidar as owner. To put
the matter in broad terms, the doctrine of benami will,
under the pro posed amendment, cease to be a part of
the Indian law.
It may be observed that in enacting the proposed
provision, the legislature will carry, to its logical
conclusion, the trend illustrated by provisions, such
as, section 66 of the Code of Civil Procedure. The
section in the Code is applicable to involuntary
alienations, while the proposed provision will extend
the same principle to voluntary transactions as Well.
We think that this will be the simplest and most
effective course, and is, therefore, preferable to others.
The amendment will bring out a change in the legal
position in some of the situations where, at present,
the benami character is re cognised.
6.27A. We are also of the view that it is not necessary
to enact a prohibition attracting criminal penalties
which is the course suggested in the first alternative.
Such a prohibition will have to be ac companied by a
requirement of mens rea, thus narrowing down its
scope and limiting its practical utility.”
23
13.11It must be noted that during this time, the Constitution was
undergoing a slow churning qua the right to property. The
above propositions, laid down by Federal Courts and Privy
Council are to be understood in a context where there was a
general common law right to property, which later made its
forays into the Constitution of India under Articles 19(1)(f)
and 31. In 1978, the Indian Parliament took a drastic
measure and did away with this fundamental right to
property and relegated the same to a constitutional right
under Article 300A.
13.12Further, it was an era during which India pursued
‘socialism’, which was also included in the Preamble of the
Constitution through the 42
nd
(Amendment) Act in 1976.
Successive judicial opinions in Kesavananda Bharati v.
State of Kerala, (1973) 4 SCC 225 etc., viewed the right to
property as a stumbling block in the path of achieving social
goals that the government of the time aspired to.
13.13In 1988, an Ordinance –viz. The Benami Transactions
(Prohibition of the Right of Recover Property) Ordinance,
1988 (Ordinance 2 of 1988.) – was promulgated. This
24
statutory instrument being not satisfactory, it was referred
to the Law Commission again.
13.14In any case, the issue was reexamined by the Law
Commission in the year 1988 through its 130
th
Report.
Although the Law Commission characterized the 130
th
Report as a continuation of its earlier recommendations, it
can be observed that some radical changes were suggested.
Some of the key observations are as under:
“3.2 The first question that must engage our
attention at once is the width and coverage
of the proposed legislation. In order to
encompass benami transactions
concerning various types of property, the
legislation should cover both movable,
immovable, tangible and intangible
property. Unfortunately every type of
property, such as land, houses, shares,
debentures, bonds, bank accounts,
deposit receipts and negotiable
instruments, is capable of being held
benami. Therefore, it is equally legitimate
to have an extensive coverage of the
proposed legislation by encompassing
property of every denomination. …
…
3.18 Therefore, viewed from either angle,
the Law Commission is of the firm opinion
that the legislation replacing the ordinance
should also be retroactive in operation and
that no locus penitentia need be given to the
persons who had entered into benami
transactions in the past. They had notice of
25
one and half decades to set their house in
order. No more indulgence is called for. …
…
4.5Before we conclude on this chapter, it is
necessary to point out that certain tax laws
have confirmed legitimacy on the benami
transactions and derived benefit in the form
of revenue collection from it. It was,
therefore, said that if now all benami
transactions are invalidated and an all
enveloping prohibition is imposed, the
revenue laws would suffer loss of revenue.
Reference in this connection was made to
section 27 of the Incometax Act, 1962
dealing with income from house property.
The various subsections of section 27 deal
with transfer of property by husband to wife
and viceversa. It also involves the case of
impartable estate. The law commission is
unable to appreciate how a total prohibition
of benami transaction and the holder being
made the real owner would defeat revenue
laws. If one escapes, the other pays, and if it
is suggested that the other may not be
within the dragnet of the tax laws and that
both would benefit by the prohibition and
abolition of benami transactions. In the
immediate future such effect may be
produced but the long term interest would
help in defending such spurious
transactions between husband and wife.
Section 22 may be read accordingly. But it
was pointed out that where transfer of flats
is prohibited either by the rules of the co
operative society which has built the flats or
by the rules of authorities like the Delhi
Development Authority, a modus operandi
has come into existence whereby violating
the law, the flat is sold and the purchaser
would pay the amount and taken an
26
irrevocable power of attorney and enter into
possession. It was further said that the
provisions of the Incometax Act have
recognized such transfers and treat the
attorney as owner for the purpose of income
tax as per the provisions of the Finance Act,
1987. If the sole purpose of entering into
such a transaction is the violation of existing
law which has been passed after due
consideration, it is time that no recognition
is conferred and the law is allowed to take
its own course. Even in the name of revenue
loss, violation of existing laws cannot be
protected.
4.6The Law Commission would like to make
it very clear that some of provisions of the
tax laws may become anachronistic because
of the present approach of the law
commission. This is inevitable. The tax laws
were enacted at the time when benami was a
part of Indian law. Such laws would have to
conform to the changing legal order. Yet a
further solution is offered in this behalf in
the next chapter.”
(emphasis supplied)
14.FRAMEWORK UNDER THE 1988 ACT
14.1 This brings us to the statutory framework under the 1988
unamended Act, having nine sections. Section 2(a) defines
benami transactions as any transaction in which property is
transferred to one person for a consideration paid or
provided by another person. The law chose to include only
tripartite benami transactions, while bipartite/loosely
described as benami transactions, were left out of the
27
definition. Reading the aforesaid definition to include
sham/bipartite arrangements within the ambit would be
against the strict reading of criminal law and would amount
to judicial overreach.
14.2 The above definition does not capture the essence of benami
transactions as the broad formulation includes certain types
of legitimate transactions as well. The transferee/property
holder’s lack of beneficial interest in the property was a vital
ingredient, as settled by years of judicial pronouncements
and common parlance, and found to be completely absent in
the definition given in the Act. On literal application of the
aforesaid Section 2(a), the following transactions could have
been caught in the web of the Act:
(a)‘A’ purchases property in name of his son’s wife ‘B’, for
the benefit of the son’s family from person ‘Y’, treats the
consideration as a gift to the son, and pays gift tax on it.
(b)‘A’ who is old and infirm, purchases a property in the
name of ‘B’, intending that ‘B’ will hold the property in
trust of the son of ‘A’, who is mentally retarded.
(c)A firm ‘X’ purchases property in the name of the working
partner ‘B’ for the benefit of the firm ‘X’, making the
payment out of the firm’s funds.
28
14.3 Section 2(c) of the 1988 Act defines property to be property
of any kind, whether movable or immovable, tangible, or
intangible, and includes any right or interest in such
property. This definition appears to be broad and inclusive
of all kinds of property and includes various rights and
interests. Interestingly, the aforesaid broad formulation of
property came about for the first time in the 130
th
Law
Commission Report; such definitional broadening was for
the first time introduced only in 1988 and was never
contemplated during the 57
th
Report (1973). This aspect
becomes important, and will be addressed later, while
analysing the question of retrospectivity.
14.4 Section 3 of 1988 Act states as under:
3. Prohibition of benami transactions (1) No
person shall enter into any benami
transaction.
(2) Nothing in subsection (1) shall apply to the
purchase of property by any person in the
name of his wife or unmarried daughter and it
shall be presumed, unless the contrary is
proved, that the said property had been
purchased for the benefit of the wife of the
unmarried daughter.
(3) Whoever enters into any benami
transaction shall be punishable with
29
imprisonment for a term which may extend to
three years or with fine or with both.
(4) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974),
an offence under this section shall be non
cognizable and bailable.
Section 3 puts forth a prohibitive provision. Further, it
intended to criminalize an act of entering into a benami
transaction.
14.5 Section 4 noted as under:
4.Prohibition of the right to recover
property held benami (1) No suit, claim or
action to enforce any right in respect of any
property held benami against the person in
whose name the property is held or against
any other person shall lie by or on behalf of
a person claiming to be the real owner of
such property.
(2) No defence based on any right in respect
of any property held benami, whether
against the person in whose name the
property is held or against any other person,
shall be allowed in any suit, claim or action
by or on behalf of a person claiming to be
the real owner of such property.
(3) Nothing in this section shall apply,
(a) where the person in whose name the
property is held is a coparcener in a Hindu
undivided family and the property is held for
the benefit of the coparceners in the family;
or
30
(b) where the person in whose name the
property is held is a trustee or other person
standing in a fiduciary capacity, and the
property is held for the benefit of another
person for whom he is a trustee or towards
whom he stands in such capacity.
14.6 Section 5 states:
5. Property of benami liable to acquisition
(1) All properties held benami shall be subject
to acquisition by such authority, in such
manner and after following such procedure as
may be prescribed.
(2) For the removal of doubts, it is hereby
declared that no amount shall be payable for
the acquisition of any property under sub
section (1).
It may be noted that Section 5 was never utilized as it was
felt that there was requirement of additional statutory
backing to make the law effective.
6
14.7 Section 6 provided that nothing in the 1988 Act will affect
Section 53 of the Transfer of Property Act or any law relating
to transfers for an illegal purpose. The object of Section 6
was to vest ownership rights in benamidars as opposed to
the real owner. It was not the intention of the 1988 Act to
protect such persons from creditors who allege diversion of
6 Standing Committee on Finance 2015-2016, 16
th
Lok Sabha, Ministry of Finance (Deptt. of Revenue), The
Benami Transactions Prohibition (Amendment) Bill, 2015, 28
th
Report, Part I.
31
funds in a fraudulent manner and allow them to escape
their liability to the creditors. Therefore, Section 6 limited
the application of Section 4 in such cases.
14.8 Section 7 of the 1988 Act repealed Sections 81, 82 and 94 of
the Indian Trusts Act, 1882 (2 of 1882); Section 66 of the
Code of Civil Procedure, 1908 (5 of 1908.); and Section 281A
of the Income Tax Act, 1961 (43 of 1961). Section 8
empowered the Central Government to make rules to give
effect to the Act. The final section, Section 9, repealed the
earlier Ordinance.
14.9 The main thrust of the argument put forth by the Union of
India in this appeal is that the amended 2016 Act only
clarified the 1988 Act. Law Officers appearing for the Union
of India trained their guns on the point that the 1988 Act
had already created substantial law for criminalizing the
offence and the 2016 amendments were merely clarificatory
and procedural, to give effect to the 1988 Act. Such a
submission mandates us to examine the law of the 1988 Act
in detail and determine the scope of the earlier regime to
32
understand as to whether the 2016 amendments were
substantive or procedural.
14.10Reading Section 2(a) along with Section 3 makes one thing
clear – the criminal provision envisaged under the aforesaid
provisions does not expressly contemplate mens rea. Under
the Indian jurisprudence, the law on the subject is fairly
wellsettled. It has been subjected to the judicial scrutiny of
this Court on several occasions. It does not call for a
detailed discussion and is enough to restate the principles.
Mens rea is an essential ingredient of a criminal offence.
Doubtless, a statute may exclude the element of mens rea,
but it is a sound rule of construction adopted in England –
and also accepted in India – to construe a statutory
provision creating an offence in conformity with common
law rather than against it, unless the statute expressly or by
necessary implication excluded mens rea. The mere fact that
the object of the statute is to promote welfare activities or to
eradicate a grave social evil which by itself is not decisive of
the question as to whether the element of a guilty mind is
excluded from the ingredients of an offence. Mens rea by
necessary implication may be excluded from a statute only
33
where it is absolutely clear that implementation of the object
of the statute would otherwise be defeated. [refer Nathulal
v. State of Madhya Pradesh, AIR 1966 SC 43]
14.11In the above light, this Court’s first endeavour is to attempt
to interpret the law to imply mens rea. However, the
language of Section 2(a) coupled with Section 3, completely
ignores the aspect of mens rea, as it intends to criminalize
the very act of one person paying consideration for
acquisition of property for another person. The mens rea
aspect was specifically considered by the 57
th
Law
Commission Report, and the same was not integrated into
the unamended 1988 Act. The observations made in the
130
th
Law Commission Report indicate that benami
transactions are abhorrent when it comes to public wealth
and impedes the government from achieving its social goals.
This clearly allows us to infer that the 1988 law was
envisaged on the touchstone of strict liability.
14.12Such strict statutory formulation under Section 2(a) read
with Section 3 had left loose ends in the 1988 Act. In this
light, the prosecution would only have to prove only that
34
consideration was paid or consideration was provided by
one person for another person and nothing more. In all the
judicial precedents, this Court has had the occasion to
examine this legislation on the civil side and never on the
criminal side, which would bear a higher standards.
Conflation of the ingredients under Section 3(1) and (2) with
those of Section 4, to forcefully implied mens rea, cannot be
accepted.
14.13It may be noted that Supreme Court has dealt with the
interpretation of Section 4 of 1988 Act, on several occasions.
In Mithilesh Kumari v. Prem Behari Khare , (1989) 2 SCC
95, this Court was called upon to examine as to whether the
aforesaid provision has retrospective application, held as
under:
“22. As defined in Section 2(a) of the Act “
‘benami transaction’ means any transaction in
which property is transferred to one person for
a consideration paid or provided by another
person”. A transaction must, therefore, be
benami irrespective of its date or duration.
Section 3, subject to the exceptions, states
that no person shall enter into any benami
transaction. This section obviously cannot
have retrospective operation. However, Section
4 clearly provides that no suit, claim or action
to enforce any right in respect of any property
35
held benami against the person in whose name
the property is held or against any other
person shall lie, by or on behalf of a person
claiming to be real owner of such property.
This naturally relates to past transactions
as well. The expression “any property held
benami” is not limited to any particular
time, date or duration. Once the property is
found to have been held benami, no suit,
claim or action to enforce any right in
respect thereof shall lie. Similarly, sub
section (2) of Section 4 nullifies the
defences based on any right in respect of
any property held benami whether against
the person in whose name the property is
held or against any other person in any
suit, claim or action by or on behalf of a
person claiming to be the real owner of
such property. It means that once a property
is found to have been held benami, the real
owner is bereft of any defence against the
person in whose name the property is held or
any other person. In other words in its sweep
Section 4 envisages past benami
transactions also within its retroactivity. In
this sense the Act is both a penal and a
disqualifying statute. In case of a qualifying or
disqualifying statute it may be necessarily
retroactive. For example when a Law of
Representation declares that all who have
attained 18 years shall be eligible to vote,
those who attained 18 years in the past would
be as much eligible as those who attained that
age at the moment of the law coming into
force. When an Act is declaratory in nature the
presumption against retrospectivity is not
applicable. Acts of this kind only declare. A
statute in effect declaring the benami
36
transactions to be unenforceable belongs to
this type. The presumption against taking
away vested right will not apply in this case
inasmuch as under law it is the benamidar in
whose name the property stands, and law only
enabled the real owner to recover the property
from him which right has now been ceased by
the Act. In one sense there was a right to
recover or resist in the real owner against the
benamidar. Ubi jus ibi remedium. Where there
is a right, there is a remedy. Where the remedy
is barred, the right is rendered unenforceable.
In this sense it is a disabling statute. All the
real owners are equally affected by the
disability provision irrespective of the time of
creation of the right. A right is a legally
protected interest. The real owner's right was
hitherto protected and the Act has resulted in
removal of that protection.
23. When the law nullifies the defences
available to the real owner in recovering the
benami property from the benamidar the law
must apply irrespective of the time of the
benami transactions. The expression “shall lie”
in Section 4(1) and “shall be allowed” in
Section 4(2) are prospective and shall apply to
present (future stages) and future suits, claims
or actions only. This leads us to the question
whether there was a present suit between the
respondentplaintiff and the defendant
appellant on the date of the law coming into
force. We have noted the dates of filing the suit
and judgments of the courts below. On the
date of Section 4 of the Act coming into force,
that is, 1951988 this appeal was pending
and, of course, is still pending. Can the suit
itself be said to be pending?
(emphasis supplied)
37
14.14The aforesaid interpretation was reexamined by this Court
in R. Rajagopal Reddy v. Padmini Chandrasekharan,
(1995) 2 SCC 630 and while partly overruling Mitilesh
Kumari (supra), it was held as under:
11. … Thus it was enacted to efface the then
existing right of the real owners of properties
held by others benami. Such an Act was not
given any retrospective effect by the
legislature. Even when we come to Section
4, it is easy to visualise that subsection (1)
of Section 4 states that no suit, claim or
action to enforce any right in respect of
any property held benami against the
person in whose name the property is held
or against any other shall lie by or on behalf
of a person claiming to be the real owner of
such property. As per Section 4(1) no such
suit shall thenceforth lie to recover the
possession of the property held benami by the
defendant. Plaintiff's right to that effect is
sought to be taken away and any suit to
enforce such a right after coming into
operation of Section 4(1) that is 1951988,
shall not lie. The legislature in its wisdom
has nowhere provided in Section 4(1) that
no such suit, claim or action pending on
the date when Section 4 came into force
shall not be proceeded with and shall stand
abated. On the contrary, clear legislative
intention is seen from the words “no such
claim, suit or action shall lie”, meaning
thereby no such suit, claim or action shall be
permitted to be filed or entertained or admitted
38
to the portals of any court for seeking such a
relief after coming into force of Section 4(1). …
The word ‘lie’ in connection with the suit,
claim or action is not defined by the Act. If we
go by the aforesaid dictionary meaning it
would mean that such suit, claim or action to
get any property declared benami will not be
admitted on behalf of such plaintiff or
applicant against the defendant concerned in
whose name the property is held on and from
the date on which this prohibition against
entertaining of such suits comes into force.
With respect, the view taken that Section 4(1)
would apply even to such pending suits which
were already filed and entertained prior to the
date when the section came into force and
which has the effect of destroying the then
existing right of plaintiff in connection with the
suit property cannot be sustained in the face
of the clear language of Section 4(1). It has to
be visualised that the legislature in its wisdom
has not expressly made Section 4
retrospective. Then to imply by necessary
implication that Section 4 would have
retrospective effect and would cover pending
litigations filed prior to coming into force of the
section would amount to taking a view which
would run counter to the legislative scheme
and intent projected by various provisions of
the Act to which we have referred earlier. It is,
however, true as held by the Division Bench
that on the express language of Section 4(1)
any right inhering in the real owner in respect
of any property held benami would get effaced
once Section 4(1) operated, even if such
transaction had been entered into prior to the
coming into operation of Section 4(1), and
henceafter Section 4(1) applied no suit can lie
in respect to such a past benami transaction.
To that extent the section may be retroactive.
39
To highlight this aspect we may take an
illustration. If a benami transaction has taken
place in 1980 and a suit is filed in June 1988
by the plaintiff claiming that he is the real
owner of the property and defendant is merely
a benamidar and the consideration has flown
from him, then such a suit would not lie on
account of the provisions of Section 4(1). Bar
against filing, entertaining and admission of
such suits would have become operative by
June 1988 and to that extent Section 4(1)
would take in its sweep even past benami
transactions which are sought to be litigated
upon after coming into force of the prohibitory
provision of Section 4(1); but that is the only
effect of the retroactivity of Section 4(1) and
nothing more than that. From the conclusion
that Section 4(1) shall apply even to past
benami transactions to the aforesaid
extent, the next step taken by the Division
Bench that therefore, the then existing
rights got destroyed and even though suits
by real owners were filed prior to coming
into operation of Section 4(1) they would
not survive, does not logically follow.
12. So far as Section 4(2) is concerned, all that
is provided is that if a suit is filed by a plaintiff
who claims to be the owner of the property
under the document in his favour and holds
the property in his name, once Section 4(2)
applies, no defence will be permitted or
allowed in any such suit, claim or action by or
on behalf of a person claiming to be the real
owner of such property held benami. The
disallowing of such a defence which earlier
was available, itself suggests that a new
liability or restriction is imposed by Section
40
4(2) on a preexisting right of the defendant.
Such a provision also cannot be said to be
retrospective or retroactive by necessary
implication. It is also pertinent to note that
Section 4(2) does not expressly seek to apply
retrospectively. So far as such a suit which is
covered by the sweep of Section 4(2) is
concerned, the prohibition of Section 4(1)
cannot apply to it as it is not a claim or action
filed by the plaintiff to enforce right in respect
of any property held benami. On the contrary,
it is a suit, claim or action flowing from the
sale deed or title deed in the name of the
plaintiff. Even though such a suit might have
been filed prior to 1951988, if before the
stage of filing of defence by the real owner is
reached, Section 4(2) becomes operative from
1951988, then such a defence, as laid down
by Section 4(2) will not be allowed to such a
defendant. However, that would not mean that
Section 4(1) and Section 4(2) only on that
score can be treated to be impliedly
retrospective so as to cover all the pending
litigations in connection with enforcement of
such rights of real owners who are parties to
benami transactions entered into prior to the
coming into operation of the Act and specially
Section 4 thereof. It is also pertinent to note
that Section 4(2) enjoins that no such defence
“shall be allowed” in any claim, suit or action
by or on behalf of a person claiming to be the
real owner of such property. That is to say no
such defence shall be allowed for the first time
after coming into operation of Section 4(2). If
such a defence is already allowed in a pending
suit prior to the coming into operation of
Section 4(2), enabling an issue to be raised on
such a defence, then the Court is bound to
decide the issue arising from such an already
allowed defence as at the relevant time when
such defence was allowed Section 4(2) was out
41
of the picture. Section 4(2) nowhere uses the
words: “No defence based on any right in
respect of any property held benami whether
against the person in whose name the property
is held or against any other person, shall be
allowed to be raised or continued to be raised
in any suit.” With respect, it was wrongly
assumed by the Division Bench that such an
already allowed defence in a pending suit
would also get destroyed after coming into
operation of Section 4(2). We may at this stage
refer to one difficulty projected by learned
advocate for the respondents in his written
submissions, on the applicability of Section
4(2). These submissions read as under:
…
13. According to us this difficulty is inbuilt in
Section 4(2) and does not provide the rationale
to hold that this section applies
retrospectively. The legislature itself thought it
fit to do so and there is no challenge to the
vires on the ground of violation of Article 14 of
the Constitution. It is not open to us to rewrite
the section also. Even otherwise, in the
operation of Section 4(1) and (2), no
discrimination can be said to have been made
amongst different real owners of property, as
tried to be pointed out in the written
objections. In fact, those cases in which suits
are filed by real owners or defences are allowed
prior to coming into operation of Section 4(2),
would form a separate class as compared to
those cases where a stage for filing such suits
or defences has still not reached by the time
Section 4(1) and (2) starts operating.
Consequently, latter type of cases would form
a distinct category of cases. There is no
question of discrimination being meted out
while dealing with these two classes of cases
42
differently. A real owner who has already been
allowed defence on that ground prior to
coming into operation of Section 4(2) cannot be
said to have been given a better treatment as
compared to the real owner who has still to
take up such a defence and in the meantime
he is hit by the prohibition of Section 4(2).
Equally there cannot be any comparison
between a real owner who has filed such suit
earlier and one who does not file such suit till
Section 4(1) comes into operation. All real
owners who stake their claims regarding
benami transactions after Section 4(1) and (2)
came into operation are given uniform
treatment by these provisions, whether they
come as plaintiffs or as defendants.
Consequently, the grievances raised in this
connection cannot be sustained.
14.15Returning to the discussion at hand, there is no doubt that
the unamended 1988 Act tried to create a strict liability
offence and allowed separate acquisition of benami property.
This begs the question whether such a criminal provision,
which the State now intends to make use of, in order to
confiscate properties after 28 years of dormancy, could have
existed in the books of law. Other than the abuse and
unfairness such exercise intends to bring about, there is a
larger constitutional question about existence of such strict
provisions without adequate safeguards.
43
15.SUBSTANTIVE DUE PROCESS, MANIFEST ARBITRARINESS AND
PROVISIONS UNDER 1988 ACT.
15.1 The simple question addressed by the counsel appearing for
both sides is whether the amended 2016 Act is retroactive
or prospective. Answering the above question is inevitably
tied to an intermediate question as to whether the 1988 Act
was constitutional in the first place. The arguments
addressed by the Union of India hinges on the fact that the
1988 Act was a valid substantive law, which required only
some gap filling through the 2016 Act, to ensure that
sufficient procedural safeguards and mechanisms are
present to enforce the law. According, to the Union of India,
the 2016 Act was a mere gap filling exercise.
15.2 However, upon studying the provisions of the 1988 Act, we
find that there are questions of legality and constitutionality
which arise with respect to Sections 3 and 5 of 1988 Act.
The answers to such questions cannot be assumed in favour
of constitutionality, simply because the same was never
questioned before the Court of law. We are clarifying that we
are not speaking of the presumption of constitutionality as a
matter of burden of proof. Rather, we are indicating the
assumption taken by the Union as to the validity of these
44
provisions in the present litigation. Such assumption cannot
be made when this Court is called upon to answer whether
the impugned provisions are attracted to those transactions
that have taken place before 2016.
15.3 Indian jurisprudence has matured through years of judicial
tempering, and the country has grown to be a jurisdiction
having ‘substantive due process’. A brief sketch of the
jurisprudential journey thus far, may be necessary to aid
our understanding.
15.4 There is no gain saying that deletion of the phrase ‘due
process of law’ from the draft Constitution was inspired by
the views of James Bradley Thayer and Justice Felix
Frankfurter, who held that concentration of power to
examine reasonability of a legislation through judicial review
would fall foul of separation of powers and denigration of
parliamentary sovereignty. Dr. Ambedkar himself did not
want to side with any of the above opinions, rather he
envisaged the situation as one who is caught between
Charybdis and Scylla.
45
15.5 The emphasis on the aforesaid deletion by the majority in
A.K Gopalan v. State of Madras , AIR 1950 SC 27, was
somewhat drawn back by the celebrated dissent of Fazal Ali,
J., wherein the term “Procedure established by law” was
interpreted to mean “Procedural due process”. This judicial
quibbling was ultimately set to rest in Maneka Gandhi v.
Union of India, (1978) 1 SCC 248, wherein a combined
reading of Articles 14, 19 and 21 would make it clear that
the judiciary, so to say, always had the forensic power to
examine reasonability of a law, both procedural as well as
substantive. Later expositions have only given colour to
expand what was implicit under the three golden Articles of
Part III. In Sunil Batra v. Delhi Administration, (1978) 4
SCC 494, the word law as occurring under Article 21 was
interpreted to mean jus and not merely lex. It may be
necessary to quote the observation of the majority in the
aforesaid case in the following manner:
“228…The word “law” in the expression
“procedure established by law” in Article 21
has been interpreted to mean in Maneka
Gandhi case that the law must be right,
just and fair and not arbitrary, fanciful
or oppressive.”
(Emphasis supplied)
46
15.6 Without burdening this judgment with a series of
precedents laid down by this Court, we may refer only to the
majority opinion in K. Puttaswamy v. Union of India ,
(2017) 10 SCC 1, wherein the law has been settled by a
NineJudge Bench of this Court in the following manner:
“294. The Court, in the exercise of its
power of judicial review, is unquestionably
vested with the constitutional power to
adjudicate upon the validity of a law. When
the validity of a law is questioned on the
ground that it violates a guarantee
contained in Article 21, the scope of the
challenge is not confined only to whether
the procedure for the deprivation of life or
personal liberty is fair, just and reasonable.
Substantive challenges to the validity of
laws encroaching upon the right to life or
personal liberty has been considered and
dealt with in varying contexts, such as the
death penalty (Bachan Singh [Bachan
Singh v. State of Punjab, (1980) 2 SCC 684 :
1980 SCC (Cri) 580] ) and mandatory death
sentence (Mithu [Mithu v. State of Punjab,
(1983) 2 SCC 277 : 1983 SCC (Cri) 405] ),
among other cases. A person cannot be
deprived of life or personal liberty except in
accordance with the procedure established
by law. Article 14, as a guarantee against
arbitrariness, infuses the entirety of Article
21. The interrelationship between the
guarantee against arbitrariness and the
protection of life and personal liberty
operates in a multifaceted plane. First, it
47
ensures that the procedure for deprivation
must be fair, just and reasonable. Second,
Article 14 impacts both the procedure and
the expression “law”. A law within the
meaning of Article 21 must be consistent
with the norms of fairness which originate
in Article 14. As a matter of principle, once
Article 14 has a connect with Article 21,
norms of fairness and reasonableness
would apply not only to the procedure but
to the law as well.
295. Above all, it must be recognised
that judicial review is a powerful guarantee
against legislative encroachments on life
and personal liberty. To cede this right
would dilute the importance of the
protection granted to life and personal
liberty by the Constitution. Hence, while
judicial review in constitutional challenges
to the validity of legislation is exercised with
a conscious regard for the presumption of
constitutionality and for the separation of
powers between the legislative, executive
and judicial institutions, the constitutional
power which is vested in the Court must be
retained as a vibrant means of protecting
the lives and freedoms of individuals.
296. The danger of construing this as an
exercise of “substantive due process” is that
it results in the incorporation of a concept
from the American Constitution which was
consciously not accepted when the
Constitution was framed. Moreover, even in
the country of its origin, substantive due
process has led to vagaries of judicial
interpretation. Particularly having regard to
48
the constitutional history surrounding the
deletion of that phrase in our Constitution,
it would be inappropriate to equate the
jurisdiction of a constitutional court in
India to entertain a substantive challenge
to the validity of a law with the exercise of
substantive due process under the US
Constitution. Reference to substantive due
process in some of the judgments is
essentially a reference to a substantive
challenge to the validity of a law on the
ground that its substantive (as distinct
from procedural) provisions violate the
Constitution.”
15.7 The law with respect to testing the unconstitutionality of a
statutory instrument can be summarized as under:
a.Constitutional Courts can test constitutionality of
legislative instruments (statute and delegated
legislations);
b.The Courts are empowered to test both on procedure as
well as substantive nature of these instruments.
c.The test should be based on a combined reading of
Articles 14, 19 and 21 of the Constitution.
15.8 One of the offshoots of this test under Part III of the
Constitution is the development of the doctrine of manifest
arbitrariness. A doctrinal study of the development of this
area may not be warranted herein. It is well traced in
49
Shayara Bano v. Union of India, (2017) 9 SCC 1. We may
only state that the development of jurisprudence has come
full circle from an overly formalistic test of classification to
include the test of manifest arbitrariness. A broad
formulation of the test was noted in the aforesaid case as
under:
“95. On a reading of this judgment
in Natural Resources Allocation
case [Natural Resources Allocation, In re,
Special Reference No. 1 of 2012, (2012) 10
SCC 1], it is clear that this Court did not
read McDowell [State of A.P. v. McDowell
and Co., (1996) 3 SCC 709] as being an
authority for the proposition that
legislation can never be struck down as
being arbitrary. Indeed the Court, after
referring to all the earlier judgments,
and Ajay Hasia [Ajay Hasia v. Khalid
Mujib Sehravardi, (1981) 1 SCC 722] in
particular, which stated that legislation
can be struck down on the ground that it
is “arbitrary” under Article 14, went on to
conclude that “arbitrariness” when applied
to legislation cannot be used loosely.
Instead, it broad based the test, stating
that if a constitutional infirmity is found,
Article 14 will interdict such infirmity. And
a constitutional infirmity is found in
Article 14 itself whenever legislation is
“manifestly arbitrary” i.e. when it is not
fair, not reasonable, discriminatory, not
transparent, capricious, biased, with
favouritism or nepotism and not in
pursuit of promotion of healthy
competition and equitable treatment.
50
Positively speaking, it should conform to
norms which are rational, informed with
reason and guided by public interest, etc.”
(emphasis supplied)
15.9 In Joseph Shine v. Union of India, (2019) 3 SCC 39, this
Court was concerned with the constitutionality of Section
497 of the IPC relating to the provision of adultery. While
declaring the aforesaid provision as unconstitutional on the
aspect of it being manifestly arbitrary, this Court reiterated
the test as under:
“...The test of manifest arbitrariness,
therefore, as laid down in the aforesaid
judgments would apply to invalidate
legislation as well as subordinate
legislation Under Article 14. Manifest
arbitrariness, therefore, must be
something done by the legislature
capriciously, irrationally and/or
without adequate determining
principle. Also, when something is done
which is excessive and
disproportionate, such legislation would
be manifestly arbitrary . We are,
therefore, of the view that arbitrariness in
the sense of manifest arbitrariness as
pointed out by us above would apply to
negate legislation as well Under Article
14.”
(emphasis supplied)
15.10In Hindustan Construction Co. Ltd v. Union of India ,
(2020) 17 SCC 324, this Court struck down Section 87 of
51
the Arbitration Act on the ground of manifest arbitrariness
as the Parliament chose to ignore the judgment of this
Court, without removing the basis of the same or identifying
a principle for militating against the same.
15.11Coming back to the 1988 Act, the two provisions with which
we are concerned are Sections 3 and 5 of 1988 Act. They are
required to be separately analysed herein. At the outset, we
may notice that the enactment was merely a shell, lacking
the substance that a criminal legislation requires for being
sustained. The reasons for the same are enumerated in the
following paragraphs.
15.12First, the absence of mens rea creates a harsh provision
having strict liability. Such an approach was frowned upon
by the 57
th
Law Commission Report as concerns of tax
evasion or sham transactions in order to avoid payment to
creditors were adequately addressed by the existing
provisions of law. Even the 130
th
Law Commission Report
did not expressly rule out the inclusion of mens rea. The
legislative move to ignore earlier Law Commission Reports
without there being a principle identified to do away with
the aspect of mens rea should be a contributory factor in
52
analysing the constitutionality of the aforesaid criminal
provision under the 1988 Act.
15.13Further, under the amended 2016 Act, the aspect of mens
rea, is brought back through Section 53. Such resurrection
clearly indicates that doing away of the mens rea aspect,
was without any rhyme or reason, and ended up creating an
unusually harsh enactment.
15.14Second, ignoring the essential ingredient of beneficial
ownership exercised by the real owner contributes to
making the law even more stringent and disproportionate
with respect to benami transactions that are tripartite in
nature. The Court cannot forcefully read the ingredients
developed through judicial pronouncements or under
Section 4 (having civil consequence) into the definition
provided under Sections 2 and 3 (espousing criminal
consequences), to save the enactment from
unconstitutionality. Such a reading would violate the
express language of Section 2(a), of excluding one ingredient
from the definition of ‘benami transaction’, and would suffer
from the vice of judicial transgression. In removing such an
essential ingredient, the legislature did not identify any
53
reason or principle, which made the entire provision of
Section 3 susceptible to arbitrariness. Interestingly, for
tripartite benami transactions, the 2016 Act brings back
this ingredient through Section 2(9)(A)(b). In this context, we
may state that it is a simple requirement under Article 20(1)
that a law needs to be clear and not vague. It should not
have incurable gaps which are yet to be legislated/filled in
by judicial process.
15.15Third, it is fairly admitted by the learned ASG, Mr. Vikramjit
Banerjee appearing for the Union of India, that the criminal
provision was never utilized as there was a significant
hiatus in enabling the functioning of such a provision.
15.16Fourth, reading Section 2(a) with Section 3(1) would have
created overly broad laws susceptible to be challenged on
the grounds of manifest arbitrariness. If this Court reads
criminal provisions of the Benami Act to have had force
since 1988, then the following deleterious consequences
would ensue:
(i.) Section 187C of the Companies Act, 1956 assured
protection to nominal and beneficial holding of
54
shares if the prescribed declaration duly made are
at serious risk.
(ii.)Benami cooking gas connections which have been
regularized from time to time are at risk.
(iii.)Housing colonies and benami allotments of DDA
flats which have been regularised from time to time
are at risk.
15.17The criminal provision under Section 3(1) of the 1988 Act
has serious lacunae which could not have been cured by
judicial forums, even through some form of harmonious
interpretation. A conclusion contrary to the above would
make the aforesaid law suspect to being overly oppressive,
fanciful and manifestly arbitrary, thereby violating the
‘substantive due process’ requirement of the Constitution.
15.18Coming to Section 5 of the 1988 Act, it must be noted that
the acquisition proceedings contemplated under the earlier
Act were in rem proceedings against benami property. We
may note that, jurisprudentially, such in rem proceedings
transfer the guilt from the person who utilized a property
which is a general harm to the society, to the property itself.
55
15.19When such proceedings are contemplated under law, there
need to be adequate safeguards built into the provisions,
without which the law would be susceptible to challenge
under Article 14 of the Constitution. Coming to Section 5 of
the 1988 Act, it was conceived as a halfbaked provision
which did not provide the following and rather left the same
to be prescribed through a delegated legislation:
(i)Whether the proceedings under Section 5 were
independent or dependant on successful prosecution?
(ii)The standard of proof required to establish benami
transaction in terms of Section 5.
(iii)Mechanism for providing opportunity for a person to
establish his defence.
(iv)No ‘defence of innocent owner’ was provided to save
legitimate innocent buyers.
(v)No adjudicatory mechanism was provided for.
(vi)No provision was included to determine vesting of
acquired property.
(vii)No provision to identify or trace benami properties.
(viii)Condemnation of property cannot include the power of
tracing, which needs an express provision.
56
Such delegation of power to the Authority was squarely
excessive and arbitrary as it stood. From the aforesaid, the
Union’s stand that the 2016 Act was merely procedural,
cannot stand scrutiny.
15.20In any case, such an inconclusive law, which left the
essential features to be prescribed through delegation, can
never be countenanced in law to be valid under Part III of
the Constitution. The gaps left in the 1988 Act were not
merely procedural, rather the same were essential and
substantive. In the absence of such substantive provisions,
the omissions create a law which is fanciful and oppressive
at the same time. Such an overbroad provision was
manifestly arbitrary as the open texture of the law did not
have sufficient safeguards to be proportionate.
15.21At this stage, we may only note that when a Court declares
a law as unconstitutional, the effect of the same is that such
a declaration would render the law not to exist in the law
books since its inception. It is only a limited exception
under Constitutional law, or when substantial actions have
been undertaken under such unconstitutional laws that
going back to the original position would be next to
57
impossible. In those cases alone, would this Court take
recourse to the concept of ‘prospective overruling’.
15.22From the above, Section 3 (criminal provision) read with
Section 2(a) and Section 5 (confiscation proceedings) of the
1988 Act are overly broad, disproportionately harsh, and
operate without adequate safeguards in place. Such
provisions were stillborn law and never utilized in the first
place. In this light, this Court finds that Sections 3 and 5 of
the 1988 Act were unconstitutional from their inception.
15.23Having said so, we make it abundantly clear that the
aforesaid discussion does not affect the civil consequences
contemplated under Section 4 of the 1988 Act, or any other
provisions.
16.2016 ACT AND ITS ANALYSIS
16.1 The next subject of examination is the 2016 Act, which
amends the 1988 Act, and expanded the 1988 Act to 72
sections (from 9 sections), divided into 8 chapters. At the
outset, we need to understand the general scheme of the
law. The definition of benami transactions, which is the
heart of the entire 1988 Act, has undergone a
metamorphosis and stands as under:
58
[DEFINITIONS.
Section 2(9) "benami transaction" means:
(A) a transaction or an arrangement
(a) 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; and
(b) the property is held for the
immediate or future benefit, direct or
indirect, of the person who has provided
the consideration,
except when the property is held by
(i) a Karta, or a member of a Hindu
undivided family, as the case may be, and
the property is held for his benefit or
benefit of other members in the family
and the consideration for such property
has been provided or paid out of the
known sources of the Hindu undivided
family;
(ii) a person standing in a fiduciary
capacity for the benefit of another person
towards whom he stands in such capacity
and includes a trustee, executor, partner,
director of a company, a depository or a
participant as an agent of a depository
under the Depositories Act, 1996 (22 of
1996) and any other person as may be
notified by the Central Government for
this purpose;
(iii) any person being an individual
in the name of his spouse or in the name
of any child of such individual and the
consideration for such property has been
59
provided or paid out of the known
sources of the individual;
(iv) any person in the name of his
brother or sister or lineal ascendant or
descendant, where the names of brother
or sister or lineal ascendant or
descendant and the individual appear as
jointowners in any document, and the
consideration for such property has been
provided or paid out of the known
sources of the individual; or
(B) a transaction or an arrangement in
respect of a property carried out or made
in a fictitious name; or
(C) a transaction or an arrangement in
respect of a property where the owner of
the property is not aware of, or, denies
knowledge of, such ownership;
(D) a transaction or an arrangement in
respect of a property where the person
providing the consideration is not
traceable or is fictitious;
Explanation. For the removal of doubts,
it is hereby declared that benami
transaction shall not include any
transaction involving the allowing of
possession of any property to be taken or
retained in part performance of a contract
referred to in section 53A of the Transfer
of Property Act, 1882, if, under any law
for the time being in force,
(i) consideration for such property has
been provided by the person to whom
possession of property has been allowed
but the person who has granted
60
possession thereof continues to hold
ownership of such property;
(ii) stamp duty on such transaction or
arrangement has been paid; and
(iii) the contract has been registered.
16.2 Major changes envisaged under the definition are as under:
(i)Expansion of the definition from arm’s length
transactions contemplated under the 1988 Act, to
arrangements and schemes.
(ii)Additional ingredient of benefits flowing to the
real owner, a lacuna pointed in the earlier part,
under 1988 Act, is included in terms of Section
2(9)(A)(b).
(iii)Expansion of the ambit through Section 2(9)(C),
to those properties where benamidar denies
knowledge of such ownership.
(iv)Expansion of the ambit through Section 2(9)(D),
wherein the person providing the consideration is
not traceable or is fictitious.
(v)Expansion from recognition of only tripartite
transactions under 1988 Act, to also include
bipartite transactions.
61
16.3 Section 2(26) of the 2016 Act defines a property. This
definition has been expanded to include proceeds from the
property as well. Such expansion allows for tracing of
proceeds and is a substantial change as compared to the
1988 Act. Along with this, benami property has been defined
under Section 2(8). Benamidar is defined under Section
2(10).
16.4 Chapter 2 contains four provisions which are modified
provisions of the 1988 Act. Section 3 now bifurcates
offences into two separate categories based on the time
period of the benami transaction. Under Section 3(2),
punishment of three years is mandated for those who have
entered into benami transactions from 05.09.1988 to
31.10.2016. Section 3(3) applies to those benami
transactions which have been entered into after
commencement of the amended 2016 Act and the
punishment for the aforesaid is prescribed under Section 53
of Chapter VII. It may be noted that under Section 3(3), the
punishment is increased from three years to a maximum of
seven years and a fine may be imposed which extend up to
25% of the fair market value of the property. This distinction
62
between Section 3(2) and 3(3) read with Section 53, contains
the element of mens rea.
16.5 Section 4 remains the same as under the 1988 Act, barring
the fact that Section 4(3) has integrated the exceptions
provided under the definition of benami transaction in
terms of Section 2(9). The civil consequences provided under
Section 4 continue to apply even post the 2016 Act. The
interpretation of the aforesaid section, as given in the R.
Rajagopal Reddy Case (supra), continues to apply.
16.6 Section 5 on the other hand has been modified and it
presently stands as under:
5. Property held benami liable to
confiscation. —Any property, which is subject
matter of benami transaction, shall be liable to
be confiscated by the Central Government.
16.7 Chapter III relates to the administrative mechanism of the
authorities required for implementation of the 2016 Act.
Chapter IV relates to attachment, adjudication, and
confiscation of benami property. These provisions relate to
forfeiture, which need to be analysed hereinafter.
63
16.8 Section 24(1) states that, if the initiating Officer, on the
basis of gathered material, having reason to believe, that a
particular property is a benami property, then he ought to
issue notice
7
to the beneficial owner (if identified) as well as
to the ostensible owner (if any) seeking an explanation as to
why the property should not be treated as Benami.
16.9 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 circumstance
after previous approval of Approving Authority. Such interim
provisional attachment is strictly limited by time.
16.10Adjudication under Section 24(4) is mandatory and requires
the authority to examine the same on a prima facie basis.
Such adjudication must take place after providing collected
material to the accused, along with the show cause notice. A
reasoned order is mandated under the aforesaid provision.
7 In terms of Section 25 of the 2016 Act.
64
The Officer is mandated to present a statement of case to
the adjudicating officer, in terms of Section 24(5) of the
2016 Act.
16.11Adjudication under Section 26 mandates notice and
disclosure obligation to various other persons. The
adjudicating authority can either pass an order in terms of
Section 26(3)(c)(i) or (ii), or pass an order for further
inquiries in terms of Section 26(3)(b).
16.12Section 27(1) relates to confiscation of property, wherein if a
property is adjudicated as a benami property under Section
26(3), then the adjudicating authority can give an
opportunity to the concerned persons, and after hearing the
parties, pass an order confiscating the property. The
aforesaid confiscation order is subject to the order passed
by the Appellate Tribunal under Section 46. Order of
confiscation vests such property absolutely in the Central
Government, free from all encumbrances and no
compensation shall be payable in respect of such
confiscation.
16.13Section 27(4) provides that in the interregnum of initiating
confiscation proceedings, any thirdparty rights created to
65
defeat the purpose of the Act shall be null and void. Sub
clause 5 mandates that if no order of confiscation is made
and the same has attained finality, no claim can be made
against the Government for the process.
16.14Section 28 mandates appointment of an Administrator by
the Central Government to manage the property. Such an
Administrator shall have the power to take possession of
such a property upon order of confiscation, in terms of
Section 29.
16.15Chapters V and VI delineate the powers of the Appellate
Tribunal as well as Special Courts. Chapter VII consists of
offences and penalties. Specifically, we may refer to Section
53:
53. Penalty for Benami Transaction
(1) Where any person enters into a
benami transaction in order to defeat the
provisions of any law or to avoid payment
of statutory dues or to avoid payment to
creditors, the beneficial owner, benamidar
and any other person who abets or
induces any person to enter into the
benami transaction, shall be guilty of the
offence of Benami transaction.
(2) Whoever is found guilty of the offence
of benami transaction referred to in sub
section (1) shall be punishable with
rigorous imprisonment for a term which
66
shall not be less than one year, but which
may extend to seven years and shall also
be liable to fine which may extend to
twentyfive per cent. of the fair market
value of the property.
Interestingly, a crime which attracted strict liability under
the 1988 Act, is modified to include a mens rea aspect in
terms of the recommendations of the 57
th
and 130
th
Law
Commission Reports.
16.16It may be necessary to note that no prosecution can be
initiated without previous sanction of the competent
authority as provided under Section 55, which reads as
under:
55. No prosecution shall be instituted against
any person in respect of any offence under
sections 3, 53 or section 54 without the
previous sanction of the Board.
16.17Perusal of the remaining provisions is not required for the
purpose at hand.
17.WHETHER SECTION 3(1) AND CHAPTER IV READ WITH SECTION 5 OF
THE 2016 ACT HAVE RETROACTIVE EFFECT?
17.1 The thrust of the arguments advanced by the Union of India
can be crystallized as under:
67
(i.)That the 1988 Act was a valid enactment with
procedural gaps that were filled retrospectively by
the 2016 amendment.
(ii.)That the provision of confiscation (civil forfeiture)
under the 1988 Act, being in the domain of civil law,
is not punitive and therefore, the prohibition under
Article 20(1) of the Constitution is not attracted in
this case.
17.2With respect to the first line of argument, our discussion above
can be summarized as under:
(a.)Section 3(1) of 1988 Act is vague and arbitrary.
(b.)Section 3(1) created an unduly harsh law against
settled principles and Law Commission
recommendations.
(c.)Section 5 of 1988 Act, the provision relating to civil
forfeiture, was manifestly arbitrary.
(d.)Both provisions were unworkable and as a matter of
fact, were never implemented.
17.3 Having arrived at the aforesaid conclusions that Sections 3
and 5 were unconstitutional under the 1988 Act, it would
mean that the 2016 amendments were, in effect, creating
68
new provisions and new offences. Therefore, there was no
question of retroactive application of the 2016 Act. As for
the offence under Section 3(1) for those transactions that
were entered into between 05.09.1988 to 31.10.2016, the
law cannot retroactively invigorate a stillborn criminal
offence, as established above.
17.4 As per the concession made by the Union of India and a fair
reading of Section 53 of the 2016 Act, the offence under the
aforesaid provision is prospective, and only applied to those
transactions that were entered into after the amendment
came into force, viz., 1.11.2016. Any contrary interpretation
of Section 3 of the 1988 Act would be violative of Article
20(1) of the Constitution. Article 20(1) reads as under:
20. Protection in respect of conviction for
offences
(1) No person shall be convicted of any offence
except for violation of the law in force at the
time of the commission of the act charged as
an offence, nor be subjected to a penalty
greater than that which might have been
inflicted under the law in force at the time of
the commission of the offence.
17.5 In T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, this Court
has expounded Article 20 (1) in the following manner:
69
“22. It is only retroactive criminal legislation
that is prohibited under Article 20(1). The
prohibition contained in Article 20(1) is that no
person shall be convicted of any offence except
for violation of a law in force at the time of the
commission of the act charged as an offence
prohibits nor shall he be subjected to a penalty
greater than that which might have been
inflicted under the law in force at the time of
the commission of the offence. It is quite clear
that insofar as the Central Amendment Act
creates new offences or enhances punishment
for a particular type of offence no person can
be convicted by such ex post facto law nor can
the enhanced punishment prescribed by the
amendment be applicable. But insofar as the
Central Amendment Act reduces the
punishment for an offence punishable under
Section 16(1)(a) of the Act, there is no reason
why the accused should not have the benefit of
such reduced punishment. The rule of
beneficial construction requires that even ex
post facto law of such a type should be applied
to mitigate the rigour of the law. The principle
is based both on sound reason and common
sense. This finds support in the following
passage from Craies on Statute Law, 7th Edn.,
at pp. 38889:
“A retrospective statute is different from an
ex post facto statute. “Every ex post facto
law…” said Chase, J., in the American case
of Calder v. Bull [3 US (3 Dall) 386: 1 L Ed 648
(1798)] “must necessarily be retrospective, but
every retrospective law is not an ex post facto
law. Every law that takes away or impairs
rights vested agreeably to existing laws is
retrospective, and is generally unjust and may
be oppressive; it is a good general rule that a
law should have no retrospect, but in cases in
which the laws may justly and for the benefit
of the community and also of individuals relate
70
to a time antecedent to their commencement:
as statutes of oblivion or of pardon. They are
certainly retrospective, and literally both
concerning and after the facts committed.
But I do not consider any law ex post facto
within the prohibition that mollifies the rigour of
the criminal law, but only those that create
or aggravate the crime , or increase the
punishment or change the rules of
evidence for the purpose of
conviction.... There is a great and apparent
difference between making an unlawful act
lawful and the making an innocent action
criminal and punishing it as a crime.”
17.6 In the case at hand, the 2016 Act containing the criminal
provisions is applicable only prospectively, as the relevant
Sections of the preamendment 1988 Act containing the
penal provision, have been declared as unconstitutional.
Therefore, the question of construction of the 2016 Act as
retroactive qua the penal provisions under Sections 3 or 53,
does not arise.
17.7 The continued presence of an unconstitutional law on the
statute book, or the claim that such law was not challenged
before Constitutional Courts, does not prevent this Court
from holding that such unconstitutional laws cannot enure
to the benefit of or be utilized to retroactively amend laws to
cure existing constitutional defects. If such curing is
71
allowed, then Article 20(1) of the Constitution would be
rendered nugatory.
17.8This 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. Meaning 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.
17.9Although we have held that Section 5 of the 1988 Act was
unconstitutional for being manifestly arbitrary, however
such holding is of no consequence if this Court comes to the
conclusion that confiscation under Section 5 of 2016 Act
read with Chapter IV, was civil in nature and is not
punitive.
17.10It is well settled that the legislature has power to enact
retroactive/retrospective civil legislations under the
Constitution. However, Article 20(1) mandates that no law
72
mandating a punitive provision can be enacted
retrospectively. Further, a punitive provision cannot be
couched as a civil provision to bypass the mandate under
Article 20(1) of the Constitution which follows the settled
legal principle that “what cannot be done directly, cannot be
done indirectly”.
17.11Therefore, the immediate question which arises for
consideration is whether the retroactive confiscation
provided under Section 5 read with Chapter IV of 2016 Act
is punitive or not?
17.12At the outset, we may note that Shri S. V. Raju, learned
ASG, has submitted that acquisition provided under Section
5 of the 1988 Act is same as confiscation provided under
Section 5 read with Chapter IV of the 2016 Act. He states
that both concepts are related to civil law and is not
concerned with punitive punishments as provided under the
Indian Penal Code, 1860.
17.13Acquisition under the earlier 1988 Act as well as
confiscation under the 2016 Act are said to have been
enacted on the reasoning that the property emanating from
the benami transaction also gets tainted. The substantive
73
difference between the acquisition provision under the
earlier enactment and the confiscation provision under the
2016 Act is that proceeds of benami transactions have been
made traceable under the 2016 Act.
17.14Before we analyse the other provisions, it is necessary to
give a brief introduction to the concept of civil forfeiture in
India, as the same was argued by the learned ASG. Under
Admiralty jurisdiction, the concerned Admiralty Courts had
the jurisdiction to forfeit vessels under its civil jurisdiction
in lieu of any maritime claim. Same was the law across
various common law jurisdictions, such as the United
States of America and the United Kingdom.
17.15Forfeiture occurs in various types, few of which are found in
India. Broadly, forfeitures can be categorized as civil and
criminal. On the civil side, there can be in rem or in
personam forfeitures. Punitive forfeitures under the criminal
law are in personam. Criminal forfeitures usually take place
at the conclusion of a trial, when the guilt of the accused is
established. Standards of evidentiary requirement differ
greatly between civil and criminal forfeiture.
74
17.16The historic origin of in rem civil forfeiture in common law
jurisdictions was earlier mostly restricted to transnational
crimes. These early laws mandated that the property was
subject to forfeiture because it was the instrument by which
the offence was committed, and it was necessary to
confiscate such property to remove it from circulation.
However, the Twentieth century saw expansion of forfeiture
laws into a wide array of crimes. The modern forfeiture laws
not only allow forfeiture of property used to facilitate the
crime, but cover the proceeds of the offence as well. In the
Supreme Court of the United States, constitutional
challenges laid to such civil forfeiture laws have been
dismissed as they were usually attributed to historic
prevalence of such forfeiture laws. However, such historic
reasons of its existence cannot justify continued expansion
of civil forfeiture laws, as has been observed by Justice
Clarence Thomas in the following manner:
“This system—where police can seize
property with limited judicial oversight and
retain it for their own use—has led to
egregious and wellchronicled abuses,” and
“These forfeiture operations frequently target
75
the poor and other groups least able to defend
their interests in forfeiture proceedings”.
8
17.17In the case at hand, although expansion of forfeiture laws
originates from the Parliament’s concern for decriminalizing
property holdings, however, we are reminded of Justice
Oliver Wendell Holmes, who has stated as under:
“The customs beliefs or needs of a primitive
time establish a rule or a formula. In the
course of centuries, the custom, belief, or
necessity disappears, but the rule remains.
The reason which gave rise to the rule has
been forgotten, and ingenious minds set
themselves to enquire how it is to be
accounted for. Some ground of policy is
thought of, which seems to explain it and to
reconcile it with the present state of things;
and then the rule adapts itself to the new
reasons which have been found for it, and
enters on a new career. The old form
receives a new content and in time even the
form modifies itself to for the meaning
which it has received.”
9
17.18While categorizing the forfeiture proceedings as civil or
criminal, the test laid down by the European Court of
Human Rights in Engel v The Netherlands (No.1), [1976] 1
EHRR 647, have been treated as giving authoritative
guidance. Those tests are set out in paragraphs 80 to 82 of
the Report and are as follows:
8 Leonard v. Texas, 137 S. Ct. 847, 847-48 (2017).
9 Oliver Wendell Holmes in The Common Law 5 (1881).
76
"(i) The manner in which the domestic state
classifies the proceedings. This normally
carries comparatively little weight and is
regarded as a starting point rather than
determinative see Ozturk v Germany [1984]
6 EHRR 409 at 421 and 422.
(ii) The nature of the conduct in question
classified objectively bearing in mind the object
and purpose of the Convention.
(iii) The severity of any possible penalty
severe penalties, including those with
imprisonment in default and penalties
intended to deter are pointers towards a
criminal classification of proceedings see
Schmautzer v Austria [1995] 21 EHRR 511.
In Lauko v Slovakia [1998] ECHR 26138/95
the court observed that these criteria were
alternatives and not cumulative although a
cumulative approach might be adopted where
a separate analysis of each criterion did not
make it possible to reach a clear conclusion as
to the existence of a 'criminal charge'."
(emphasis supplied)
The aforesaid proposition has also been confirmed by the
House of Lords in R v. H, [2003] 1 ALL ER 497.
17.19In Kennedy v MendozaMartinez , 372 US 144 (1963), the
Supreme Court of the United States, while concerned with
the constitutionality of legislation that imposed forfeiture of
citizenship on those who had left or remained outside the
United States during wartime to evade military service, had
77
laid down the following relevant factors to classify forfeiture
law:
(a) Whether the sanction involves an affirmative
disability or restraint;
(b) Whether it has been historically regarded as a
punishment;
(c) Whether it is only applicable where there has
been a finding of scienter (that is, a finding that an
act has been done knowingly and intentionally);
(d) Whether its operation promotes the traditional
retributive and deterrent aims of punishment;
(e) Whether the behaviour to which the statute
applies is already a crime;
(f) Whether an alternative purpose to which it may
be rationally connected is attributable to it; and
(g) Whether it appears excessive in light of the
alternative purpose assigned.
17.20Coming to the Indian case laws, in State of West Bengal v.
S. K. Gosh, AIR 1963 SC 255, this Court was concerned
with the Criminal Law Amendment Ordinance 38 of 1944,
wherein the law provided only for attachment of the
property, after conviction is given effect to. Unlike the
present law, the taint on the property is squarely
determined by the Criminal Court deciding the criminal
78
conviction. Confiscation contemplated under Section 13 of
the Criminal Law Amendment Ordinance 38 of 1944 could
only be given effect to after the verdict of guilty by Criminal
Court. In the light of such unique provisions, the Court
characterized such forfeiture laws as civil in nature. We may
note that such a law did not contemplate an independent
confiscation proceeding as created under this law, rather, a
mechanism was devised to confiscate a property after
criminal conviction.
17.21This Court, while noting that forfeiture is no doubt punitive
under Article 20(1) of the Constitution as it is one of the
punishments prescribed under Section 53 of IPC, held that
Section 13(3) of the Criminal Law Amendment Ordinance 38
of 1944 was not punitive as the same was dependent on
prior criminal prosecution and determination of amount
which was to be forfeited in the following manner:
“12. Further what s. 13(3) of the 1944
Ordinance which provides for forfeiture
requires is that there should be in the final
judgment of the criminal court a finding as to
the amount of money or value of property in
pursuance of s. 12. As soon as that finding is
there, the District Judge would know the
amount he is to forfeit, and the purpose of the
finding is that if the District Judge is asked to
79
make a forfeiture under s. 13(3) he should
know exactly the amount which he is require
to forfeit. So long therefore as the criminal
court trying an offender has given a finding as
to the amount of money or value of other
property procured by means of the offence in
the judgment that in our opinion is sufficient
compliance with s. 12(1) of the 1944
Ordinance and the requirement therein that it
should be on the representation of the
prosecution is a mere formality. Obviously,
even a determination under s. 10 of the 1943
Ordinance as amended in 1945 of the amount
procured by the offence must be at the
instance of the prosecution for it is the
prosecution which will provide the material for
that determination which in turn will be the
basis on which the fine will be determined by
the court under s. 10. …
…
14. This brings us to the contention which
found favour with Bhattacharya J., namely,
that the provision of s. 13(3) is a punishment
and that as the 1944Ordinance was not in
force at the time when the offence was
committed s. 13(3) could not be applied to the
respondent inasmuch as Art. 20(1) lays down
that no person shall be subjected to a penalty
greater than that which might have been
inflicted under the law in force at the time of
the commission of the offence. Two arguments
have been urged on behalf of the appellant in
this connection. In the first place, it is urged
that the respondent remained in office till
August 25, 1944 while the Ordinance came
into force on August 23, 1944 and therefore
the conspiracy by means of which the money
was procured continued till after the
Ordinance had come into force and therefore
Art. 20(1) can have no application, for it
cannot be said that the respondent was being
80
subjected to a penalty greater than that which
might have been inflicted under the law in
force at the time of the commission of the
offence. In the second place, it is urged that
the forfeiture provided by s. 13(3) is not a
penalty at all within the meaning of Art, 20(1),
but is merely a method of recovering money
belonging to the Government which had been
embezzled. It is urged that the Government
could file a suit to recover the money
embezzled and s. 13(3) only provides a
speedier remedy for that purpose and the
forfeiture provided therein is not a penalty
within the meaning of Art. 20(1).”
17.22In Divisional Forest Officer v. G. V. Sudhakar Rao,
(1985) 4 SCC 573, this Court was concerned with the power
of forfeiture under Section 44(2)(A) of Andhra Pradesh
Forest Act, 1967. Noting that Section 45 of the Forest Act
prior to the amendment had a provision for civil forfeiture
only after the conviction of an accused under the Forest Act,
it was felt that such a provision was insufficient to prevent
the growing menace of ruthless exploitation of government
forests and illicit smuggling of teak, red sandalwood, etc. It
was in this context that a separate mechanism was
formulated to ensure that there was no unreasonable delay
in confiscation of property.
81
17.23It may be noted that this case did not involve a
constitutional challenge under Article 20(1) to the aforesaid
rules. In any case, this Court has held that the new
mechanism formulated under the amended Act was
completely independent of criminal prosecution.
17.24To the same extent, in State of Madhya Pradesh v. Kallo
Bai, (2017) 14 SCC 502, this Court interpreted the Madhya
Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 to
have independent confiscation proceedings from criminal
prosecution in view of the nonobstante clause under
Section 15C of the Adhiniyam. It may also be noted that
there was no challenge to the aforesaid Act, as being
violative of Article 20(1) of the Constitution. The Court held
as under:
“14. Subsection (1) of Section 15 empowers
forest officers concerned to conduct search to
secure compliance with the provisions of the
Adhiniyam. On a plain reading of subsection
(2), it is clear that the officer concerned may
seize vehicles, ropes, etc. if he has reason to
believe that the said items were used for the
commission of an offence under the
Adhiniyam. Confiscation proceedings as
contemplated under Section 15 of the
Adhiniyam is a quasijudicial proceedings and
not a criminal proceedings. Confiscation
proceeds on the basis of the “satisfaction” of
82
the authorised officer with regard to the
commission of forest offence. Subsection (3) of
the provision lays down the procedure to be
followed for confiscation under the Adhiniyam.
Subsection (3A) authorises forest officers of
rank not inferior to that of a Ranger, who or
whose subordinate, has seized any tools,
boats, vehicles, ropes, chains or any other
article as liable for confiscation, may release
the same on execution of a security worth
double the amount of the property so seized.
This provision is similar to that of Section 53
of the Forest Act as amended by the State of
Madhya Pradesh. Subsection (4) mandates
that the officer concerned should pass a
written order recording reasons for
confiscation, if he is satisfied that a forest
offence has been committed by using the items
marked for confiscation. Subsection (5)
prescribes various procedures for confiscation
proceedings. Subsection (5A) prescribes that
whenever an authorised officer having
jurisdiction over the case is himself involved in
the seizure, the next higher authority may
transfer the case to any other officer of the
same rank for conducting confiscation
proceedings. Subsection (6) provides that with
respect to tools, vehicles, boats, ropes, chains
or any other article other than timber or forest
produce seized, confiscation may be directed
unless the person referred to in clause (b) of
subsection (5) is able to satisfy that the
articles were used without his knowledge or
connivance or, as the case may be, without the
knowledge or connivance of his servant or
agent and that all reasonable and necessary
precautions had been taken against the use of
such objects for commission of forest offence.”
83
17.25In Yogendra Kumar Jaiswal v. State of Bihar , (2016) 3
SCC 183, a Division Bench of this Court was concerned
with the constitutional challenge to various enactments
such as the Orissa Special Courts Act, 2006 and the Bihar
Special Courts Act, 2009. Both the enactments had
provisions for confiscation. While interpreting the
confiscation provisions, this Court read down the same to
only mean interim attachment. In other words, confiscation
was interpreted as akin to attachment proceedings. The
Court mandated that any confiscation would be contingent
on the final outcome of the criminal proceedings and the
logical corollary to the same was that confiscation
proceedings were not completely independent and ultimately
had to be adjudicated along with the trial of the main
criminal case.
17.26In Abdul Vahab v. State of Madhya Pradesh , (2022) SCC
Online SC 262, this Court was concerned with the
interpretation of the Madhya Pradesh Cow Slaughter
(Prohibition) Act, 2004, wherein it was held that confiscation
proceedings could not be independent of acquittal in the
criminal case. If a contrary interpretation was taken, then
84
the same would be violative of Article 300A of the
Constitution. This Court distinguished the case from the
judgment of Kallo Bai (supra), by placing reliance on the
absence of a provision such as Section 15C of Madhya
Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 under
the Madhya Pradesh Cow Slaughter (Prohibition) Act, 2004.
17.27In Vijay Madanlal Choudary & Ors v. Union of India ,
SLP (Civ.) No. 4634 of 2014 and others, this Court dealt
with confiscation proceedings under Section 8 of the
Prevention of Money Laundering Act, 2002 (“ PMLA”) and
limited the application of Section 8(4) of PMLA concerning
interim possession by authority before conclusion of final
trial to exceptional cases. The Court distinguished the
earlier cases in view of the unique scheme under the
impugned legislation therein. Having perused the said
judgment, we are of the opinion that the aforesaid ratio
requires further expounding in an appropriate case, without
which, much scope is left for arbitrary application.
17.28From the above discussion, it is manifest that the Courts
have read down the provisions of civil forfeiture to be
85
dependent on the underlying criminal prosecution to temper
the harsh consequences envisaged under such provisions.
No doubt, 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 the criminal
prosecutions. At this stage, we 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. 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 separate confiscation procedure
prescribed under the 2016 Act, has not been argued herein.
Accordingly, we leave the aforesaid question of law open.
86
17.29Under the IPC, forfeiture is recommended to be a form of
punishment under Section 53. Accordingly, the Code of
Criminal Procedure, 1976 provides for a mechanism for
interim custody and forfeiture at the conclusion of trial
under Section 451 of the Cr.P.C. (in personam forfeiture),
which reads as under:
451. Order for custody and disposal of
property pending trial in certain cases.
When any property is produced before any
Criminal Court during any inquiry or trial, the
Court may make such order as it thinks fit for
the proper custody of such property pending
the conclusion of the inquiry or trial, and, if
the property is subject to speedy and natural
decay, or if it is otherwise expedient so to do,
the Court may, after recording such evidence
as it thinks necessary, order it to be sold or
otherwise disposed of.
Explanation. For the purposes of this
section," property" includes
(a) property of any kind or document which is
produced before the Court or which is in its
custody,
(b) any property regarding which an offence
appears to have been committed or which
appears to have been used for the commission
of any offence.
452. Order for disposal of property at
conclusion of trial.
(1) When an inquiry or trial in any Criminal
Court is concluded, the Court may make such
order as it thinks fit for the disposal, by
destruction, confiscation or delivery to any
87
person claiming to be entitle to possession
thereof or otherwise, of any property or
document produced before it or in its custody,
or regarding which any offence appears to have
been committed, or which has been used for
the commission of any offence.
Aforesaid provisions under the Cr.P.C. have inbuilt
safeguards of in personam criminal forfeiture, wherein
confiscation occurs at the end of the trial. Under these
provisions, confiscation is to be determined at an evidential
standard of ‘beyond reasonable doubt’ and are dependent
on the result of the criminal trial.
17.30Coming to the Benami Act post the Amendment, the
interplay of Sections 27(3), (5) and 67 of the 2016 Act
creates a confiscation procedure which is distinct from the
procedure contemplated under the CrPC or any other
enactment till now in India. This separation of the
confiscation mechanism is not merely procedural. It has
also altered substantive rights of the evidentiary standards
from ‘beyond reasonable doubt’ to ‘preponderance of
probabilities’. Such a change of standards cannot be merely
termed as procedural.
88
17.31Characterization of the confiscation proceedings under
Chapter IV of the 2016 Act as Civil may therefore not be
appropriate. There is an implicit recognition of the forfeiture
being a punitive sanction, as the Officer is mandated to
build a case against the accused for such confiscation,
wherein the presumption of innocence is upheld
structurally. Being a punitive provision, it is trite that one
integrates the ‘presumption of innocence’ within the
Chapter as the same forms a part of the fundamental
right.
10
17.32Additionally, the 2016 Act now condemns not only those
transactions which were traditionally denominated as
benami, rather a new class of fictitious and sham
transactions are also covered under the same. In this
regard, we may notice that the intention of the legislature is
to condemn such property and there is an implicit effort by
the Parliament to take into consideration the fact that such
transactions are often acquired from illgotten wealth. These
proceedings cannot be equated as enforcing civil obligations
10 Narendra Singh v. State of Madhya Pradesh, (2004) 10 SCC 699.
89
as, for example, correcting deficiencies in the title. It goes
further and the taint attaches to the proceeds as well.
17.33In view of the above discussion, it is manifest that the 2016
Act contemplates an inrem forfeiture, wherein the taint of
entering into such a benami transaction is transposed to the
asset itself and the same becomes liable to confiscation. At
the cost of repetition, we may note that the taint of benami
transactions is not restricted to the person who is entering
into the aforesaid transaction, rather, it attaches itself to the
property perpetually and extends itself to all proceeds
arising from such a property, unless the defence of innocent
ownership is established under Section 27(2) of the 2016
Act. When such a taint is being created not on the
individual, but on the property itself, a retroactive law would
characterize itself as punitive for condemning the proceeds
of sale which may also involve legitimate means of addition
of wealth.
17.34Jurisprudentially, a law may enable forfeiture of property by
peculiar reason of its circumstances, of it being dangerous
to the community by reasons of any form or position that it
assumes. In such cases, forfeiture is not deemed to be
90
punishment inflicted on its owner. By contrast, if the law
provides that the Government shall forfeit a property ‘A’ for,
(1) what was carried on in property ‘B’, or (2) what the owner
does in a matter not connected with property ‘A’ or (3) a
bare intent which does not necessarily relate to the conduct
in property ‘A’, in such cases, forfeiture is punishment
without any exception. In this case, the property may not be
inherently dangerous or denigrate any standard of morality.
It is just the condemnation of the method of transfer and
holding, which was once a recognized form of property
holding in India. In such a case, the in rem civil proceeding
utilized retroactively, would characterize itself as penal.
17.35In the case at hand, the authority that initiates such
confiscation, is granted extensive powers of discovery,
inspection, compelling attendance, compelling production of
documents. They are further empowered to take the
assistance of police officers, custom officers, income tax
officers and other relevant officers for furnishing
information. It is also pertinent to note that any person who
fails to furnish information, is subjected to a penalty of
91
₹25,000/ (Rupees TwentyFive Thousand) under Section
54(A). It is also necessary to note that a person who
supplies false information before any authority, is subjected
to rigorous imprisonment of upto 5 years under Section 54
of the 2016 Act.
17.36This Court is aware of the fact that the ‘Right to Property’ is
not a fundamental right, rather it is a constitutional right
that can be abridged by law. However, this Court is not
concerned with the constitutionality of such a measure,
wherein such considerations have to be balanced. Rather,
the focus is only on the characterization of retroactive
confiscation, which in these facts and circumstances, are
punitive.
17.37In view of the fact that this Court has already held that the
criminal provisions under the 1988 Act were arbitrary and
incapable of application, the law through the 2016
amendment could not retroactively apply for confiscation of
those transactions entered into between 05.09.1988 to
31.10.2016 as the same would tantamount to punitive
punishment, in the absence of any other form of
punishment. It is in this unique circumstance that
92
confiscation contemplated under the period between
05.09.1988 and 31.10.2016 would characterise itself as
punitive, if such confiscation is allowed retroactively.
Usually, when confiscation is enforced retroactively, the
logical reason for accepting such an action would be that
the continuation of such a property or instrument, would be
dangerous for the community to be left free in circulation. In
R (on the appln of the Director of the Assets Recovery
Agency) v Jia Jin He and Dan Dan Chen , [2004] EWHC
Admin 3021, where Collins, J. had stated thus:
“52. In Mudie, at page 1254, in the
judgment of Laws LJ, who gave the only
reasoned judgment, there is set out the
citation from Butler which reads, so far as
material, as follows:
"It is the applicant's contention that
the forfeiture of his money in reality
represented a severe criminal
sanction, handed down in the
absence of the procedural guarantees
afforded to him under article 6 of the
Convention, in particular his right to
be presumed innocence [sic]. The
court does not accept that view. In its
opinion, the forfeiture order was a
preventive measure and cannot be
compared to a criminal sanction,
since it was designed to take out of
circulation money which was
presumed to be bound up with the
international trade in illicit drugs. It
93
follows that proceedings which led to
the making of the order did not
involve 'the determination ... of a
criminal charge (see Raimondo v Italy
[1994] 18 EHRR 237, 264, at para 43;
and more recently Arcuri v Italy
(Application No 52024/99),
inadmissibility decision of 5th July
2001..."”
17.38When 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 of time, praised the sui generis
evolution of the doctrine of trust in the Indian law. 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 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.
17.39Looked at from a different angle, continuation of only the
civil provisions under Section 4, etc., would mean that the
legislative intention was to ensure that the ostensible owner
94
would continue to have full ownership over the property,
without allowing the real owner to interfere with the rights
of benamidar. If that be the case, then without effective any
enforcement proceedings for a long span of time, the rights
that have crystallized since 1988, would be in jeopardy.
Such implied intrusion into the right to property cannot be
permitted to operate retroactively, as that would be unduly
harsh and arbitrary.
18. Conclusion
18.1 In view of the above discussion, we hold as under:
a)Section 3(2) of the unamended 1988 Act is declared as
unconstitutional for being manifestly arbitrary.
Accordingly, Section 3(2) of the 2016 Act is also
unconstitutional as it is violative of Article 20(1) of the
Constitution.
b)In rem forfeiture provision under Section 5 of the
unamended Act of 1988, prior to the 2016 Amendment
Act, was unconstitutional for being manifestly arbitrary.
c)The 2016 Amendment Act was not merely procedural,
rather, prescribed substantive provisions.
95
d)In rem forfeiture provision under Section 5 of the 2016
Act, being punitive in nature, can only be applied
prospectively and not retroactively.
e)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, viz., 1.11.2016. As a consequence of the
above declaration, all such prosecutions or confiscation
proceedings shall stand quashed.
f)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.
18.2 The appeal is disposed of in the above terms.
...........................CJI.
(N.V. RAMANA)
...........................J.
(KRISHNA MURARI)
...........................J.
(HIMA KOHLI)
NEW DELHI;
AUGUST 23, 2022.
96
Legal Notes
Add a Note....