Sections 3 and 5 of the 1988 Benami Property law “still-born” and “unconstitutional”; 2016 Amendment can only apply prospectively: Supreme Court

“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 allowed, then Article 20(1) of the Constitution   would be rendered nugatory.”

Supreme Court: In a big judgment on the Prohibition of Benami Property Transactions Act, 1988 [1988 Act], the 3-judge bench of NV Ramana, CJI* and Krishna Murari and Hima Kohli, JJ has held that 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 and were unconstitutional from their inception. The Court observed that both these provisions were still-born law and never utilized in the first place.

THE KEY TAKEAWAYS FROM THE JUDGMENT

a) Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the Benami Transactions (Prohibition) Amendment Act, 2016 [2016 Amendment 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.

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 Amendment Act, viz., 25.10.2016. As a consequence, all such prosecutions or confiscation proceedings stand quashed.

ANALYSIS

Benami Transaction

For the uninitiated, ‘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 in the property. Literally, ‘benami’ means ‘without a name’.

Sections 3 and 5 of 1988 Act – Stillborn and unconstitutional 

Section 2(a) of the 1988 Act 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 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.

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.

Section 3 puts forth a prohibitive provision. Further, it intended to criminalize an act of entering into a benami transaction.

Reading 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. Mens rea is an essential ingredient of a criminal offence. Doubtless, a statute may exclude the element of mens rea, but only where it is absolutely clear that implementation of the object of the statute would otherwise be defeated.

The Provisions under Sections 3 and 5 of 1988 Act were merely a shell, lacking the substance that a criminal legislation requires for being sustained for the following reasons:

  1. The absence of mens rea  creates a harsh provision having strict liability. Further, 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.
  2. 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. In removing such an essential ingredient, the legislature did not identify any reason or principle, which made the entire provision of Section 3 susceptible to arbitrariness. Further, for tripartite benami transactions, the 2016 Act brings back this ingredient through Section 2(9)(A)(b).
  3. The criminal provision was never utilized as there was a significant hiatus in enabling the functioning of such a provision.
  4. Reading Section 2(a) with Section 3(1) would have created overly broad laws susceptible to be challenged on the grounds of manifest arbitrariness.
  5. The 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.”

In rem proceedings against benami property under Section 5 of the unamended 1988 Act

The acquisition proceedings contemplated under Section 5 of the unamended 1988 Act the earlier Act were in rem proceedings against benami property. 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. When 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.

Also, Section 5 of the 1988 Act was a half-baked provision which did not provide the following and rather left the same to be prescribed through a delegated legislation:

  • Whether the proceedings under Section 5 were independent or dependant on successful prosecution?
  • The standard of proof required to establish benami transaction in terms of Section 5.
  • Mechanism for providing opportunity for a person to establish his defence.
  • No ‘defence of innocent owner’ was provided to save legitimate innocent buyers.
  • No adjudicatory mechanism was provided for.
  • No provision was included to determine vesting of acquired property.
  • No provision to identify or trace benami properties.
  • Condemnation of property cannot include the power of tracing, which needs an express provision.

2016 Amendment Act – Prospective Application of

As Sections 3 and 5 were unconstitutional under the 1988 Act, it would mean that the 2016 amendments were, in effect, creating 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 25.10.2016, the law cannot retroactively invigorate a stillborn criminal offence.

Hence, the 2016 Amendment Act containing the criminal provisions is applicable only prospectively.

Retroactive confiscation under Section 5 read with Chapter IV of 2016 Act – punitive or not?

The interplay of Sections 27(3), (5) and 67 of the 2016 Amendment 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. Hence, characterization of the confiscation proceedings under Chapter IV of the 2016 Act as Civil may therefore not be appropriate.

Further, 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.

The 2016 Act contemplates an in-rem forfeiture, wherein the taint of entering into such a benami transaction 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.

As 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 25.10.2016 as the same would tantamount to punitive punishment, in the absence of any other form of punishment.

“It is in this unique circumstance that confiscation contemplated under the period between 05.09.1988 and 25.10.2016 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.”

Continuation of only the civil provisions under Section 4 of the 1988 Act

The continuation of only the civil provisions under Section 4, etc., would mean that the legislative intention was to ensure that the ostensible owner 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.

[Union of India v. Ganpati Dealcom Pvt Ltd, 2022 SCC OnLine SC 1064, decided on 23.08.2022]


*Judgment by: CJI NV Ramana


For UOI: ASG S.V Raju and ASG Vikramjit Banerjee

For Respondent: Senior Advocate Dr Abhishek Manu Singhvi

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