{"id":272133,"date":"2022-08-24T09:00:10","date_gmt":"2022-08-24T03:30:10","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=272133"},"modified":"2022-08-24T09:00:10","modified_gmt":"2022-08-24T03:30:10","slug":"section-3-and-5-of-benami-property-transactions-act-1988-unconstituional-stillborn-2016-amendment-act-does-not-apply-retroactively-prospective-application-supreme-court-legal-news-updates-research","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/24\/section-3-and-5-of-benami-property-transactions-act-1988-unconstituional-stillborn-2016-amendment-act-does-not-apply-retroactively-prospective-application-supreme-court-legal-news-updates-research\/","title":{"rendered":"Sections 3 and 5 of the 1988 Benami Property law “still-born” and “unconstitutional”; 2016 Amendment can only apply prospectively: Supreme Court"},"content":{"rendered":"

\u201cThe 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\u00a0\u00a0 existing constitutional defects. If such curing is allowed, then Article 20(1) of the Constitution\u00a0\u00a0 would be rendered nugatory.\u201d<\/span><\/p><\/blockquote>\n

Supreme Court<\/strong>: In a big judgment on the Prohibition of Benami Property Transactions Act, 1988 [1988 Act], the 3-judge bench of NV Ramana, CJI<\/strong>* and Krishna Murari and Hima Kohli, JJ has held that Section 3<\/a> (criminal provision) read with Section 2(a) and Section 5<\/a> (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<\/strong>.<\/p>\n

THE KEY TAKEAWAYS FROM THE JUDGMENT<\/strong><\/span><\/h3>\n

a) Section 3(2)<\/a> 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.<\/p>\n

b) In rem<\/em> forfeiture provision under Section 5<\/a> of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary.<\/p>\n

c) The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions.<\/p>\n

d) In rem<\/em> forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively.<\/p>\n

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<\/strong>.<\/p>\n

ANALYSIS <\/strong><\/span><\/h3>\n

Benami Transaction<\/strong><\/span><\/h4>\n

For the uninitiated, \u2018benami transaction\u2019 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, \u2018benami\u2019 means \u2018without a name\u2019.<\/p>\n

Sections 3 and 5 of 1988 Act – Stillborn and unconstitutional\u00a0<\/span><\/h4>\n

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\u00a0\u00a0 within the ambit\u00a0\u00a0 would\u00a0\u00a0 be against the strict reading of criminal law and would amount to judicial overreach.<\/p>\n

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\u2019s 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.<\/p>\n

Section 3<\/a> puts forth a prohibitive provision. Further, it intended to criminalize an act of entering into a benami transaction.<\/p>\n

Reading Section 2(a) along with Section 3 makes one thing clear \u2013 the criminal provision envisaged under the aforesaid provisions does not expressly contemplate mens rea<\/em>. Mens rea<\/em> 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.<\/p>\n

The Provisions under Sections 3 a<\/a>nd 5<\/a> of 1988 Act were merely a shell, lacking the substance that a criminal legislation requires for being sustained for the following reasons:<\/p>\n

    \n
  1. The absence of mens rea\u00a0 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<\/em> aspect, was without any rhyme or reason, and ended up creating an unusually harsh enactment.<\/strong><\/li>\n
  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).<\/li>\n
  3. The criminal provision was never utilized as there was a significant hiatus in enabling the functioning of such a provision.<\/li>\n
  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.<\/li>\n
  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.<\/li>\n<\/ol>\n
    \n

    \u201cA conclusion contrary to the above would make the aforesaid law suspect to being overly oppressive, fanciful and manifestly arbitrary, thereby violating the \u2018substantive due process\u2019 requirement of the Constitution.\u201d<\/p>\n<\/blockquote>\n

    In rem<\/em>\u00a0proceedings\u00a0against\u00a0benami\u00a0property under Section 5 of the unamended 1988 Act <\/strong><\/span><\/h4>\n

    The acquisition proceedings contemplated under Section 5<\/a> of the unamended 1988 Act the earlier Act were in rem<\/em> proceedings against benami property. Such in rem<\/em> 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.<\/p>\n

    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:<\/p>\n