Benami Transactions Act: Supreme Court Limits Retrospective Application of 2016 Amendment (23 August 2022)

Case Background

On May 2, 2011, M/s. Ganpati Dealcom Pvt. Ltd. (the respondent-company) purchased a property for ₹9,44,00,000. The payment was made from the company’s capital. On March 31, 2012, M/s PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd. acquired 99.9% of the respondent-company’s shareholdings at a discounted price of ₹5 per share, totaling ₹19,10,000. It is noteworthy that the two directors of the respondent-company, Shruti Goenka and Ritu Goenka, also held directorships in the purchasing company.

On August 29, 2017, the Deputy Commissioner of Income Tax issued a notice to the respondent-company under Section 24(1) of the Benami Transactions (Prohibition) Amendment Act, 2016, asking why the property should not be considered Benami and the company a Benamidar under Section 2(8) of the same Act. The company replied on September 6, 2017, denying the property was Benami.

The Adjudicating Authority provisionally attached the property on November 24, 2017, under Section 24(4)(b)(i) of the 2016 Act. Aggrieved, the respondent-company filed a writ petition before the High Court of Calcutta, which was disposed of on December 18, 2018, directing the Adjudicating Authority to conclude proceedings within 12 weeks. The respondent-company then appealed the order, leading to the High Court’s judgment on December 12, 2019, which quashed the show-cause notice, holding that the 2016 Act does not have retrospective application.

Timeline

Course of Proceedings

The High Court of Calcutta, in its order dated December 12, 2019, quashed the show-cause notice dated August 29, 2017, ruling that the Benami Transactions (Prohibition) Amendment Act, 2016 does not have retrospective application. The High Court reasoned that the 2016 Amendment Act was a new and substantive legislation that widened the definition of ‘benami property’ and ‘benami transaction’. It held that for the Act to have retrospective operation, there should have been a specific provision to that effect. The High Court also noted that the 1988 Act was never operationalized due to the absence of necessary rules and procedures, thus rendering it a “dead letter.” The High Court relied on the rulings of the Rajasthan High Court in Niharika Jain v. Union of India and the Bombay High Court in Joseph Isharat v. Mrs. Rozy Nishikant Gaikwad.

Aggrieved by the High Court’s order, the Union of India appealed to the Supreme Court.

Legal Framework

The core legal question revolves around the retrospective application of the Benami Transactions (Prohibition) Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016. The 1988 Act, specifically Section 2(a), defined a benami transaction as one where property is transferred to one person for consideration paid by another. Section 3 of the 1988 Act prohibited benami transactions and provided for punishment. Section 4 of the 1988 Act prohibited the right to recover property held benami. Section 5 of the 1988 Act stated that Benami property is liable to acquisition. The 2016 Amendment Act broadened the definition of benami transactions and introduced new penalties and procedures.

The High Court also referred to Article 20(1) of the Constitution of India, which protects against ex-post facto laws.

Arguments

Submissions by the Appellants (Union of India):

• ✓ The 2016 Amendment Act was a consolidating Act, brought in to remedy the mischief of lack of procedure under the pre-amendment Act.
• ✓ The amendment did not create a new offense, but merely laid down the procedures to implement the 1988 Act.
• ✓ Procedural laws can be applied retrospectively, and the bar against retrospective application applies only to substantive law.
• ✓ The legislative intent was to ensure that no immunity is granted to persons who engaged in benami transactions while the pre-amendment Act was in operation.
• ✓ 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. Confiscation is not a penal provision, but has civil consequences.
• ✓ Confiscation is not a punishment, and Article 20(1) is not attracted.
• ✓ The machinery and procedural provisions of the amended Act are retrospective in nature.
• ✓ 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.
• ✓ As per Article 20(1), prohibition exists only on conviction and sentencing of the ex-post facto law, and not against passing such a law.
• ✓ Forfeiture, acquisition, and confiscation are not punishments and therefore not subject to Article 20(1) restrictions.
• ✓ Adjudication proceedings are not in the nature of prosecution, and hence cannot be restricted by Article 20.

Submissions by the Respondent (M/s. Ganpati Dealcom Pvt. Ltd.):

• ✓ The 1988 Act did not apply its provisions 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 2016 Act was not intended to be retrospectively applicable, as the same is not explicitly stated.
• ✓ When the statute carves out distinct penalties in respect of benami transactions entered into in the unamended regime vis-a-vis the benami transactions entered into after the amendment Act of 2016, it clearly indicates that the amended Act is prospective in nature.
• ✓ Insertion of Section 2(9) by an amendment to the parent Act provides a new definition to benami transactions and has substantially changed the scope of the offense by enlarging its ambit.
• ✓ Any enactment which substantially affects the rights of people cannot be applied retrospectively.

Innovativeness of the argument: The respondent’s argument that the 2016 Act created new offenses and should not be applied retrospectively is a strong and innovative point.

Submissions Table

Issues Framed by the Supreme Court

The short legal question which arises for this Court’s consideration is whether the Prohibition of Benami Property Transactions Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 has a prospective effect.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

• ✓ Sree Meenakshi Mills Ltd. v. Commissioner of Income Tax, Madras, AIR 1957 SC 49 – Supreme Court of India: Explained the two categories of benami transactions.
• ✓ Thakur Bhim Singh v. Thakur Kan Singh, AIR 1980 SC 727 – Supreme Court of India: Described the second category of benami transactions as “loosely” termed benami.
• ✓ Mt. Bilas Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96 – Privy Council: Observed that benami transactions are common in India and unobjectionable.
• ✓ Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38 – Federal Court: Stated that benami transactions are not inherently wrong.
• ✓ Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171 – Supreme Court of India: Laid down tests to determine if a transaction is benami.
• ✓ Murlidhar Narayandas v. Paramanand Luchmandas, AIR 1932 Bom. 190 – Bombay High Court: Recognized the real owner over the ostensible owner.
• ✓ Radhakishan Brijlal v. Union of India, AIR 1959 Bom. 102 – Bombay High Court: Recognized the real owner over the ostensible owner.
• ✓ Gur Prasad v. Hansraj, AIR (33) 1946 Oudh. 144 – Oudh High Court: Recognized the real owner over the ostensible owner.
• ✓ Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95 – Supreme Court of India: Examined the retrospective application of Section 4 of the 1988 Act.
• ✓ R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630 – Supreme Court of India: Partly overruled Mithilesh Kumari and examined the retrospective application of Section 4.
• ✓ Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Pvt. Ltd, (2015) 1 SCC 1 – Supreme Court of India: Stated that any enactment which substantially affects the rights of people cannot be applied retrospectively.
• ✓ Nathulal v. State of Madhya Pradesh, AIR 1966 SC 43 – Supreme Court of India: Stated that mens rea is an essential ingredient of a criminal offence.
• ✓ A.K Gopalan v. State of Madras, AIR 1950 SC 27 – Supreme Court of India: Discussed the interpretation of “procedure established by law”.
• ✓ Maneka Gandhi v. Union of India, (1978) 1 SCC 248 – Supreme Court of India: Held that the judiciary has the power to examine the reasonability of a law.
• ✓ Sunil Batra v. Delhi Administration, (1978) 4 SCC 494 – Supreme Court of India: Interpreted “law” under Article 21 to mean “jus” and not merely “lex”.
• ✓ K. Puttaswamy v. Union of India, (2017) 10 SCC 1 – Supreme Court of India: Settled the law regarding judicial review and substantive challenges to laws.
• ✓ Shayara Bano v. Union of India, (2017) 9 SCC 1 – Supreme Court of India: Discussed the doctrine of manifest arbitrariness.
• ✓ Joseph Shine v. Union of India, (2019) 3 SCC 39 – Supreme Court of India: Reiterated the test for manifest arbitrariness.
• ✓ Hindustan Construction Co. Ltd v. Union of India, (2020) 17 SCC 324 – Supreme Court of India: Struck down Section 87 of the Arbitration Act on grounds of manifest arbitrariness.
• ✓ T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177 – Supreme Court of India: Expounded Article 20(1) of the Constitution.
• ✓ State of West Bengal v. S. K. Gosh, AIR 1963 SC 255 – Supreme Court of India: Characterized forfeiture laws as civil in nature.
• ✓ Divisional Forest Officer v. G. V. Sudhakar Rao, (1985) 4 SCC 573 – Supreme Court of India: Discussed the power of forfeiture under the Andhra Pradesh Forest Act.
• ✓ State of Madhya Pradesh v. Kallo Bai, (2017) 14 SCC 502 – Supreme Court of India: Interpreted the Madhya Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969.
• ✓ Yogendra Kumar Jaiswal v. State of Bihar, (2016) 3 SCC 183 – Supreme Court of India: Interpreted confiscation provisions as interim attachment.
• ✓ Abdul Vahab v. State of Madhya Pradesh, (2022) SCC Online SC 262 – Supreme Court of India: Held confiscation proceedings could not be independent of acquittal in the criminal case.
• ✓ Vijay Madanlal Choudary & Ors v. Union of India, SLP (Civ.) No. 4634 of 2014 – Supreme Court of India: Limited the application of Section 8(4) of PMLA concerning interim possession.

Books Relied Upon by the Court:

• ✓ McNaughten’s Selected Report Vol. I: Reference to the term furzee or farzi.
• ✓ West and Buhler, ‘Hindu Law’, (Fourth Edition): Reference to secret provisions for families within the Hindu Joint family system.
• ✓ Pollock, The Law of fraud, Misrepresentation and Mistake in British India (1894): Reference to mitigation of political and social risk.
• ✓ K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884-85): Reference to defrauding creditors.
• ✓ Craies on Statute Law, 7th Edn: Discussed the difference between retrospective and ex post facto laws.
• ✓ Oliver Wendell Holmes in The Common Law 5 (1881): Discussed the evolution of legal rules.

Authorities Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on several authorities to establish the principles of retrospective application of laws, the nature of benami transactions, and the interpretation of Article 20(1) of the Constitution. The Court distinguished the cases where civil forfeiture was allowed retrospectively, noting that those cases involved different contexts and legal frameworks.

• ✓ Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95: The Court partly overruled this case.
• ✓ R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630: The Court relied on this case to interpret the retrospective application of Section 4 of the 1988 Act.
• ✓ T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177: The Court relied on this case to expound Article 20(1) of the Constitution.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect against the retrospective application of punitive laws, as enshrined in Article 20(1) of the Constitution. The Court was also concerned about the lack of due process in the original 1988 Act and the substantive changes brought by the 2016 Amendment, which could not be applied retroactively. The Court also emphasized the need for clarity and fairness in the application of laws.

Sentiment Analysis of Reasons:

Fact:Law Ratio

Ratio Decidendi

The ratio decidendi of the judgment is that the Benami Transactions (Prohibition) Amendment Act, 2016, is prospective in nature and cannot be applied retrospectively to transactions that occurred before its enactment. The Court emphasized that any law that imposes a penalty or has punitive consequences cannot be applied retrospectively unless explicitly stated in the statute.

Obiter Dicta

The Court made several observations that were not strictly necessary for the decision but are important for understanding the broader context of the judgment. These include:

• ✓ The Court highlighted the historical context of benami transactions in India and their prevalence in various forms.
• ✓ The Court clarified the distinction between procedural and substantive laws, emphasizing that substantive laws cannot be applied retrospectively.
• ✓ The Court reiterated the importance of due process and fairness in the application of laws.
• ✓ The Court discussed the nature of confiscation and forfeiture laws, clarifying that in the context of the Benami Act, these provisions are punitive.

Dissenting Opinion

There was no dissenting opinion in this case.

Flowchart of the Judgment

Conclusion

The Supreme Court’s judgment in this case has significant implications for the application of the Benami Transactions (Prohibition) Act, 1988, as amended in 2016. The ruling clarifies that the 2016 Amendment Act is prospective in nature and cannot be applied to transactions that occurred before its enactment. This decision is crucial for upholding the constitutional protection against ex-post facto laws and ensures fairness and clarity in the application of legal provisions. The judgment also provides a detailed analysis of the nature of benami transactions, the distinction between procedural and substantive laws, and the interpretation of Article 20(1) of the Constitution.