Supreme Court removes blanket ban on Benami transactions

The Court has declared the provisions of the Prohibition of Benami Property Transactions Act, 1988, which imposed a blanket ban on benami transactions,  as unconstitutional for being "unduly harsh", "disproportionate" and "manifestly arbitrary", Live Law reported.

The judgment was delivered by a Supreme Court bench comprising Chief Justice of India NV Ramana, Justice Krishna Murari and Justice Hima Kohli in an appeal filed by the Central Government against a Calcutta High Court judgment that ruled that the 2016 amendment Act was prospective in nature (Union of India versus M/s Ganpati Dealcom Pvt Ltd.

“We hold Section 3(2) of 1988 unamended act as unconstitutional," and added that "such a coercive provision can’t have a retrospective effect," said the Judge bench.

"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 still ­born 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," the bench observed, Live Law reported.

While Section 2(a) of the (unamended) Act defined "benami transactions", Section 3 prohibited benami transactions and imposed criminal punishment for any violation of the law, and Section 5 allowed confiscation proceedings of benami properties.

“Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for (benami) transactions entered into prior to the coming into force of the 2016 Act, (period between September 5, 1988 to October 25, 2016). As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed,” the court ruled, HT reported.

The Calcutta High Court held that the Act could not be applied retrospectively as the transaction (referred to in the case) by the company was to purchase a property in 2011.

The decision will not apply to the prosecution and confiscation procedure under the 2016 Act as the same was not under consideration before the court.

In its judgment on Tuesday, the Supreme Court dismissed the Centre’s argument that forfeiture or confiscation of property under the 1988 Act was civil in nature and hence the violation of fundamental rights under Article 20(1) will not be attracted, the HT report stated.

According to Article 20(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.”

CJI Ramana, writing the 96-page judgment for the bench said, “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.” It even faulted Section 3 of the 1988 Act for not including “mens rea” as an essential ingredient of the offence and on this count held it to be unconstitutional. 

According to the HT report, the bench said, “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.” Due to this reason, the Centre too conceded in court that the criminal provision under the 1988 Act was never utilized and this gap was sought to be corrected by making the 2016 Act retrospective.

It boldly asserted that any punitive provision must be integrated with presumption of innocence.

“There is implicit recognition of the forfeiture being a punitive sanction….being a punitive provision, it is trite that one integrates the presumption of innocence within the Chapter IV of the 2016 Act (attachment, adjudication and confiscation) as the same forms a part of the fundamental right,” the court said, the report stated.