SC declares retrospective use of benami law unconstitutional

The Supreme Court on Tuesday declared “unconstitutional and manifestly arbitrary” amendments introduced in the benami law in 2016, which apply retrospectively and can send a person to prison for three years even as it empowers the Centre to confiscate “any property” subject to a benami transaction.

In a decision much-awaited by businesses, a three-judge bench led by Chief Justice of India NV Ramana declared Sections 3(2) and 5 introduced through the Benami Transactions (Prohibition) Amendment Act of 2016. The 2016 law amended the original Benami Act of 1988. It expanded the 1988 Act to 72 sections from a mere nine sections.

Section 3 (2) mandates punishment of three years’ imprisonment for those who have entered into benami transactions between September 5, 1988 and October 25, 2016. That is, a person can be sent behind bars for a benami transaction entered into 28 years before the section even came into existence.

Article 20(1)

Chief Justice Ramana, who wrote the 96-page judgment, held that the provision violated Article 20(1) of the Constitution.

Article 20(1) mandates that no person should be convicted of an offence which was not in force “at the time of the commission of the act charged as an offence”.

Section 5 of the 2016 Amendment Act said that “any property which is subject matter of a benami transaction shall be liable to be confiscated by the Central Government.” The court held that this provision cannot be applied retrospectively.

Chief Justice Ramana dismissed the government’s version that forfeiture, acquisition, and confiscation of property under the 2016 Act was not in the nature of prosecution and cannot be restricted under Article 20.

Rem forfeiture

The court observed that the 2016 Act condemned not only transactions which were traditionally denominated as “benami” but rather a “new class of fictitious and sham transactions”. The court said the intention of Parliament was to condemn property acquired from ill-gotten wealth. “These proceedings cannot be equated as enforcing civil obligations,” Chief Justice Ramana noted.

The court explained that the 2016 Act contemplated an “in­ rem forfeiture”, by which the taint of entering into a benami transaction is transposed to the asset itself”.

“When such a taint is being created not on the individual but on the property itself, a retroactive law would characterise itself as punitive for condemning the proceeds of sale, which may also involve legitimate means of addition of wealth,” the judgment said.

Excessive powers

The court also noted that the Act also granted extensive powers of discovery, inspection, compelling attendance, and compelling production of documents to officials. It also empowered authorities to seek the assistance of police officers, customs officers, income tax officers, etc., for furnishing information.

“It is also necessary to note that a person who supplies false information before any authority, is subjected to rigorous imprisonment of up to five years under Section 54 of the 2016 Act,” the court highlighted.

The court dismissed the government’s contentions that the 2016 Act was merely procedural in nature. On the other hand, it said the provisions were substantive.

“Authorities concerned cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., October 25, 2016. As a consequence, all such prosecutions or confiscation proceedings shall stand quashed,” the Supreme Court directed.

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