In Civil Appeal No.5783 of 2022-SC- Sec.3(2) of Prohibition of Benami Property Transactions Act is unconstitutional, Sec.5 of 2016 Amendment Act can only be applied prospectively: Supreme Court
Justices N.V.Ramana, Krishna Murari & Hima Kohli [23-08-2022]

Read Judgment: UNION OF INDIA & ANR v. M/s. GANPATI DEALCOM PVT. LTD 

Tulip Kanth

New Delhi, August 24, 2022: In a case involving a tussle between the normative and positivist positions regarding the nature of a crime and punishment, the Supreme Court has declared Section 3(2) of the unamended Prohibition of Benami Property Transactions Act, 1988 as well as Section 3(2) of the 2016 Amendment Act as unconstitutional, while also observing that the Amendment Act is not merely procedural but it also prescribes substantive provisions.

Clarifying that 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, the Larger Bench of Chief Justice N.V.Ramana, Justice Krishna Murari and Justice Hima Kohli asserted, “In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively.”

This case revolved around the respondent-company’s benami properties. The company has purchased a property in its name from various sellers and the consideration for the purchase was paid from the capital of the company. In the duration of 1 year, 99.9% of the respondent–company shareholdings were acquired by M/s PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd. at a discounted price. The two directors of the respondent-company were also held directorship in the subsequent purchaser company.

Thereafter, the Deputy Commissioner of Income Tax (Adjudicating Authority) issued a notice to the respondent–company invoking Section 24(1) of the 2016 Act to show cause as to why the aforesaid property should not be considered as Benami property and the respondent company as Benamidar. The Company denied such assertions and filed an appeal. The High Court, while quashing the show-cause notice, held that the 2016 Act did not have retrospective application. Aggrieved by this judgment, the Union of India filed this appeal.

Referring to sections 3 and 5 which has provisions for prohibition of benami transactions and acquisition of Property held benami, the Bench opined that Section 3(1) created an unduly harsh law against settled principles and Law Commission recommendations and Section 5 of 1988 Act, the provision relating to civil forfeiture, was manifestly arbitrary.

As per the Bench, Sections 3 and 5 were unconstitutional under the 1988 Act, which meant 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 September 5, 1988 to October 25, 2016, the Bench held that the law cannot retroactively invigorate a stillborn criminal offence.

The Bench was of the opinion that the offence under these provision is prospective, and only applied to those transactions that were entered into after the amendment came into force, i.e. October 25, 2016. Any contrary interpretation of Section 3 of the 1988 Act would be violative of Article 20(1) of the Constitution, the Bench held.

On the issue of retroactive operation of confiscation (forfeiture) under Section 5 read with Chapter IV of the 2016 Act, the Bench opined that the 2016 Act contemplates an in-rem forfeiture, wherein the taint of entering into such a benami transaction is transposed to the asset itself and the same becomes liable to confiscation. 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, noted the Bench.

Thus, declaring that section 3(2) is unconstitutional and Section 5 of the 2016 Act can only be applied prospectively and not retroactively, the Bench directed that concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act,i.e. October 25, 2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings should stand quashed, noted the Bench.