BENAMI ACT CASE | UNION OF INDIA VS M/s. GANPATI DEALCOM PVT. LTD. | SUPREME COURT OF INDIA

BENAMI ACT CASE | UNION OF INDIA VS M/s. GANPATI DEALCOM PVT. LTD. | SUPREME COURT OF INDIA

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 5783 of 2022
[@ SPECIAL LEAVE PETITION (C) NO. 2784/2020]
UNION OF INDIA & ANR.                          … APPELLANT(S)
VERSUS
M/s. GANPATI DEALCOM PVT. LTD. … RESPONDENT(S)
JUDGM E N T
    N.V.    RAMANA    , CJI
1. Leave granted.
2. This   case   involves   a   tussle   between   the   normative   and
positivist   positions   regarding   the   nature   of   a   crime   and
punishment.   Treating   the   Constitution   as   a   flag   post,   a
result of this tussle is sought in the following deliberation.  
3. This appeal is filed against the impugned judgment dated
12.12.2019   passed   by   the   High   Court   of   Judicature   at
Calcutta in APO No. 8 of 2019 along with Writ Petition No.
687 of 2017.  
1
REPORTABLE
4. The   short   legal   question   which   arises   for   this   Court’s
consideration is whether the Prohibition of Benami Property
Transactions   Act,   1988   [for   short   ‘the   1988   Act’],   as
amended   by   the   Benami   Transactions   (Prohibition)
Amendment   Act,   2016   [for   short   the   ‘2016   Act’]   has   a
prospective effect. Although a purely legal question arises in
this   appeal,   it   is   necessary   to   have   a   brief   factual
background in mind before we advert to the analysis.  
5. On   02.05.2011,   the   respondent–company   purchased   a
property   in   its   name   from   various   sellers   for   a   total
consideration   of   Rs.9,44,00,000/­.     It   is   said   that   the
consideration for the aforesaid purchase was paid from the
capital   of   the   company.     On   31.03.2012,   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 of Rs.5/­ per share for a total amount
of   Rs.19,10,000/­.     It   is   a   matter   of   fact   that   the   two
directors of the  respondent­company  (viz. Shruti  Goenka
and Ritu Goenka) also held directorship in the subsequent
purchaser company.   
2
6. Accordingly, on 29.08.2017, 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 within the meaning of Section 2(8)
of the 2016 Act.  On 06.09.2017, the respondent–company
replied to the aforesaid show­cause notice denying that the
scheduled property is a Benami property.
7. The   Adjudicating   Authority,   by   order   dated   24.11.2017,
passed an order under Section 24(4)(b)(i) of the 2016 Act,
provisionally attaching the property.
8. Aggrieved   by   the   aforesaid   attachment   order,   the
respondent­company filed a Writ Petition (being W.P. No.
687   of   2017)   before   the   High   Court   of   Calcutta.     The
aforesaid writ petition was disposed of by the learned Single
Judge by an order dated 18.12.2018 with a direction to the
Adjudicating Authority to conclude the proceedings within
12 weeks.  
9. Aggrieved, the respondent­company filed an appeal against
the aforesaid order being APO No. 8 of 2019.  
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10. The High Court, vide impugned order dated 12.12.2019,
while quashing the show­cause notice dated 29.08.2017,
held   that   the   2016   Act   does   not   have   retrospective
application.  
(i) The 2016 Amendment Act, which came into force on
01.11.2016,   was   a   new   and   substantive   legislation,
inter alia, substituting and widening the definition of
‘benami   property   and   benami   transaction’,   and   in
order to have retrospective operation for the period or
transactions   entered   into   prior   to   01.11.2016,   a
provision to that effect should have been specifically
providing under the said Act; in the absence of any
express provision to that effect, simply by virtue of the
provisions contained in subsection (3) of Section 1 of
the 1988 Act [which remained unaltered by the 2016
Amendment Act, and have consequently been retained
under   the   Benami   Act],  the   provisions   of   the   2016
Amendment   Act   cannot   be   impliedly   construed   as
retrospective;
(ii) Reference was made to and reliance was placed on the
unreported ruling of the learned Single Judge of the
Rajasthan High Court dated 12.07.2019 in the case of
Niharika   Jain   v.   Union   of   India  [S.B.C.W.P.   No.
2915/2019], wherein, following the ruling of the Single
Judge of the Hon’ble Bombay High Court in the case of
Joseph   Isharat   v.   Mrs.   Rozy   Nishikant   Gaikwad
[S.A.   No.   749/2015;   decided   on
01.03.2017/30.03.2017], it was held that in terms of
the protection enshrined under clause (1) of Article 20
of the Constitution of India, the 2016 Amendment Act,
amending,   inter   alia,   the   definition   of   “benami
transaction”, could not be given retrospective effect,
and   the   amendments   brought   about   vide   the   said
(amendment) Act would be enforceable only with effect
from the date of the enactment / coming into force of
the said amendment Act i.e., on or after 01.11.2016 –
reliance in this regard was also placed on the ruling of
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this Court in the case of Rao Shiv Bahadur Singh vs.
State of Vindhya Pradesh, AIR 1953 SC 394;
(iii) The 1988 Act, which came into force on 19.05.1988
[except Section 3, 5 and 8 thereof which came into
force   on   05.09.1988],   provided   for   punishment   for
persons entering into a “benami transaction”, which
was   made   non­cognizable   and   bailable,   and   also
however, provided for acquisition of property held to be
benami;   provisions   of   the   1988   Act,   were   never
operationalized since the rules and procedure required
to be framed under Section 8 of the said Act bringing
into existence the machinery for implementation of the
1988 Act, were never notified – therefore, although the
1988 Act was part of the statute book, the same was
rendered   a   “dead   letter”,   and   all   transactions   and
properties   alleged   ‘benami’,   carried   out   /   acquired
between   the   period   of   19.05.1988   and   01.11.2016,
were   deemed   to   have   been   accepted   by   the
Government as valid ‘vesting rights’ in the parties to
such   alleged   transactions;  ergo,   the   Central
Government, having waived its right of implementation
and operationalisation of the 1988 Act for the period
prior to 01.11.2016, cannot now do so indirectly by
way of retrospective operation of the 2016 Amendment
Act.
11. Aggrieved by the aforesaid impugned order, the Union of
India is in appeal before this Court.
12.     SUBMISSIONS
12.1 Shri S.V Raju, learned Additional Solicitor General (‘ASG’)
has contended as under:
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i. As   per   the   pre­amendment   Act,   there   was   no
machinery   or   procedure   in   place   to   effectuate
proceedings   against   Benami   transactions.   It   is
submitted that in order to remedy this mischief of
lack of procedure, the Amendment Act, which was a
consolidating Act, was brought in.
ii. It   was   not   an   offence   that   is   sought   to   be
implemented   retrospectively,   but   merely   the
procedures are laid down to implement the Act of
1988. He stated that the pre­amendment Act already
recognizes Benami transactions as contrary to law,
and hence no new or substantive law is being made.
iii. It is settled law that procedural law can be applied
retrospectively,   and   the   bar   against   retrospective
application is only applicable to substantive law.
iv. The legislative intent for bringing an amendment to
the existing act, and not enacting a new law, was to
ensure that no immunity is granted to persons who
engaged   in   benami   transactions   while   the   preamendment Act was in operation.
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v. It was further submitted that 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   by   the   Adjudicating
Authority. As per Section 27(3), once the confiscation
order is passed by the Authority, the rights in the
property are vested in the Central Government.   It
was   reiterated   that   confiscation   is   not   a   penal
provision, as the same has civil consequences. Both,
acquisition and confiscation are civil in nature, and
therefore,   they   can   be   used   interchangeably.
Therefore,   any   amendment   act   which   is
consolidating in nature, can have provisions which
are   confiscatory   in   nature   and   the   same   can   be
applied   retrospectively.  For   this,   the   learned   ASG
referred to  Yogendra  Kumar  Jaiswal   v.  State  of
Bihar,  (2016) 3 SCC 183, para 149, and submitted
that   in   this   judgment,   this   Court   has   held   that
confiscation is not a punishment, and that Article
20(1)   is   not   attracted.   The   Court   also   held  that
confiscation   as   imposed   by   the   Adjudicating
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Authority would not amount to any punishment, and
is only a deprivation of the property of the person in
question. 
vi. The learned ASG also referred to Mithilesh Kumari
v. Prem Behari Khare, (1989) 2 SCC 95, para 21, to
submit that by necessary implication, the machinery
and procedural provisions of the amended Act are
retrospective in nature.
12.2 Shri   Vikramjit   Banerjee,   learned   ASG   has   submitted   as
under:
i. The 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.   He   further   argued   that   as   per   Article   20(1),
prohibition exists only on conviction and sentencing of
the ex­post facto law, and not against passing such a
law. 
ii. Forfeiture,   acquisition,   and   confiscation   are   not
punishments and therefore not subject to Article 20(1)
8
restrictions. He then pointed out that the adjudication
proceedings are also not in the nature of prosecution,
and hence cannot be restricted by Article 20. 
iii. That   acquisition   of   property   without   paying
compensation   amounts   to   confiscation,   and
confiscation envisages a civil liability. 
12.3 Dr.   Abhishek   Manu   Singhvi,   learned   Senior   Advocate
appearing for the respondent has contended as under:
i. The   1988   Act   did   not   make   its   provisions   applied
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 other provisions
introduced by the parent Act, namely Sections 3, 5
and 8, were made only prospectively applicable from
the date on which the parent Act was brought into
effect.
ii. The 2016 Act was not intended to be retrospectively
applicable   as   the   same   is   not   explicitly   stated.
9
Parliament deemed it  fit to  leave it  to  the Central
Government   to   enforce   the   2016   Act   from   an
appointed date by notifying it in the official gazette, as
mentioned in Section 1(2) of the 2016 Act.
iii. It was further argued that when the statute carves out
distinct penalties in respect of benami transactions
entered into in the unamended regime  vis­a­vis  the
benami   transactions   entered   into   after   the
amendment Act of 2016, it clearly indicates that the
amended Act is prospective in nature. 
iv. Learned Senior Advocate also relied on the cases of R.
Rajagopal   Reddy   v.   Padmini   Chandrasekharan,
(1995)   2   SCC   630 and  Mangathai   Ammal   v.
Rajeswari,   (2020)   17   SCC   496,   in   the   context   of
Sections   4(1),   4(2)   and   3(2)   of   the   parent   Act,   to
contend   that   the   abovementioned   provisions   are
prospective in nature.
v. It is also argued that insertion of Section 2(9) by an
amendment   to   the   parent   Act   provides   a   new
definition   to   benami   transactions   and   has
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substantially   changed   the   scope   of   the   offence   by
enlarging   its   ambit.   In   the   unamended   Act,   only
transfer   of   property   was   an   offence.   However,   the
2016 Act has added multiple other actions as offences
under the category of benami transactions. It is a well
settled   principle   of   law   that   any   enactment   which
substantially affects the rights of people cannot be
applied retrospectively, and therefore, the amended
2016 Act can only be prospective in nature. For this,
the   judgment   of   this   Court   in   the   case   of
Commissioner   of   Income   Tax   (Central)­I,   New
Delhi v. Vatika Township Pvt. Ltd,  (2015) 1 SCC 1
was relied on.
13.    INTRODUCTION TO PRACTICE OF PROPERTIES HELD BENAMI IN INDIA
13.1Having heard the parties, it is necessary for this Court to trace
the   history   of   benami   transactions   in   India.   The   term
‘benami transaction’ 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
11
in the property. Literally, ‘benami’ means ‘without a name’.
The   simplest   of   example   is   if   person   ‘A’   (real   owner)
purchases   a   property   from   ‘B’   in   the   name   of   ‘C’
(benamidar/ostensible   owner),   wherein   ‘A’   exercise
rights/interest over the property.
13.2 The term ‘benami’, which was alien to statutory law during
the colonial regime and in the early days of the Republic,
was   known   in   the   legal   parlance   of   lawyers.   Even   in
Mohammedan   law,   such   transactions   were   commonly
referred as furzee or farzi, derived from Arabic word furaz.
1
Over the passage of time, this nebulous concept appeared in
cases   without   much   clarity   with   respect   to   its   basic
contours.   Conceptually,   there   are   two   views   which   arise
from   the   Doctrine  of  Benami.   The   first   view   is   that   the
benamidar does not hold title over the property, and the
second   view   is   that   although   the   title   passes   to   the
benamidar, he holds it in trust. 
13.3 Eventually,   there   developed   two   loose   categories   of
transactions that were colloquially termed as benami, which
can be explained through the following examples:
1 McNaughten’s Selected Report Vol. I, Reporter’s Note at p. 368.
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(i.) Tripartite: ‘B’ sells a property to ‘A’ (real owner),
but   the   sale   deed   mentions   ‘C’   as   the
owner/benamidar. 
(ii.) Bipartite:   ‘A’   sells   property   to   ‘B’   without
intending to pass the title to ‘B’.
The first  instance  was usually  termed as a  real  benami
transaction,   and   the   second   transaction   was   considered
either   as   a   sham   transaction   or   “loosely”   benami
transaction.   In  Sree   Meenakshi   Mills   Ltd.   v.
Commissioner of Income Tax, Madras, AIR 1957 SC 49,
speaking for the Bench, Venkatarama Ayyar, J., stated that
the   first   category   of   transactions   is   ‘usually’   termed   as
benami,   while   the   second   category   is   ‘occasionally’
considered   a   benami   transaction.   He   added   that   it   is
“perhaps not accurately so used”. In Thakur Bhim Singh
v. Thakur Kan Singh, AIR 1980 SC 727, Venkataramiah,
J. straightway called the first category as benami but chose
to describe the second category as “loosely” termed benami.
This distinction is relevant and will be adverted to later.
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13.4 Numerous reasons, some desirable and some undesirable,
were   contributory   factors   for   the   proliferation   of   such   a
practice in India. Some of them are as follows:
(i) Secret provisions for families within Hindu Joint
family system;2
(ii) Mitigation of political and social risk;3
(iii)Defrauding creditors;4
(iv)Evasion of taxes.
13.5 Judicial recognition of such transactions came about in the
early 19th  century under the colonial courts. In  Mt. Bilas
Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96, the Privy
Council observed as under:
“Down   to   the   taluqdar’s   death   the   natural
inference is that the purchase was a benami
transaction; a dealing common to Hindus and
Muhammadans   alike,   and   much   in   use   in
India; it is quite unobjectionable and has a
curious   resemblance   to   the   doctrine   of   our
English law that the trust of the legal estate
results   to   the   man   who   pays   the   purchase
money, and this again follows the analogy of
our common law, that where a feoffment is
made without consideration the use results to
the feoffer.”
2 West and Buhler, ‘Hindu Law’, (Fourth Edition), Pg. 157, 563.
3 Pollock, The Law of fraud, Misrepresentation and Mistake in British India (1894), page 83­
84.
4 K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884­85) Pg. 469­470.
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In Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38,
the Federal Court, while evaluating the propriety of such
transactions, observed as under:
“A   notion   has   sometimes   prevailed   in   this
country that all benami transactions must be
regarded as reprehensible and improper if not
illegal;   but,   as   late   as   in   1915,   Sir   George
Farwell, delivering the judgment of the Judicial
Committee in 37 ALL. 557 spoke of them as
‘quite   unobjectionable’   and   as   having   their
analogues in the English law; and Mr. Amreer
Ali, delivering the judgment of the Committee
in 46 Cal. 566, observed that “there is nothing
inherently wrong in it, and it accords, within
its legitimate scope, with the ideas and habits
of the people”. As indicated by the qualifying
words   “within   its   legitimate   scope”,   their
Lordships’ observations were clearly not meant
to countenance transactions entered into for
fraudulent or illegal purposes.”
13.6 In Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171, this
Court laid down a test to determine whether a transaction is
benami or not. The following factors were to be considered: 
(i) The source from which the purchase money came;
(ii) The nature and possession of property after purchase;
(iii) Motive,   if   any,   for   giving   the   transaction   a   benami
colour;
(iv) The position of the parties and the relationship, if any,
between the Claimant and the alleged Benamidar.
(v) The custody of the title­deeds after the sale, and
15
(vi) The conduct of the parties concerned in dealing with
the property after the sale.
13.7 The judiciary came to establish the general principle that in
law, the real owner is recognized over the ostensible owner.5
This   principle   had   certain   statutory   exceptions,   albeit
limited, such as Section 66 of Civil Procedure Code, 1908
with   respect   to   properties   wherein   sale   certificates   are
issued by courts; and Section 281A of the Income Tax Act,
1961, which allows filing of suit by the original owner to
enforce his right over a benami property, only if the same is
declared for taxing purpose, as provided thereunder. Such
provision   under   the   Income   Tax   Act   did   not   bar   such
benami transactions completely, rather it only attempted to
legitimize and bring them into the net of taxation. Such
provision,   while   disincentivizing   transactions   beyond   the
taxation   net,   had   also   inevitably   accepted   the   positive
factors in recognizing the same. Further, it is a matter of
fact that the Indian Trusts Act has recognized and accepted
the principle behind benami transactions.
5 Murlidhar Narayandas v. Paramanand Luchmandas, AIR 1932 Bom. 190;  Radhakishan
Brijlal v. Union of India, AIR 1959 Bom. 102 (V46 C40);  Gur Prasad v. Hansraj, AIR (33)
1946 Oudh. 144.
16
13.8 The 57th  Report of the Law Commission (1973) succinctly
captures the general principles prevailing as on that date, in
the following manner:
“5.2  Summary  of  present  position­in general­A few
basic points concerning benami transactions may be
stated, as follows:
(a)Benami transfer or transaction means the transfer
by or to a person who acts only as the ostensible
owner in place of real owner whose name is not
disclosed;
(b)The question whether such transfer or transaction
was real or benami depends upon the intention of
the beneficiary;
(c) The real owner in such cases may be called the
beneficiary,   and   the   ostensible   owner   the
benamidar.
5.3. Effect of benami transfer.­ The effect of a benami
transfer is as follows:­
(a)A person does not acquire any interest in property
by merely leading his name;
(b)The benamidar has no beneficial interest though he
may re­present the legal owner as to third person.
(c)A benami transaction is legal, except in certain
specified situations.
(Emphasis supplied)
13.9 Prior to the 1973 Report, the broad position on the legality
of various kinds of benami transactions can be captured as
follows:
SL.
NO.
NATURE OF TRANSFER LEGALITY AND
CONSEQUENCES
A Transfer in favour of wife or
child   (whether   or   not   with
Governed   by   Section
64,   Income­tax   Act
17
the object of transferring title
to the wife or child) without
adequate consideration
(also   see   point   G   in
table).   [No   criminal
liability   unless   the
case   falls   within
Section 415 to 424 or
Section   206­207   of
Indian Penal Code]
B Transfer in favour of wife or
child   for   consideration,   but
for a fraudulent purpose and
not in good faith
Governed   by   Section
6(h)(2) and Section 58
of Transfer of Property
Act. [Criminal liability
if the case falls within
Section 415 to 424 or
Section   206­207   of
Indian Penal Code]
C Transfer in favour of wife or
child  for  consideration,  and
with   genuine   object   of
transferring title to the wife
or child
Not   covered   by   any
provision (No criminal
liability)
D
(i)
Transfer in favour of a 
person other than wife 
or child without 
consideration, but with 
the genuine object of 
transferring title and 
with no fraudulent 
purpose
Not   covered   by   any
provision. (No criminal
liability)
(ii)
Transfer in favour of a
person   other   than   wife
or   child   without
consideration,   and
without   intent   to
transfer   title,   but   with
no fraudulent purpose.
Governed   by   Section
281A   of   Income   Tax
Act,   1961   (also   see
point G in table). [No
criminal liability]
(iii) Transfer in favour of a
person   other   than   wife
or   child   without
consideration, and with
Governed   by   Section
6(h)(2) and Section 53
of Transfer of Property
Act. [Criminal liability
18
intent   to   transfer   title,
but   for   a   fraudulent
purpose and not in good
faith.
if the case falls within
Section 415 to 424 or
Section   206­207   of
Indian Penal Code]
(iv) Transfer in favour of a
person   other   than   wife
or   child   without
consideration,   without
intent   to   transfer   title
and   for   fraudulent
purpose.
Governed   by   Section
281A   of   Income   Tax
Act, 1961 (See point G
in table). Also section
6(h)(2) and Section 59,
Transfer   of   Property
Act. (Criminal liability
if   case   falls   within
Section 415 to 424 of
Indian   Penal   Code   or
Section   206­207   of
that Code)
E Transfer in favour of person
other than wife or child for
consideration, with intent to
transfer   title,   but   for   a
fraudulent purpose and not
in good faith.
Governed   by   Section
6(h)(g) and Section 53,
Transfer   of   Property
Act.   (criminal   liability
if   case   falls   within
Section 415 to 424 of
Indian   penal   Code   or
Section   206­207   of
that Code
F Transfer in favour of person
other than wife or child with
consideration,   but   with
genuine object of transferring
ownership   and   with   no
fraudulent intent
Not   covered   by   any
provision.
G Transfer   in   favour   of   any
person benami (i.e., without
consideration   and   with   no
genuine intent to transfer)
Object of checking tax
evasion   substantially
achieved by barring a
suit instituted without
informing   the   taxing
authorities.   See
Section   231A,   Income
Tax   Act   (inserted   by
Act 45 of 1972)
19
13.10 It   may   be   necessary   to   note   that   the   Law   Commission,
through   its   aforementioned   57th  Report,   did   not   find   it
suitable to accept the stringent provision of making benami
transactions   liable   to   criminal   action.   Rather,   it
recommended   adoption   of   certain   less   stringent,   civil
alternatives in the following manner:
“6.3.  Possible   alternative   for   regulating   benami
transaction. ­ Several possible alternatives could be
thought of, with reference to prohibiting or regulating
benami transactions for avoiding prejudice to private
individuals or minimising litigation:­
(i) Entering into a Benami transactions could be
made an offence;
(ii) A provision may be enacted to the effect that
in a civil suit a right shall not be enforced against
the benamidar or against a third person, by or on
behalf of the person claiming to be the real owner
of the property on the ground of benami; a similar
provision could be made to bar defences on the
ground of benami.
(This provision would be based on the principle on
which the existing provisions in the Civil Procedure
Code and the new provision in the Income­tax Act are
based but could be wider in scope and more radical). ­
(iii) The present presumption of a resulting trust in
favour of the person who provided the consideration
may be displaced (as in England) by the presumption
of advancement, in cases where the person to whom
property is transferred is a near relative of the person
who provided the consideration. (This would bring in
the   doctrine   of   advancement,   so   as   to   rebut   the
presumption of resulting trust under section 82 of the
Trusts Act).
20
Whichever alternative is adopted, it may be desirable
to make an exception for an acquisition made by the
manager of a joint Hindu family in the name of one of
the co­parceners, and similar cases.
6.24. First alternative not likely to be effective­The
first   alternative   referred   to   above,   namely,   the
imposition   of   a  criminal   prohibition   against  benami
transactions, is the most drastic alternative, but it is
not   likely   to   be   more   effective   than   the   others.   A
prohibition backed by criminal sanctions would not,
moreover, be desirable, unless the mens rea is also
included in the provision to be enacted.
 If this alternative is to be adopted, a provision could
be enacted on the following lines:­­
"Where   property   is   transferred   to   one   person   for   a
consideration paid or provided by another person, and
it appears that such person did not intend to pay or
provide   such   consideration   for   the   benefit   of   the
transferee,   the   person   paying   or   providing   the
consideration shall be guilty of an offence punishable
with imprisonment upto three years, or with fine, or
both. 
Provided that this section shall not apply where the
transferee is a co­parcener in a Hindu undivided family
in which such other person is also a co­parcener, and
it is proved that such other person intended to pay or
provide such consideration for the benefit of the coparceners in the family.
Exception­­Nothing in this section shall be deemed to
affect section 66 of the Code of Civil Procedure, 1908
or any provision similar thereto."
Yet   another   device   for   giving   effect   to   the   first
alternative, with a requirement of mens rea, would be
to have a law on the following lines:
"Where property is transferred to one person for a
consideration paid or provided by another person,
and it appears that such person did not intend to
pay or provide such consideration for the benefit
21
of the transferee, the person paying: or providing
the   consideration   shall,   if   he   has   caused   the
transfer to be entered into with the intention of
facilitating the evasion of any law, or defeating
the claims of his creditors, or the creditors of any
other person be guilty of an offence punishable
with imprisonment upto three years, or with fine,
or with both."
Yet another device to give effect to the first alternative
would be to add a section in the Indian Penal Code as
follows­
"421A.   Whoever,   dishonestly   or   fraudulently
causes   to   be   transferred   to   any   person,   any
property,   for   which   transfer   he   has   paid   or
provided the consideration, intending thereby to
prevent,   or   knowing   to   be   likely   that   he   will
thereby prevent, the distribution of that property
according   to   law   among   his   creditors   or   the
creditors   of   any   other   person,   or   intending
thereby to facilitate, or knowing it to be likely that
he will thereby facilitate, the evasion of any law,
shall be punished with imprisonment of either
description for a term which may extend to two
years, or with fine. or with both."
6.25. Second alternative. ­­The second alternative is
less drastic than. the first. In form. it could follow the
existing   statutory   provision   limiting   the   judicial
recognition of benami transactions, such as, section
66. Code of Civil Procedure, 1908. But its scope would
be much wider. The provision' could be to the effect
that no suit shall lie to enforce a right in respect of any
property   held   benami,   either   against   the   person   in
whose name 'the property is held or against any other
person, by or on behalf of a person who claims to be
the real owner 'of the property on the ground that the
person   in   whose   name   the   property   is   held   is   a
benamidar of the claimant. (If necessary, a defence can
also be barred).
22
6.27.  Second   alternative   refusal   to   recognise
Benami   preferred.  ­­   In   our   opinion,   the   simplest
alternative would be the second alternative. The law
should refuse to­ recognise the Benami character of
transactions, without making them an offence. The law
should,   in   effect,   provide   that   where   property   is
transferred   benami,   the   benamidar   will   become   the
real owner. The result of such a provision will be that
the   fact   that   the   benamidar   did   not   provide   the
consideration, or that the consideration was provided
by a third person, will not be a ground for recognising
a person other than the benamidar as owner. To put
the matter in broad terms, the doctrine of benami will,
under the pro­ posed amendment, cease to be a part of
the Indian law.
It   may   be   observed   that   in   enacting   the   proposed
provision,   the   legislature   will   carry,   to   its   logical
conclusion, the trend illustrated by provisions, such
as,   section   66   of   the   Code   of   Civil   Procedure.   The
section   in the   Code is   applicable   to   involuntary
alienations, while the proposed provision will extend
the same principle to voluntary transactions as Well.
We   think   that   this   will   be   the   simplest   and   most
effective course, and is, therefore, preferable to others. 
The amendment will bring out a change in the legal
position in some of the situations where, at present,
the benami character is re­ cognised.
6.27A. We are also of the view that it is not necessary
to enact a prohibition attracting criminal penalties­­­­
which is the course suggested in the first alternative.
Such a prohibition will have to be ac­ companied by a
requirement   of   mens   rea,   thus   narrowing   down   its
scope and limiting its practical utility.”
23
13.11 It must be noted that during this time, the Constitution was
undergoing a slow churning qua the right to property. The
above propositions, laid down by Federal Courts and Privy
Council are to be understood in a context where there was a
general common law right to property, which later made its
forays into the Constitution of India under Articles 19(1)(f)
and   31.   In   1978,   the   Indian   Parliament   took   a   drastic
measure   and   did   away   with   this   fundamental   right   to
property and relegated the same to a constitutional right
under Article 300A.
13.12 Further,   it   was   an   era   during   which   India   pursued
‘socialism’, which was also included in the Preamble of the
Constitution through the 42nd  (Amendment) Act in 1976.
Successive judicial opinions in  Kesavananda   Bharati   v.
State of Kerala, (1973) 4 SCC 225 etc., viewed the right to
property as a stumbling block in the path of achieving social
goals that the government of the time aspired to.
13.13 In   1988,   an   Ordinance   –viz.   The   Benami   Transactions
(Prohibition  of the Right of Recover Property) Ordinance,
1988   (Ordinance   2   of   1988.)   –   was   promulgated.   This
24
statutory instrument being not satisfactory, it  was referred
to the Law Commission again.
13.14 In   any   case,   the   issue   was   re­examined   by   the   Law
Commission   in   the   year   1988   through   its   130th  Report.
Although   the   Law   Commission   characterized   the   130th
Report as a continuation of its earlier recommendations, it
can be observed that some radical changes were suggested.
Some of the key observations are as under:
“3.2  The first question that must engage our
attention at once is the width and coverage
of   the   proposed   legislation.  In   order   to
encompass   benami   transactions
concerning various types of property, the
legislation   should   cover   both   movable,
immovable,   tangible   and   intangible
property.   Unfortunately   every   type   of
property,   such   as   land,   houses,   shares,
debentures,   bonds,   bank   accounts,
deposit   receipts   and   negotiable
instruments,   is   capable   of   being   held
benami. Therefore, it is equally legitimate
to   have   an   extensive   coverage   of   the
proposed   legislation   by   encompassing
property of every denomination. …
3.18 Therefore, viewed from either angle,
the Law Commission is of the firm opinion
that the legislation replacing the ordinance
should also be retroactive in operation and
that no locus penitentia need be given to the
persons   who   had   entered   into   benami
transactions in the past. They had notice of
25
one and half decades to set their house in
order. No more indulgence is called for. …
4.5Before we conclude on this chapter, it is
necessary to point out that certain tax laws
have   confirmed   legitimacy   on   the   benami
transactions and derived benefit in the form
of   revenue   collection   from   it.   It   was,
therefore,   said   that   if   now   all   benami
transactions   are   invalidated   and   an   allenveloping   prohibition   is   imposed,   the
revenue laws would suffer loss of revenue.
Reference in this connection was made to
section   27   of   the   Income­tax   Act,   1962
dealing   with   income   from   house   property.
The various sub­sections of section 27 deal
with transfer of property by husband to wife
and      vice­versa.   It also involves the case of
impartable   estate.   The   law   commission   is
unable to appreciate how a total prohibition
of benami transaction and the holder being
made the real owner would defeat revenue
laws. If one escapes, the other pays, and if it
is   suggested   that   the   other   may   not   be
within the dragnet of the tax laws and that
both would benefit by the prohibition and
abolition   of   benami   transactions.   In   the
immediate   future   such   effect   may   be
produced but the long term interest would
help   in   defending   such   spurious
transactions   between   husband   and   wife.
Section 22 may be read accordingly. But it
was pointed out that where transfer of flats
is prohibited either by the rules of the cooperative society which has built the flats or
by   the   rules   of   authorities   like   the   Delhi
Development   Authority,   a  modus   operandi
has come into  existence  whereby violating
the law, the flat is sold and the purchaser
would   pay   the   amount   and   taken   an
26
irrevocable power of attorney and enter into
possession.   It   was   further   said   that   the
provisions   of   the   Income­tax   Act   have
recognized   such   transfers   and   treat   the
attorney as owner for the purpose of incometax as per the provisions of the Finance Act,
1987. If the sole purpose of entering into
such a transaction is the violation of existing
law   which   has   been   passed   after   due
consideration, it is time that no recognition
is conferred and the law is allowed to take
its own course. Even in the name of revenue
loss,   violation   of   existing   laws   cannot   be
protected. 
4.6The Law Commission would like to make
it very clear that some of provisions of the
tax laws may become anachronistic because
of   the   present   approach   of   the   law
commission. This is inevitable. The tax laws
were enacted at the time when benami was a
part of Indian law. Such laws would have to
conform to the changing legal order. Yet a
further solution is offered in this behalf in
the next chapter.”
(emphasis supplied)
14.     FRAMEWORK UNDER THE 1988 ACT
14.1 This brings us to the statutory framework under the 1988
unamended Act, having nine sections. Section 2(a) 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
27
definition.   Reading   the   aforesaid   definition   to   include
sham/bipartite   arrangements   within   the   ambit   would   be
against the strict reading of criminal law and would amount
to judicial overreach.
14.2 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’s 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. On literal application of the
aforesaid Section 2(a), the following transactions could have
been caught in the web of the Act:
(a)‘A’ purchases property in name of his son’s wife ‘B’, for
the benefit of the son’s family from person ‘Y’, treats the
consideration as a gift to the son, and pays gift tax on it.
(b)‘A’ who is old and infirm, purchases a property in the
name of ‘B’, intending that ‘B’ will hold the property in
trust of the son of ‘A’, who is mentally retarded.
(c)A firm ‘X’ purchases property in the name of the working
partner ‘B’ for the benefit of the firm ‘X’, making the
payment out of the firm’s funds.
28
14.3 Section 2(c) of the 1988 Act defines property to be property
of any kind, whether movable or immovable, tangible, or
intangible,   and   includes   any   right   or   interest   in   such
property. This definition appears to be broad and inclusive
of all kinds of property and includes various rights and
interests. Interestingly, the aforesaid broad formulation of
property came about for the first time in the 130th  Law
Commission Report; such definitional broadening was for
the   first   time   introduced   only   in   1988   and   was   never
contemplated   during   the   57th  Report   (1973).   This   aspect
becomes   important,   and   will   be   addressed   later,   while
analysing the question of retrospectivity.
14.4 Section 3 of 1988 Act states as under:
3. Prohibition of benami transactions­ (1) No
person   shall   enter   into   any   benami
transaction. 
(2) Nothing in sub­section (1) shall apply to the
purchase   of   property   by   any   person   in   the
name of his wife or unmarried daughter and it
shall   be   presumed,   unless   the   contrary   is
proved,   that   the   said   property   had   been
purchased for the benefit of the wife of the
unmarried daughter. 
(3)   Whoever   enters   into   any   benami
transaction   shall   be   punishable   with
29
imprisonment for a term which may extend to
three years or with fine or with both. 
(4) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974),
an offence under this section shall be noncognizable and bailable. 
Section   3   puts   forth   a   prohibitive   provision.   Further,   it
intended to criminalize an act of entering into a benami
transaction. 
14.5 Section 4 noted as under:
4.Prohibition   of   the   right   to   recover
property held benami­ (1) No suit, claim or
action to enforce any right in respect of any
property held benami against the person in
whose name the property is held or against
any other person shall lie by or on behalf of
a person claiming to be the real owner of
such property. 
(2) No defence based on any right in respect
of   any   property   held   benami,   whether
against   the   person   in   whose   name   the
property is held or against any other person,
shall be allowed in any suit, claim or action
by or on behalf of a person claiming to be
the real owner of such property. 
(3) Nothing in this section shall apply,­­ 
(a)   where   the   person   in   whose   name   the
property is held is a coparcener in a Hindu
undivided family and the property is held for
the benefit of the coparceners in the family;
or
30
(b)   where   the   person   in   whose   name   the
property is held is a trustee or other person
standing   in   a   fiduciary   capacity,   and   the
property is held for the benefit of another
person for whom he is a trustee or towards
whom he stands in such capacity.  
14.6 Section 5 states:
5. Property of benami liable to acquisition­
(1) All properties held benami shall be subject
to   acquisition   by   such   authority,   in   such
manner and after following such procedure as
may be prescribed. 
(2)   For   the   removal   of   doubts,   it   is   hereby
declared that no amount shall be payable for
the   acquisition   of   any   property   under   subsection (1). 
It may be noted that Section 5 was never utilized as it was
felt   that   there   was   requirement   of   additional   statutory
backing to make the law effective.6
14.7 Section 6 provided that nothing in the 1988 Act will affect
Section 53 of the Transfer of Property Act or any law relating
to transfers for an illegal purpose. The object of Section 6
was to vest ownership rights in benamidars as opposed to
the real owner. It was not the intention of the 1988 Act to
protect such persons from creditors who allege diversion of
6 Standing Committee on Finance 2015-2016, 16th Lok Sabha, Ministry of Finance (Deptt. of Revenue), The
Benami Transactions Prohibition (Amendment) Bill, 2015, 28th Report, Part I.
31
funds in a fraudulent manner and allow them to escape
their liability to the creditors. Therefore, Section 6 limited
the application of Section 4 in such cases.
14.8 Section 7 of the 1988 Act repealed Sections 81, 82 and 94 of
the Indian Trusts Act, 1882 (2 of 1882); Section 66 of the
Code of Civil Procedure, 1908 (5 of 1908.); and Section 281A
of   the   Income   Tax   Act,   1961   (43   of   1961).   Section   8
empowered the Central Government to make rules to give
effect to the Act. The final section, Section 9, repealed the
earlier Ordinance.
14.9 The main thrust of the argument put forth by the Union of
India in this appeal is that the amended 2016 Act only
clarified the 1988 Act. Law Officers appearing for the Union
of India trained their guns on the point that the 1988 Act
had already created substantial law for criminalizing the
offence and the 2016 amendments were merely clarificatory
and   procedural,   to   give   effect   to   the   1988   Act.   Such   a
submission mandates us to examine the law of the 1988 Act
in detail and determine the scope of the earlier regime to
32
understand   as   to   whether   the   2016   amendments   were
substantive or procedural.
14.10 Reading Section 2(a) along with Section 3 makes one thing
clear – the criminal provision envisaged under the aforesaid
provisions does not expressly contemplate mens rea. Under
the Indian jurisprudence, the law on the subject is fairly
well­settled. It has been subjected to the judicial scrutiny of
this   Court   on   several   occasions.   It   does   not   call   for   a
detailed discussion and is enough to restate the principles.
Mens rea  is an essential ingredient of a criminal offence.
Doubtless, a statute may exclude the element of mens rea,
but it is a sound rule of construction adopted in England –
and   also   accepted   in   India   –   to   construe   a   statutory
provision creating an offence in conformity with common
law rather than against it, unless the statute expressly or by
necessary implication excluded mens rea. The mere fact that
the object of the statute is to promote welfare activities or to
eradicate a grave social evil which by itself is not decisive of
the question as to whether the element of  a guilty mind is
excluded from the ingredients of an offence.  Mens rea  by
necessary implication may be excluded from a statute only
33
where it is absolutely clear that implementation of the object
of the statute would otherwise be defeated. [refer Nathulal
v. State of Madhya Pradesh, AIR 1966 SC 43]
14.11 In the above light, this Court’s first endeavour is to attempt
to   interpret   the   law   to   imply  mens   rea.   However,   the
language of Section 2(a) coupled with Section 3, completely
ignores the aspect of mens rea, as it intends to criminalize
the   very   act   of   one   person   paying   consideration   for
acquisition of property for another person. The  mens rea
aspect   was   specifically   considered   by   the   57th  Law
Commission Report, and the same was not integrated into
the unamended 1988 Act. The observations made in the
130th  Law   Commission   Report   indicate   that   benami
transactions are abhorrent when it comes to public wealth
and impedes the government from achieving its social goals.
This   clearly   allows   us   to   infer   that   the   1988   law   was
envisaged on the touchstone of strict liability.
14.12 Such strict statutory formulation under Section 2(a) read
with Section 3 had left loose ends in the 1988 Act. In this
light, the prosecution would only have to prove only that
34
consideration was paid or consideration was provided by
one person for another person and nothing more. In all the
judicial   precedents,   this   Court   has   had   the   occasion   to
examine this legislation on the civil side and never on the
criminal   side,   which   would   bear   a   higher   standards.
Conflation of the ingredients under Section 3(1) and (2) with
those of Section 4, to forcefully implied mens rea, cannot be
accepted.
14.13 It may be noted that Supreme Court has dealt with the
interpretation of Section 4 of 1988 Act, on several occasions.
In Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC
95, this Court was called upon to examine as to whether the
aforesaid  provision has retrospective application, held  as
under:
“22. As defined in Section 2(a) of the Act “
‘benami transaction’ means any transaction in
which property is transferred to one person for
a consideration paid or provided by another
person”.   A   transaction   must,   therefore,   be
benami   irrespective   of   its   date   or   duration.
Section   3,   subject   to   the   exceptions,   states
that no person shall enter into any benami
transaction.   This   section   obviously   cannot
have retrospective operation. However, Section
4 clearly provides that no suit, claim or action
to enforce any right in respect of any property
35
held benami against the person in whose name
the   property   is   held   or   against   any   other
person shall lie, by or on behalf of a person
claiming to be real owner of such property.
This  naturally   relates  to  past   transactions
as well. The expression “any property held
benami”   is   not   limited   to   any   particular
time, date or duration. Once the property is
found   to  have   been  held   benami,  no   suit,
claim   or   action   to   enforce   any   right   in
respect   thereof   shall   lie.   Similarly,   subsection   (2)   of   Section   4   nullifies   the
defences   based  on   any   right   in   respect  of
any  property  held  benami  whether  against
the  person   in  whose  name  the  property   is
held   or   against   any   other   person   in   any
suit,   claim  or   action   by  or  on  behalf  of   a
person   claiming   to   be   the   real   owner   of
such property. It means that once a property
is found to have been held benami, the real
owner   is   bereft   of   any   defence   against   the
person in whose name the property is held or
any other person. In other words in its sweep
Section   4   envisages   past   benami
transactions also within its retroactivity. In
this   sense   the   Act   is   both   a   penal   and   a
disqualifying statute. In case of a qualifying or
disqualifying   statute   it   may   be   necessarily
retroactive.   For   example   when   a   Law   of
Representation   declares   that   all   who   have
attained   18   years   shall   be   eligible   to   vote,
those who attained 18 years in the past would
be as much eligible as those who attained that
age   at   the   moment   of   the   law   coming   into
force. When an Act is declaratory in nature the
presumption   against   retrospectivity   is   not
applicable. Acts of this kind only declare. A
statute   in   effect   declaring   the   benami
36
transactions   to   be   unenforceable   belongs   to
this   type.   The   presumption   against   taking
away vested right will not apply in this case
inasmuch as under law it is the benamidar in
whose name the property stands, and law only
enabled the real owner to recover the property
from him which right has now been ceased by
the   Act.   In   one   sense   there   was   a   right   to
recover or resist in the real owner against the
benamidar. Ubi jus ibi remedium. Where there
is a right, there is a remedy. Where the remedy
is barred, the right is rendered unenforceable.
In this sense it is a disabling statute. All the
real   owners   are   equally   affected   by   the
disability provision irrespective of the time of
creation   of   the   right.   A   right   is   a   legally
protected interest. The real owner's right was
hitherto protected and the Act has resulted in
removal of that protection.
23. When   the   law   nullifies   the   defences
available to the real owner in recovering the
benami property from the benamidar the law
must   apply   irrespective   of   the   time   of   the
benami transactions. The expression “shall lie”
in   Section   4(1)   and   “shall   be   allowed”   in
Section 4(2) are prospective and shall apply to
present (future stages) and future suits, claims
or actions only. This leads us to the question
whether there was a present suit between the
respondent­plaintiff   and   the   defendantappellant on the date of the law coming into
force. We have noted the dates of filing the suit
and judgments of the courts below. On the
date of Section 4 of the Act coming into force,
that   is,   19­5­1988   this   appeal   was   pending
and, of course, is still pending. Can the suit
itself be said to be pending?
(emphasis supplied)
37
14.14 The aforesaid interpretation was re­examined by this Court
in  R.   Rajagopal   Reddy   v.   Padmini   Chandrasekharan,
(1995) 2 SCC 630 and while partly over­ruling  Mitilesh
Kumari (supra), it was held as under:
11. … Thus it was enacted to efface the then
existing right of the real owners of properties
held by others benami. Such an Act was not
given   any   retrospective   effect   by   the
legislature. Even when we come to Section
4, it is easy to visualise that sub­section (1)
of  Section  4   states   that  no   suit,   claim  or
action   to   enforce   any   right   in   respect   of
any   property   held   benami   against   the
person in whose name the property is held
or against any other shall lie by or on behalf
of a person claiming to be the real owner of
such  property.  As per Section 4(1) no such
suit   shall   thenceforth   lie   to   recover   the
possession of the property held benami by the
defendant.   Plaintiff's   right   to   that   effect   is
sought   to   be   taken   away   and   any   suit   to
enforce   such   a   right   after   coming   into
operation  of   Section  4(1)  that   is  19­5­1988,
shall not lie.  The   legislature   in   its  wisdom
has  nowhere  provided   in  Section  4(1)  that
no   such   suit,   claim   or   action   pending   on
the   date   when   Section   4   came   into   force
shall not be proceeded with and shall stand
abated.  On   the   contrary,   clear   legislative
intention   is   seen   from   the   words   “no   such
claim,   suit   or   action   shall   lie”,   meaning
thereby no such suit, claim or action shall be
permitted to be filed or entertained or admitted
38
to the portals of any court for seeking such a
relief after coming into force of Section 4(1). …
The   word   ‘lie’   in   connection   with   the   suit,
claim or action is not defined by the Act. If we
go   by   the   aforesaid   dictionary   meaning   it
would mean that such suit, claim or action to
get any property declared benami will not be
admitted   on   behalf   of   such   plaintiff   or
applicant against the defendant concerned in
whose name the property is held on and from
the   date   on   which   this   prohibition   against
entertaining  of  such  suits  comes  into  force.
With respect, the view taken that Section 4(1)
would apply even to such pending suits which
were already filed and entertained prior to the
date   when   the   section   came   into   force   and
which   has   the  effect   of   destroying   the   then
existing right of plaintiff in connection with the
suit property cannot be sustained in the face
of the clear language of Section 4(1). It has to
be visualised that the legislature in its wisdom
has   not   expressly   made   Section   4
retrospective.   Then   to   imply   by   necessary
implication   that   Section   4   would   have
retrospective effect and would cover pending
litigations filed prior to coming into force of the
section would amount to taking a view which
would run counter to the legislative scheme
and intent projected by various provisions of
the Act to which we have referred earlier. It is,
however, true as held by the Division Bench
that on the express language of Section 4(1)
any right inhering in the real owner in respect
of any property held benami would get effaced
once   Section   4(1)   operated,   even   if   such
transaction had been entered into prior to the
coming   into   operation   of   Section   4(1),   and
henceafter Section 4(1) applied no suit can lie
in respect to such a past benami transaction.
To that extent the section may be retroactive.
39
To   highlight   this   aspect   we   may   take   an
illustration. If a benami transaction has taken
place in 1980 and a suit is filed in June 1988
by the plaintiff claiming that he is the real
owner of the property and defendant is merely
a benamidar and the consideration has flown
from him, then such a suit would not lie on
account of the provisions of Section 4(1). Bar
against filing, entertaining and admission of
such  suits would  have  become operative by
June   1988   and   to   that   extent   Section   4(1)
would   take   in   its   sweep   even   past   benami
transactions which are sought to be litigated
upon after coming into force of the prohibitory
provision of Section 4(1); but that is the only
effect of the retroactivity of Section 4(1) and
nothing more than that. From the conclusion
that  Section  4(1)   shall   apply   even   to  past
benami   transactions   to   the   aforesaid
extent, the next step taken by the Division
Bench   that   therefore,   the   then   existing
rights got destroyed and even though suits
by   real  owners  were   filed  prior   to   coming
into   operation   of   Section   4(1)   they   would
not survive, does not logically follow.
12. So far as Section 4(2) is concerned, all that
is provided is that if a suit is filed by a plaintiff
who claims to be the owner of the property
under the document in his favour and holds
the property in his name, once Section 4(2)
applies,   no   defence   will   be   permitted   or
allowed in any such suit, claim or action by or
on behalf of a person claiming to be the real
owner   of   such   property   held   benami.   The
disallowing   of   such   a   defence   which   earlier
was   available,   itself   suggests   that   a   new
liability or restriction  is imposed by Section
40
4(2) on a pre­existing right of the defendant.
Such a provision also cannot be said to be
retrospective   or   retroactive   by   necessary
implication. It is also pertinent to note that
Section 4(2) does not expressly seek to apply
retrospectively. So far as such a suit which is
covered   by   the   sweep   of   Section   4(2)   is
concerned,   the   prohibition   of   Section   4(1)
cannot apply to it as it is not a claim or action
filed by the plaintiff to enforce right in respect
of any property held benami. On the contrary,
it is a suit, claim or action flowing from the
sale   deed   or   title   deed   in   the   name   of   the
plaintiff. Even though such a suit might have
been   filed   prior   to   19­5­1988,   if   before   the
stage of filing of defence by the real owner is
reached, Section 4(2) becomes operative from
19­5­1988, then such a defence, as laid down
by Section 4(2) will not be allowed to such a
defendant. However, that would not mean that
Section   4(1)   and   Section   4(2)   only   on   that
score   can   be   treated   to   be   impliedly
retrospective  so   as  to   cover  all   the  pending
litigations in connection with enforcement of
such rights of real owners who are parties to
benami transactions entered into prior to the
coming into operation of the Act and specially
Section 4 thereof. It is also pertinent to note
that Section 4(2) enjoins that no such defence
“shall be allowed” in any claim, suit or action
by or on behalf of a person claiming to be the
real owner of such property. That is to say no
such defence shall be allowed for the first time
after coming into operation of Section 4(2). If
such a defence is already allowed in a pending
suit   prior   to   the   coming   into   operation   of
Section 4(2), enabling an issue to be raised on
such a defence, then the Court is bound to
decide the issue arising from such an already
allowed defence as at the relevant time when
such defence was allowed Section 4(2) was out
41
of the picture. Section 4(2) nowhere uses the
words:   “No   defence   based   on   any   right   in
respect of any property held benami whether
against the person in whose name the property
is held or against any other person, shall be
allowed to be raised or continued to be raised
in   any   suit.”   With   respect,   it   was   wrongly
assumed by the Division Bench that such an
already   allowed   defence   in   a   pending   suit
would   also   get   destroyed   after   coming   into
operation of Section 4(2). We may at this stage
refer   to   one   difficulty   projected   by   learned
advocate   for   the   respondents   in   his   written
submissions,   on   the   applicability   of   Section
4(2). These submissions read as under:
13. According to us this difficulty is inbuilt in
Section 4(2) and does not provide the rationale
to   hold   that   this   section   applies
retrospectively. The legislature itself thought it
fit to do so and there is no challenge to the
vires on the ground of violation of Article 14 of
the Constitution. It is not open to us to rewrite
the   section   also.   Even   otherwise,   in   the
operation   of   Section   4(1)   and   (2),   no
discrimination can be said to have been made
amongst different real owners of property, as
tried   to   be   pointed   out   in   the   written
objections. In fact, those cases in which suits
are filed by real owners or defences are allowed
prior to coming into operation of Section 4(2),
would form a separate class as compared to
those cases where a stage for filing such suits
or defences has still not reached by the time
Section   4(1)   and   (2)   starts   operating.
Consequently, latter type of cases would form
a   distinct   category   of   cases.   There   is   no
question   of   discrimination   being   meted   out
while dealing with these two classes of cases
42
differently. A real owner who has already been
allowed   defence   on   that   ground   prior   to
coming into operation of Section 4(2) cannot be
said to have been given a better treatment as
compared to the real owner who has still to
take up such a defence and in the meantime
he is hit by the prohibition of Section 4(2).
Equally   there   cannot   be   any   comparison
between a real owner who has filed such suit
earlier and one who does not file such suit till
Section   4(1)   comes   into   operation.   All   real
owners   who   stake   their   claims   regarding
benami transactions after Section 4(1) and (2)
came   into   operation   are   given   uniform
treatment by these provisions, whether they
come   as   plaintiffs   or   as   defendants.
Consequently,   the   grievances   raised   in   this
connection cannot be sustained.
14.15 Returning to the discussion at hand, there is no doubt that
the unamended 1988 Act tried to create a strict liability
offence and allowed separate acquisition of benami property.
This begs the question whether such a criminal provision,
which the State now intends to make use of, in order to
confiscate properties after 28 years of dormancy, could have
existed   in   the   books   of   law.   Other   than   the   abuse   and
unfairness such exercise intends to bring about, there is a
larger constitutional question about existence of such strict
provisions without adequate safeguards.
43
15.     SUBSTANTIVE DUE PROCESS,   MANIFEST ARBITRARINESS AND
    PROVISIONS UNDER 1988 ACT.
15.1 The simple question addressed by the counsel appearing for
both sides is whether the amended 2016 Act is retroactive
or prospective. Answering the above question is inevitably
tied to an intermediate question as to whether the 1988 Act
was   constitutional   in   the   first   place.   The   arguments
addressed by the Union of India hinges on the fact that the
1988 Act was a valid substantive law, which required only
some   gap   filling   through   the   2016   Act,   to   ensure   that
sufficient   procedural   safeguards   and   mechanisms   are
present to enforce the law. According, to the Union of India,
the 2016 Act was a mere gap filling exercise.
15.2 However, upon studying the provisions of the 1988 Act, we
find that there are questions of legality and constitutionality
which arise with respect to Sections 3 and 5 of 1988 Act.
The answers to such questions cannot be assumed in favour
of   constitutionality,   simply   because   the   same   was   never
questioned before the Court of law. We are clarifying that we
are not speaking of the presumption of constitutionality as a
matter of burden of proof. Rather, we are indicating the
assumption taken by the Union as to the validity of these
44
provisions in the present litigation. Such assumption cannot
be made when this Court is called upon to answer whether
the impugned provisions are attracted to those transactions
that have taken place before 2016.
15.3 Indian jurisprudence has matured through years of judicial
tempering, and the country has grown to be a jurisdiction
having   ‘substantive   due   process’.   A   brief   sketch   of   the
jurisprudential journey thus far, may be necessary to aid
our understanding.  
15.4 There is no gain saying that deletion of the phrase ‘due
process of law’ from the draft Constitution was inspired by
the   views   of   James   Bradley   Thayer   and   Justice   Felix
Frankfurter,   who   held   that   concentration   of   power   to
examine reasonability of a legislation through judicial review
would fall foul of separation of powers and denigration of
parliamentary sovereignty. Dr. Ambedkar himself did not
want   to   side   with   any   of   the   above   opinions,   rather   he
envisaged   the   situation   as   one   who   is   caught   between
Charybdis and Scylla. 
45
15.5 The emphasis on the aforesaid deletion by the majority in
A.K  Gopalan  v.  State  of  Madras, AIR 1950 SC 27, was
somewhat drawn back by the celebrated dissent of Fazal Ali,
J., wherein the term “Procedure established by law” was
interpreted to mean “Procedural due process”. This judicial
quibbling was ultimately set to rest in Maneka Gandhi v.
Union   of   India, (1978) 1 SCC 248, wherein a combined
reading of Articles 14, 19 and 21 would make it clear that
the judiciary, so to say, always had the forensic power to
examine reasonability of a law, both procedural as well as
substantive.   Later   expositions   have   only   given   colour   to
expand what was implicit under the three golden Articles of
Part III. In Sunil Batra v. Delhi Administration, (1978) 4
SCC 494, the word law as occurring under Article 21 was
interpreted   to   mean  jus  and   not   merely  lex.   It   may   be
necessary to quote the observation of the majority in the
aforesaid case in the following manner: 
“228…The   word   “law”   in   the   expression
“procedure established by law” in Article 21
has been interpreted to mean in  Maneka
Gandhi case that the law must be right,
just  and   fair  and  not   arbitrary,   fanciful
or oppressive.”
(Emphasis supplied)
46
15.6 Without   burdening   this   judgment   with   a   series   of
precedents laid down by this Court, we may refer only to the
majority   opinion  in  K.   Puttaswamy   v.   Union   of   India,
(2017) 10 SCC 1, wherein the law has been settled by a
Nine­Judge Bench of this Court in the following manner: 
“294. The Court, in the exercise of its
power of judicial review, is unquestionably
vested   with   the   constitutional   power   to
adjudicate upon the validity of a law. When
the validity of a law is questioned on the
ground   that   it   violates   a   guarantee
contained in Article 21, the scope of the
challenge is not confined only to whether
the procedure for the deprivation of life or
personal liberty is fair, just and reasonable.
Substantive   challenges   to   the   validity   of
laws encroaching upon the right to life or
personal liberty has been considered and
dealt with in varying contexts, such as the
death   penalty   (Bachan   Singh [Bachan
Singh v. State of Punjab, (1980) 2 SCC 684 :
1980 SCC (Cri) 580] ) and mandatory death
sentence   (Mithu [Mithu v. State   of   Punjab,
(1983) 2 SCC 277 : 1983 SCC (Cri) 405] ),
among   other   cases.   A   person   cannot   be
deprived of life or personal liberty except in
accordance with the procedure established
by law. Article 14, as a guarantee against
arbitrariness, infuses the entirety of Article
21.   The   interrelationship   between   the
guarantee   against   arbitrariness   and   the
protection   of   life   and   personal   liberty
operates in a multi­faceted plane. First, it
47
ensures that the procedure for deprivation
must be fair, just and reasonable. Second,
Article 14 impacts both the procedure and
the   expression   “law”.   A   law   within   the
meaning of Article 21 must be consistent
with the norms of fairness which originate
in Article 14. As a matter of principle, once
Article 14 has a connect with Article 21,
norms   of   fairness   and   reasonableness
would apply not only to the procedure but
to the law as well.
295. Above   all,   it   must   be   recognised
that judicial review is a powerful guarantee
against   legislative   encroachments   on   life
and   personal   liberty.   To   cede   this   right
would   dilute   the   importance   of   the
protection   granted   to   life   and   personal
liberty   by   the   Constitution.   Hence,   while
judicial review in constitutional challenges
to the validity of legislation is exercised with
a conscious regard for the presumption of
constitutionality and for the separation of
powers   between   the   legislative,   executive
and judicial institutions, the constitutional
power which is vested in the Court must be
retained as a vibrant means of protecting
the lives and freedoms of individuals.
296. The danger of construing this as an
exercise of “substantive due process” is that
it results in the incorporation of a concept
from the American Constitution which was
consciously   not   accepted   when   the
Constitution was framed. Moreover, even in
the country of its origin, substantive due
process   has   led   to   vagaries   of   judicial
interpretation. Particularly having regard to
48
the constitutional history surrounding the
deletion of that phrase in our Constitution,
it   would   be   inappropriate   to   equate   the
jurisdiction   of   a   constitutional   court   in
India to entertain a substantive challenge
to the validity of a law with the exercise of
substantive   due   process   under   the   US
Constitution. Reference to substantive due
process   in   some   of   the   judgments   is
essentially   a   reference   to   a   substantive
challenge to the validity of a law on the
ground   that   its   substantive   (as   distinct
from   procedural)   provisions   violate   the
Constitution.”
15.7 The law with respect to testing the unconstitutionality of a
statutory instrument can be summarized as under:
a. Constitutional   Courts   can   test   constitutionality   of
legislative   instruments   (statute   and   delegated
legislations);
b. The Courts are empowered to test both on procedure as
well as substantive nature of these instruments.
c. The   test   should   be   based   on   a   combined   reading   of
Articles 14, 19 and 21 of the Constitution.
15.8 One   of   the   offshoots   of   this   test   under   Part   III   of   the
Constitution is the development of the doctrine of manifest
arbitrariness. A doctrinal study of the development of this
area   may   not   be   warranted   herein.   It   is   well   traced   in
49
Shayara Bano v. Union of India, (2017) 9 SCC 1. We may
only state that the development of jurisprudence has come
full circle from an overly formalistic test of classification to
include   the   test   of   manifest   arbitrariness.   A   broad
formulation of the test was noted in the aforesaid case as
under:
“95. On   a   reading   of   this   judgment
in Natural   Resources   Allocation
case [Natural   Resources   Allocation,   In   re,
Special Reference No. 1 of 2012, (2012) 10
SCC 1], it is clear that this Court did not
read McDowell [State   of   A.P. v. McDowell
and Co., (1996) 3 SCC 709] as being an
authority   for   the   proposition   that
legislation can never be struck down as
being   arbitrary.   Indeed   the   Court,   after
referring   to   all   the   earlier   judgments,
and Ajay   Hasia [Ajay   Hasia v. Khalid
Mujib   Sehravardi,  (1981)   1  SCC   722]   in
particular,   which   stated   that   legislation
can be struck down on the ground that it
is “arbitrary” under Article 14, went on to
conclude that “arbitrariness” when applied
to   legislation   cannot   be   used   loosely.
Instead, it broad based the test, stating
that if a constitutional infirmity is found,
Article 14 will interdict such infirmity. And
a   constitutional   infirmity   is   found   in
Article   14   itself   whenever   legislation   is
“manifestly arbitrary” i.e.  when   it   is  not
fair, not reasonable, discriminatory, not
transparent,   capricious,   biased,   with
favouritism   or   nepotism   and   not   in
pursuit   of   promotion   of   healthy
competition   and   equitable   treatment.
50
Positively speaking, it should conform to
norms which are rational, informed with
reason and guided by public interest, etc.”
(emphasis supplied)
15.9 In Joseph Shine v. Union of India,  (2019) 3 SCC 39, this
Court was concerned with the constitutionality of Section
497 of the IPC relating to the provision of adultery. While
declaring the aforesaid provision as unconstitutional on the
aspect of it being manifestly arbitrary, this Court reiterated
the test as under:
“...The   test   of   manifest   arbitrariness,
therefore,   as   laid   down   in   the   aforesaid
judgments   would   apply   to   invalidate
legislation   as   well   as   subordinate
legislation   Under   Article   14.  Manifest
arbitrariness,   therefore,   must   be
something   done   by   the   legislature
capriciously,   irrationally   and/or
without   adequate   determining
principle. Also, when something is done
which   is   excessive   and
disproportionate, such legislation would
    be   manifestly   arbitrary.  We   are,
therefore, of the view that arbitrariness in
the   sense   of   manifest   arbitrariness   as
pointed out by us above would apply to
negate   legislation   as   well   Under   Article
14.”
(emphasis supplied)
15.10 In Hindustan   Construction   Co.   Ltd   v.   Union   of   India,
(2020) 17 SCC 324, this Court struck down Section 87 of
51
the Arbitration Act on the ground of manifest arbitrariness
as   the   Parliament   chose   to   ignore   the   judgment   of   this
Court, without removing the basis of the same or identifying
a principle for militating against the same.
15.11 Coming back to the 1988 Act, the two provisions with which
we are concerned are Sections 3 and 5 of 1988 Act. They are
required to be separately analysed herein. At the outset, we
may notice that the enactment was merely a shell, lacking
the substance that a criminal legislation requires for being
sustained. The reasons for the same are enumerated in the
following paragraphs. 
15.12 First, the absence of  mens rea  creates a harsh provision
having strict liability. Such an approach was frowned upon
by   the   57th  Law   Commission   Report   as   concerns   of   tax
evasion or sham transactions in order to avoid payment to
creditors   were   adequately   addressed   by   the   existing
provisions of law. Even the 130th  Law Commission Report
did not expressly rule out the inclusion of  mens rea. The
legislative move to ignore earlier Law Commission Reports
without there being a principle identified to do away with
the aspect of  mens rea  should be a contributory factor in
52
analysing   the   constitutionality   of   the   aforesaid   criminal
provision under the 1988 Act.  
15.13 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  aspect,
was without any rhyme or reason, and ended up creating an
unusually harsh enactment.
15.14 Second,   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. The  Court  cannot  forcefully read the  ingredients
developed   through   judicial   pronouncements   or   under
Section   4   (having   civil   consequence)   into   the   definition
provided   under   Sections   2   and   3   (espousing   criminal
consequences),   to   save   the   enactment   from
unconstitutionality.   Such   a   reading   would   violate   the
express language of Section 2(a), of excluding one ingredient
from the definition of ‘benami transaction’, and would suffer
from the vice of judicial transgression. In removing such an
essential   ingredient,   the   legislature   did   not   identify   any
53
reason   or   principle,   which   made   the   entire   provision   of
Section   3   susceptible   to   arbitrariness.   Interestingly,   for
tripartite benami transactions, the 2016 Act brings back
this ingredient through Section 2(9)(A)(b). In this context, we
may state that it is a simple requirement under Article 20(1)
that a law needs to be clear and not vague. It should not
have incurable gaps which are yet to be legislated/filled in
by judicial process. 
15.15 Third, it is fairly admitted by the learned ASG, Mr. Vikramjit
Banerjee appearing for the Union of India, that the criminal
provision   was   never   utilized   as   there   was   a   significant
hiatus in enabling the functioning of such a provision. 
15.16 Fourth, reading Section 2(a) with Section 3(1) would have
created overly broad laws susceptible to be challenged on
the grounds of manifest arbitrariness. If this Court reads
criminal provisions of the Benami Act to have had force
since   1988,   then   the   following   deleterious   consequences
would ensue:
(i.) Section 187C of the Companies Act, 1956 assured
protection   to   nominal   and   beneficial   holding   of
54
shares if the prescribed declaration duly made are
at serious risk.
(ii.) Benami cooking gas connections which have been
regularized from time to time are at risk.
(iii.) Housing   colonies   and   benami   allotments   of   DDA
flats which have been regularised from time to time
are at risk.
15.17 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. A conclusion contrary to the above would
make the aforesaid law suspect to being overly oppressive,
fanciful   and   manifestly   arbitrary,   thereby   violating   the
‘substantive due process’ requirement of the Constitution. 
15.18 Coming to Section 5 of the 1988 Act, it must be noted that
the acquisition proceedings contemplated under the earlier
Act were  in rem  proceedings against benami property. We
may note that, jurisprudentially, such  in rem  proceedings
transfer the guilt from the person who utilized a property
which is a general harm to the society, to the property itself.
55
15.19 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. Coming to Section 5 of
the 1988 Act, it was conceived as a half­baked provision
which did not provide the following and rather left the same
to be prescribed through a delegated legislation:
(i) Whether   the   proceedings   under   Section   5   were
independent or dependant on successful prosecution?
(ii) The standard of proof required to establish benami
transaction in terms of Section 5.
(iii) Mechanism for providing opportunity for a person to
establish his defence.
(iv) No ‘defence of innocent owner’ was provided to save
legitimate innocent buyers.
(v) No adjudicatory mechanism was provided for.
(vi) No   provision   was   included   to   determine   vesting   of
acquired property.
(vii) No provision to identify or trace benami properties.
(viii) Condemnation of property cannot include the power of
tracing, which needs an express provision.
56
Such   delegation   of   power   to   the   Authority   was   squarely
excessive and arbitrary as it stood. From the aforesaid, the
Union’s stand that the 2016 Act was merely procedural,
cannot stand scrutiny.
15.20 In   any   case,   such   an   inconclusive   law,   which   left   the
essential features to be prescribed through delegation, can
never be countenanced in law to be valid under Part III of
the Constitution. The gaps left in the 1988 Act were not
merely   procedural,   rather   the   same   were   essential   and
substantive. In the absence of such substantive provisions,
the omissions create a law which is fanciful and oppressive
at   the   same   time.   Such   an   overbroad   provision   was
manifestly arbitrary as the open texture of the law did not
have sufficient safeguards to be proportionate.
15.21 At this stage, we may only note that when a Court declares
a law as unconstitutional, the effect of the same is that such
a declaration would render the law not to exist in the law
books   since   its   inception.   It   is   only   a   limited   exception
under Constitutional law, or when substantial actions have
been   undertaken   under   such   unconstitutional   laws   that
going   back   to   the   original   position   would   be   next   to
57
impossible.   In   those   cases   alone,   would   this   Court   take
recourse to the concept of ‘prospective overruling’. 
15.22 From the above, 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 still­born 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.
15.23 Having   said   so,   we   make   it   abundantly   clear   that   the
aforesaid discussion does not affect the civil consequences
contemplated under Section 4 of the 1988 Act, or any other
provisions.
16. 2    016 ACT AND ITS ANALYSIS
16.1 The next subject of examination is the 2016 Act, which
amends the 1988 Act, and expanded the 1988 Act to 72
sections (from 9 sections), divided into 8 chapters. At the
outset, we need to understand the general scheme of the
law. The definition  of  benami transactions, which  is the
heart   of   the   entire   1988   Act,   has   undergone   a
metamorphosis and stands as under:
58
[DEFINITIONS.
Section 2(9) "benami transaction" means:
(A) a transaction or an arrangement­
    (a) where a property is transferred to,
or   is   held   by,   a   person,   and   the
consideration for such property has been
provided, or paid by, another person; and
        (b)   the   property   is   held   for   the
immediate   or   future   benefit,   direct   or
indirect, of the person who has provided
the consideration, 
except when the property is held by­
        (i) a Karta, or a member of a Hindu
undivided family, as the case may be, and
the   property   is   held   for   his   benefit   or
benefit  of  other members  in  the family
and the consideration for such property
has   been   provided   or   paid   out   of   the
known  sources  of  the   Hindu  undivided
family;
        (ii) a person standing in a fiduciary
capacity for the benefit of another person
towards whom he stands in such capacity
and includes a trustee, executor, partner,
director of a company, a depository or a
participant as an agent of a depository
under the Depositories Act, 1996 (22 of
1996) and any other person as may be
notified   by   the   Central   Government   for
this purpose;
        (iii) any person being an individual
in the name of his spouse or in the name
of any child of such individual and the
consideration for such property has been
59
provided   or   paid   out   of   the   known
sources of the individual;
         (iv) any person in the name of his
brother or sister or lineal ascendant or
descendant, where the names of brother
or   sister   or   lineal   ascendant   or
descendant and the individual appear as
joint­owners in any document, and the
consideration for such property has been
provided   or   paid   out   of   the   known
sources of the individual; or
(B) a transaction or an arrangement in
respect of a property carried out or made
in a fictitious name; or
(C) a transaction or an arrangement in
respect of a property where the owner of
the property is not aware of, or, denies
knowledge of, such ownership;
(D) a transaction or an arrangement in
respect of a property where the person
providing   the   consideration   is   not
traceable or is fictitious;
Explanation. ­ For the removal of doubts,
it   is   hereby   declared   that   benami
transaction   shall   not   include   any
transaction   involving   the   allowing   of
possession of any property to be taken or
retained in part performance of a contract
referred to in section 53A of the Transfer
of Property Act, 1882, if, under any law
for the time being in force,­
(i)   consideration   for   such   property   has
been   provided   by   the   person   to   whom
possession of property has been allowed
but   the   person   who   has   granted
60
possession   thereof   continues   to   hold
ownership of such property;
(ii)   stamp   duty   on   such   transaction   or
arrangement has been paid; and
(iii) the contract has been registered.
16.2 Major changes envisaged under the definition are as under:
(i) Expansion   of   the   definition   from   arm’s   length
transactions contemplated under the 1988 Act, to
arrangements and schemes.
(ii) Additional   ingredient   of   benefits   flowing   to   the
real owner, a lacuna pointed in the earlier part,
under 1988 Act, is included in terms of Section
2(9)(A)(b).
(iii) Expansion of the ambit through Section 2(9)(C),
to   those   properties   where   benamidar   denies
knowledge of such ownership.
(iv) Expansion of the ambit through Section 2(9)(D),
wherein the person providing the consideration is
not traceable or is fictitious.
(v) Expansion   from   recognition   of   only   tripartite
transactions   under   1988   Act,   to   also   include
bipartite transactions.
61
16.3 Section   2(26)   of   the   2016   Act   defines   a   property.   This
definition has been expanded to include proceeds from the
property   as   well.   Such   expansion   allows   for   tracing   of
proceeds and is a substantial change as compared to the
1988 Act. Along with this, benami property has been defined
under   Section   2(8).   Benamidar   is   defined   under   Section
2(10).
16.4 Chapter   2   contains   four   provisions   which   are   modified
provisions   of   the   1988   Act.   Section   3   now   bifurcates
offences   into   two   separate   categories   based   on   the   time
period   of   the   benami   transaction.   Under   Section   3(2),
punishment of three years is mandated for those who have
entered   into   benami   transactions   from   05.09.1988   to
25.10.2016.   Section   3(3)   applies   to   those   benami
transactions   which   have   been   entered   into   after
commencement   of   the   amended   2016   Act   and   the
punishment for the aforesaid is prescribed under Section 53
of Chapter VII. It may be noted that under Section 3(3), the
punishment is increased from three years to a maximum of
seven years and a fine may be imposed which extend up to
25% of the fair market value of the property. This distinction
62
between Section 3(2) and 3(3) read with Section 53, contains
the element of mens rea.
16.5Section 4 remains the same as under the 1988 Act, barring the
fact that Section 4(3) has integrated the exceptions provided
under   the   definition   of   benami   transaction   in   terms   of
Section 2(9). The civil consequences provided under Section
4   continue   to   apply   even   post   the   2016   Act.   The
interpretation of the aforesaid section, as given in the  R.
Rajagopal Reddy Case (supra), continues to apply.
16.6 Section   5   on   the   other   hand   has   been   modified   and   it
presently stands as under:
5.   Property   held   benami   liable   to
confiscation. —Any property, which is subject
matter of benami transaction, shall be liable to
be confiscated by the Central Government. 
16.7 Chapter III relates to the administrative mechanism of the
authorities required for implementation  of  the 2016 Act.
Chapter   IV   relates   to   attachment,   adjudication,   and
confiscation of benami property. These provisions relate to
forfeiture, which need to be analysed hereinafter.
63
16.8 Section 24(1) states that, if the initiating Officer, on the
basis of gathered material, having reason to believe, that a
particular property is a benami property, then he ought to
issue notice7
 to the beneficial owner (if identified) as well as
to the ostensible owner (if any) seeking an explanation as to
why the property should not be treated as Benami. 
16.9 The 2016 Act provides for provisional attachment of the
property where the concerned officer has genuine reason to
believe, based on the material gathered, that the person in
possession of the property held in benami may alienate the
property.   Such   provisional   attachment   cannot   be   taken
recourse to every time. Recourse under Section 24(3) of the
2016 Act should be exercised in exceptional circumstance
after previous approval of Approving Authority. Such interim
provisional attachment is strictly limited by time.
16.10 Adjudication under Section 24(4) is mandatory and requires
the authority to examine the same on a prima facie basis.
Such adjudication must take place after providing collected
material to the accused, along with the show cause notice. A
reasoned order is mandated under the aforesaid provision.
7 In terms of Section 25 of the 2016 Act.
64
The Officer is mandated to present a statement of case to
the adjudicating officer, in terms of Section 24(5) of the
2016 Act.
16.11 Adjudication   under   Section   26   mandates   notice   and
disclosure   obligation   to   various   other   persons.   The
adjudicating authority can either pass an order in terms of
Section   26(3)(c)(i)   or   (ii),   or   pass   an   order   for   further
inquiries in terms of Section 26(3)(b).
16.12 Section 27(1) relates to confiscation of property, wherein if a
property is adjudicated as a benami property under Section
26(3),   then   the   adjudicating   authority   can   give   an
opportunity to the concerned persons, and after hearing the
parties,   pass   an   order   confiscating   the   property.   The
aforesaid confiscation order is subject to the order passed
by   the   Appellate   Tribunal   under   Section   46.   Order   of
confiscation vests such property absolutely in the Central
Government,   free   from   all   encumbrances   and   no
compensation   shall   be   payable   in   respect   of   such
confiscation.
16.13 Section 27(4) provides that in the interregnum of initiating
confiscation proceedings, any third­party rights created to
65
defeat the purpose of the Act shall be null and void. Sub
clause 5 mandates that if no order of confiscation is made
and the same has attained finality, no claim can be made
against the Government for the process.
16.14 Section 28 mandates appointment of an Administrator by
the Central Government to manage the property. Such an
Administrator shall have the power to take possession of
such  a  property  upon  order  of  confiscation,  in   terms of
Section 29.
16.15 Chapters V and VI delineate the powers of the Appellate
Tribunal as well as Special Courts. Chapter VII consists of
offences and penalties. Specifically, we may refer to Section
53:
53. Penalty for Benami Transaction
  (1)   Where   any   person   enters   into   a
benami transaction in order to defeat the
provisions of any law or to avoid payment
of statutory dues or to avoid payment to
creditors, the beneficial owner, benamidar
and   any   other   person   who   abets   or
induces   any   person   to   enter   into   the
benami transaction, shall be guilty of the
offence of Benami transaction. 
(2) Whoever is found guilty of the offence
of benami transaction referred to in subsection   (1)   shall   be   punishable   with
rigorous imprisonment for a term which
66
shall not be less than one year, but which
may extend to seven years and shall also
be   liable   to   fine   which   may   extend   to
twenty­five   per   cent.   of   the   fair   market
value of the property.
Interestingly, a crime which attracted strict liability under
the 1988 Act, is modified to include a  mens rea  aspect in
terms of the recommendations of the 57th  and 130th  Law
Commission Reports. 
16.16 It may be necessary to note that no prosecution can be
initiated   without   previous   sanction   of   the   competent
authority  as provided  under  Section  55, which  reads  as
under:
55. No prosecution shall be instituted against
any   person   in   respect  of   any  offence  under
sections   3,   53   or   section   54   without   the
previous sanction of the Board.
16.17 Perusal of the remaining provisions is not required for the
purpose at hand.
17.    WHETHER SECTION 3(1) AND CHAPTER IV READ WITH SECTION 5 OF
    THE 2016 ACT HAVE RETROACTIVE EFFECT?
17.1 The thrust of the arguments advanced by the Union of India
can be crystallized as under:
67
(i.) That   the   1988   Act   was   a   valid   enactment   with
procedural gaps that were filled retrospectively by
the 2016 amendment.
(ii.) That the provision of confiscation (civil forfeiture)
under the 1988 Act, being in the domain of civil law,
is not punitive and therefore, the prohibition under
Article 20(1) of the Constitution is not attracted in
this case.  
17.2With respect to the first line of argument, our discussion above
can be summarized as under:
(a.) Section 3(1) of 1988 Act is vague and arbitrary.
(b.) Section   3(1)   created   an   unduly   harsh   law   against
settled   principles   and   Law   Commission
recommendations.
(c.) Section 5 of 1988 Act, the provision relating to civil
forfeiture, was manifestly arbitrary.
(d.) Both provisions were unworkable and as a matter of
fact, were never implemented.
17.3 Having arrived at the aforesaid conclusions that Sections 3
and 5 were unconstitutional under the 1988 Act, it would
mean that the 2016 amendments were, in effect, creating
68
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 05.09.1988 to 25.10.2016, the
law   cannot   retroactively   invigorate   a   stillborn   criminal
offence, as established above.
17.4 As per the concession made by the Union of India and a fair
reading of Section 53 of the 2016 Act, the offence under the
aforesaid provision is prospective, and only applied to those
transactions that were entered into after the amendment
came   into   force,  viz.,   25.10.2016.   Any   contrary
interpretation of Section 3 of the 1988 Act would be violative
of Article 20(1) of the Constitution. Article 20(1) reads as
under:
20.  Protection  in  respect  of conviction  for
offences
(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.
17.5 In T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, this Court
has expounded Article 20 (1) in the following manner:
69
“22. It is only retroactive criminal legislation
that   is   prohibited   under   Article   20(1).   The
prohibition contained in Article 20(1) is that no
person shall be convicted of any offence except
for violation of a law in force at the time of the
commission of the act charged as an offence
prohibits nor shall he 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. It is quite clear
that   insofar   as   the   Central   Amendment   Act
creates new offences or enhances punishment
for a particular type of offence no person can
be convicted by such ex post facto law nor can
the enhanced punishment prescribed by the
amendment be applicable. But insofar as the
Central   Amendment   Act   reduces   the
punishment for an offence punishable under
Section 16(1)(a) of the Act, there is no reason
why the accused should not have the benefit of
such   reduced   punishment.   The   rule   of
beneficial construction requires that even ex
post facto law of such a type should be applied
to mitigate the rigour of the law. The principle
is based both on sound reason and common
sense.   This   finds   support   in   the   following
passage from Craies on Statute Law, 7th Edn.,
at pp. 388­89:
“A retrospective statute is different from an
ex   post   facto   statute.   “Every   ex   post   facto
law…” said Chase, J., in the American case
of Calder v. Bull [3 US (3 Dall) 386: 1 L Ed 648
(1798)] “must necessarily be retrospective, but
every retrospective law is not an ex post facto
law.   Every   law   that   takes   away   or   impairs
rights   vested   agreeably   to   existing   laws   is
retrospective, and is generally unjust and may
be oppressive; it is a good general rule that a
law should have no retrospect, but in cases in
which the laws may justly and for the benefit
of the community and also of individuals relate
70
to a time antecedent to their commencement:
as statutes of oblivion or of pardon. They are
certainly   retrospective,   and   literally   both
concerning   and   after   the   facts   committed.
But I  do not  consider any law  ex  post  facto
within the prohibition that mollifies the rigour of
the criminal law, but only those that  create
    or   aggravate   the   crime, or   increase   the
punishment   or   change   the   rules   of
evidence   for   the   purpose   of
conviction.... There is a great and apparent
difference   between   making   an   unlawful   act
lawful   and   the   making   an   innocent   action
criminal and punishing it as a crime.”
17.6 In the case at hand, the 2016 Act containing the criminal
provisions is applicable only prospectively, as the relevant
Sections   of   the   pre­amendment   1988   Act   containing   the
penal   provision,   have   been   declared   as   unconstitutional.
Therefore, the question of construction of the 2016 Act as
retroactive qua the penal provisions under Sections 3 or 53,
does not arise. 
17.7 The 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   existing   constitutional   defects.   If   such   curing   is
71
allowed,   then   Article   20(1)   of   the   Constitution   would   be
rendered nugatory.
17.8This brings us to the last aspect as to the retroactive operation of
confiscation (forfeiture) under Section 5 read with Chapter
IV of the 2016 Act. It is the argument of the Union of India
that civil forfeiture being in the domain of civil law is not
punitive   in   nature.   Therefore,   it   does   not   attract   the
prohibition   contained   under   Article   20(1)   of   the
Constitution. Meaning thereby, that if this Court holds that
the civil forfeiture prescribed under the 2016 Act is punitive,
only then will the prohibition under Article 20(1) apply. If
not, then the prohibition does not apply.
17.9Although   we   have   held   that   Section   5   of   the   1988   Act   was
unconstitutional   for   being   manifestly   arbitrary,   however
such holding is of no consequence if this Court comes to the
conclusion that confiscation under Section 5 of 2016 Act
read   with   Chapter   IV,   was   civil   in   nature   and   is   not
punitive.
17.10 It is well settled that the legislature has power to enact
retroactive/retrospective   civil   legislations   under   the
Constitution. However, Article 20(1) mandates that no law
72
mandating   a   punitive   provision   can   be   enacted
retrospectively.   Further,   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”.
17.11 Therefore,   the   immediate   question   which   arises   for
consideration   is   whether   the   retroactive   confiscation
provided under Section 5 read with Chapter IV of 2016 Act
is punitive or not?
17.12 At the outset, we may note that Shri S. V. Raju, learned
ASG, has submitted that acquisition provided under Section
5 of the 1988 Act is same as confiscation provided under
Section 5 read with Chapter IV of the 2016 Act. He states
that   both   concepts   are   related   to   civil   law   and   is   not
concerned with punitive punishments as provided under the
Indian Penal Code, 1860.
17.13 Acquisition   under   the   earlier   1988   Act   as   well   as
confiscation   under   the   2016   Act   are   said   to   have   been
enacted on the reasoning that the property emanating from
the benami transaction also gets tainted. The substantive
73
difference   between   the   acquisition   provision   under   the
earlier enactment and the confiscation provision under the
2016 Act is that proceeds of benami transactions have been
made traceable under the 2016 Act.
17.14 Before we analyse the other provisions, it is necessary to
give a brief introduction to the concept of civil forfeiture in
India, as the same was argued by the learned ASG. Under
Admiralty jurisdiction, the concerned Admiralty Courts had
the jurisdiction to forfeit vessels under its civil jurisdiction
in lieu  of any maritime claim. Same was the law across
various   common   law   jurisdictions,   such   as   the   United
States of America and the United Kingdom.
17.15 Forfeiture occurs in various types, few of which are found in
India. Broadly, forfeitures can be categorized as civil and
criminal.   On   the   civil   side,   there   can   be  in   rem  or  in
personam forfeitures. Punitive forfeitures under the criminal
law are in personam. Criminal forfeitures usually take place
at the conclusion of a trial, when the guilt of the accused is
established.   Standards   of   evidentiary   requirement   differ
greatly between civil and criminal forfeiture.
74
17.16 The historic origin of in rem civil forfeiture in common law
jurisdictions was earlier mostly restricted to trans­national
crimes. These early laws mandated that the property was
subject to forfeiture because it was the instrument by which
the   offence   was   committed,   and   it   was   necessary   to
confiscate   such   property   to   remove   it   from   circulation.
However, the Twentieth century saw expansion of forfeiture
laws into a wide array of crimes. The modern forfeiture laws
not only allow forfeiture of property used to facilitate the
crime, but cover the proceeds of the offence as well. In the
Supreme   Court   of   the   United   States,   constitutional
challenges   laid   to   such   civil   forfeiture   laws   have   been
dismissed   as   they   were   usually   attributed   to   historic
prevalence of such forfeiture laws. However, such historic
reasons of its existence cannot justify continued expansion
of civil forfeiture laws, as has  been observed by Justice
Clarence Thomas in the following manner: 
“This   system—where   police   can   seize
property   with   limited   judicial   oversight   and
retain   it   for   their   own   use—has   led   to
egregious   and   well­chronicled   abuses,”   and
“These forfeiture operations frequently target
75
the poor and other groups least able to defend
their interests in forfeiture proceedings”.8
17.17 In the case at hand, although expansion of forfeiture laws
originates from the Parliament’s concern for decriminalizing
property   holdings,   however,   we   are   reminded   of   Justice
Oliver Wendell Holmes, who has stated as under:
“The customs beliefs or needs of a primitive
time establish a rule or a formula. In the
course of centuries, the custom, belief, or
necessity disappears, but the rule remains.
The reason which gave rise to the rule has
been   forgotten,   and   ingenious   minds   set
themselves   to   enquire   how   it   is   to   be
accounted   for.   Some   ground   of   policy   is
thought of, which seems to explain it and to
reconcile it with the present state of things;
and then the rule adapts itself to the new
reasons which have been found for it, and
enters   on   a   new   career.   The   old   form
receives a new content and in time even the
form   modifies   itself   to   for   the   meaning
which it has received.”9
17.18 While   categorizing   the   forfeiture   proceedings   as   civil   or
criminal,   the   test   laid   down   by   the   European   Court   of
Human Rights in Engel v The Netherlands (No.1), [1976] 1
EHRR   647,   have   been   treated   as   giving   authoritative
guidance. Those tests are set out in paragraphs 80 to 82 of
the Report and are as follows: 
8 Leonard v. Texas, 137 S. Ct. 847, 847-48 (2017).
9 Oliver Wendell Holmes in The Common Law 5 (1881).
76
"(i) The manner in which the domestic state
classifies   the   proceedings.   This   normally
carries   comparatively   little   weight   and   is
regarded   as   a   starting   point   rather   than
determinative ­­ see Ozturk v Germany [1984]
6 EHRR 409 at 421 and 422. 
(ii)   The   nature   of   the   conduct   in   question
classified objectively bearing in mind the object
and purpose of the Convention. 
(iii)  The  severity  of  any  possible  penalty   ­­
severe   penalties,   including   those   with
imprisonment   in   default   and   penalties
intended   to   deter   are   pointers   towards   a
criminal classification of proceedings ­­ see
Schmautzer v Austria [1995] 21 EHRR 511. 
In Lauko v Slovakia [1998] ECHR 26138/95
the   court   observed   that   these   criteria   were
alternatives   and   not   cumulative   although   a
cumulative approach might be adopted where
a separate analysis of each criterion did not
make it possible to reach a clear conclusion as
to the existence of a 'criminal charge'." 
(emphasis supplied)
The aforesaid proposition has also been confirmed by the
House of Lords in R v. H, [2003] 1 ALL ER 497.
17.19 In Kennedy v Mendoza­Martinez, 372 US 144 (1963), the
Supreme Court of the United States, while concerned with
the constitutionality of legislation that imposed forfeiture of
citizenship on those who had left or remained outside the
United States during wartime to evade military service, had
77
laid down the following relevant factors to classify forfeiture
law:
(a)   Whether   the   sanction   involves   an   affirmative
disability or restraint; 
(b)  Whether it has been historically regarded as a
punishment; 
(c)   Whether it is only applicable where there has
been a finding of scienter (that is, a finding that an
act has been done knowingly and intentionally); 
(d) Whether its operation promotes the traditional
retributive and deterrent aims of punishment;
(e)   Whether   the   behaviour   to   which   the   statute
applies is already a crime; 
(f)  Whether an alternative purpose to which it may
be rationally connected is attributable to it; and 
(g)   Whether   it   appears   excessive   in   light   of   the
alternative purpose assigned. 
17.20 Coming to the Indian case laws, in State of West Bengal v.
S.  K.  Gosh, AIR 1963 SC 255, this Court was concerned
with the Criminal Law Amendment Ordinance 38 of 1944,
wherein   the   law   provided   only   for   attachment   of   the
property,   after   conviction   is   given   effect   to.   Unlike   the
present   law,   the   taint   on   the   property   is   squarely
determined   by   the   Criminal   Court   deciding   the   criminal
78
conviction. Confiscation contemplated under Section 13 of
the Criminal Law Amendment Ordinance 38 of 1944 could
only be given effect to after the verdict of guilty by Criminal
Court. In the light of such unique provisions, the Court
characterized such forfeiture laws as civil in nature. We may
note that such a law did not contemplate an independent
confiscation proceeding as created under this law, rather, a
mechanism   was   devised   to   confiscate   a   property   after
criminal conviction.
17.21 This Court, while noting that forfeiture is no doubt punitive
under Article 20(1) of the Constitution as it is one of the
punishments prescribed under Section 53 of IPC, held that
Section 13(3) of the Criminal Law Amendment Ordinance 38
of 1944 was not punitive as the same was dependent on
prior   criminal   prosecution   and   determination   of   amount
which was to be forfeited in the following manner:
“12.  Further   what   s.   13(3)   of   the   1944­
Ordinance   which   provides   for   forfeiture
requires is that there should be in the final
judgment of the criminal court a finding as to
the amount of money or value of property in
pursuance of s. 12. As soon as that finding is
there,   the   District   Judge   would   know   the
amount he is to forfeit, and the purpose of the
finding is that if the District Judge is asked to
79
make   a   forfeiture   under   s.   13(3)   he   should
know exactly the amount which he is require
to   forfeit.   So   long   therefore   as   the   criminal
court trying an offender has given a finding as
to   the   amount   of   money   or   value   of   other
property procured by means of the offence in
the judgment that in our opinion is sufficient
compliance   with   s.   12(1)   of   the   1944­
Ordinance and the requirement therein that it
should   be   on   the   representation   of   the
prosecution   is   a   mere   formality.   Obviously,
even a determination under s. 10 of the 1943­
Ordinance as amended in 1945 of the amount
procured   by   the   offence   must   be   at   the
instance   of   the   prosecution   for   it   is   the
prosecution which will provide the material for
that determination which in turn will be the
basis on which the fine will be determined by
the court under s. 10. …
14.   This   brings   us  to   the   contention   which
found   favour   with   Bhattacharya   J.,   namely,
that the provision of s. 13(3) is a punishment
and that as the 1944­Ordinance was not in
force   at   the   time   when   the   offence   was
committed s. 13(3) could not be applied to the
respondent inasmuch as Art. 20(1) lays down
that no person shall 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. Two arguments
have been urged on behalf of the appellant in
this connection. In the first place, it is urged
that   the   respondent   remained   in   office   till
August 25, 1944 while the Ordinance came
into force on August 23, 1944 and therefore
the conspiracy by means of which the money
was   procured   continued   till   after   the
Ordinance had come into force and therefore
Art.   20(1)   can   have   no   application,   for   it
cannot be said that the respondent was being
80
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. In the second place, it is urged that
the   forfeiture   provided   by   s.   13(3)   is   not   a
penalty at all within the meaning of Art, 20(1),
but is merely a method of recovering money
belonging to the Government which had been
embezzled.   It   is   urged  that  the   Government
could   file   a   suit   to   recover   the   money
embezzled   and   s.   13(3)   only   provides   a
speedier   remedy   for   that   purpose   and   the
forfeiture   provided   therein   is   not   a   penalty
within the meaning of Art. 20(1).”
17.22 In  Divisional   Forest   Officer   v.   G.   V.   Sudhakar   Rao,
(1985) 4 SCC 573, this Court was concerned with the power
of   forfeiture   under   Section   44(2)(A)   of   Andhra   Pradesh
Forest Act, 1967. Noting that Section 45 of the Forest Act
prior to the amendment had a provision for civil forfeiture
only after the conviction of an accused under the Forest Act,
it was felt that such a provision was insufficient to prevent
the growing menace of ruthless exploitation of government
forests and illicit smuggling of teak, red sandalwood, etc. It
was   in   this   context   that   a   separate   mechanism   was
formulated to ensure that there was no unreasonable delay
in confiscation of property.
81
17.23 It   may   be   noted   that   this   case   did   not   involve   a
constitutional challenge under Article 20(1) to the aforesaid
rules.   In   any   case,   this   Court   has   held   that   the   new
mechanism   formulated   under   the   amended   Act   was
completely independent of criminal prosecution.
17.24 To the same extent, in State of Madhya Pradesh v. Kallo
Bai, (2017) 14 SCC 502, this Court interpreted the Madhya
Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 to
have  independent   confiscation   proceedings   from   criminal
prosecution   in   view   of   the   non­obstante   clause   under
Section 15C of the Adhiniyam. It may also be noted that
there   was   no   challenge   to   the   aforesaid   Act,   as   being
violative of Article 20(1) of the Constitution. The Court held
as under:
“14. Sub­section (1) of Section 15 empowers
forest officers concerned to conduct search to
secure compliance with the provisions of the
Adhiniyam. On a plain reading of sub­section
(2), it is clear that the officer concerned may
seize vehicles, ropes, etc. if he has reason to
believe that the said items were used for the
commission   of   an   offence   under   the
Adhiniyam.   Confiscation   proceedings   as
contemplated   under   Section   15   of   the
Adhiniyam is a quasi­judicial proceedings and
not   a   criminal   proceedings.   Confiscation
proceeds on the basis of the “satisfaction” of
82
the   authorised   officer   with   regard   to   the
commission of forest offence. Sub­section (3) of
the provision lays down the procedure to be
followed for confiscation under the Adhiniyam.
Sub­section (3­A) authorises forest officers of
rank not inferior to that of a Ranger, who or
whose   subordinate,   has   seized   any   tools,
boats,   vehicles,   ropes,   chains   or   any   other
article as liable for confiscation, may release
the   same   on   execution   of   a   security   worth
double the amount of the property so seized.
This provision is similar to that of Section 53
of the Forest Act as amended by the State of
Madhya   Pradesh.   Sub­section   (4)   mandates
that   the   officer   concerned   should   pass   a
written   order   recording   reasons   for
confiscation,   if   he   is   satisfied   that   a   forest
offence has been committed by using the items
marked   for   confiscation.   Sub­section   (5)
prescribes various procedures for confiscation
proceedings. Sub­section (5­A) prescribes that
whenever   an   authorised   officer   having
jurisdiction over the case is himself involved in
the   seizure,   the   next   higher   authority   may
transfer the case to any other officer of the
same   rank   for   conducting   confiscation
proceedings. Sub­section (6) provides that with
respect to tools, vehicles, boats, ropes, chains
or any other article other than timber or forest
produce seized, confiscation may be directed
unless the person referred to in clause (b) of
sub­section   (5)   is   able   to   satisfy   that   the
articles were used without his knowledge or
connivance or, as the case may be, without the
knowledge   or   connivance   of   his   servant   or
agent and that all reasonable and necessary
precautions had been taken against the use of
such objects for commission of forest offence.”
83
17.25 In Yogendra Kumar Jaiswal v. State of Bihar, (2016) 3
SCC 183, a Division Bench of this Court was concerned
with   the   constitutional   challenge   to   various   enactments
such as the Orissa Special Courts Act, 2006 and the Bihar
Special   Courts   Act,   2009.   Both   the   enactments   had
provisions   for   confiscation.   While   interpreting   the
confiscation provisions, this Court read down the same to
only mean interim attachment. In other words, confiscation
was   interpreted   as   akin   to   attachment   proceedings.   The
Court mandated that any confiscation would be contingent
on the final outcome of the criminal proceedings and the
logical   corollary   to   the   same   was   that   confiscation
proceedings were not completely independent and ultimately
had   to   be   adjudicated   along   with   the   trial   of   the   main
criminal case. 
17.26 In Abdul Vahab v. State of Madhya Pradesh, (2022) SCC
Online   SC   262,   this   Court   was   concerned   with   the
interpretation   of   the   Madhya   Pradesh   Cow   Slaughter
(Prohibition) Act, 2004, wherein it was held that confiscation
proceedings could not be independent of acquittal in the
criminal case. If a contrary interpretation was taken, then
84
the   same   would   be   violative   of   Article   300A   of   the
Constitution. This Court distinguished the case from the
judgment of  Kallo  Bai  (supra), by placing reliance on the
absence   of   a   provision   such   as   Section   15C   of  Madhya
Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 under
the Madhya Pradesh Cow Slaughter (Prohibition) Act, 2004.
17.27 In Vijay  Madanlal  Choudary  &  Ors   v.  Union  of   India,
SLP (Civ.) No. 4634 of 2014 and others, this Court dealt
with   confiscation   proceedings   under   Section   8   of   the
Prevention of Money Laundering Act, 2002 (“PMLA”) and
limited the application of Section 8(4) of PMLA concerning
interim possession by authority before conclusion of final
trial   to   exceptional   cases.   The   Court   distinguished   the
earlier   cases   in   view   of   the   unique   scheme   under   the
impugned   legislation   therein.   Having   perused   the   said
judgment, we are of the opinion that the aforesaid ratio
requires further expounding in an appropriate case, without
which, much scope is left for arbitrary application. 
17.28 From the above discussion, it is manifest that the Courts
have   read   down   the   provisions   of   civil   forfeiture   to   be
85
dependent on the underlying criminal prosecution to temper
the harsh consequences envisaged under such provisions.
No doubt, such reading down was mandated to ameliorate
harsh consequences of confiscatory laws which otherwise
would   have   allowed   the   State   agencies   to   take   over   the
property   without   seriously   pursuing   the   criminal
prosecutions. At this stage, we can only recommend that the
utility of independent provisions of forfeiture, distinct from
criminal prosecution, needs to be utilised in a proportional
manner, looking at the gravity of the offence. Few examples
which may pass the muster of proportionality for having
such stringent civil forfeiture, may relate to crimes involving
terrorist   activities,   drug   cartels   or   organised   criminal
activities. As we have discussed, the application of such a
provision to numerous other offences which are not of such
grave   severity,   would   be   of   serious   risk   of   being
disproportionate,   if   procedures   independent   of   criminal
prosecution   are   prescribed.   We   may   note   that   the
proportionality   of   separate   confiscation   procedure
prescribed under the 2016 Act, has not been argued herein.
Accordingly, we leave the aforesaid question of law open. 
86
17.29 Under the IPC, forfeiture is recommended to be a form of
punishment   under   Section   53.   Accordingly,   the   Code   of
Criminal   Procedure,   1976   provides   for   a   mechanism   for
interim   custody   and   forfeiture   at   the   conclusion   of   trial
under Section 451 of the Cr.P.C. (in personam  forfeiture),
which reads as under:
451.   Order   for   custody   and   disposal   of
property   pending   trial   in   certain   cases.
When   any   property   is   produced   before   any
Criminal Court during any inquiry or trial, the
Court may make such order as it thinks fit for
the proper custody of such property pending
the conclusion of the inquiry or trial, and, if
the property is subject to speedy and natural
decay, or if it is otherwise expedient so to do,
the Court may, after recording such evidence
as it thinks necessary, order it to be sold or
otherwise disposed of. 
Explanation.­   For   the   purposes   of   this
section," property" includes­
(a) property of any kind or document which is
produced before the Court or which is in its
custody,
(b) any   property   regarding   which   an   offence
appears   to   have   been   committed   or   which
appears to have been used for the commission
of any offence.
452.   Order   for   disposal   of   property   at
conclusion of trial.
(1) When an inquiry or trial in any Criminal
Court is concluded, the Court may make such
order   as   it   thinks   fit   for   the   disposal,   by
destruction,   confiscation   or   delivery   to   any
87
person   claiming   to   be   entitle   to   possession
thereof   or   otherwise,   of   any   property   or
document produced before it or in its custody,
or regarding which any offence appears to have
been committed, or which has been used for
the commission of any offence.
Aforesaid   provisions   under   the   Cr.P.C.   have   inbuilt
safeguards   of  in   personam  criminal   forfeiture,   wherein
confiscation   occurs   at   the   end   of   the   trial.   Under   these
provisions, confiscation is to be determined at an evidential
standard of ‘beyond reasonable doubt’ and are dependent
on the result of the criminal trial. 
17.30 Coming   to   the   Benami   Act   post   the   Amendment,   the
interplay   of   Sections   27(3),   (5)   and   67   of   the   2016   Act
creates a confiscation procedure which is distinct from the
procedure   contemplated   under   the   CrPC   or   any   other
enactment   till   now   in   India.   This   separation   of   the
confiscation mechanism is not merely procedural. It has
also altered substantive rights of the evidentiary standards
from   ‘beyond   reasonable   doubt’   to   ‘preponderance   of
probabilities’. Such a change of standards cannot be merely
termed as procedural.
88
17.31 Characterization   of   the   confiscation   proceedings   under
Chapter IV of the 2016 Act as Civil may therefore not be
appropriate. There is an implicit recognition of the forfeiture
being a punitive sanction, as the Officer is mandated to
build   a   case   against   the   accused   for   such   confiscation,
wherein   the   presumption   of   innocence   is   upheld
structurally. Being a punitive provision, it is trite that one
integrates   the   ‘presumption   of   innocence’   within   the
Chapter   as   the   same   forms   a   part   of   the   fundamental
right.10
17.32 Additionally, the 2016 Act now condemns not only those
transactions   which   were   traditionally   denominated   as
benami,   rather   a   new   class   of   fictitious   and   sham
transactions   are   also   covered   under   the   same.   In   this
regard, we may notice that the intention of the legislature is
to condemn such property and there is an implicit effort by
the Parliament to take into consideration the fact that such
transactions are often acquired from ill­gotten wealth. These
proceedings cannot be equated as enforcing civil obligations
10 Narendra Singh v. State of Madhya Pradesh, (2004) 10 SCC 699.
89
as, for example, correcting deficiencies in the title. It goes
further and the taint attaches to the proceeds as well. 
17.33 In view of the above discussion, it is manifest that the 2016
Act contemplates an  in­rem  forfeiture, wherein the taint of
entering into such a benami transaction is transposed to the
asset itself and the same becomes liable to confiscation. At
the cost of repetition, we may note that the taint of benami
transactions is not restricted to the person who is entering
into the aforesaid transaction, rather, it attaches itself to the
property   perpetually   and   extends   itself   to   all   proceeds
arising from such a property, unless the defence of innocent
ownership is established under Section 27(2) of the 2016
Act.   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.
17.34 Jurisprudentially, a law may enable forfeiture of property by
peculiar reason of its circumstances, of it being dangerous
to the community by reasons of any form or position that it
assumes.   In   such   cases,   forfeiture   is   not   deemed   to   be
90
punishment inflicted on its owner. By contrast, if the law
provides that the Government shall forfeit a property ‘A’ for,
(1) what was carried on in property ‘B’, or (2) what the owner
does in a matter not connected with property ‘A’ or (3) a
bare intent which does not necessarily relate to the conduct
in   property   ‘A’,   in   such   cases,   forfeiture   is   punishment
without any exception. In this case, the property may not be
inherently dangerous or denigrate any standard of morality.
It is just the condemnation of the method of transfer and
holding,   which   was   once   a   recognized   form   of   property
holding in India. In such a case, the in rem civil proceeding
utilized retroactively, would characterize itself as penal.
17.35 In   the   case   at   hand,   the   authority   that   initiates   such
confiscation,   is   granted   extensive   powers   of   discovery,
inspection, compelling attendance, compelling production of
documents.   They   are   further   empowered   to   take   the
assistance   of   police   officers,   custom   officers,   income   tax
officers   and   other   relevant   officers   for   furnishing
information. It is also pertinent to note that any person who
fails to furnish information, is subjected to a penalty of
91
₹25,000/­   (Rupees   Twenty­Five  Thousand)   under   Section
54(A).   It   is   also   necessary   to   note   that   a   person   who
supplies false information before any authority, is subjected
to rigorous imprisonment of upto 5 years under Section 54
of the 2016 Act.
17.36 This Court is aware of the fact that the ‘Right to Property’ is
not a fundamental right, rather it is a constitutional right
that can be abridged by law. However, this Court is not
concerned   with   the   constitutionality   of   such   a   measure,
wherein such considerations have to be balanced. Rather,
the   focus   is   only   on   the   characterization   of   retroactive
confiscation, which in these facts and circumstances, are
punitive. 
17.37 In view of the fact that this Court has already held that the
criminal provisions under the 1988 Act were arbitrary and
incapable   of   application,   the   law   through   the   2016
amendment could not retroactively apply for confiscation of
those   transactions   entered   into   between  05.09.1988   to
25.10.2016  as   the   same   would   tantamount   to   punitive
punishment,   in   the   absence   of   any   other   form   of
punishment.   It   is   in   this   unique   circumstance   that
92
confiscation   contemplated   under   the   period   between
05.09.1988   and   25.10.2016  would   characterise   itself   as
punitive,   if   such   confiscation   is   allowed   retroactively.
Usually,   when   confiscation   is   enforced   retroactively,   the
logical reason for accepting such an action would be that
the continuation of such a property or instrument, would be
dangerous for the community to be left free in circulation. In
R (on the appln of the Director of the Assets Recovery
Agency) v Jia Jin He and Dan Dan Chen, [2004] EWHC
Admin 3021, where Collins, J. had stated thus: 
“52.   In   Mudie,   at   page   1254,   in   the
judgment of Laws LJ, who gave the only
reasoned judgment, there is set out the
citation from Butler which reads, so far as
material, as follows: 
"It is the applicant's contention that
the forfeiture of his money in reality
represented   a   severe   criminal
sanction,   handed   down   in   the
absence of the procedural guarantees
afforded to him under article 6 of the
Convention, in particular his right to
be   presumed   innocence   [sic].   The
court does not accept that view. In its
opinion,   the   forfeiture   order   was   a
preventive   measure   and   cannot   be
compared   to   a   criminal   sanction,
since it was designed to take out of
circulation   money   which   was
presumed to be bound up with the
international trade in illicit drugs. It
93
follows that proceedings which led to
the   making   of   the   order   did   not
involve   'the   determination   ...   of   a
criminal charge (see Raimondo v Italy
[1994] 18 EHRR 237, 264, at para 43;
and   more   recently   Arcuri   v   Italy
(Application   No   52024/99),
inadmissibility   decision   of   5th   July
2001..."”
17.38 When we come to the present enactment, history points to a
different   story   wherein   benami   transactions   were   an
accepted form of holding in our country. In fact, the Privy
Council had, at one point of time, praised the  sui generis
evolution of the doctrine of trust in the Indian law. The
response by the Government and the Law Commission to
curb benami transactions was also not sufficient as it was
conceded before this Court that Sections 3 and 5 of the
1988 Act in reality,  dehors  the legality, remained only on
paper and were never implemented on ground. Any attempt
by the legislature to impose such restrictions retroactively
would no doubt be susceptible to prohibitions under Article
20(1) of the Constitution.
17.39 Looked at from a different angle, continuation of only the
civil provisions under Section 4, etc., would mean that the
legislative intention was to ensure that the ostensible owner
94
would continue to have full ownership over the property,
without allowing the real owner to interfere with the rights
of benamidar. If that be the case, then without effective any
enforcement proceedings for a long span of time, the rights
that have crystallized since 1988, would be in jeopardy.
Such implied intrusion into the right to property cannot be
permitted to operate retroactively, as that would be unduly
harsh and arbitrary.
18. Conclusion
18.1 In view of the above discussion, we hold as under: 
a) Section 3(2) of the unamended 1988 Act is declared as
unconstitutional   for   being   manifestly   arbitrary.
Accordingly,   Section   3(2)   of   the   2016   Act   is   also
unconstitutional as it is violative of Article 20(1) of the
Constitution.
b) 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. 
c) The 2016 Amendment Act was not merely procedural,
rather, prescribed substantive provisions. 
95
d) In rem  forfeiture provision under Section 5 of the 2016
Act,   being   punitive   in   nature,   can   only   be   applied
prospectively and not retroactively.
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 Act, viz., 25.10.2016. As a consequence of the
above declaration, all such prosecutions or confiscation
proceedings shall stand quashed. 
f) As this Court is not concerned with the constitutionality
of such independent forfeiture proceedings contemplated
under the 2016 Amendment Act on the other grounds,
the aforesaid questions are left open to be adjudicated in
appropriate proceedings. 
18.2 The appeal is disposed of in the above terms.
...........................CJI.
(N.V. RAMANA)
      
 ...........................J.
(KRISHNA MURARI)
...........................J.
(HIMA KOHLI)
NEW DELHI;
AUGUST 23, 2022.
96

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