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

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.

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.

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.

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

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:

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.

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

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)

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.

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

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

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.

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.

(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.

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.

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

(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.

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;

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

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)

(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

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)

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).

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

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).

…

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.”

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

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

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

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

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.

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

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;

(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.

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

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

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

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

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

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)

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

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.

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

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

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

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.

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

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.

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)

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

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

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

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.

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

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

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

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

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.

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.

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

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:

[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

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

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

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.

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

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.

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.

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

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

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:

(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

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:

“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

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

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

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

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.

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

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).

"(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

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;

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

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

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

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.

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

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.”

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

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

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.

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

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.

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.

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

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

₹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

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

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

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.

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.

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

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