Supreme Court rules that benami law cannot be applied retrospectively

Says section 3 of the 2016 amendment Act is unconstitutional

The Supreme Court on Tuesday ruled the amended Benami Act, which came into effect on November 1, 2016, applied only prospectively, besides declaring “unconstitutional” one of the provisions of the law dealing with a three-year jail term and a penalty. The jail provision was quashed on grounds of it being “manifestly arbitrary” — something that will provide relief to individuals and companies. Harsh punishments have been awarded under this provision.

The court also set aside all action taken before the implementation of the Benami Transactions (Prohibition) Amendment Act, 2016.

“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,” a Bench comprising Chief Justice N V Ramana, Justice C T Ravikumar and Justice Hima Kohli said while pronouncing the judgment.

In view of the fact that the court has held that the criminal provisions under the 1988 Act are arbitrary and incapable of being applied, the law, through the 2016 amendment, cannot retroactively apply to the transactions between September 5, 1988, and October 25, 2016.

Usually, when confiscation is enforced retroactively, the logical reason for this would be that the continuation of such a property or instrument would be dangerous for the community, it said, and held that “any attempt by the legislature to impose such restrictions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of the Constitution”. Looked at from another angle, the continuation of only the civil provisions would mean the legislative intent is to ensure that the ostensible owner would continue to have full ownership of the property without allowing the real owner to interfere with the rights of the benamidar.

If that is the case, then without any effective enforcement proceedings for a long time, the rights that have crystallised since 1988 would be in jeopardy, the court observed. 

Such implied intrusion into the rights to property cannot be permitted to operate retroactively because that would be unduly “harsh and arbitrary”.

The Benami Act, 2016, had expanded the definition of transactions classified as “benami” and imposed stiff penalties, which put many firms and individuals under the scanner because it had been used retroactively. The tax department had issued thousands of notices for cash transfers and property deals for earlier periods.

The court said the criminal provision under Section 3(1) of the 1988 Act had lacunae that could not have been cured by judicial forums even through some form of harmonious interpretation.

The verdict came on the appeal of the Centre challenging the Calcutta High Court judgment that held the amendment made in the 1988 Act in 2016 would be applicable with prospective effect.

The 1988 Act prohibited “benami” transactions and upheld the right to recover properties held to be “benami”.

From the verdict

• Actions taken between Sept 1988 and Oct 2016 under Benami law quashed
• Section 3(2) of the unamended 1988 Act is unconstitutional for being manifestly arbitrary
• Gaps left in the 1988 Act were not merely procedural, but were “essential and substantive”
• In the absence of substantive provisions, the omissions create a law which is “fanciful and oppressive” at the same time
• In Dec 2019, the Calcutta HC had ruled against retrospective nature of law