The Supreme Court has ruled that Section 3(2) of the Benami Transactions (Prohibition) Act, 1988 is unconstitutional as it is manifestly arbitrary. It further said that the Benami Transactions (Prohibition) Amendment Act, 2016 can be applied only prospectively and not retrospectively.

 

What is a ‘benami transaction’?

Benami literally means ‘without a name’. Therefore, an asset without a legal owner or a fictitious owner is called benami. It can be a property of any kind, whether movable or immovable, acquired by way of benami transaction.

 

Benami Transaction (Prohibition) Act, 1988

  • Benami transactions were first prohibited in India under Section 2(a) of the Benami Transactions (Prohibition) Act, 1988.
  • The legislative intent behind the prohibition on benami transactions was to deter people from engaging in such transactions for dishonourable purposes, such as money laundering, tax evasion, etc.
  • In simple words, the legal right to claim beneficial ownership in any benami property has been terminated in its entirety.
  • However, no rules were enacted to govern the procedural execution of the legislation.
  • As a result, until the changes made by the Benami Transactions (Prohibition) Amendment Act 2016, the original Act’s practical application was ineffective.

 

Benami Transactions (Prohibition) Amendment Act 2016

  • In July 2016, “The Benami Transactions (Prohibition) Amendment Act, 2016” was enacted.
  • Defined Benami Transactions —
    • Where a property is transferred to or is held by a person and the consideration for such property has been provided by another person.
    • Transaction or arrangement in respect of a property carried out or made in a fictitious name.
    • Transaction or arrangement in respect of a property where the owner of the property is not aware of or denies knowledge of such ownership.
    • Transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.
  • Defined the Benamidar –
    • Benamidar’ implies a person or a fictitious person, in whose name a benami property is transferred or held.
    • Law provides that a Benamidar cannot re-transfer the benami property held by him to the beneficial owner.
  • Scope of the term ‘Property’ –
    • The word “property” has been defined in a very wide manner to mean asset of any kind.
    • It may be movable or immovable, tangible or intangible, and corporeal or incorporeal.
  • Power of Authorities –
    • The prescribed authorities under the Act have very wide powers –
      • Discovery and inspection.
      • Enforcing the attendance of any person, including officers of banking, financial institution, any other intermediary or reporting entity.
      • Authority to instruct to produce the books of accounts.
      • Receiving evidence on affidavits.
  • Confiscation of benami property –
    • The Act empowers the authorities to provisionally attach properties.
    • Once it is adjudicated that a property is benami, it can be confiscated by the Central government.
  • Penal consequences –
    • A person found guilty of the offence of benami transaction can face rigorous imprisonment from one to seven years.
    • Fine is also levied up to 25% of the fair market value of the property.

 

Background

  • In December 2019, the Calcutta High Court had ruled that the Benami Transactions (Prohibition) Amendment Act, 2016 did not have retrospective application.
  • The Central government then appealed in the Supreme Court against the Calcutta High Court’s judgement.

 

Key highlights of the Judgement

  • The Supreme Court, in its judgement, has upheld Calcutta High Court’s order that the 2016 amendment to the Benami Transactions Act cannot be applied retrospectively.
  • The SC bench also struck down the provisions of the Benami Transactions (Prohibition) Act of 1988, which provided for imprisonment for a term that may extend to three years or with fine or with both for those indulging in ‘benami’ transactions.
  • It termed Section 3(2) of the act as unconstitutional on the ground of being arbitrary.
    • Section 3 (2) mandates three years of imprisonment for those who had entered into benami transactions between September 5, 1988 and October 25, 2016.
  • The bench further said that the Amendment Act, following the changes into a 28-year-old ineffective law, will be applicable on transactions that took place after the changes were introduced.
  • The bench held that there is only prospective effect of the 2016 Act and thus all the actions taken before the amended act also are set aside.

 

Article 20(1) of the Constitution

  • The Supreme Court observed that Section 3 (2) of the Act is violative of Article 20(1) of the Constitution.
  • Article 20(1) mandates that no person should be convicted of an offence, which was not in force “at the time of the commission of the act charged as an offence”.