Landmark Judgment: Benami Amendment Act, 2016 not applicable from retrospective effect: HC

It is well settled law that a substantive provision unless specifically made retrospective or otherwise intended by the Parliament should always be held to be prospective. The power to confiscate and consequent forfeiture of rights or interests are drastic being penal in nature, and therefore, such statutes are to be read very strictly. However, there can be no exercise of powers under such statutes by way of extension or implication.

In view of the settled legal proposition that no authority, much less, a quasi judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly; is a question that is always open for scrutiny by the High Court in an application under Article 226/227 of the Constitution of India. The very question of correctness and legality of the issuance of notice can be examined in exercise of writ jurisdiction.

In the case of Mangathai Ammal (died) through L.Rs. & ors. (supra), the Apex Court of the land while dealing with issue of retrospective effect of the Benami Amendment Act, 2016, in unambiguous terms held that Benami Transaction Act would not be applicable retrospectively. At this juncture, it would be relevant to take note of the text of para 12 of the said judgment which reads thus:

“12. It is required to be noted that the benami transaction came to be amended in the year 2016. As per Section 3 of the Benami Transaction (Prohibition) Act 1988, there was a presumption that the transaction made in the name of the wife and children is for their benefit. By Benami Amendment Act, 2016, Section 3(2) of the Benami Transaction Act, 1988 the statutory presumption, which was rebuttable, has been omitted. It is the case on behalf of the Respondents that therefore in view of omission of Section 3(2) of the Benami Transaction Act, the plea of statutory transaction that the purchase made in the name of wife or children is for their benefit would not be available in the present case. Aforesaid cannot be accepted. As held by this Court in the case of Binapani Paul (Supra) the Benami Transaction (Prohibition) Act would not be applicable retrospectively. Even otherwise and as observed hereinabove, the Plaintiff has miserably failed to discharge his onus to prove that the Sale Deeds executed in favour of Defendant No. 1 were benami transactions and the same properties were purchased in the name of Defendant No. 1 by Narayanasamy Mudaliar from the amount received by him from the sale of other ancestral properties.”

Article 20 of the Constitution of India is fundamental right guaranteed under Part-III of the Constitution and the penal consequences emanating from the Benami Amendment Act, 2016, in infraction to the mandate of fundamental rights guaranteed under Article 20 of the Constitution; cannot be given retrospective effect in absence of a clear stipulation by the Parliament on retrospectivity.

In the case of Joseph Isharat (supra), relying upon the opinion of the Apex Court of the land in the case of R. Rajagopal Reddy (Dead) by L.Rs. and Ors. (supra) while examining taxguru.in the provisions of amendment introduced by the Legislature through Benami Amendment Act, 2016, made effective from 1st November, 2016, the Bombay High Court observed thus:

4. Under the Benami Act, as it stood on the date of the suit as well as on the date of filing of written statement and passing of the decree by the courts below, provided for the definition of a “benami transaction” under clause (a) of Section 2. Under that provision, any transaction in which property is transferred to one person for consideration paid or provided by another came within the definition of “benami transaction”. Section 3 of the Benami Act, in sub-section (1), provided that no person shall enter into any benami transaction. Sub-section (2) contained two exceptions to the prohibition contained in sub-section (1). The first exception, contained in clause (a) of sub-section (2), was in respect of purchase of property by any person in the name of his wife or unmarried daughter. In the case of such purchase, it was to be presumed, unless the contrary was proved, that the property was purchased for the benefit of the wife or unmarried daughter, as the case may be. Simultaneously, Section 4 of the Benami Act contained a prohibition in respect of right to recover property held benami. Sub-section (1) provided 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 the real owner of such property. Sub-section (2) made provisions likewise in respect of a defence based on a plea of benami transaction. Sub-section (2) provided that 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 laiming to be the real owner of such property. There was a twofold exception to this restriction. First was in respect of the person in whose name the property is held being a coparcener in a Hindu undivided family and the property being held for the benefit of the coparceners of the family. The second exception was in respect of the person, in whose name the property was held, being a trustee or other person standing in a fiduciary capacity and the property being held for the benefit of another person for whom he was such trustee or towards whom he stood in such capacity. The present suit was filed when these provisions were in operation. These provisions continued to apply even when the written statement was filed by the Defendant and the suit was heard and decreed by both the courts below. The legal provisions continued to apply even when the second appeal was filed before this court. It is only now during the pendency of the second appeal, when it has come up for final hearing, that there is a change in law. The Benami Act has been amended by the Parliament in 2016 with the passing of the Benami Transactions (Prohibition) Amendment Act, 2016. This amendment has come into effect from 01 November 2016. In the Amended Act the definition of “benami transaction” has undergone a change. Under the Amended Act “benami transaction” means (under Section 2(9) of the Act) a transaction or an arrangement 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 the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. There are four exceptions to this rule. The first is in respect of a karta or a member of a Hindu undivided family holding the property for the benefit of the family. The second exception is in respect of a person standing in a fiduciary capacity holding the property for the benefit of another person towards whom he stands in such capacity. The third exception is in the case of an individual who purchases the property in the name of his spouse or child, the consideration being provided or paid out of the known sources of the individual. The fourth exception is in the case of purchase of property in the name of brother or sister or lineal ascendant or descendant where the names of such brother or sister or lineal ascendant or descendant, as the case may be, and the individual appear as joint owners in any document. Sub-section (1) of Section 3 contains the very same prohibition as under the unamended Act, in that it prohibits all benami transactions. Section 4 likewise prohibits suits, claims or actions or defences based on the plea of benami as in the case of the unamended Act. The submission is that under this scheme of law, step-daughter not having been defined under the Benami Act, but having been defined under the Income Tax Act, 1961, by virtue of sub-section (31) of Section 2 of the amended Benami Act, the meaning of the expression will be the one assigned to it under the Income Tax Act. The definition of daughter under the Income Tax Act admits of a step-child within it. It is submitted that under the amended definition of “benami transaction”, thus, there is a clear exception in respect of a purchase made in the name of a step-daughter by an individual provided, of course, the consideration has been provided or paid out of known sources of the individual.

7. What is crucial here is, in the first place, whether the change effected by the legislature in the Benami Act is a matter of procedure or is it a matter of substantial rights between the parties. If it is merely a procedural law, then, of course, procedure applicable as on the date of hearing may be relevant. If, on the other hand, it is a matter of substantive rights, then prima facie it will only have a prospective application unless the amended law speaks in a language “which expressly or by clear intention, takes in even pending matters.”. Short of such intendment, the law shall be applied prospectively and not retrospectively.

8. As held by the Supreme Court in the case of R. Rajagopal Reddy v. Padmini Chandrasekharan (1995) 2 SCC 630, Section 4 of the Benami Act, or for that matter, the Benami Act as a whole, creates substantive rights in favour of benamidars and destroys substantive rights of real owners who are parties to such transaction and for whom new liabilities are created under the Act. Merely because it uses the word “it is declared”, the Act is not a piece of declaratory or curative legislation. If one has regard to the substance of the law rather than to its form, it is quite clear, as noted by the Supreme Court in R. Rajagopal Reddy, that the Benami Act affects substantive rights and cannot be regarded as having a retrospective operation. The Supreme Court in R. Rajagopal Reddy also held that since the law nullifies the defences available to the real owners in recovering the properties held benami, the law must apply irrespective of the time of the benami transaction and that the expression “shall lie” in Section 4(1) or “shall be allowed” in Section 4(2) are prospective and apply to the present (future stages) as well as future suits, claims and actions only. These observations clearly hold the field even as regards the present amendment to the Benami Act. The amendments introduced by the Legislature affect substantive rights of the parties and must be applied prospectively.”

For the reason aforesaid and in the backdrop of the settled legal proposition so also in view of singular factual matrix of the matters herein; this Court has no hesitation to hold that the Benami Amendment Act, 2016, amending the Principal Benami Act, 1988, enacted w.e.f. 1st November, 2016, i.e. the date determined by the Central Government in its wisdom for its enforcement; cannot have retrospective effect.

It is made clear that this Court has neither examined nor commented upon merits of the writ applications but has considered only the larger question of retrospective applicability of the Benami Amendment Act, 2016 amending the original Benami Act of 1988. Thus, the authority concerned would examine each case on its own merits keeping in view the fact that amended provisions introduced and the amendments enacted and made enforceable w.e.f. 1st November, 2016; would be prospective and not retrospective.