Ashutosh Gupta and Gaurav Rana

Benami Transactions (Prohibition) Amendment Act, 2016 (‘Amendment 2016’ or ‘Amendment Act’) was enforced on 01.11.2016. While placing the Amendment 2016 for voting and approval by the then Finance Minister Late Shri Arun Jaitley, Sr. Advocate, emphasised that the Amendment Bill has been brought instead of separate bills because past and concluded transactions also needed to be addressed and said transactions could not be left scot free. Thus, it was implied that the Ministry was recommending retrospective operation of the Amendment Bill. However, no such effect was given by any express wording or by any implication in the Amendment Bill. This led to widespread challenges on the operation of Amendment 2016 before the various Hon’ble High Courts and slowly it became a spinal issue in various discussion forums.

We will be deliberating on the said issue in this article and will also discuss the Hon’ble High Court’s take on said issue.

Benami Property

A. COMMENCEMENT OF AMENDMENT ACT, 2016:

Date of commencement of the legislation is mostly guided by its first Section, and in the present case, Section 1 of the Amendment Act, i.e. short title, and commencement, is also imperative in ascertaining the date of commencement or the effective date of Amendment. For better understanding, bare text of the same is reproduced below:

“(1) This Act may be called the Benami Transactions (Prohibition) Amendment Act, 2016.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.”

It can be deciphered from above that the Amendment Act will come into force or commence from the date of publication in the official gazette by the Central Government. Accordingly vide SO 3289(E) dated 25.10.2016, the Department of Revenue notified 01.11.2016 as the date on which Amendment shall come into force. For easy understanding, relevant text of the same is reproduced below :

“New Delhi, the 25th October, 2016

NOTIFICATION

S.O. 3289(E).—In exercise of the powers conferred by sub-section (2) of section 1 of the Benami Transaction (Prohibition) Amendment Act, 2016 (43 of 2016), the Central Government hereby appoints the 1st day of November, 2016 as the date on which provisions of the said Act shall come into force.

[Notification No. 98/2016/ F. No. 149/144/2015-TPL (Part-II)]

PRAVIN RAWAL, Director (Tax Policy & Legislation)” 

Thus, it is vividly clear from above that the date of enforcement of Amendment Act is 01.11.2016. However, speech of the then Finance Minister while deliberating on the Amendment Act in the Parliament clearly made the point regarding application of the proposed amendment on the benami transactions be held from the Original Act till amendment. But it seems vide aforesaid notification, Executive has left said duty i.e. giving retrospective effect to the Amendment on the shoulder of the Judiciary. Resultantly, from the date of notification of the Amendment and till date numerous cases have been filed before different Hon’ble High Courts and some have even attained finality while some questions are still open.

B. WHETHER AMENDMENTS ARE PROCEDURAL OR SUBSTANTIVE IN NATURE:

Before adverting to the moot question it is relevant to understand the thumb rules for interpreting the ambit and scope of an amending act and its retrospective operation. Same was dictated by Hon’ble Supreme Court in  Hitendra Vishnu Thakur & ors. vs. State of Maharashtra & ors. [1994 (4) SCC 602] as follows:

“(i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

(ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature.

(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law.

(iv)A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

(v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation unless otherwise provided, either expressly or by necessary implication.”

Thus at the outset, Amendments are required to be weighed on the scale of substantive /procedural law. In other words, it is apposite to ascertain whether said Amendments are substantive or procedural to interpret its operation. The litmus test to ascertain whether particular law is substantive or procedural is held and followed by Hon’ble Supreme Court in its various celebrated dictums. It will be profitable to recapitulate some pioneer judgements on this aspect:

In K.S. Paripoornan vs. State of Kerala & others [1994 (5) SCC 593 @ p.636] Hon’ble Supreme Court held that:

“a statute dealing with substantive rights is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect, a statute concerned mainly with matters of procedure or evidence or which is declaratory in nature has to be construed as retrospective unless there is a clear indication that such was not the intention of the legislature. A statute is regarded as retrospective if it operates on cases or facts coming into existence before its commencement in the sense that it affects, even if for the future only, the character or consequences of transactions previously entered into or of other past conduct. By virtue of the presumption against retrospective applicability of laws dealing with substantive rights, transactions are neither invalidated by reason of their failure to comply with formal requirements subsequently imposed, nor open to attack under powers of avoidance subsequently conferred. They are also not rendered valid by subsequent relaxations of the law, whether relating to form or to substance. Similarly, provisions in which a contrary intention does not appear neither impose new liabilities in respect of events taking place before their commencement, nor relieve persons from liabilities then existing, and the view that existing obligations were not intended to be affected has been taken in varying degrees even of provisions expressly prohibiting proceedings. (See Halsbury’s Laws of England, 4th Edn., Vol. 44, paras 921, 922, 925 and 926.)”

Emphasis supplied. 

From the above it can be deciphered that legislations modifying accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as substantive. Coming back to the facts of the case it is relevant to note that Amendment Act, brought various sweeping changes in the Prohibition of Benami Property Transactions Act, 1988 (“Act”) by virtue of which an act of just 9 sections became a healthy act of 72 sections. Notable amendments were brought in the definition clause which in the literal sense either included or excluded or created or demolished or amended various right(s), interest(s), and /or liability (ies) of the concerned persons under Section 2 of the Act. In addition, the above penal provision was also modified with interim measures including provisional attachment of the alleged benami property under Section 24 of the Act.

After weighing the aforesaid amendments with principles laid down in Hitendra Vishnu Thakur (Supra) and K.S. Paripoornan (supra), an irresistible conclusion can be formed that Amendments brought in are substantive in nature. To be specific, substitution of attachment with confiscation, amendments under definition clause whereby 28 new definition clauses are added and last but not the least the draconian interim measures allowed under the amendment i.e. provisional attachment of the alleged benami property only suggest and lead to conclusions that these Amendments can not be procedural in nature.

Amendment Act soon after coming into life became a cornerstone  in the pending litigations pertaining to benami property, whether at the trial stage or at the appeal stage before appellate forums and in fresh prosecution started by the Initiating Officer (“IO”) in respect to transactions prior to Amendment Act.

C. APPLICATION ON PENDING CASES:

One of the first cases in the former set of litigation was contested before the Hon’ble Bombay High Court in the matter, Joseph Ishrat Vs. Roxy Nishikant Gaikwad MANU/MH/0646/2017, wherein the following observations were made by the Hon’ble High Court:

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 MANU/SC/0061/1996: (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.”

The said observations were challenged before the Hon’ble Supreme Court on 28th April, 2017 in SLP No. 12328 of 2017, however Hon’ble Supreme Court declined to interfere with the findings and observations of the Hon’ble Bombay High Court and hence said observation cannot be ruled as law of land till reversed by the Hon’ble Supreme Court itself.

Thereafter, same question again came before the Hon’ble Supreme Court in Mangathai Ammal (Died) through L.Rs. and Ors vs. Rajeswari and Ors MANU/SC/0772/2019 wherein it was held that:

“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 presumption 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.”

From the above it can be deducted that, in the first set of litigation, provision of Amendment Act will not be made applicable being prospective but instead retrospective. Though, the Hon’ble Supreme Court’s opinion in the Mangathai Ammal (Died) Supra was not specific in nature and mostly regarded as obiter dicta instead ratio of the case. But it is also well acknowledged facet of jurisprudence in India that even obiter of Hon’ble Supreme Court shall be regarded and treated as equivalent to ratio of the case. Further, the same gets strength from Joseph Ishrat (Supra) which remains sacrosanct till date. In the light of the same it will be entirely justified to opine that in the pending cases, whether at trial stage or otherwise, Amendment Act will not be made applicable.

D. FRESH CASES PERTAINING TO PAST TRANSACTION :

Coming to the second set of litigation i.e. prosecution initiated by IO post promulgation of the Amendment Act in respect of past transactions, as stated above, there is always presumption against retrospective operation of substantive law unless expressly or impliedly made so by the Legislature. The obvious basis of the principle against retrospectivity is the principle of ‘fairness’, which must be the basis of every legal rule as was observed in L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd., same has been held by the Hon’ble Supreme Court in various cases which are enumerated below:

In Commissioner of Income Tax (Central)- I, New Delhi vs. Vatika Township Private Limited reported in MANU/SC/0810/2014 : (2015) 1 SCC 1 the Supreme Court laid down the following dictum with regard to retrospectivity of a legislation in paragraph 28 of the report as under:

“28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of the day  in force and not tomorrow’s backward adjustment to it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.”

 In Ganpati Dealcom Pvt. Ltd. Vs. Union of India and Ors. MANU/WB/2906/2019 the Hon’ble High Court of Calcutta speaking through division bench held that :

“19. The effect of an amendment was very lucidly described by Mr. Justice Jagannadhadas in Shri Ram Narain Vs. The Simla Banking & Industrial Co. Ltd. reported in MANU/SC/0003/1956: AIR 1956 SC 614. His lordship approved the dictum laid down by the same court in Shamarao V. Parulekar v. The District Magistrate, Thana, Bombay & Ors. reported in MANU/SC/0017/1952 : AIR 1952 SC 324 in page 621: “The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a, part of itself, into the earlier, then the earlier Act must thereafter be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all”. Now there is no question about the correctness of this dictum. But it appears to us that it has no application to this case. It is perfectly true as stated therein that whenever an amended Act has to be (1) (1952) S.O.R. 683.”

20. The learned Judge added that this reading of the unamended portion with the amended provisions was to ascertain the meaning of the Act as amended, but subject to the following condition:

“But this is not the same thing as saying that the amendment itself must be taken to have been in existence as from the date of the earlier Act. That would be imputing to the amendment retrospective operation which could only be done if such retrospective operation is given by the amending Act either expressly or by necessary implication.” 

Thus, applying the aforesaid ratio in the instant case it would be unambiguously clear that Amendment 2016 if by express or implied indication be made retrospective then only same would be applied on a transactions entered before its promulgation.

In Ganpati Dealcom Pvt. Ltd Supra the Hon’ble High Court of Calcutta also held that:

“By an amendment an existing Act is supplemented by new provisions adding to or subtracting from it. It is usual that parts of the existing Act are retained. Say for example, there is a provision in the existing Act for penalty in the case of acquisition of property described as benami. If the definition of benami property, its acquisition and the penal provisions remain unaltered after the amendment, and the alleged contravention took place before the amendment, it would not affect any proceeding taken in respect of that contravention, after the amendment, because these provisions are continued by the amending Act, untouched and unaffected by it. But take the case here. The definitions of benami transaction and property are radically changed by the amending Act. So are the provisions regarding investigation of contraventions, offences etc., the consequence of it namely, confiscation, prosecution etc. The showcause notice dated 29th August, 2017 was issued under Section 24(1) of the 1988 Act as amended. It referred to the alleged benami transaction by the appellant under Section 2(8) and 2(9)(D) thereunder. Therefore to allege contravention of the 1988 Act as amended in 2016 the contravention should have been made after the date of coming into force of the amendment. In the absence of retrospective operation of the amending Act, one cannot allege that the transaction resulting in the said contravention of the 1988 Act as amended in 2016 took place in 2011. That is exactly what the impugned show-cause notice proposed to do.”

 That the above findings were challenged before the Hon’ble Supreme Court in SLP No. 002784 of 2020 and vide order dated 03.02.2020 Hon’ble Supreme Court has stayed it and the matter is still pending.

 In addition to above, the operation of the Amendment Act, also fell for consideration before the Hon’ble Rajasthan High Court in Niharika Jain and Ors. Vs. Union of India and Ors MANU/RH/0518/2019 wherein the Hon’ble High court opined thus:

“87. Article 20 of the Constitution of India is a  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.

****

93. 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.”

Both the Hon’ble High Courts have held the moot question in favour of the respective Petitioners before them and dictated operation of the Amendment Act as prospective. Other than the said Hon’ble High Courts same question also fell before consideration of the Hon’ble High Court of Chhatisgarh in Tulsiram and Ors. Vs. Assistant Commissioner of Income Tax (Benami Prohibition) and Ors. MANU/CG/0099/2020 which opined that:

“11. As per the above “Written Synopsis” (supported by affidavit) filed on behalf of the Respondents, reference is also made to the clarification given by the Finance Minister in the Lok Sabha on 27.07.2016 while recommending the Amendment Bill, 2016. It is the contention of the Respondents that the amendment made with effect from 01.11.2016 is ‘substantive’, insofar as the ‘punishment’ is concerned; whereas it is only ‘procedural’, in respect of the various steps to be pursued. It is also pointed out that, with regard to the fate of the property, once it is established that it is ‘benami property’, there is not much difference; as, even under the old Act it was to be acquired without compensation. After the amendment, the property is liable to be confiscated, which is more or less equal in effect. In any view of the matter, a finding has to be rendered on conclusion of the adjudication and hence the challenge now raised is premature in all respects.”

Divergent opinion of the Hon’ble High Courts on the same question has only paved the way for the final say of the Hon’ble Supreme Court on the lis.

E. CONCLUSION:

If ratio of the majority Hon’ble High Courts is followed then Amendment Act will not be applicable retrospectively in both set of litigation i.e. pending cases (whether before trial court or appellate court) and fresh cases pertaining to past transactions. Though, the Hon’ble Supreme Court has given its view on the first set of litigation and specifically held Amendment Act as substantive in nature hence prospective in said matter. However, stay order dated 03.02.2020 in SLP No. 002784 of 2020 has left the spinal question for second set of litigation open. Thus, said question will remain talk of the town till the Hon’ble Supreme Court settle the mud.

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Authors are advocates practicing at New Delhi and Managing Partner and Partner respectively at Indo Legal Services a boutique law firm in New Delhi.

Disclaimer: This article is for information purposes only. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Although we have endeavored to accurately reflect the subject matter of this article, we make no representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this article. No recipient or reader of this article should construe it as an attempt to solicit business in any manner whatsoever.

#BenamiProperty #BenamiTransaction #BenamiAmendmentAct2016

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