The retrospective applicability of Benami law has been a subject matter of controversy, particularly after the amendments introduced in year 2016. In this article, an attempt is being made to identify and analyse various issues involved, and discuss the present judicial stand on such issues pending final verdict by Hon’ble Supreme Court.

A) Introduction:

Originally, the Benami law was introduced in India in year 1988, namely The Benami Transactions (Prohibition) Act, 1988 (hereinafter called the “PBPT Act, 1988”, or the “Old Act”), which prohibited any benami transaction making it a punishable offence, and also prohibited any 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. In other words, the legal rights to claim beneficial ownership in any benami property were extinguished. It was also provided in said Act that all properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure as may be prescribed; though no such authority/ manner/ procedure was actually prescribed till almost 28 years thereafter. This Old Act was a small Act with just 9 sections, and no Rules were framed thereunder for procedural implementation of the same. Hence, practically the enforcement of said Act remained muted till the amendments introduced by The Benami Transactions (Prohibition) Amendment Act, 2016, which came into force on 01.11.2016. The amended Act renamed as The Prohibition of Benami Property Transactions Act, 1988 (hereinafter called the “New Act”) was a full-fledged Act with 72 sections, and also Rules (namely Prohibition of Benami Property Transactions Rules, 2016) were framed thereunder for proper implementation of the same. In the New Act, not only the definition of Benami Transaction is expanded, but also provisions for stricter penalties/ prosecution, confiscation of property and implementation machinery are prescribed.

Benami Property

The purpose behind not bringing a complete new law after repealment of old law, and rather bringing it in form of amendments in old law was answered by the then then Finance Minister Late Shri Arun Jaitley in Lok Sabha in following words:

“… Anybody will know that a law can be made retrospective, but under Article 20 of the Constitution of India, penal laws cannot be made retrospective. The simple answer to the question why we did not bring a new law is that a new law would have meant giving immunity to everybody from the penal provisions during the period 1988 to 2016 and giving a 28 years immunity would not have been in larger public interest, particularly if large amounts of unaccounted and black money have been used to transact those transactions …”

A reference to above would show that while the Hon’ble Finance Minister acknowledged that a penal law cannot be made retrospective under Article 20 of the Constitution of India; he was also not in favour of granting immunity to the benami transactions executed between year 1988 and 2016.

In above background, the question of retrospective applicability of amended provisions of the New Act since year 1988 has arisen, which is analysed hereunder in the light of various legal provisions and judicial pronouncements on the issue.

B) Notification No. 98/2016 dated 25th October, 2016 of Government of India, Ministry of Finance, Department of Revenue:

The said notification reads as under:

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.”

C) Section 1(3) of the New Act –Giving rise to two different interpretations:

Section 1(3) of the Old Act, which was kept untouched in the New Act reads as under:

“(3) The provisions of sections 3, 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988.”

On the above date of 19.05.1998, the law regulating the benami transactions was first brought into existence by way of Ordinance promulgated by the President. Thereafter, the PBPT Act, 1988 came into force on 05.09.1988, in which the above sections 3, 5, 8 were enforced at once (i.e. with effect from 05.09.1988) and the remaining provisions shall be deemed to have come into force on 19.05.1988.

In the amendment Act which came into force on 01.11.2016, the above section 1(3) was kept untouched, however changes were inter-alia introduced in referred sections 3, 5 and 8. On plain reading of said section 1(3), it may appear that the word “at once” means the date on which the said sections 3, 5 and 8 came into force. However, due to amendments made in said sections 3, 5 and 8, a question remains whether the amended provisions of said sections would come into force with effect from the date of amendment i.e. 01.11.2016 or retrospectively since 05.09.1988 ?

The said Sections 3, 5 & 8, which existed in the Old Act and the New Act are reproduced below for ready reference:

Section In Old Act In New Act
3 3. Prohibition of benami transactions-

(1) No person shall enter into any benami transaction.

(2) Nothing in sub-section (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, an offence under this section shall be non-cognizable and bailable.

3. Prohibition of benami transactions.—

(1) No person shall enter into any benami transaction.

(2) 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.

(3) Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions(Prohibition) Amendment Act, 2016 (43 of 2016) shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Chapter VII.

5 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 sub-section (1).

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.
8 8. Power to make rules-

(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:–

(a) the authority competent to acquire properties under section 5;

(b) the manner in which, and the procedure to be followed for, the acquisition of properties under section 5;

(c) any other matter which is required to be, or may be, prescribed.

(3) Every rule made under this Act shall be laid, so soon as may be after it is made, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

8. Composition of Authority.—An Adjudicating Authority shall consist of a Chairperson and at least two other Members.

It is relevant to note that in section 3 of the New Act, a clear demarcation has been made in prescribing stricter penalties as contained in Chapter VII for transactions executed after the date of commencement of the New Act, i.e. 01.11.2016. Here, the words “enters into” signifies that it is applicable prospectively with reference to date of entering into the transaction. In other words, it is quite clear that the benami transactions already entered into prior to 01.11.2016 will not be governed by Chapter VII penalties, but will be governed by penalty as per section 3(2) of the New Act [which is identical to section 3(3) of the Old Act].

Coming to section 5 of the New Act, any property which is subject matter of benami transaction shall be liable to be confiscated by the Central Government. The term “benami transaction” is specified in section 2(9) of the New Act. In corresponding section 5 of the Old Act, there was provision of acquisition of property by such authority, in such manner and after following such procedure as may be prescribed. However, in absence of any rules framed under the Old Act, the provision of acquisition of benami property remained merely in statute book and hence the same was practically not possible to implement. Here, a question remains whether a property being subject matter of benami transaction entered into prior to 01.11.2016 can be confiscated or not by following provisions of the New Act ?

D) Section 2(9) of the New Act – Definition of “Benami Transaction”:

Originally, the term “benami transaction” was defined in section 2(a) of the Old Act as under:

“(a) benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person;”

In the New Act, the term “Benami Transaction” is defined in section 2(9) as under:

“(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 joint owners 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

(C) a transaction or an arrangement in 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;”

A reference to above would show that the definition of benami transaction has been substantially expanded in the New Act.

E) Issues involved in Retrospective applicability of Benami law:

(i) Whether the Old Act applied to benami transactions/ suits prior to enactment of said Act ?

(ii) What will be the status of penalty/ fine imposable on benami transactions executed prior to 01.11.2016 ?

(iii) Whether a property being subject matter of benami transaction entered into prior to 01.11.2016 can be confiscated by following provisions of the New Act ?

(iv) Whether a property acquired prior to 01.11.2016 can be held as subject matter of benami transaction under the amended definition of benami transaction i.e. under section 2(9)(A), (B), (C), and/ or (D) of the New Act ?

Before analysing above issues, let’s first go through some of the relevant judicial pronouncements.

F) Relevant Judicial pronouncements:

(i) Rajagopal Reddy vs PadminiChandrasekharan 1996 AIR 238 (SC), decision dated 31.01.1995:

The question was whether the Old Act would apply to already existing suits as on the date on which said Act came into force.

The section 4 of Old act extinguished the rights of real owner to file any suit against the person in whose name such property was held or any other person. It was held by Hon’ble Supreme Court that Section 4 or for that matter the Act as a whole is not a piece of declaratory or curative legislation. It creates substantive rights in favour of benamidars and destroys substantive rights of real owners who are parties to such transactions and for whom new liabilities are created by the Act. Accordingly, it was held that Section 4 of the Act could not be pressed in connection with suits filed prior to coming into operation of that section. However, it was held that the Section 4 applied also to past benami transactions as supportable on the language used in the Section.

(ii) Shri Joseph Isharat V. Mrs.Rozy Nishikant Gaikwad [Second Appeal No. 749/2015 dated 01.03.2017], wherein the Hon’ble Bombay High Court observed as under:

“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 vs. PadminiChandrasekharan, 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 2 AIR 1966 SC 1423 (V 53 C 277) 3 AIR 1985 SC 111 4 (1995) 2 SCC 630 8 / 12. This Order is modified/corrected by Speaking to Minutes Order dated 30/03/2017 sa 749-2015.doc 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.”

It is pertinent to note that SLP [C] No. 12328/2017 was filed against the aforementioned judgment of the Hon’ble Bombay High Court, which was declined by the Supreme Court vide order dated 28.4.2017.

(iii) Mangathai Ammal [Died] through LRs & Ors. Vs. Rajeshwari & Ors. [2019 SCC OnLine SC 717] decision dated 09.05.2019,wherein Hon’ble Supreme Court observed as under:

“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. ….”

(iv) Niharika Jain V. Union of India &Ors. 2019 SCC On Line Raj 1640, decision dated 12.07.2019, wherein Hon’ble Rajasthan High Court observed as under:

“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.

94. 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.”

(v) Tulsiram & Manki Bai V. ACIT (Benami Prohibition) & Ors.  (Writ Petition No. 3819 of 2019), decision dated 15.11.2019, wherein the Hon’ble Chattisgarh High Court held as under: 

“20. …If we take into consideration, the provisions Sub Section 3 of Section 1 and read it along with other amendments which have been brought in the Act of 1988 vide Amendment Act of 2016, this Court is compelled to reach to the conclusion that proceedings drawn against the petitioners in the given factual matrix of the case cannot be found fault with. It can also not to be said that provisions of the Amended Act of 2016 could not have been made applicable in respect of properties which were acquired prior to 01.11.2016. The whole Act of 1988 as it stands today inclusive of the amended provisions brought into force from 01.11.2016 onwards applies irrespective of the period of purchase of the alleged Benami property. Amended Act of 2016 does not have an existence by itself. Without the provisions of the Act of 1988, the amended provisions of 2016 has no relevance and the amended Provisions are only laying down the proceedings to be adopted in a proceeding drawn under the Act of 1988 and the penalties to be imposed in each of the cases taking into consideration the period of purchase of Benami property.”

This judgment of Hon’ble Chattisgarh High Court is in favour of revenue, wherein the writ petition filed against provisional attachment of alleged benami property was rejected.

(vi)  M/s Ganpati Delcom Private Limited v. Union of India & Anr. (APO no. 8 of 2019 with WP no. 687 of 2017, decision dated 12.12.2019), wherein the Hon’ble Calcutta High Court held as under:

In Canbank Financial Services Ltd vs Custodian & Others reported in (2004) 8 SCC 355 the Supreme Court specifically held in paragraph 67 that the said Act of 1988 had not been made workable as no rules under Section 8 of the said Act for acquisition of benami property had been framed. These two cases were also cited by Mr. Khaitan. Section 6(c) of the General Clauses Act, 1897 is most important. It lays down that repeal of an enactment, which necessarily includes an amendment, would not affect “any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed”, unless a different intention is expressed by the legislature. Without question, the omission on the part of the government to frame rules under Section 8 of the 1988 Act rendered it a dead letter and wholly inoperative. Assuming that the appellant had entered into a benami transaction in 2011, no action could be taken by the Central government, in the absence of enabling procedural rules. It is well within the right of the appellant to contend that the Central government had waived its rights. It could also contend that no criminal action could be initiated on the ground of limitation. Now, these rights which had accrued to the appellant could not, in the absence of an express provision be extinguished by the amending Act of 2016. In other words, applying the definition of benami property and benami transaction the Central government could not, on the basis of the 2016 amendment allege contravention and start the prosecution in respect of a transaction in 2011.”

It is pertinent to note that the Hon’ble Supreme Court in SLP 2784/2020 has stayed the said order on 03.02.2020 without providing any reasoning or justification for grant of such interim relief. The final order is awaited.

G) Conclusion:

As regards the retrospective applicability of Old Act, the Hon’ble Supreme Court in the case of R. Rajagopal Reddy vs Padmini Chandra sekharan (supra) has held that Section 4 of said Act could not be pressed in connection with suits filed prior to coming into operation of that section; and further that the Section 4 applied to past benami transactions also where there was no pending suits. In other words, the substantive rights of parties could not be disturbed in pending suits after enactment of the Old Act, since the provisions of said Act would apply prospectively.

To further understand the implication of above judgment on transactions executed prior to 1988, the said Section 4 of the Old Act is reproduced below:

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. ……..”

A reference to above shows that the said section 4 extinguished the rights of real owner in any benami property irrespective of the date of transaction covering even the properties acquired prior to 1988. Contrary to it, the language of section 3(3) of Old Act [i.e. “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”] covered only the benami transactions entered into after enactment of said Act, implying that the said punishment was on prospective transactions only.

In the New Act, the section 3(3) of the Old Act specifying the punishment for benami transaction is renumbered as section 3(2); and section 3(3)stipulating higher punishment as per Chapter VII for benami transactions executed subsequent to 01.11.2016 is inserted. In view of the clear cut provision of section 3(3) of the New Act, there is no ambiguity that the higher punishment(i.e. rigourous imprisonment upto 7 years, and fine upto 25% of fair market value of property) is applicable for prospective transactions only. For transactions executed prior to 01.11.2016, the renumbered section 3(2) would apply, which stipulates simple imprisonment upto 3 years or with fine or both; though the fine has not been quantified in said section or under any rules framed thereunder.

Now coming to provision of “Confiscation” of property as prescribed under section 5 of the New Act, the question of retrospective applicability revolves around the word “at once” used in section 1(3) of the Old Act as well of the New Act. At one hand, the Bombay High Court in Shri Joseph Isharat V. Mrs. Rozy Nishikant Gaikwad (supra), Rajasthan High Court in Niharika Jain V. Union of India & Ors. (supra), and Calcutta High Court in M/s Ganpati Delcom Private Limited v. Union of India &Anr. (supra) have ruled in favour of the prospective applicability of amendments made in the New Act;at the other hand, the Hon’ble Chattisgarh High Court in Tulsiram & Manki Bai V. ACIT (Benami Prohibition) & Ors. (supra) has ruled in favour of its retrospective applicability. The crux of counter arguments is whether the said amendment is substantive or procedural in nature, at which there are divergent views given in above judgments. Further, if the revenue has to argue that similar provision of “Acquisition” of property existed under section 5 of the Old Act [i.e. “All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure as may be prescribed.”];it can be counter argued by affected parties that if the intention of law was to enforce it retrospectively, the same could have achieved by simply prescribing rules in that regard,in which case there was no need to replace the entire section itself. Also it can be argued by affected parties that the retrospective applicability would be in violation of Article 20 of the Constitution of India, which stipulates 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, 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.

The decision of Hon’ble Calcutta High Court in the case of M/s Ganpati Delcom Private Limited v. Union of India & Anr. (supra) was stayed by Hon’ble Supreme Court probably since it went a step further in holding that no action can be taken against the appellant who had entered into a benami transaction in 2011 under the Old Act (assuming that in absence of enabling procedural rules, the Central Government had waived its rights) as well under the New Act (assuming such right of appellant in the absence of an express provision be extinguished by the New Act). Though a final decision in the matter is pending from Hon’ble Supreme Court; however, it seems unlikely that a person entering into benami transaction between a long span of 28 years (between year 1988 & 2016) would completely go scot free, and which also cannot be the intention of law. Logically, such transactions cannot escape punishment under section 3(2) of New Act [which is identical to section 3(3) of Old Act].On confiscation of such property, there are different views of various High Courts as discussed above, which is to be finally decided by Hon’ble Supreme Court.

Another angle to the retrospective applicability of the New Act is whether a property acquired prior to 01.11.2016 can be held as subject matter of benami transaction under the amended definition of benami transaction i.e. section 2(9)(A), (B), (C), and/ or (D) of the New Act? Though the section 2(9) of the New Act is implicitly made effective from 19.05.1988 by virtue of the language of section 1(3) of said Act, still it can be argued that the amended definition is far wider in scope than the same under section 2(a) of the Old Act. Further, since the applying of amended definition to transactions entered into prior to 01.11.2016 has penal consequences, a defence can be taken by affected parties that the same would be in violation of Article 20 of the Constitution of India.

This article is meant to throw light on various facets of the retrospective applicability of the Benami law pending a final verdict by Hon’ble Supreme Court.

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Company: M G AGRAWAL & ASSOCIATES
Location: Mumbai, Maharashtra, IN
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