Introduction : The Benami Transaction (Prohibition) Act, 1988 (Unamended Benami Act) was a small Act with only 9 sections. Through introduction of The Benami Transactions (Prohibition) Amendment Act, 2016, w.e.f. 1st November, 2016, the Unamended Benami Act was amended wherein the sections were increased from 9 to 72 sections and the name of the said Unamended Benami Act was also changed to The Prohibition of Benami Property Transactions Act, 1988 (Amended Benami Act).

The Benami Transactions (Prohibition) Amendment Act, 2016, not only inserted new sections in the Unamended Benami Act but also amended the already existing sections i.e. 1 to 9. For example, section 2, sub-section (9) defining “Benami Transaction” has been amended. Similarly, section 3 – Prohibition of Benami Transactions has also been amended.

Intent of legislature :

While introducing the said Benami Transactions (Prohibition) Amendment Act, 2016, the Finance Minister replied to the question why Government did not bring in a new law altogether and carried out amendment in the same Act in the debate in Lok Sabha on 27/07/2016 and said as under :

“…. 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 being 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 transaction….”

The intention of the Government was very clear that the amendments ought to be retrospective as it did not in any manner wanted to rescue the benami transactions entered into between 1988 to 2016 i.e. before amendment from the clutches of Benami and make them legal.

Recent decision of Rajasthan High Court :

Recently, the Rajasthan High Court in the case of Niharika Jain W/o Shri Andesh Jain v. Union of India bearing S.B. Civil writ Petition no. 2915/2019, order dated 12/07/2019 had an occasion to deal with the issue relating to amendments in section 3 – Prohibition of Benami Transaction and to determine whether such amendments are “retrospective” or “prospective”.

Before amendment section 3 of Unamended Benami Act read as under :

“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.”

After amendment section 3 of Amended Benami Act reads as under :

“Section 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.”

Comparative analysis of section 3 before amendment and after amendment reveals as under :

Unamended Amended Remark
Sub-section (1) : no person shall enter into any benami transaction Sub-section (1) : no person shall enter into any benami transaction No change
Sub-section (2) : Transaction between husband, wife and child exempted Said benefit omitted under this section and inserted under section 2(9)(A)(b) (iii) which defines “benami transaction”. The benefit to a transaction between husband, wife and child still available under the Amended Act although under a different section.
Sub-section (3) : whoever enters into any benami transaction shall be punishable with imprisonment for 3 years or fine or both Incorporated as sub-section (2) There is no change except sub-section no.

Thus, whoever enters into a benami transaction before amendment shall continue to be liable for punishment under this sub-section (2) even though the transaction was carried out prior to enactment of Amended Benami Act.

Sub-section (3) inserted that whoever enters into any benami transaction after amendment shall be punishable in accordance with provisions contained in Chapter VII The punishment for entering into a benami transaction after amendment shall be governed by this sub-section and Chapter VII.

On comparing the above chart with that of the speech of the Finance Minister, it can be understood that by not deleting the earlier sub-section (3) [or sub-section (2) under Amended Act] and while introducing a new sub-section (3) under the Amended Act, the Government did not want to spare the Benami Transactions entered into between 1988 to 2016 from the purview of Benami Act. Thus, benami transactions entered into before amendment also fall under the purview of sub-section (2) to section 3 of the Amended Benami Act and are liable for punishment.

Facts of the case Niharika Jain (supra) before the Rajasthan High Court :

There was a search action u/s. 132 of the Income Tax Act, 1961 on the petitioner before the amendment in Benami Act i.e. before 01/11/2016. During the course of search action, various incriminating documents were seized indicating several benami transactions. Accordingly, show cause notice u/s. 24(1) of the Amended Benami Act was issued on the petitioner calling to show cause as to why the transactions found during the search action should not be treated as “Benami Transaction” u/s. 2(9) of the Amended Benami Act and should not be liable for punishment u/s. 3 of the Amended Act. The Initiating officer ignoring the submission of the petitioner treated the transactions as benami liable for punishment u/s. 3 of the Amended Benami Act. The said matter travelled to the High Court.

Before the High Court, the petitioner took the view that sub-section (3) of section 3 of Amended Benami Act talks of punishment in respect of transaction entered into after amendment. Since the transactions were entered into before the amendment, the said transactions fall outside the ambit of said sub-section.

Decision of the Rajasthan high Court :

The Rajasthan High Court agreeing with the contention of the petitioner held that sub-section (3) to section (3) of the Amended Benami Act talks about punishments in respect of benami transactions entered into after amendment in Benami Act and is thus, prospective. While holding the said sub-section (3) as prospective, the Rajasthan High Court observed that :

i) unless a contrary intention is reflected, a legislation is presumed and intended to be prospective;

ii) where an amendment affects rights or imposes obligations or castes a new duties or attached a new disability is to be treated as prospective ; and

iii) Benami Amendment Act, 2016 neither appears to be clarificatory nor curative.

Accordingly, the Rajasthan High Court threw the entire transactions entered into by the petitioner before amendment out of the purview of Benami Act.

Analysis and comments :

While arriving at the said proposition, the Rajasthan High Court relied on the decision of Apex Court in the case of Mangathai Ammal (Died) through L.Rs. and Ors. vs. Rajeswari and Ors. Civil Appeal No. 4805 of 2019, order dated 9th May, 2019. In this case, the Apex Court had dealt with a transaction entered into between husband, wife and child which was exempted under the Unamended Benami Act in section 3(2). The said sub-section (2) to section 3 stood omitted vide Amended Benami Act. While dealing with the said issue, the Apex Court held 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 (2) 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.”

In the above case, the Apex Court observed that the husband has acted on the basis of law which was good at the time of entering into a transaction. Thus, the Apex Court rightly held that the Amended Benami Act shall not be applicable in case were the amendment has taken over the benefit which was available in the unamended Act.

By applying the above case of Apex Court in Niharika Jain (supra) case, the Rajasthan High Court has rightly held that sub-section (3) of the Amended Benami Act was prospective and cannot be applied retrospective since it talks about enhanced punishment of 7 (seven) years which was earlier 3 (three) years.

However, the decision of Rajasthan High Court that the benami transaction entered into before amendment fall outside the purview of Amended Benami Act was never the intention of the Government as evident from the Finance Minister speech and the amendment in section 3 as analysed in comparative chart above.

The comparative chart mentioned above clearly demonstrates the intention of the Government that all benami transaction entered from 1988 shall be punishable under The Prohibition of Benami Property Transactions Act, 1988 as amended by The Benami Transactions (Prohibition) Amendment Act as under :

(i) if a person enters into a benami transaction before amendment – he shall be punishable under sub-section (2) to section (3) of the Amended Benami Act (i.e. sub-section (3) to section 3 of the Unamended Benami Act) ; and

(ii) if a person enters into a benami transaction after amendment – he shall be punishable under sub-section (3) of the Amended Benami Act.

Applying the above analysis in the case of Niharika Jain, the benami transactions entered into by the petitioner before amendment shall be punishable under sub-section (2) to section (3) of the Amended Benami Act (i.e. sub-section (3) to section 3 of the Unamended Benami Act).

The petitioner here cannot place reliance on the decision of Apex Court in the case of Binapani Paul v. Pratima Ghosh and others 2007 (4) TMI 752 (SC) since the said case was relating to the issue of benami transaction entered into before 1988 i.e. before introduction of Benami Transactions (Prohibition) Act, 1988. Thus, in that case, the Apex Court has rightly held that Benami Transactions (Prohibition) Act, 1988, has no retrospective effect since the said transaction has taken place when the said Act was never a law.

The author is of the opinion that the Rajasthan High Court decision requires reconsideration since it has failed to consider sub-section (2) to section 3 of the Amended Benami Act while deciding that the benami transactions entered into before amendment i.e. 01/11/2016 and after year 1988 fall outside the purview of The Prohibition of Benami Property Transactions Act, 1988. However, until the Department goes to Apex Court in the case of Niharika Jain (supra) and get a final verdict from the Apex Court, the people at large will take advantage of the said decision and try and get their benami transaction entered into before amendment outside the purview of Benami Act.

Author Bio

Qualification: CA in Practice
Company: Sneha Sarbhushan and Co.
Location: Navi Mumbai, Maharashtra, IN
Member Since: 18 Aug 2019 | Total Posts: 1

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