Union of India & Anr. Vs. M/S. Ganpati Dealcom Pvt. Ltd. (Supreme Court)
Coming to the Benami Act post the Amendment, the interplay of Sections 27(3), (5) and 67 of the 2016 Act creates a confiscation procedure which is distinct from the procedure contemplated under the CrPC or any other enactment till now in India. This separation of the confiscation mechanism is not merely procedural. It has also altered substantive rights of the evidentiary standards from ‘beyond reasonable doubt’ to ‘preponderance of probabilities’. Such a change of standards cannot be merely termed as procedural.
Characterization of the confiscation proceedings under Chapter IV of the 2016 Act as Civil may therefore not be appropriate. There is an implicit recognition of the forfeiture being a punitive sanction, as the Officer is mandated to build a case against the accused for such confiscation, wherein the presumption of innocence is upheld structurally. Being a punitive provision, it is trite that one integrates the ‘presumption of innocence’ within the Chapter as the same forms a part of the fundamental right. Narendra Singh v. State of Madhya Pradesh, (2004) 10 SCC 699.
Additionally, the 2016 Act now condemns not only those transactions which were traditionally denominated as benami, rather a new class of fictitious and sham transactions are also covered under the same. In this regard, we may notice that the intention of the legislature is to condemn such property and there is an implicit effort by the Parliament to take into consideration the fact that such transactions are often acquired from illgotten wealth. These proceedings cannot be equated as enforcing civil obligations as, for example, correcting deficiencies in the title. It goes further and the taint attaches to the proceeds as well.
In view of the above discussion, it is manifest that the 2016 Act contemplates an inrem forfeiture, wherein the taint of entering into such a benami transaction is transposed to the asset itself and the same becomes liable to confiscation. At the cost of repetition, we may note that the taint of benami transactions is not restricted to the person who is entering into the aforesaid transaction, rather, it attaches itself to the property perpetually and extends itself to all proceeds arising from such a property, unless the defence of innocent ownership is established under Section 27(2) of the 2016 Act. When such a taint is being created not on the individual, but on the property itself, a retroactive law would characterize itself as punitive for condemning the proceeds of sale which may also involve legitimate means of addition of wealth.
Community by reasons of any form or position that it assumes. In such cases, forfeiture is not deemed to be punishment inflicted on its owner. By contrast, if the law provides that the Government shall forfeit a property ‘A’ for, (1) what was carried on in property ‘B’, or (2) what the owner does in a matter not connected with property ‘A’ or (3) a bare intent which does not necessarily relate to the conduct in property ‘A’, in such cases, forfeiture is punishment without any exception. In this case, the property may not be inherently dangerous or denigrate any standard of morality. It is just the condemnation of the method of transfer and holding, which was once a recognized form of property holding in India. In such a case, the in rem civil proceeding utilized retroactively, would characterize itself as penal.
In the case at hand, the authority that initiates such confiscation, is granted extensive powers of discovery, inspection, compelling attendance, compelling production of documents. They are further empowered to take the assistance of police officers, custom officers, income tax officers and other relevant officers for furnishing information. It is also pertinent to note that any person who fails to furnish information, is subjected to a penalty of ₹25,000/ (Rupees TwentyFive Thousand) under Section 54(A). It is also necessary to note that a person who supplies false information before any authority, is subjected to rigorous imprisonment of upto 5 years under Section 54 of the 2016 Act.
This Court is aware of the fact that the ‘Right to Property’ is not a fundamental right, rather it is a constitutional right that can be abridged by law. However, this Court is not concerned with the constitutionality of such a measure, wherein such considerations have to be balanced. Rather, the focus is only on the characterization of retroactive confiscation, which in these facts and circumstances, are punitive.
In view of the fact that this Court has already held that the criminal provisions under the 1988 Act were arbitrary and incapable of application, the law through the 2016 amendment could not retroactively apply for confiscation of those transactions entered into between 05.09.1988 to 25.10.2016 as the same would tantamount to punitive punishment, in the absence of any other form of punishment. It is in this unique circumstance that confiscation contemplated under the period between 05.09.1988 and 25.10.2016 would characterise itself as punitive, if such confiscation is allowed retroactively. Usually, when confiscation is enforced retroactively, the logical reason for accepting such an action would be that the continuation of such a property or instrument, would be dangerous for the community to be left free in circulation. In R (on the appln of the Director of the Assets Recovery Agency) v Jia Jin He and Dan Dan Chen, [2004] EWHC Admin 3021, where Collins, J. had stated thus:
“52. In Mudie, at page 1254, in the judgment of Laws LJ, who gave the only reasoned judgment, there is set out the citation from Butler which reads, so far as material, as follows:
“It is the applicant’s contention that the forfeiture of his money in reality represented a severe criminal sanction, handed down in the absence of the procedural guarantees afforded to him under article 6 of the Convention, in particular his right to be presumed innocence [sic]. The court does not accept that view. In its opinion, the forfeiture order was a preventive measure and cannot be compared to a criminal sanction, since it was designed to take out of circulation money which was presumed to be bound up with the international trade in illicit drugs. It follows that proceedings which led to the making of the order did not involve ‘the determination … of a criminal charge (see Raimondo v Italy [1994] 18 EHRR 237, 264, at para 43; and more recently Arcuri v Italy (Application No 52024/99), inadmissibility decision of 5th July 2001…””
When we come to the present enactment, history points to a different story wherein benami transactions were an accepted form of holding in our country. In fact, the Privy Council had, at one point of time, praised the sui generis evolution of the doctrine of trust in the Indian law. The response by the Government and the Law Commission to curb benami transactions was also not sufficient as it was conceded before this Court that Sections 3 and 5 of the 1988 Act in reality, dehors the legality, remained only on paper and were never implemented on ground. Any attempt by the legislature to impose such restrictions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of the Constitution.
Looked at from a different angle, continuation of only the civil provisions under Section 4, etc., would mean that the legislative intention was to ensure that the ostensible owner would continue to have full ownership over the property, without allowing the real owner to interfere with the rights of benamidar. If that be the case, then without effective any enforcement proceedings for a long span of time, the rights that have crystallized since 1988, would be in jeopardy. Such implied intrusion into the right to property cannot be permitted to operate retroactively, as that would be unduly harsh and arbitrary.
Hon’ble Supreme Court held as under –
i. Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution.
ii. In rem forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary.
iii. The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions.
iv. In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively.
v. Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, , 25.10.2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.
vi. As this Court is not concerned with the constitutionality of such independent forfeiture proceedings contemplated under the 2016 Amendment Act on the other grounds, the aforesaid questions are left open to be adjudicated in appropriate proceedings.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Leave granted.
2. This case involves a tussle between the normative and positivist positions regarding the nature of a crime and punishment. Treating the Constitution as a flag post, a result of this tussle is sought in the following deliberation.
3. This appeal is filed against the impugned judgment dated 12.12.2019 passed by the High Court of Judicature at Calcutta in APO No. 8 of 2019 along with Writ Petition No. 687 of 2017.
4. The short legal question which arises for this Court’s consideration is whether the Prohibition of Benami Property Transactions Act, 1988 [for short ‘the 1988 Act’], as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 [for short the ‘2016 Act’] has a prospective effect. Although a purely legal question arises in this appeal, it is necessary to have a brief factual background in mind before we advert to the analysis.
5. On 02.05.2011, the respondent–company purchased a property in its name from various sellers for a total consideration of Rs.9,44,00,000/-. It is said that the consideration for the aforesaid purchase was paid from the capital of the company. On 31.03.2012, 99.9% of the respondent–company shareholdings were acquired by M/s PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd. at a discounted price of Rs.5/- per share for a total amount of Rs.19,10,000/-. It is a matter of fact that the two directors of the respondent-company (viz. Shruti Goenka and Ritu Goenka) also held directorship in the subsequent purchaser company.
6. Accordingly, on 29.08.2017, the Deputy Commissioner of Income Tax (Adjudicating Authority) issued a notice to the respondent–company invoking Section 24(1) of the 2016 Act to show cause as to why the aforesaid property should not be considered as Benami property and the respondent company as Benamidar within the meaning of Section 2(8) of the 2016 Act. On 06.09.2017, the respondent–company replied to the aforesaid show-cause notice denying that the scheduled property is a Benami property.
7. The Adjudicating Authority, by order dated 24.11.2017, passed an order under Section 24(4)(b)(i) of the 2016 Act, provisionally attaching the property.
8. Aggrieved by the aforesaid attachment order, the respondent-company filed a Writ Petition (being W.P. No. 687 of 2017) before the High Court of Calcutta. The aforesaid writ petition was disposed of by the learned Single Judge by an order dated 18.12.2018 with a direction to the Adjudicating Authority to conclude the proceedings within 12 weeks.
9. Aggrieved, the respondent-company filed an appeal against the aforesaid order being APO No. 8 of 2019.
10. The High Court, vide impugned order dated 12.12.2019, while quashing the show-cause notice dated 29.08.2017, held that the 2016 Act does not have retrospective application.
(i) The 2016 Amendment Act, which came into force on 01.11.2016, was a new and substantive legislation, inter alia, substituting and widening the definition of ‘benami property and benami transaction’, and in order to have retrospective operation for the period or transactions entered into prior to 01.11.2016, a provision to that effect should have been specifically providing under the said Act; in the absence of any express provision to that effect, simply by virtue of the provisions contained in subsection (3) of Section 1 of the 1988 Act [which remained unaltered by the 2016 Amendment Act, and have consequently been retained under the Benami Act1, the provisions of the 2016 Amendment Act cannot be impliedly construed as retrospective;
(ii) Reference was made to and reliance was placed on the unreported ruling of the learned Single Judge of the Rajasthan High Court dated 12.07.2019 in the case of Niharika Jain v. Union of India [S.B.C.W.P. No. 2915/20191, wherein, following the ruling of the Single Judge of the Hon’ble Bombay High Court in the case of Joseph Isharat v. Mrs. Rozy Nishikant Gaikwad [S.A. No. 749/2015; decided on 01.03.2017/30.03.20171, it was held that in terms of the protection enshrined under clause (1) of Article 20 of the Constitution of India, the 2016 Amendment Act, amending, inter alia, the definition of “benami transaction”, could not be given retrospective effect, and the amendments brought about vide the said (amendment) Act would be enforceable only with effect from the date of the enactment / coming into force of the said amendment Act i.e., on or after 01.11.2016 – reliance in this regard was also placed on the ruling of this Court in the case of Rao Shiv Bahadur Singh vs. State of Vindhya Pradesh, AIR 1953 SC 394;
(iii) The 1988 Act, which came into force on 19.05.1988 [except Section 3, 5 and 8 thereof which came into force on 05.09.1988], provided for punishment for persons entering into a “benami transaction”, which was made non-cognizable and bailable, and also however, provided for acquisition of property held to be benami; provisions of the 1988 Act, were never operationalized since the rules and procedure required to be framed under Section 8 of the said Act bringing into existence the machinery for implementation of the 1988 Act, were never notified – therefore, although the 1988 Act was part of the statute book, the same was rendered a “dead letter”, and all transactions and properties alleged ‘benami’, carried out / acquired between the period of 19.05.1988 and 01.11.2016, were deemed to have been accepted by the Government as valid ‘vesting rights’ in the parties to such alleged transactions; ergo, the Central Government, having waived its right of implementation and operationalisation of the 1988 Act for the period prior to 01.11.2016, cannot now do so indirectly by way of retrospective operation of the 2016 Amendment Act.
11. Aggrieved by the aforesaid impugned order, the Union of India is in appeal before this Court.
12. SUBMISSIONS
12.1 Shri S.V Raju, learned Additional Solicitor General (‘ASG’) has contended as under:
i. As per the pre-amendment Act, there was no machinery or procedure in place to effectuate proceedings against Benami transactions. It is submitted that in order to remedy this mischief of lack of procedure, the Amendment Act, which was a consolidating Act, was brought in.
ii. It was not an offence that is sought to be implemented retrospectively, but merely the procedures are laid down to implement the Act of 1988. He stated that the pre-amendment Act already recognizes Benami transactions as contrary to law, and hence no new or substantive law is being made.
iii. It is settled law that procedural law can be applied retrospectively, and the bar against retrospective application is only applicable to substantive law.
iv. The legislative intent for bringing an amendment to the existing act, and not enacting a new law, was to ensure that no immunity is granted to persons who engaged in benami transactions while the pre-amendment Act was in operation.
v. It was further submitted that Section 5 and Section 27 of the Act are to be read together as the latter provides the mechanism through which the Benami property may be confiscated by the Adjudicating Authority. As per Section 27(3), once the confiscation order is passed by the Authority, the rights in the property are vested in the Central Government. It was reiterated that confiscation is not a penal provision, as the same has civil consequences. Both, acquisition and confiscation are civil in nature, and therefore, they can be used interchangeably. Therefore, any amendment act which is consolidating in nature, can have provisions which are confiscatory in nature and the same can be applied retrospectively. For this, the learned ASG referred to Yogendra Kumar Jaiswal v. State of Bihar, (2016) 3 SCC 183, para 149, and submitted that in this judgment, this Court has held that confiscation is not a punishment, and that Article 20(1) is not attracted. The Court also held that confiscation as imposed by the Adjudicating Authority would not amount to any punishment, and is only a deprivation of the property of the person in question.
vi. The learned ASG also referred to Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95, para 21, to submit that by necessary implication, the machinery and procedural provisions of the amended Act are retrospective in nature.
12.2 Shri Vikramjit Banerjee, learned ASG has submitted as under:
i. The Parliament has the power to enact retrospective legislation even in case of a criminal Statute, as long as it complies with Article 20(1) of the Constitution of India. He further argued that as per Article 20(1), prohibition exists only on conviction and sentencing of the ex-post facto law, and not against passing such a law.
ii. Forfeiture, acquisition, and confiscation are not punishments and therefore not subject to Article 20(1) restrictions. He then pointed out that the adjudication proceedings are also not in the nature of prosecution, and hence cannot be restricted by Article 20.
iii. That acquisition of property without paying compensation amounts to confiscation, and confiscation envisages a civil liability.
12.3 Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing for the respondent has contended as under:
i. The 1988 Act did not make its provisions applied retrospectively. The Parliament purposely ensured that when the 1988 Ordinance was replaced by the parent Act, only the provisions from the 1988 Ordinance were continued from the date of the promulgation of the ordinance. The other provisions introduced by the parent Act, namely Sections 3, 5 and 8, were made only prospectively applicable from the date on which the parent Act was brought into effect.
ii. The 2016 Act was not intended to be retrospectively applicable as the same is not explicitly stated. Parliament deemed it fit to leave it to the Central Government to enforce the 2016 Act from an appointed date by notifying it in the official gazette, as mentioned in Section 1(2) of the 2016 Act.
iii. It was further argued that when the statute carves out distinct penalties in respect of benami transactions entered into in the unamended regime vis-a-vis the benami transactions entered into after the amendment Act of 2016, it clearly indicates that the amended Act is prospective in nature.
iv. Learned Senior Advocate also relied on the cases of R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630 and Mangathai Ammal v. Rajeswari, (2020) 17 SCC 496, in the context of Sections 4(1), 4(2) and 3(2) of the parent Act, to contend that the abovementioned provisions are prospective in nature.
v. It is also argued that insertion of Section 2(9) by an amendment to the parent Act provides a new definition to benami transactions and has substantially changed the scope of the offence by enlarging its ambit. In the unamended Act, only transfer of property was an offence. However, the 2016 Act has added multiple other actions as offences under the category of benami transactions. It is a well settled principle of law that any enactment which substantially affects the rights of people cannot be applied retrospectively, and therefore, the amended 2016 Act can only be prospective in nature. For this, the judgment of this Court in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Pvt. Ltd, (2015) 1 SCC 1 was relied on.
13. INTRODUCTION TO PRACTICE OF PROPERTIES HELD BENAMI IN INDI A
13.1 Having heard the parties, it is necessary for this Court to trace the history of benami transactions in India. The term ‘benami transaction’ generally implies that one purchases the property in the name of somebody else, i.e., a name lender, and the purchaser does not hold beneficial interest in the property. Literally, ‘benami’ means ‘without a name’. The simplest of example is if person ‘A’ (real owner) purchases a property from ‘B’ in the name of ‘C’ (benamidar/ostensible owner), wherein ‘A’ exercise rights/interest over the property.
13.2 The term ‘benami’, which was alien to statutory law during the colonial regime and in the early days of the Republic, was known in the legal parlance of lawyers. Even in Mohammedan law, such transactions were commonly referred as furzee or farzi, derived from Arabic word furaz.1 Over the passage of time, this nebulous concept appeared in cases without much clarity with respect to its basic contours. Conceptually, there are two views which arise from the Doctrine of Benami. The first view is that the benamidar does not hold title over the property, and the second view is that although the title passes to the benamidar, he holds it in trust.
13.3 Eventually, there developed two loose categories of transactions that were colloquially termed as benami, which can be explained through the following examples:
(i.) Tripartite: ‘B’ sells a property to ‘A’ (real owner), but the sale deed mentions ‘C’ as the owner/benamidar.
(ii.) Bipartite: ‘A’ sells property to ‘B’ without intending to pass the title to ‘B’.
The first instance was usually termed as a real benami transaction, and the second transaction was considered either as a sham transaction or “loosely” benami transaction. In Sree Meenakshi Mills Ltd. v. Commissioner of Income Tax, Madras, AIR 1957 SC 49, speaking for the Bench, Venkatarama Ayyar, J., stated that the first category of transactions is ‘usually’ termed as benami, while the second category is ‘occasionally’ considered a benami transaction. He added that it is “perhaps not accurately so used”. In Thakur Bhim Singh v. Thakur Kan Singh, AIR 1980 SC 727, Venkataramiah, J. straightway called the first category as benami but chose to describe the second category as “loosely” termed benami. This distinction is relevant and will be adverted to later.
13.4 Numerous reasons, some desirable and some undesirable, were contributory factors for the proliferation of such a practice in India. Some of them are as follows:
(i) Secret provisions for families within Hindu Joint family system;2
(ii) Mitigation of political and social risk;3
(iii) Defrauding creditors;4
(iv) Evasion of taxes.
13.5 Judicial recognition of such transactions came about in the early 19th century under the colonial courts. In Mt. Bilas Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96, the Privy Council observed as under:
“Down to the taluqdar’s death the natural inference is that the purchase was a benami transaction; a dealing common to Hindus and Muhammadans alike, and much in use in India; it is quite unobjectionable and has a curious resemblance to the doctrine of our English law that the trust of the legal estate results to the man who pays the purchase money, and this again follows the analogy of our common law, that where a feoffment is made without consideration the use results to the feoffer.”
In Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38, the Federal Court, while evaluating the propriety of such transactions, observed as under:
“A notion has sometimes prevailed in this country that all benami transactions must be regarded as reprehensible and improper if not illegal; but, as late as in 1915, Sir George Farwell, delivering the judgment of the Judicial Committee in 37 ALL. 557 spoke of them as ‘quite unobjectionable’ and as having their analogues in the English law; and Mr. Amreer Ali, delivering the judgment of the Committee in 46 Cal. 566, observed that “there is nothing inherently wrong in it, and it accords, within its legitimate scope, with the ideas and habits of the people”. As indicated by the qualifying words “within its legitimate scope”, their Lordships’ observations were clearly not meant to countenance transactions entered into for fraudulent or illegal purposes.”
13.6 In Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171, this Court laid down a test to determine whether a transaction is benami or not. The following factors were to be considered:
(i) The source from which the purchase money came;
(ii) The nature and possession of property after purchase;
(iii) Motive, if any, for giving the transaction a benami colour;
(iv) The position of the parties and the relationship, if any, between the Claimant and the alleged Benamidar.
(v) The custody of the title-deeds after the sale, and
(vi) The conduct of the parties concerned in dealing with the property after the sale.
13.7 The judiciary came to establish the general principle that in law, the real owner is recognized over the ostensible owner.5 This principle had certain statutory exceptions, albeit limited, such as Section 66 of Civil Procedure Code, 1908 with respect to properties wherein sale certificates are issued by courts; and Section 281A of the Income Tax Act, 1961, which allows filing of suit by the original owner to enforce his right over a benami property, only if the same is declared for taxing purpose, as provided thereunder. Such provision under the Income Tax Act did not bar such benami transactions completely, rather it only attempted to legitimize and bring them into the net of taxation. Such provision, while disincentivizing transactions beyond the taxation net, had also inevitably accepted the positive factors in recognizing the same. Further, it is a matter of fact that the Indian Trusts Act has recognized and accepted the principle behind benami transactions.
13.8 The 57th Report of the Law Commission (1973) succinctly captures the general principles prevailing as on that date, in the following manner:
“5.2 Summary of present position-in general-A few basic points concerning benami transactions may be stated, as follows:
(a) Benami transfer or transaction means the transfer by or to a person who acts only as the ostensible owner in place of real owner whose name is not disclosed;
(b)The question whether such transfer or transaction was real or benami depends upon the intention of the beneficiary;
(c) The real owner in such cases may be called the beneficiary, and the ostensible owner the benamidar.
…
5.3. Effect of benami transfer.- The effect of a benami transfer is as follows:-
(a)A person does not acquire any interest in property by merely leading his name;
(b)The benamidar has no beneficial interest though he may re-present the legal owner as to third person.
(c) A benami transaction is legal, except in certain specified situations.
(Emphasis supplied)
13.9 Prior to the 1973 Report, the broad position on the legality of various kinds of benami transactions can be captured as follows:
