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Benami law: Supreme Court recalls 2022 judgment that declared amendments unconstitutional

A Special Bench of the Supreme Court on Friday recalled its August 23, 2022 judgment, which declared provisions and amendments made in the benami property law “unconstitutional and manifestly arbitrary.”

The Bench, headed by Chief Justice of India D.Y. Chandrachud, referred the case for fresh adjudication. The amendments, introduced in 2016, had applied retrospectively and could send a person to prison for three years. It had empowered the Centre to confiscate “any property” subject to a benami transaction.

The decision to recall and have a re-look at the issue was based on review petitions filed by the Union Government and Deputy Commissioner of Income Tax (Benami Prohibition). The government was represented by Solicitor General Tushar Mehta.

The top law officer argued that the 2022 judgment had “unsettled 40 years of jurisprudence”.

Mehta said the short legal question raised before the apex court was whether the Prohibition of Benami Property Transactions Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act of 2016, had a prospective effect. However, the 2022 judgment traversed beyond the ambit of the question raised, to declare Section 3(2) of the unamended 1988 Act “unconstitutional for being manifestly arbitrary.”

The verdict under question had found Section 3(2) of the 2016 Act violative of Article 20(1) of the Constitution, which prohibits retrospective punishment. The judgment had further found Section 5 allowing in rem forfeiture [a general seizure of property by the Government] of the unamended Act of 1988, prior to the 2016 Amendment Act, unconstitutional and manifestly arbitrary.

The Review Bench on Friday said the parties were free to argue on the constitutionality of the benami law provisions before the appropriate Bench to be constituted by the Chief Justice of India in his administrative capacity.

The court made it clear that the arguments which led to the 2022 verdict had not squarely addressed the issue of the constitutional validity of Sections 3(2) and 5.

“It is trite law that a challenge to the constitutional validity of a statutory provisions cannot be adjudicated upon in the absence of a live lis [legal action] and contest between the parties. In the present case, the constitutional validity was not squarely addressed. We accordingly allow the review petition and recall the judgment,” the Review Bench recorded in its short order which restored the case back on the court’s board.

The Benami Transactions (Prohibition) Amendment Act of 2016 had amended the 1988 Act, expanding the statute to 72 Sections from a mere nine Sections. Section 3(2) mandates punishment of three years’ imprisonment for those who had entered into benami transactions between September 5, 1988 to October 25, 2016. That is, a person can be sent behind bars for a benami transaction entered into 28 years before the Section even came into existence.

Section 5 of the 2016 Amendment Act had said that “any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government”.

The judgment had dismissed the government’s version that forfeiture, acquisition and confiscation of property under the 2016 Act was not in the nature of prosecution and cannot be restricted under Article 20.

The court had observed that the 2016 Act condemned not only transactions which were traditionally denominated as ‘benami’ but rather a “new class of fictitious and sham transactions”. The court said the intention of the Parliament was to condemn property acquired from ill-gotten wealth. “These proceedings cannot be equated as enforcing civil obligations,” Chief Justice (now retired) N.V. Ramana, who authored the 2022 judgment, had noted.

The court had explained that the “in­ rem forfeiture” extended the taint of entering into a benami transaction to the asset itself”.

“When such a taint is being created not on the individual, but on the property itself, a retroactive law would characterise itself as punitive for condemning the proceeds of sale which may also involve legitimate means of addition of wealth,” the judgment said.

The court had criticised how the Act granted extensive powers of discovery, inspection, compelling attendance, compelling production of documents to officials. It had empowered authorities to take the assistance of police officers, custom officers, income tax officers, etc, for furnishing information.