Why in news?

The Supreme Court set aside its 2022 judgment, which had declared certain provisions [Section 3(2) and Section 5] of the Benami Transactions (Prohibition) Act, 1988, unconstitutional. The case was referred for fresh adjudication before a new bench.

The decision to recall the earlier ruling was made after allowing a petition filed by the Central Government.

What’s in today’s article?

• Benami Transactions and rule related to it
• Benami Transactions (Prohibition) Amendment Act 2016
• Background of the case
• Key highlights of the recent SC Judgement

Benami Transactions and rule related to it

• About Benami Transactions
  • Benami literally means ‘without a name’. Therefore, an asset without a legal owner or a fictitious owner is called benami.
  • It can be a property of any kind, whether movable or immovable, acquired by way of benami transaction.
• Benami Transaction (Prohibition) Act, 1988
  • Benami transactions were first prohibited in India under Section 2(a) of the Benami Transactions (Prohibition) Act, 1988.
  • The legislative intent behind the prohibition on benami transactions was to deter people from engaging in such transactions for dishonourable purposes, such as money laundering, tax evasion, etc.
    • In simple words, the legal right to claim beneficial ownership in any benami property has been terminated in its entirety.
  • However, no rules were enacted to govern the procedural execution of the legislation.
  • As a result, until the changes made by the Benami Transactions (Prohibition) Amendment Act 2016, the original Act’s practical application was ineffective.

Benami Transactions (Prohibition) Amendment Act 2016:

• In July 2016, “The Benami Transactions (Prohibition) Amendment Act, 2016" was enacted.
• Defined Benami Transactions
  • Where a property is transferred to or is held by a person and the consideration for such property has been provided by another person.
  • Transaction or arrangement in respect of a property carried out or made in a fictitious name.
  • Transaction or arrangement in respect of a property where the owner of the property is not aware of or denies knowledge of such ownership.
  • Transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.
• Defined the Benamidar –
  • ‘Benamidar’ implies a person or a fictitious person, in whose name a benami property is transferred or held.
  • Law provides that a Benamidar cannot re-transfer the benami property held by him to the beneficial owner.
• Scope of the term ‘Property’
  • The word “property" has been defined in a very wide manner to mean asset of any kind.
  • It may be movable or immovable, tangible or intangible, and corporeal or incorporeal.
• Power of Authorities
  • The prescribed authorities under the Act have very wide powers –
    • Discovery and inspection.
    • Enforcing the attendance of any person, including officers of banking, financial institution, any other intermediary or reporting entity.
    • Authority to instruct to produce the books of accounts.
    • Receiving evidence on affidavits.
• Confiscation of benami property
• The Act empowers the authorities to provisionally attach properties.
• Once it is adjudicated that a property is benami, it can be confiscated by the Central government.
• Penal consequences
  • A person found guilty of the offence of benami transaction can face rigorous imprisonment from one to seven years.
  • Fine is also levied up to 25% of the fair market value of the property.

Background of the case

• 2016 Amendments and Retrospective Application
  • The amendments made in 2016 were applied retrospectively.
• Retrospective provision challenged in Court
  • In December 2019, the Calcutta HC had ruled that the Benami Transactions (Prohibition) Amendment Act, 2016 did not have retrospective application.
  • The Central government then appealed in the Supreme Court against the Calcutta High Court’s judgement.
• 2022 Judgement of SC
  • The Supreme Court, in its judgement, upheld Calcutta HC’s order that the 2016 amendment to the Benami Transactions Act cannot be applied retrospectively.
  • It termed Sections 3(2) and 5 of the act as unconstitutional on the ground of being arbitrary.
    • Sections 3(2) empowered the government to confiscate property involved in benami transactions and imposing a three-year prison term for those entering such transactions between September 5, 1988, and October 25, 2016.
    • Section 5 of Act states that the Central Government can confiscate any property that is the subject of a benami transaction.
  • SC held that Section 3(2) of the 2016 Act, which penalizes benami transactions retrospectively, violated Article 20(1).
    • Article 20(1) of the Constitution prohibits retrospective punishment.
  • Also, it termed Section 5 of the act as overly broad, disproportionately harsh, and operate without adequate safeguards.
  • The judgment criticized the in-rem forfeiture (a legal action that involves seizing property rather than a person) under the 2016 Amendment, which condemned not only the individuals involved in benami transactions but also the properties themselves.
  • The court had expressed concerns over the extensive powers given to officials under the Act, including powers of discovery, inspection, and the compelling of document production.
• Review Petition by Government
  • The Union Government filed a review petition, arguing that the 2022 judgment had disrupted 40 years of jurisprudence.
  • It contended that the 2022 verdict went beyond the central question of whether the 2016 amendments should be applied prospectively, as it declared Section 3(2) of the unamended 1988 Act and Section 5 unconstitutional
  • The current judgement comes against this review petition.

Key highlights of the recent SC Judgement

• Constitutionality of the provisions of the unamended Act of 1988 was never in question
  • SC held that the Constitutionality of the provisions of the unamended Benami Transactions Act was never raised in the original proceedings.
  • The only question which was framed by the bench which originally heard the matter was "whether the Prohibition of Benami Property Transactions Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016, has a prospective effect."
• Fresh Adjudication Ordered
  • The court allowed the review petition, setting aside the 2022 ruling.
  • The matter will be argued afresh before a newly constituted bench, where the constitutionality of the benami law provisions can be reconsidered.
  • The SC bench emphasized that the constitutional challenge requires proper adjudication with an active legal dispute.