UOI v. Ganpati Dealcom Pvt. Ltd. (2022)447 ITR 108 (SC)

Prohibition of Benami Property Transactions Act, 1988,

S.3: Prohibition of benami transactions — Change of law — Rule against retrospectivity —Amendments brought in 2016 introducing expanded definition of “Benami Property” to include proceeds from property held benami, element of Mens Rea and punitive forfeiture in Rem — Amendments brought in 2016 not merely procedural but substantive to have effect only prospectively — Prosecution or confiscation proceedings under amended provisions for transactions entered into prior to coming into force of 2016 amendment act not sustainable – Legislative powers — Validity of provision — Doctrine of manifest arbitrariness- The court left the question of the constitutionality of independent forfeiture proceedings contemplated under the 2016 Amendment Act on other grounds, open to be adjudicated in appropriate proceedings . [ S. 2, 3, 4, 5, 24, 27(3), 27(5), 53, 54, 54A, 67 Art , 14, 20(1) ]

Court held that the amendments to the Prohibition of Benami Property Transactions Act, 1988 brought by the Benami Transactions (Prohibition) Amendment Act, 2016 do not have retrospective effect.

Mens rea is an essential ingredient of a criminal offence. The mere fact that the object of the statute is to promote welfare activities or to eradicate a grave social evil which by itself is not decisive of the question whether the element of a guilty mind is excluded from the ingredients of an offence. Mens rea by necessary implication may be excluded from a statute only where it is absolutely clear that implementation of the object of the statute would otherwise be defeated.

Section 2(a) of the unamended 1988 Act which defines benami transactions included only tripartite benami transactions, while bipartite transactions, were left out of the definition. Reading the definition to include sham or bipartite arrangements within the ambit would be against the strict reading of criminal law and would amount to judicial overreach. The definition does not capture the essence of benami transactions as the broad formulation includes certain types of legitimate transactions as well. The transferee or property holder’s lack of beneficial interest in the property was a vital ingredient, as settled by years of judicial pronouncements and common parlance, but found to be completely absent in the definition given in the Act. Section 2(c) of the 1988 Act defines property as inclusive of all kinds of property and includes various rights and interests. The broad formulation of property was for the first time introduced only in 1988 and was never contemplated earlier. Section 3 puts forth a prohibitive provision intending to criminalise an act of entering into a benami transaction. Section 5 which dealt with acquisition of property held benami was never utilised as it was felt that there was requirement of additional statutory backing to make the law effective. Reading section 2(a) with section 3 of the unamended Act makes one thing clear – the criminal provision envisaged under these provisions does not expressly contemplate mens rea. It completely ignores the aspect of mens rea, as it intends to criminalise the very act of one person paying consideration for acquisition of property for another person. The inference is that the 1988 law was envisaged on the touchstone of strict liability. Such strict statutory formulation under section 2(a) read with section 3 left loose ends in the 1988 Act. In this light, the prosecution would only have to prove only that consideration was paid or consideration was provided by one person for another person and nothing more. The courts have had occasion to examine this legislation on the civil side but never on the criminal side, which would bear higher standards. The ingredients under section 3(1) and 3(2) cannot be conflated with those of section 4 , to forcefully imply mens rea. Thus the unamended 1988 Act tried to create a strict liability offence and allowed separate acquisition of benami property.

When the court is called upon to answer whether the provisions of the Act as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 are attracted to transactions that have taken place before 2016, the assumption in favour of constitutionality cannot be made.

Section 3(2) of the unamended Act is unconstitutional for being manifestly arbitrary. Accordingly, section 3(2) of the Act as amended in 2016 is also unconstitutional as it is violative of article 20(1) of the Constitution.

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.

The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions.

The in rem forfeiture provision under section 5 of the Act as amended in 2016, being punitive in nature, can only be applied prospectively and not retroactively.

The authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the Act as amended in 2016, viz., October 25, 2016. As a consequence, all such prosecutions or confiscation proceedings shall stand quashed. The court left the question of the constitutionality of independent forfeiture proceedings contemplated under the 2016 Amendment Act on other grounds, open to be adjudicated in appropriate proceedings.

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