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SC says 2016 Benami act tweak will not apply retrospectively
The judgment held Section 3 (that makes benami transaction punishable with a maximum sentence of three years imprisonment) and Section 5 (providing for confiscation of the said property) under the unamended Act to be unconstitutional and manifestly arbitrary
The Supreme Court on Tuesday held that a law which is overly broad, disproportionately harsh and operates without adequate safeguards is unconstitutional as it struck down two vital provisions of the Prohibition of Benami Property Transactions Act, 1988 and set aside all prosecutions carried out under this law till amendments were introduced to it in 2016.
In its 96-page judgment, the three-judge bench led by Chief Justice of India NV Ramana also doubted the correctness of the Supreme Court ruling in allowing the Enforcement Directorate to take interim possession of properties under the Prevention of Money Laundering Act (PMLA).
“Having perused the said judgment (ratifying ED’s powers), we are of the opinion that the aforesaid ratio requires further expounding in an appropriate case, without which, much scope is left for arbitrary application,” it underlined.
Tuesday’s verdict coupled with concerns regarding “arbitrary application” of a PMLA provision may open a window for challenging the July 27 judgment by the court that affirmed ED’s vast coercive powers under the PMLA.
Congress MP Karti Chidambaram moved the court earlier this week demanding a review of the PMLA judgment. The review petition will be considered by a bench, led by the CJI, on Wednesday.
In the present case, deciding the question on whether the amended law of 2016 on benami transactions will have retrospective operation, the bench held that the 1988 law was “still born” and “unconstitutional” and the 2016 amended law will apply only prospectively.
The bench, also comprising justices Krishna Murari and Hima Kohli said: “Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for (benami) transactions entered into prior to the coming into force of the 2016 Act, (period between September 5, 1988 to October 25, 2016). As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.”
The decision of the Court came on an appeal filed by the Central government challenging a Calcutta high court decision of December 12, 2019 quashing show-cause notices by Centre under the 2016 Act to owners of a company M/s Ganpati Dealcom Pvt Ltd. The HC had held that the Act does not have retrospective operation as the transaction in question by the company dated back to purchase of a property in 2011.
The judgment held Section 3 (that makes benami transaction punishable with a maximum sentence of three years imprisonment) and Section 5 (providing for confiscation of the said property) under the unamended Act to be unconstitutional and manifestly arbitrary. It said, “Section 3 read with Section 2(a) and Section 5 of the 1988 Act are overly broad, disproportionately harsh, and operate without adequate safeguards in place. Such provisions were stillborn law and never utilised in the first place. In this light, this Court finds that Sections 3 and 5 of the 1988 Act were unconstitutional from their inception.”
The decision will not apply to prosecution and confiscation procedure under the 2016 Act as the same was not under consideration before the Court. The Court held: “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.”
The court’s reasoning in the present judgment throws up an argument in favour of a reconsideration of the PMLA verdict, which has been criticised for ruling in favour of a legislative policy at the expense of vital rights affecting life, liberty and property.
The said case too was decided by a three-judge bench comprising justice AM Khanwilkar (since retired), justices Dinesh Maheshwari and CT Ravikumar, similar in composition to the bench that delivered the present verdict.
In the PMLA case, similar arguments were raised by more than 200-odd petitioners to challenge the broad and harsh provisions of the Act that entrusted wide, arbitrary powers of search, seizure, summon and arrest to officials of Enforcement Directorate (ED).
The PMLA provisions were sought to be declared unconstitutional for it gave a complete go by to constitutional safeguards of accused, procedural safeguards under the Code of Criminal Procedure (CrPC), and lack of mens rea (intention to commit crime). It was stated that under the offences included as predicate offences, offences having no nexus with money laundering were added to the Schedule under PMLA.
In its judgment on Tuesday, the top court repelled the Centre’s argument that forfeiture or confiscation of property under the 1988 Act was civil in nature and hence the violation of fundamental right under Article 20(1) will not be attracted.
CJI Ramana, writing the 96-page judgment for the bench said, “A punitive provision cannot be couched as a civil provision to bypass the mandate under Article 20(1) of the Constitution which follows the settled legal principle that what cannot be done directly, cannot be done indirectly.”
It even faulted Section 3 of the 1988 Act for not including “mens rea” as an essential ingredient of the offence and on this count held it to be unconstitutional.
The bench said, “Under the amended 2016 Act, the aspect of mens rea is brought back through Section 53. Such resurrection clearly indicates that doing away of the mens rea aspect, was without any rhyme or reason, and ended up creating an unusually harsh enactment.” Due to this reason, the Centre too conceded in Court that the criminal provision under the 1988 Act was never utilised and this gap was sought to be corrected by making the 2016 Act retrospective.
The bench further stated that in any forfeiture proceedings, gravity of offence will determine the proportionality of forfeiture provisions. It said that having “stringent civil forfeiture” may merit for crimes involving terrorist activities, drug cartels or organized criminal activities. “The application of such a provision to numerous other offences which are not of such grave severity, would be of serious risk of being disproportionate.”
Experts said the 2016 tweak was a crucial shift. Reacting to the SC order, S Vasudevan, executive partner at law firm Lakshmikumaran & Sridharan said: “The Benami Transactions (Prohibition) Amendment Act, 2016 (“Amendment Act of 2016”) made radical changes in the benami law. Some of these includes substitution of definition of ‘benami transaction’ which changed the entire scope of benami transactions, amendments relating to attachment and confiscation of the benami property, punishment for entering into benami transaction as well as for inducing or abetting a person to enter into benami transaction, punishment for giving false information, etc. Prior to these amendments, the benami law was a toothless tiger and effectively inoperative”.
