Benami Transactions And Arbitrary Confiscation - First Chink In The Armour Of Supreme Court's Landmark PMLA Judgment?

The Benami Transactions (Prohibition) Amendment Act, 2016 came into force on November 1, 2016 and has widened the scope of "benami transactions" under Section 2 (9) to add other transactions which qualify as benami, such as property transactions where:

• the transaction is made in a fictitious name,
• the owner is not aware of denies knowledge of the ownership of the property, or
• the person providing the consideration for the property is not traceable.

The 2016 amendment has further modified the provision of Section 3 of the 1988 Act by bifurcating the offences into two separate categories on the basis of the time period of the benami transaction. Section 3(2) of the 2016 Act provides for punishment of 3 years to those benami transactions entered into from 05.09.1988 to 25.10.2016 and Section 3 (3) of the 2016 Act applied to transactions entered into after the commencement of the amended 2016 Act. Further, the substituted Section 5 of the 2016 Act empowered the Central Government to confiscate any property which is a subject matter of benami transaction.

The Apex Court in M/s Ganpati Dealcom Pvt. Ltd (Supra) while dealing with the constitutional validity of the provisions of the 1988 Act held that Section 3 (criminal provision) read with Section 2(a) and Section 5 (confiscation proceedings) of the 1988 Act are unconstitutional from inception for being "overly broad, disproportionally harsh and operate without adequate safeguards in place" and that the said provisions were "still-born" law.

That with regard to the question whether Section 3(1) and Chapter IV read with Section 5 of the 2016 Act have retrospective effect it was contended by the Centre that the 1988 Act was a valid enactment with certain procedural gaps that were filled retrospectively by the 2016 amendment. It was further submitted that the provision of confiscation under the 1988 Act, being in the domain of civil law is not punitive in nature and, therefore, is not hit by the prohibition under Article 20(1) of the Constitution.

The Top Court rejected the Centre's contention that property forfeiture or confiscation under the 1988 Act was civil in nature and not punitive. The Hon'ble Court while declaring the confiscation proceedings as punitive held that the characterization of the confiscation proceedings under the 2016 Act as 'civil' might not be appropriate since interplay of the Section 27(3), Section 5 and 67 of the 2016 Act creates a confiscation procedure which is distinct form the other existing laws. The said unique procedure has also altered the substantive rights and evidentiary standard and therefore cannot be termed as 'procedural'. It was further observed that the 2016 Act contemplates an in rem forfeiture wherein the taint of entering into such a benami transaction is transposed to the asset and the same becomes liable to confiscation. That since such a taint is being created not on the individual, but on the property a retrospective law would categorize itself as punitive.

The Hon'ble Court concluded by holding that the 2016 Amendment as not merely procedural, rather, prescribe substantive provisions. The Court further declared Section 3(2) of the 2016 Act unconstitutional for being violative of Article 20(1) of the Constitution. The In rem forfeiture under Section 5 of the 2016 Act being punitive in nature was held to have only prospective effect. Consequently, the Apex Court quashed the prosecutions and confiscation proceedings initiated for transactions entered into prior to the coming into force the 2016 Act.

The 3 Judge Bench while discussing the aspect of confiscation of property also made a passing reference to the PMLA judgment of Vijay Madanlal Choudary (Supra) and opined that certain aspects of the PMLA judgment left much scope for arbitrary application of the law and held that "Having perused the said judgment, we are of the opinion that the aforesaid ratio requires further expounding in an appropriate case..".

In Vijay Madanlal Choudary (Supra) the vires of a similar provision of Section 8 which allows confiscation of property was challenged amongst other provisions. Section 8(4) PMLA permits the Enforcement Directorate to take possession of the attached property at the stage of confirmation of the Provisional Attachment Order by the Adjudicating Authority. The Petitioners had challenged the vires of Section 8(4) primarily on the grounds being:

• The Adjudicating Authority exercises no oversight over the Enforcement Directorate and that the such deprivation of property by taking possession with just one stage of confirmation deprives a person their right to property without due process of law.
• The ED can take possession of the attached property without there being a chargesheet filed in the predicate offence, by virtue of the 2^nd proviso to Section 5 (1) PMLA.
• The effective confiscation of the attached property under Section 8(4) even before any proceedings have commenced before the appropriate Court is disproportionate, harsh and arbitrary.
• Section 8 is dependent upon the accused being held guilty, therefore, the provision of Section 8(4) cannot be applied retrospectively for scheduled offence committed prior to the enactment of PMLA.
• That 'possession' under Section 8(4) PMLA should be constructive/ symbolic possession instead of physical possession since confiscation is only subject to conviction under the Act and such confiscation only on the confirmation by the Adjudicating Authority in all practical sense leads to confiscation prior to such conviction.

The Apex Court while considering the validity of Section 8(4) PMLA read down the provision of Section 8(4) and held that the provision ought to be invoked only in 'exceptional circumstance' on case-to-case basis. The Hon'ble Court opined that the protection under Section 5(4) PMLA which permits the accused/ interested person to enjoy the property attached under Section 5 (1) PMLA be extended even after the attachment is confirmed by the Adjudicating Authority, PMLA. The Court while upholding the validity of Section 8(4) PMLA emphasised that confiscation can be resorted to only 'by way of an exception and not as a rule'.

The observation in M/s Ganpati Dealcom Pvt. Ltd (Supra) is a step in the right direction since the Hon'ble Supreme Court in Vijay Madanlal Choudary (Supra) by not striking down Section 8(4) PMLA has given unfettered power to the Enforcement Directorate to deprive an individual of his property pending trial under the Act. A 3 Judge Bench of the Hon'ble Supreme Court has issued notice in a Review Petition filed by the Karti P. Chidambaram in R.P. (Crl.) No. 219/ 2022 in T.C. (Crl.) No. 4/2018 vide order dated 25.08.2022. The Bench led by Hon'ble Chief Justice N.V. Ramana prima facie held that the 'at least' the issues concerning reversal of presumption of innocence and the requirement to provide a copy of to the accused requires reconsideration. Though the Hon'ble Court has held that the issue of providing copy of the ECIR requires reconsideration no such view has been given on other connected issues as whether the ED Authorities are 'Police officers' and whether the mandate of Chapter XII Cr.P.C are attracted in PMLA proceedings.

Utsav Saxena is an Associate at Vardharma Chambers working with the white-collar crimes team and was assisted by Luv Tripathi for research. Views are personal.