Supreme Court Declares Section 3(2) Of Benami Transactions Prohibition Act As Unconstitutional; 2016 Amendment Act To Have Only Prospective Effect

The Supreme Court on Tuesday declared that Section 3(2) of the Benami Transactions (Prohibition) Act 1988 as unconstitutional on the ground of being manifestly arbitrary.

Section 3(2) prescribes the punishment for entering into benami transaction.  

"Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution", the bench declared.

The Court further held that Benami Transactions (Prohibition) Amendment Act 2016 cannot be applied retrospectively. The Court held that the 2016 amendment cannot be held as merely procedural. 

A bench comprising Chief Justice of India NV Ramana, Justice Krishna Murari and Justice Hima Kohli delivered the judgment in an appeal field by the Central Government against a Calcutta High Court judgment holding that that 2016 amendment Act was prospective in nature (Union of India versus M/s Ganpati Dealcom Pvt Ltd).

Declarations made by the Supreme Court

The other declarations made by the Supreme Court are as follows :

1. 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.
2. The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions.
3. In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively.
4. Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., 25.10.2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.
5. 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 2016 amendment, which came into force with effect from November 1, 2016, expanded the scope of "benami transactions" to add other transactions which qualify as benami, such as property transactions where: (i) the transaction is made in a fictitious name, (ii) the owner is not aware of denies knowledge of the ownership of the property, or (iii) the person providing the consideration for the property is not traceable. The amendment also enhanced the punishment for benami transactions from rigorous imprisonment upto three years to seven years, and a fine which may extend to 25% of the fair market value of the benami property. Also, the amendment act added a provision for confiscation of the property obtained as result of benami transaction.

In 2019, a division bench of the Calcutta High Court comprising Justices IP Mukerji and Justice Md Nizamuddin ruled that the 2016 amendment cannot be given retrospective effect since there is no express provision granting retropsectivity.

 For detailed story on the reasoning in the judgment, refer this report - "Unduly Harsh" : Why Supreme Court Lifted Blanket Ban On Benami Transactions?

PMLA Judgment Allowing ED To Take Possession Of Property Before Trial In Exceptional Cases Leaves Scope For Arbitrariness : Supreme Court