Benami transactions laws can't be applied retrospectively, says SC; strikes down 'stringent' amendment

The Supreme Court on Tuesday ruled that the stringent 2016 amendment to Benami transactions law cannot be applied retrospectively, while declaring the provisions that criminalised such transactions as unconstitutional.

A three-judge bench presided over by Chief Justice N V Ramana struck down the provisions of the Benami Transactions (Prohibition) Act of 1988, which provided for imprisonment for a term that may extend to three years or with fine or with both for those indulging in ‘benami’ transactions.

While terming Section 3(2) as “unconstitutional” on the ground of being “manifestly arbitrary" and violative of Article 20(1) of the Constitution, the bench said that the Amendment Act, following the changes into a 28-year-old "ineffective law", will be applicable on transactions that took place after the changes were introduced.

It said that the 2016 Amendment Act was not merely procedural rather prescribed substantive provisions.

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The court rejected the Centre's contention that pre-amendment Act already recognised Benami transactions as contrary to law, and hence no new or substantive law was being made and the procedural law can be applied retrospectively.

According to Article 20(1), no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the Act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

The court ruled that the authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, i.e October 25, 2016.

“All such prosecutions or confiscation proceedings shall stand quashed,” Justice Ramana wrote on behalf of the bench.

The top court also ruled that in “rem forfeiture” provision under Section 5 of the unamended Act is unconstitutional for being manifestly arbitrary. The in rem forfeiture provision under the amended Act being punitive in nature, can only be applied prospectively and not retroactively, it said.

The 2016 amendment had brought many transactions like cash transfers, property deals, and share issuances under its ambit. It had laid down stricter provisions for punishments. Even the Income tax department applied these amended provisions even in respect of transactions entered into before November 1, 2016.

The 97-page judgment came on an appeal by the Union government against the Calcutta High Court's ruling that had held that the new law could not be applied retrospectively.

The government contended that it was not an offence that was being sought to be implemented retrospectively, but merely the procedures were laid down to implement the Act of 1988.

Forfeiture, acquisition, and confiscation are not punishments and therefore not subject to Article 20(1) restrictions, it said.