New Delhi: The Benami Transactions (Prohibition) Amendment Act, 2016, is a substantive law and therefore cannot be applied retrospectively, the Supreme Court (SC) ruled Tuesday.
It also stated that the 2016 law resurrected mens rea (guilty mind), a crucial ingredient for criminal prosecution that was not expressly contemplated by its predecessor — the Prohibition of Benami Property Transactions Act, 1988. In legal parlance, benami properties are defined as those that are held by an owner through proxies.
Hence, the SC ruled that authorities cannot initiate or continue criminal prosecution or confiscation proceedings for benami transactions entered into before the 2016 Act came into force, and hence, all such proceedings stand quashed.
Drawing a distinction between the 2016 Act and its predecessor, a three-judge bench of the apex court dismissed the central government’s argument that the 2016 amendment was promulgated merely to fill gaps in the 1988 law.
The 2016 law envisaged major changes that were “essential”, so calling it merely procedural would not be valid, the top court noted in its verdict on an appeal filed by the Centre challenging a December 2019 decision by the Calcutta High Court. The HC had held that the 2016 Act does not have any express provision allowing its retrospective application.
The bench, led by Chief Justice of India (CJI) N.V. Ramana, therefore went on to hold that the 2016 Act can apply only prospectively, and struck down sections 3(2) and 5 of the 2016 Act as unconstitutional. While section 3(2) allowed criminal prosecution of those found guilty of acquiring benami properties between 1988 and 2016, section 5 permitted forfeiture of such properties.
Furthermore, the apex court rejected the central government’s argument that forfeiture of a benami property under section 5 of the 2016 Act was a civil action and could not imply a violation of Article 20 (1) of the Constitution, which disallows retrospective application of criminal law.
According to the bench, civil action as sought under this provision was punitive and, therefore, can only have prospective applications.
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1988 Act ‘merely a shell’
In view of the Centre’s assertion about the 1988 law, the court, before delving into the constitutionality of the two sections of the 2016 Act, analysed similar provisions of the 1988 enactment, even though they were not in question before it.
Overall, the 1988 Act was “merely a shell, lacking the substance that a criminal legislation requires for being sustained,” the court held.
In support of this opinion, the judgment cited the 57th and 130th reports of the Law Commission which asserted that it was not “suitable to accept the stringent provision for making benami transactions liable to criminal action”. The commission, the SC noted, had recommended the adoption of certain less stringent, civil alternatives.
It was opined by the bench that a joint reading of section 2 (a) — which defines a benami property under the 1988 Act — and section 3 showed that the criminal provision envisaged did not expressly contemplate mens rea.
According to the ruling, the language of the two above-mentioned sections “completely ignores the aspect of mens rea, as it intends to criminalise the very act of one person paying consideration for the acquisition of property for another person”.
There is no doubt that the law was envisaged on the touchstone of strict liability, but the two sections left loose ends in it, the court said. “In this light, the prosecution would only have to prove that consideration was paid or consideration was provided by one person for another person and nothing more.”
As for section 5 of the 1988 Act which corresponded to confiscation of properties, the court said it was “conceived as a half-baked provision”.
Finally, the bench concluded that section 3 read with section 2(a) and section 5 were not just “overly broad, disproportionately harsh, and operate without adequate safeguards, but were a ‘stillborn law’ and never utilised”.
Hence, the court declared sections 3 and 5 of the 1988 Act unconstitutional from their inception.
2016 Act ‘not a gap-filling exercise’
Returning to the discussion on the 2016 Act, the court wondered whether the State could use criminal provisions to confiscate properties when their existence in the books of law was in question.
Also, the court observed that the 2016 Act expanded the 1988 law as the former introduced 63 new sections, divided into eight chapters. The definition of benami transactions, the court noted, had undergone a “metamorphosis” in the new law.
While section 3 (2) prescribed three years’ imprisonment for those who entered into benami transactions between 5 September 1988 and 25 October 2016, the newly-inserted section 3(3) increased this punishment to seven years’ imprisonment for those found guilty of carrying out similar transactions post-October 2016.
According to the judgment, section 53 — another newly-added section in the 2016 Act which defines the penalty for benami transactions — contained the element of mens rea.
On section 5 of the 2016 Act, the court said the law created a confiscation procedure which is distinct from the procedure contemplated under the criminal procedure code or any other enactment. Under the CrPc, confiscation is dependent on the result of the criminal trial. But under the Benami law, the bench said, there is an implicit recognition of the forfeiture and the officer is mandated to build a case against the accused for such confiscation.
Therefore, the court did not find it appropriate for the Centre to suggest that property seizure under the Benami prohibition law was a civil action. Rather, it held that the seizure was punitive in nature and, hence, cannot be applied retrospectively.
Since sections 3 and 5 of the 1988 Act were unworkable, never implemented and declared unconstitutional, the court — explaining further its decision to term the 2016 Act substantive — said it meant that the 2016 amendments, in effect, created new offences. And because the 1988 Act was declared invalid, there was no question of “construction of the 2016 Act as retroactive qua the penal provisions” underlined in it, the court concluded.
Confiscation of property, the top court said, cannot be independent of criminal prosecution, except in cases of grave crime such as terrorist activities, drug cartels or organised criminal activities.
On this premise, the bench also raised doubts over the recent SC judgment that upheld the sweeping powers of the investigating agency probing money laundering offences. The court said that the judgement, without further expounding, could be a tool for the arbitrary application of confiscation provisions under the stringent Prevention of Money Laundering Act (PMLA).
This observation is likely to open the doors for reconsideration of the much-criticised judgment — defining the scope of the powers of the Enforcement Directorate (ED) — delivered by a three-judge bench led by Justice AM Khanwilkar (now retired) last month.
(Edited by Amrtansh Arora)
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