UNION OF INDIA & ANR. versus M/S. GANPATI DEALCOM PVT. LTD.

[2022] 12 S.C.R. 320

[2022] 12 S.C.R.

UNION OF INDIA & ANR.

M/s. GANPATI DEALCOM PVT. LTD.

(Civil Appeal No. 5783 of 2022)

BAUGUST 23, 2022

[N. V. RAMANA, CJI, KRISHNA MURARI ANDHIMA KOHLI, JJ.]

Prohibition of Benami Property Transactions Act, 1988 –ss.3(2),5 – Benami Transactions (Prohibition) Amendment Act, 2016C– Held: s.3(2) of the unamended 1988 Act is unconstitutional forbeing manifestly arbitrary – Accordingly, s.3(2) of the 2016 Act isalso unconstitutional as it is violative of Article 20(1) of theConstitution – Further, in rem forfeiture provision u/s.5 of theunamended Act of 1988, prior to the 2016 Amendment Act, wasDunconstitutional for being manifestly arbitrary – 2016 AmendmentAct was not merely procedural, rather, prescribed substantiveprovisions – In rem forfeiture provision u/s.5 of the 2016 Act, beingpunitive in nature, can only be applied prospectively and notretroactively – Thus, concerned authorities cannot initiate orcontinue criminal prosecution or confiscation proceedings forEtransactions entered into prior to the coming into force of the 2016Act, viz., 1.11.2016 –Consequently, all such prosecutions orconfiscation proceedings stand quashed– Constitution of India –Article 20(1).Benami Property Transactions Act, 1988 – ss.2(a), 3 – MensFrea, absence of – Effect of – Held: The criminal provision envisagedu/ss. 2(a) and 3 does not expressly contemplate mens rea – Mens reais an essential ingredient of criminal offence – Absence of mensrea creates harsh provision having strict liability –Mere fact thatthe object of the statute is to promote welfare activities or to eradicateGa grave social evil which by itself is not decisive of the question asto whether the element of guilty mind is excluded from theingredients of an offence – Mens rea by necessary implication maybe excluded from statute only where it is absolutely clear thatimplementation of the object of the statute would otherwise bedefeated – The language of s.2(a) coupled with s.3, completelyH

ignores the aspect of mens rea, as it intends to criminalize the veryact of one person paying consideration for acquisition of propertyfor another person – The 1988 law was envisaged on the touchstoneof strict liability.

Judicial Review– Law with respect to testing theunconstitutionality of statutory instrument – Held: ConstitutionalCourts can test constitutionality of legislative instruments (statuteand delegated legislations)both on procedure as well as substantivenature of these instruments – The test should be based on combinedreading of Articles 14, 19 and 21 of the Constitution – Constitutionof India – Articles 14, 19, 21.

Doctrines/Principles – Doctrine of manifest arbitrariness–Discussed.

Interpretation of Statutes – Law declared unconstitutional –Effect of – Held: Such declaration would render the law not toexist in the law books since its inception – It is only limitedexception under Constitutional law, or when substantial actions havebeen undertaken under such unconstitutional laws that going backto the original position would be next to impossible – In those casesalone, would this Court take recourse to the concept of ‘prospectiveoverruling’.

Constitution of India –Retroactive/retrospective legislations– Legislature’s power to enact – Held: Legislature has power toenact retroactive/retrospective civil legislations under theConstitution – However, Article 20(1) mandates that no lawmandating punitive provision can be enacted retrospectively – Apunitive provision cannot be couched as civil provision to by-passthe mandate under Article 20(1) of the Constitution which followsthe settled legal principle that “what cannot be done directly, cannotbe done indirectly”.

Words and Phrases– “Forfeiture”, “Benami”, “Benamitransaction”, “Benamidar/ostensible owner”– Discussed.

Disposing of the appeal, the Court

HELD: 1. Reading Section 2(a) along with Section 3 makesone thing clear – the criminal provision envisaged under theaforesaid provisions does not expressly contemplate mens rea.

AUnder the Indian jurisprudence, the law on the subject is fairlywell-settled. It has been subjected to the judicial scrutiny of thisCourt on several occasions. It does not call for detaileddiscussion and is enough to restate the principles. Mens rea is anessential ingredient of criminal offence. Doubtless, statuteBmay exclude the element of mens rea, but it is sound rule ofconstruction adopted in England – and also accepted in India – toconstrue statutory provision creating an offence in conformitywith common law rather than against it, unless the statuteexpressly or by necessary implication excluded mens rea. The

mere fact that the object of the statute is to promote welfareCactivities or to eradicate grave social evil which by itself is notdecisive of the question as to whether the element of guiltymind is excluded from the ingredients of an offence. Mens rea bynecessary implication may be excluded from statute only whereit is absolutely clear that implementation of the object of the

Dstatute would otherwise be defeated. The Language of Section2(a) coupled with Section 3, completely ignores the aspect of mensrea, as it intends to criminalize the very act of one person payingconsideration for acquisition of property for another person. The1988 law was envisaged on the touchstone of strict liability. Suchstrict statutory formulation under Section 2(a) read with SectionE3 had left loose ends in the 1988 Act. In this light, the prosecutionwould only have to prove only that consideration was paid orconsideration was provided by one person for another personand nothing more. In all the judicial precedents, this Court hashad the occasion to examine this legislation on the civil side andFnever on the criminal side, which would bear higher standards.Conflation of the ingredients under Section 3(1) and (2) with thoseof Section 4, to forcefully implied mens rea, cannot be accepted.[Para 14.10-14.12][355-D-G; 356-B-C]

Nathulal v. State of Madhya Pradesh, AIR 1966 SCG43; Mithilesh Kumari v. Prem Behari Khare, (1989) 2SCC 95 : [1989] 1 SCR 621; R. Rajagopal Reddy v.Padmini Chandrasekharan, (1995) 2 SCC 630 : [1995]1 SCR 715 – referred to.

2. The law with respect to testing the unconstitutionality ofa statutory instrument can be summarized as under:

a. Constitutional Courts can test constitutionality oflegislative instruments (statute and delegated legislations);

b. The Courts are empowered to test both on procedure aswell as substantive nature of these instruments.

c. The test should be based on combined reading ofArticles 14, 19 and 21 of the Constitution.

One of the offshoots of this test under Part III of theConstitution is the development of the doctrine of manifestarbitrariness. [Paras 15.7, 15.8]

Shayara Bano v. Union of India, (2017) 9 SCC 1 :[2017] 9 SCR 797; Joseph Shine v. Union of India, (2019)3 SCC 39: [2018] 11 SCR 765; Hindustan Construction

Co. Ltd v. Union of India, (2020) 17 SCC 324 – reliedon.

3.1 Coming back to the 1988 Act, the two provisions withwhich the Court is concerned are Sections 3 and 5 of 1988 Act.The enactment was merely shell, lacking the substance that acriminal legislation requires for being sustained. The reasonsfor the same are following. First, the absence of mens rea createsa harsh provision having strict liability. Such an approach wasfrowned upon by the 57th Law Commission Report as concernsof tax evasion or sham transactions in order to avoid payment tocreditors were adequately addressed by the existing provisionsof law. Even the 130th Law Commission Report did not expresslyrule out the inclusion of mens rea. The legislative move to ignoreearlier Law Commission Reports without there being principleidentified to do away with the aspect of mens rea should be acontributory factor in analysing the constitutionality of the aforesaidcriminal provision under the 1988 Act. Further, under theamended 2016 Act, the aspect of mens rea, is brought back throughSection 53. Such resurrection clearly indicates that doing away ofthe mens rea aspect, was without any rhyme or reason, and endedup creating an unusually harsh enactment. Second, ignoring the

Aessential ingredient of beneficial ownership exercised by the realowner contributes to making the law even more stringent anddisproportionate with respect to benami transactions that aretripartite in nature. The Court cannot forcefully read theingredients developed through judicial pronouncements or underSection 4 (having civil consequence) into the definition providedBunder Sections 2 and 3 (espousing criminal consequences), tosave the enactment from unconstitutionality. Such reading wouldviolate the express language of Section 2(a), of excluding oneingredient from the definition of ‘benami transaction’, and wouldsuffer from the vice of judicial transgression. In removing suchCan essential ingredient, the legislature did not identify any reasonor principle, which made the entire provision of Section 3susceptible to arbitrariness. Interestingly, for tripartite benamitransactions, the 2016 Act brings back this ingredient throughSection 2(9)(A)(b). In this context, it may be stated that it is asimple requirement under Article 20(1) that law needs to beDclear and not vague. It should not have incurable gaps which areyet to be legislated/filled in by judicial process. Third, it is fairlyadmitted by the learned ASG appearing for the Union of India,that the criminal provision was never utilized as there was asignificant hiatus in enabling the functioning of such provision.EFourth, reading Section 2(a) with Section 3(1) would have createdoverly broad laws susceptible to be challenged on the grounds ofmanifest arbitrariness. If this Court reads criminal provisions ofthe Benami Act to have had force since 1988, then the followingdeleterious consequences would ensue:F(i.) Section 187C of the Companies Act, 1956 assuredprotection to nominal and beneficial holding of shares if theprescribed declaration duly made are at serious risk.

(ii.) Benami cooking gas connections which have beenregularized from time to time are at risk.G(iii.) Housing colonies and benami allotments of DDA flatswhich have been regularised from time to time are at risk.

The criminal provision under Section 3(1) of the 1988 Acthas serious lacunae which could not have been cured by judicialforums, even through some form of harmonious interpretation. AHconclusion contrary to the above would make the aforesaid law

suspect to being overly oppressive, fanciful and manifestlyarbitrary, thereby violating the ‘substantive due process’requirement of the Constitution. [Paras 15.11-15.17][366-E-H;367-A-H; 368-A-B]

3.2 Coming to Section 5 of the 1988 Act, it must be notedthat the acquisition proceedings contemplated under the earlierAct were in rem proceedings against benami property.Jurisprudentially, such in rem proceedings transfer the guilt fromthe person who utilized property which is general harm to thesociety, to the property itself. When such proceedings arecontemplated under law, there need to be adequate safeguardsbuilt into the provisions, without which the law would besusceptible to challenge under Article 14 of the Constitution.Coming to Section 5 of the 1988 Act, it was conceived as half--baked provision which did not provide the following and ratherleft the same to be prescribed through delegated legislation:

(i) Whether the proceedings under Section 5 wereindependent or dependant on successful prosecution?

(ii) The standard of proof required to establish benamitransaction in terms of Section 5.

(iii) Mechanism for providing opportunity for person toestablish his defence.

(iv) No ‘defence of innocent owner’ was provided to savelegitimate innocent buyers.

(v) No adjudicatory mechanism was provided for.

(vi) No provision was included to determine vesting ofacquired property.

(vii) No provision to identify or trace benami properties.

(viii) Condemnation of property cannot include the powerof tracing, which needs an express provision.

Such delegation of power to the Authority was squarelyexcessive and arbitrary as it stood. From the aforesaid, the Union’sstand that the 2016 Act was merely procedural, cannot standscrutiny. In any case, such an inconclusive law, which left theessential features to be prescribed through delegation, can never

Abe countenanced in law to be valid under Part III of theConstitution. The gaps left in the 1988 Act were not merelyprocedural, rather the same were essential and substantive. Inthe absence of such substantive provisions, the omissions createa law which is fanciful and oppressive at the same time. Such anoverbroad provision was manifestly arbitrary as the open textureBof the law did not have sufficient safeguards to be proportionate.[Paras 15.18-15.20][368-B-H; 369-A-B]

3.3 When Court declares law as unconstitutional, theeffect of the same is that such declaration would render the lawnot to exist in the law books since its inception. It is only limitedCexception under Constitutional law, or when substantial actionshave been undertaken under such unconstitutional laws that goingback to the original position would be next to impossible. In thosecases alone, would this Court take recourse to the concept of‘prospective overruling’. Section 3 (criminal provision) read withDSection 2(a) and Section 5 (confiscation proceedings) of the 1988Act are overly broad, disproportionately harsh, and operatewithout adequate safeguards in place. Such provisions werestill-born law and never utilized in the first place. In this light,this Court finds that Sections 3 and 5 of the 1988 Act wereunconstitutional from their inception. It is made abundantly clearEthat the aforesaid discussion does not affect the civil consequencescontemplated under Section 4 of the 1988 Act, or any otherprovisions. [Paras 15.21-15.23][369-C-E]3.4 The discussion can be summarized as: (a) Section 3(1)of 1988 Act is vague and arbitrary. (b) Section 3(1) created anFunduly harsh law against settled principles and Law Commissionrecommendations. (c) Section 5 of 1988 Act, the provision relatingto civil forfeiture, was manifestly arbitrary. (d) Both provisionswere unworkable and as matter of fact, were never implemented.

Having arrived at the aforesaid conclusions that Sections 3Gand 5 were unconstitutional under the 1988 Act, it would meanthat the 2016 amendments were, in effect, creating new provisionsand new offences. Therefore, there was no question of retroactiveapplication of the 2016 Act. As for the offence under Section 3(1)

for those transactions that were entered into between 05.09.1988to 31.10.2016, the law cannot retroactively invigorate stillborncriminal offence. As per the concession made by the Union ofIndia and fair reading of Section 53 of the 2016 Act, the offenceunder the aforesaid provision is prospective, and only applied tothose transactions that were entered into after the amendmentcame into force, viz., 1.11.2016. Any contrary interpretation ofSection 3 of the 1988 Act would be violative of Article 20(1) ofthe Constitution. [Paras 17.2-17.4][375-B-F]

T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177 : [1983] 1SCR 905 – relied on.

3.5 In the case at hand, the 2016 Act containing the criminalprovisions is applicable only prospectively, as the relevantSections of the pre-amendment 1988 Act containing the penalprovision, have been declared as unconstitutional. Therefore, thequestion of construction of the 2016 Act as retroactive qua thepenal provisions under Sections 3 or 53, does not arise. Thecontinued presence of an unconstitutional law on the statute book,or the claim that such law was not challenged beforeConstitutional Courts, does not prevent this Court from holdingthat such unconstitutional laws cannot enure to the benefit of orbe utilized to retroactively amend laws to cure existingconstitutional defects. If such curing is allowed, then Article 20(1)of the Constitution would be rendered nugatory. Although it hasbeen held held that Section 5 of the 1988 Act was unconstitutionalfor being manifestly arbitrary, however such holding is of noconsequence if this Court comes to the conclusion thatconfiscation under Section 5 of 2016 Act read with Chapter IV,was civil in nature and is not punitive. It is well settled that thelegislature has power to enact retroactive/retrospective civillegislations under the Constitution. However, Article 20(1)mandates that no law mandating punitive provision can beenacted retrospectively. Further, punitive provision cannot becouched as civil provision to by-pass the mandate under Article20(1) of the Constitution which follows the settled legal principlethat “what cannot be done directly, cannot be done indirectly”.[Paras 17.6, 17.7, 17.9, 17.10][376-H; 377-A-B, E-F]

A3.6 Therefore, the immediate question which arises forconsideration is whether the retroactive confiscation providedunder Section 5 read with Chapter IV of 2016 Act is punitive ornot? Acquisition under the earlier 1988 Act as well as confiscationunder the 2016 Act are said to have been enacted on the reasoningthat the property emanating from the benami transaction alsoBgets tainted. The substantive difference between the acquisitionprovision under the earlier enactment and the confiscationprovision under the 2016 Act is that proceeds of benamitransactions have been made traceable under the 2016 Act.Before the other provisions are analysed, it is necessary to giveCa brief introduction to the concept of civil forfeiture in India, asthe same was argued by the learned ASG. Under Admiraltyjurisdiction, the concerned Admiralty Courts had the jurisdictionto forfeit vessels under its civil jurisdiction in lieu of any maritimeclaim. Same was the law across various common law jurisdictions,such as the United States of America and the United Kingdom.DForfeiture occurs in various types, few of which are found in India.Broadly, forfeitures can be categorized as civil and criminal. Onthe civil side, there can be in rem or in personam forfeitures.Punitive forfeitures under the criminal law are in personam.Criminal forfeitures usually take place at the conclusion of trial,Ewhen the guilt of the accused is established. Standards ofevidentiary requirement differ greatly between civil and criminalforfeiture. The historic origin of in rem civil forfeiture in commonlaw jurisdictions was earlier mostly restricted to trans-nationalcrimes. These early laws mandated that the property was subjectto forfeiture because it was the instrument by which the offenceFwas committed, and it was necessary to confiscate such propertyto remove it from circulation. However, the Twentieth centurysaw expansion of forfeiture laws into wide array of crimes. Themodern forfeiture laws not only allow forfeiture of property usedto facilitate the crime, but cover the proceeds of the offence asGwell. In the Supreme Court of the United States, constitutionalchallenges laid to such civil forfeiture laws have been dismissedas they were usually attributed to historic prevalence of suchforfeiture laws. However, such historic reasons of its existencecannot justify continued expansion of civil forfeiture laws. [Paras17.11-17.16][377-G; 378-B-H]H

Leonard v. Texas, 137 S. Ct. 847, 847-48 (2017); Engelv The Netherlands (No.1), [1976] 1 EHRR 647,Kennedy v Mendoza-Martinez, 372 US 144 (1963) –referred to.

3.7 In Vijay Madanlal Choudary & Ors v. Union of India,SLP (Civ.) No. 4634 of 2014 and others, this Court dealt withconfiscation proceedings under Section 8 of the Prevention ofMoney Laundering Act, 2002 (“PMLA”) and limited theapplication of Section 8(4) of PMLA concerning interimpossession by authority before conclusion of final trial toexceptional cases. The Court distinguished the earlier cases inview of the unique scheme under the impugned legislation therein.Having perused the said judgment, this Court is of the opinionthat the aforesaid ratio requires further expounding in anappropriate case, without which, much scope is left for arbitraryapplication. [Para 17.27][384-E-G]

Vijay Madanlal Choudary & Ors v. Union of India SLP(Civ.) No. 4634 of 2014 and others – referred to.

3.8 The Courts have read down the provisions of civilforfeiture to be dependent on the underlying criminal prosecutionto temper the harsh consequences envisaged under suchprovisions. No doubt, such reading down was mandated toameliorate harsh consequences of confiscatory laws whichotherwise would have allowed the State agencies to take overthe property without seriously pursuing the criminal prosecutions.At this stage, it can only be recommended that the utility ofindependent provisions of forfeiture, distinct from criminalprosecution, needs to be utilised in proportional manner, lookingat the gravity of the offence. Few examples which may pass themuster of proportionality for having such stringent civil forfeiture,may relate to crimes involving terrorist activities, drug cartelsor organised criminal activities. The application of such aprovision to numerous other offences which are not of such graveseverity, would be of serious risk of being disproportionate, ifprocedures independent of criminal prosecution are prescribed.The proportionality of separate confiscation procedure prescribedunder the 2016 Act, has not been argued herein. Accordingly,

EFG

Athe aforesaid question of law is left open. Under the IPC, forfeitureis recommended to be form of punishment under Section 53.Accordingly, the Code of Criminal Procedure, 1976 provides fora mechanism for interim custody and forfeiture at the conclusionof trial under Section 451 of the Cr.P.C. (in personam forfeiture).Sections 451, 452 under the Cr.P.C. have inbuilt safeguards of inBpersonam criminal forfeiture, wherein confiscation occurs at theend of the trial. Under these provisions, confiscation is to bedetermined at an evidential standard of ‘beyond reasonable doubt’and are dependent on the result of the criminal trial. [Para 17.28,17.29][384-G-H; 385-A-D; 386-B]

CState of West Bengal v. S. K. Gosh, AIR 1963 SC 255 :[1963] SCR 111; Divisional Forest Officer v. G. V.Sudhakar Rao, (1985) 4 SCC 573 : [1985] 3 Suppl.SCR 680; State of Madhya Pradesh v. Kallo Bai, (2017)14 SCC 502 ; Yogendra Kumar Jaiswal v. State of Bihar,D(2016) 3 SCC 183 : [2015] 14 SCR 1037; Abdul Vahabv. State of Madhya Pradesh, (2022) SCC Online SC262 – referred to.

3.9 Coming to the Benami Act post the Amendment, theinterplay of Sections 27(3), (5) and 67 of the 2016 Act creates aEconfiscation procedure which is distinct from the procedurecontemplated under the CrPC or any other enactment till now inIndia. Such change of standards cannot be merely termed asprocedural. Characterization of the confiscation proceedings underChapter IV of the 2016 Act as Civil may therefore not beappropriate. There is an implicit recognition of the forfeiture beingFa punitive sanction, as the Officer is mandated to build caseagainst the accused for such confiscation, wherein thepresumption of innocence is upheld structurally. Being punitiveprovision, it is trite that one integrates the ‘presumption ofinnocence’ within the Chapter as the same forms part of theGfundamental right. Additionally, the 2016 Act now condemns notonly those transactions which were traditionally denominated asbenami, rather new class of fictitious and sham transactions arealso covered under the same. In this regard, it may be noticedthat the intention of the legislature is to condemn such property

and there is an implicit effort by the Parliament to take intoconsideration the fact that such transactions are often acquiredfrom ill-gotten wealth. These proceedings cannot be equated asenforcing civil obligations as, for example, correcting deficienciesin the title. It goes further and the taint attaches to the proceedsas well. [Paras 17.30-17.32][386-C-G]

3.10 In view of the above discussion, it is manifest that the2016 Act contemplates an in-rem forfeiture, wherein the taint ofentering into such benami transaction is transposed to the assetitself and the same becomes liable to confiscation. At the cost ofrepetition, it may be noted that the taint of benami transactionsis not restricted to the person who is entering into the aforesaidtransaction, rather, it attaches itself to the property perpetuallyand extends itself to all proceeds arising from such property,unless the defence of innocent ownership is established underSection 27(2) of the 2016 Act. When such taint is being creatednot on the individual, but on the property itself, retroactive lawwould characterize itself as punitive for condemning the proceedsof sale which may also involve legitimate means of addition ofwealth. Jurisprudentially, law may enable forfeiture of propertyby peculiar reason of its circumstances, of it being dangerous tothe community by reasons of any form or position that it assumes.In such cases, forfeiture is not deemed to be punishment inflictedon its owner. By contrast, if the law provides that the Governmentshall forfeit property ‘A’ for, (1) what was carried on in property‘B’, or (2) what the owner does in matter not connected withproperty ‘A’ or (3) bare intent which does not necessarily relateto the conduct in property ‘A’, in such cases, forfeiture ispunishment without any exception. In this case, the property maynot be inherently dangerous or denigrate any standard of morality.It is just the condemnation of the method of transfer and holding,which was once recognized form of property holding in India. Insuch case, the in rem civil proceeding utilized retroactively,would characterize itself as penal. In the case at hand, the authoritythat initiates such confiscation, is granted extensive powers ofdiscovery, inspection, compelling attendance, compellingproduction of documents. They are further empowered to takethe assistance of police officers, custom officers, income tax

332SUPREME COURT REPORTS

Aofficers and other relevant officers for furnishing information. Itis also pertinent to note that any person who fails to furnishinformation, is subjected to penalty of Rs.25,000/- (RupeesTwenty-Five Thousand) under Section 54(A). It is also necessaryto note that person who supplies false information before anyauthority, is subjected to rigorous imprisonment of upto 5 yearsBunder Section 54 of the 2016 Act. This Court is aware of the factthat the ‘Right to Property’ is not fundamental right, rather it isa constitutional right that can be abridged by law. However, thisCourt is not concerned with the constitutionality of such ameasure, wherein such considerations have to be balanced.CRather, the focus is only on the characterization of retroactiveconfiscation, which in these facts and circumstances, are punitive.In view of the fact that this Court has already held that the criminalprovisions under the 1988 Act were arbitrary and incapable ofapplication, the law through the 2016 amendment could notretroactively apply for confiscation of those transactions enteredDinto between 05.09.1988 to 31.10.2016 as the same wouldtantamount to punitive punishment, in the absence of any otherform of punishment. It is in this unique circumstance thatconfiscation contemplated under the period between 05.09.1988and 31.10.2016 would characterise itself as punitive, if suchEconfiscation is allowed retroactively. Usually, when confiscationis enforced retroactively, the logical reason for accepting suchan action would be that the continuation of such property orinstrument, would be dangerous for the community to be left freein circulation. [Paras 17.33-17.37][387-A-H; 388-A-D]

FIn R (on the appln of the Director of the Assets RecoveryAgency) v Jia Jin He and Dan Dan Chen, [2004]EWHC Admin 3021 – referred to.

3.11 Coming to the present enactment, history points to adifferent story wherein benami transactions were an acceptedGform of holding in our country. In fact, the Privy Council had, atone point of time, praised the sui generis evolution of the doctrineof trust in the Indian law. The response by the Government andthe Law Commission to curb benami transactions was also notsufficient as it was conceded before this Court that Sections 3H

and 5 of the 1988 Act in reality, dehors the legality, remained onlyon paper and were never implemented on ground. Any attemptby the legislature to impose such restrictions retroactively wouldno doubt be susceptible to prohibitions under Article 20(1) ofthe Constitution. Looked at from different angle, continuationof only the civil provisions under Section 4, etc., would mean thatthe legislative intention was to ensure that the ostensible ownerwould continue to have full ownership over the property, withoutallowing the real owner to interfere with the rights of benamidar.If that be the case, then without effective any enforcementproceedings for long span of time, the rights that havecrystallized since 1988, would be in jeopardy. Such impliedintrusion into the right to property cannot be permitted to operateretroactively, as that would be unduly harsh and arbitrary. [Paras17.38, 17.39][389-A-D]3.12 In view of the above discussion, it is held: a) Section3(2) of the unamended 1988 Act is declared as unconstitutionalfor being manifestly arbitrary. Accordingly, Section 3(2) of the2016 Act is also unconstitutional as it is violative of Article 20(1)of the Constitution. b) In rem forfeiture provision under Section5 of the unamended Act of 1988, prior to the 2016 AmendmentAct, was unconstitutional for being manifestly arbitrary. c) The2016 Amendment Act was not merely procedural, rather,prescribed substantive provisions. d) In rem forfeiture provisionunder Section 5 of the 2016 Act, being punitive in nature, canonly be applied prospectively and not retroactively. e)Concerned authorities cannot initiate or continue criminalprosecution or confiscation proceedings for transactions enteredinto prior to the coming into force of the 2016 Act, viz.,1.11.2016. As consequence of the above declaration, all suchprosecutions or confiscation proceedings shall stand quashed.f) As this Court is not concerned with the constitutionality ofsuch independent forfeiture proceedings contemplated underthe 2016 Amendment Act on the other grounds, the aforesaidquestions are left open to be adjudicated in appropriateproceedings. [Para 18.1][389-E-H; 390-A-B]

A.K Gopalan v. State of Madras AIR 1950 SC 27 :[1950] SCR 88; Maneka Gandhi v. Union of India,(1978) 1 SCC 248 : [1978] 2 SCR 621; Sunil Batra v.Delhi Administration (1978) 4 SCC 494 : [1979] 1 SCR392; K. Puttaswamy v. Union of India (2017) 10 SCC 1: [2017] 10 SCR 569 – followed.

Niharika Jain v. Union of India [S.B.C.W.P. No. 2915/2019]; Joseph Isharat v. Mrs. Rozy Nishikant Gaikwad[S.A. No. 749/2015]; Rao Shiv Bahadur Singh vs. Stateof Vindhya Pradesh, AIR 1953 SC 394 : [1953] SCR1188; Mangathai Ammal v. Rajeswari (2020) 17 SCCC496; Commissioner of Income Tax (Central)-I New Delhiv. Vatika Township Pvt. Ltd (2015) 1 SCC 1 : [2014] 12SCR 1037; Sree Meenakshi Mills Ltd. v. Commissionerof Income Tax, Madras AIR 1957 SC 49 : [1956] SCR691; Thakur Bhim Singh v. Thakur Kan Singh AIR 1980DSC 727 : [1980] 2 SCR 628; Punjab Province v. DaulatSingh AIR (29) 1942 FC 38; Jaydayal Poddar v. BibiHazra AIR 1974 SC 171: [1974] 2 SCR 90; MurlidharNarayandas v. Paramanand Luchmandas, AIR 1932Bom. 190; Radhakishan Brijlal v. Union of India, AIR1959 Bom. 102 (V46 C40); Gur Prasad v. HansrajEAIR (33) 1946 Oudh. 144; Kesavananda Bharati v.State of Kerala (1973) 4 SCC 225 : [1973] Suppl. SCR1; Narendra Singh v. State of Madhya Pradesh (2004)10 SCC 699 : [2004] 3 SCR 1148 – referred to.

Case Law Reference

[1953] SCR 1188[2015] 14 SCR 1037[1989] 1 SCR 621[1995] 1 SCR 715[2014] 12 SCR 1037[1956] SCR 691[1980] 2 SCR 628

referred toPara 10 (ii)referred toPara 12.1(v)referred toPara 12.1(vi)referred toPara 12.3(iv)referred toPara 12.3(v)referred toPara 13.3referred toPara 13.3

UNION OF INDIA & ANR. v. M/s. GANPATI DEALCOM PVT.LTD.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5783of 2022.

From the Judgment and Order dated 12.12.2019 of the High Courtof Calcutta in APO No.8 of 2019 in W.P. No.687 of 2017.

S.V. Raju, Vikramjeet Banerjee, ASGs, Zoheb Hussain, AakankshaKaul, Bhuvan Mishra, S.A. Haseeb, Siddharth Sinha, Tathagat, RitwizRishab, Anshuman Singh, Ms. Janhvi Prakash, Raman Yadav, AnkitBhatia, Arpit Goel, Harsh Paul Singh, A.K. Sharma, Raj Bahadur Yadav,Advs. for the Appellants.

Ajay Vohra, Sr. Adv., Ankit Anandraj Shah, Ms. Bhoomija Verma,Aniket Agarwal, Abhimanu Singh, Advs. for the Respondent.

Dr. Abhishek Manu Singhvi, Devadatt Kamat, Neeraj KishanKaul, Sr. Advs., Mayank Jain, Parmatma Singh, Madhur Jain, Ms. AakritiDhawan, Shankar Divate, Rohit Jain, Aniket D. Agrawal, Ms. KavitaJha, Saurabh Rajpal, Naveen Kumar, Ms. Shrinjan Khosla for M/s. Aura& Co., Advs. for the Intervenor.

AThe Judgment of the Court was delivered by

N. V. RAMANA, CJI

1. Leave granted.

2. This case involves tussle between the normative and positivistBpositions regarding the nature of crime and punishment. Treating theConstitution as flag post, result of this tussle is sought in the followingdeliberation.

3. This appeal is filed against the impugned judgment dated12.12.2019 passed by the High Court of Judicature at Calcutta in APOCNo. 8 of 2019 along with Writ Petition No. 687 of 2017.

4. The short legal question which arises for this Court’sconsideration is whether the Prohibition of Benami Property TransactionsAct, 1988 [for short ‘the 1988 Act’], as amended by the BenamiDTransactions (Prohibition) Amendment Act, 2016 [for short the ‘2016Act’] has prospective effect. Although purely legal question arises inthis appeal, it is necessary to have brief factual background in mindbefore we advert to the analysis.

5. On 02.05.2011, the respondent–company purchased aEproperty in its name from various sellers for total consideration ofRs.9,44,00,000/-. It is said that the consideration for the aforesaidpurchase was paid from the capital of the company. On 31.03.2012,99.9% of the respondent–company shareholdings were acquired by M/s PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd. at adiscounted price of Rs.5/- per share for total amount of Rs.19,10,000/-.FIt is matter of fact that the two directors of the respondent-company(viz. Shruti Goenka and Ritu Goenka) also held directorship in thesubsequent purchaser company.

6. Accordingly, on 29.08.2017, the Deputy Commissioner ofIncome Tax (Adjudicating Authority) issued notice to the respondent–Gcompany invoking Section 24(1) of the 2016 Act to show cause as towhy the aforesaid property should not be considered as Benami propertyand the respondent company as Benamidar within the meaning of Section2(8) of the 2016 Act. On 06.09.2017, the respondent–company repliedto the aforesaid show-cause notice denying that the scheduled propertyHis Benami property.

7. The Adjudicating Authority, by order dated 24.11.2017, passedan order under Section 24(4)(b)(i) of the 2016 Act, provisionally attachingthe property.

8. Aggrieved by the aforesaid attachment order, the respondent-company filed Writ Petition (being W.P. No. 687 of 2017) before theHigh Court of Calcutta. The aforesaid writ petition was disposed of bythe learned Single Judge by an order dated 18.12.2018 with directionto the Adjudicating Authority to conclude the proceedings within 12weeks.

9. Aggrieved, the respondent-company filed an appeal against theaforesaid order being APO No. 8 of 2019.

10. The High Court, vide impugned order dated 12.12.2019, whilequashing the show-cause notice dated 29.08.2017, held that the 2016Act does not have retrospective application.

(i)The 2016 Amendment Act, which came into force on01.11.2016, was new and substantive legislation, inter alia,substituting and widening the definition of ‘benami propertyand benami transaction’, and in order to have retrospectiveoperation for the period or transactions entered into prior to01.11.2016, provision to that effect should have beenspecifically providing under the said Act; in the absence ofany express provision to that effect, simply by virtue of theprovisions contained in subsection (3) of Section 1 of the1988 Act [which remained unaltered by the 2016Amendment Act, and have consequently been retained underthe Benami Act], the provisions of the 2016 AmendmentAct cannot be impliedly construed as retrospective;(ii)Reference was made to and reliance was placed on theunreported ruling of the learned Single Judge of theRajasthan High Court dated 12.07.2019 in the case ofNiharika Jain v. Union of India [S.B.C.W.P. No. 2915/2019], wherein, following the ruling of the Single Judge ofthe Hon’ble Bombay High Court in the case of JosephIsharat v. Mrs. Rozy Nishikant Gaikwad [S.A. No. 749/2015; decided on 01.03.2017/30.03.2017], it was held thatin terms of the protection enshrined under clause (1) ofArticle 20 of the Constitution of India, the 2016 Amendment

Act, amending, inter alia, the definition of “benamitransaction”, could not be given retrospective effect, andthe amendments brought about vide the said (amendment)Act would be enforceable only with effect from the date ofthe enactment / coming into force of the said amendmentAct i.e., on or after 01.11.2016 – reliance in this regardwas also placed on the ruling of this Court in the case ofRao Shiv Bahadur Singh vs. State of Vindhya Pradesh,AIR 1953 SC 394;

(iii)The 1988 Act, which came into force on 19.05.1988 [exceptSection 3, 5 and 8 thereof which came into force on05.09.1988], provided for punishment for persons enteringinto “benami transaction”, which was made non-cognizableand bailable, and also however, provided for acquisition ofproperty held to be benami; provisions of the 1988 Act, werenever operationalized since the rules and procedure requiredto be framed under Section 8 of the said Act bringing intoexistence the machinery for implementation of the 1988Act, were never notified – therefore, although the 1988Act was part of the statute book, the same was rendered a“dead letter”, and all transactions and properties alleged‘benami’, carried out / acquired between the period of19.05.1988 and 01.11.2016, were deemed to have beenaccepted by the Government as valid ‘vesting rights’ in theparties to such alleged transactions; ergo, the CentralGovernment, having waived its right of implementation andoperationalisation of the 1988 Act for the period prior to01.11.2016, cannot now do so indirectly by way ofretrospective operation of the 2016 Amendment Act.

11. Aggrieved by the aforesaid impugned order, the Union of Indiais in appeal before this Court.

12.SUBMISSIONSG

12.1 Shri S.V Raju, learned Additional Solicitor General (‘ASG’)has contended as under:

i.As per the pre-amendment Act, there was no machinery orprocedure in place to effectuate proceedings againstBenami transactions. It is submitted that in order to remedy

this mischief of lack of procedure, the Amendment Act,which was consolidating Act, was brought in.

ii.It was not an offence that is sought to be implementedretrospectively, but merely the procedures are laid down toimplement the Act of 1988. He stated that the pre-amendment Act already recognizes Benami transactionsas contrary to law, and hence no new or substantive law isbeing made.

iii.It is settled law that procedural law can be appliedretrospectively, and the bar against retrospective applicationis only applicable to substantive law.

iv.The legislative intent for bringing an amendment to theexisting act, and not enacting new law, was to ensure thatno immunity is granted to persons who engaged in benamitransactions while the pre-amendment Act was in operation.

v.It was further submitted that Section 5 and Section 27 ofthe Act are to be read together as the latter provides themechanism through which the Benami property may beconfiscated by the Adjudicating Authority. As per Section27(3), once the confiscation order is passed by the Authority,the rights in the property are vested in the CentralGovernment. It was reiterated that confiscation is not apenal provision, as the same has civil consequences. Both,acquisition and confiscation are civil in nature, and therefore,they can be used interchangeably. Therefore, anyamendment act which is consolidating in nature, can haveprovisions which are confiscatory in nature and the samecan be applied retrospectively. For this, the learned ASGreferred to Yogendra Kumar Jaiswal v. State of Bihar,(2016) 3 SCC 183, para 149, and submitted that in thisjudgment, this Court has held that confiscation is not apunishment, and that Article 20(1) is not attracted. The Courtalso held that confiscation as imposed by the AdjudicatingAuthority would not amount to any punishment, and is onlya deprivation of the property of the person in question.

vi.The learned ASG also referred to Mithilesh Kumari v.Prem Behari Khare, (1989) 2 SCC 95, para 21,to submit

DEF

340SUPREME COURT REPORTS

Athat by necessary implication, the machinery and proceduralprovisions of the amended Act are retrospective in nature.

12.2 Shri Vikramjit Banerjee, learned ASG has submitted as under:

i.The Parliament has the power to enact retrospectivelegislation even in case of criminal Statute, as long as itBcomplies with Article 20(1) of the Constitution of India. Hefurther argued that as per Article 20(1), prohibition existsonly on conviction and sentencing of the ex-postfacto law,and not against passing such law.

ii.Forfeiture, acquisition, and confiscation are not punishmentsCand therefore not subject to Article 20(1) restrictions. Hethen pointed out that the adjudication proceedings are alsonot in the nature of prosecution, and hence cannot berestricted by Article 20.

iii.That acquisition of property without paying compensationDamounts to confiscation, and confiscation envisages civilliability.

12.3 Dr. Abhishek Manu Singhvi, learned Senior Advocateappearing for the respondent has contended as under:

i.The 1988 Act did not make its provisions appliedEretrospectively. The Parliament purposely ensured that whenthe 1988 Ordinance was replaced by the parent Act, onlythe provisions from the 1988 Ordinance were continuedfrom the date of the promulgation of the ordinance. Theother provisions introduced by the parent Act, namelyFSections 3, 5 and 8, were made only prospectively applicablefrom the date on which the parent Act was brought intoeffect.

ii.The 2016 Act was not intended to be retrospectivelyapplicable as the same is not explicitly stated. ParliamentGdeemed it fit to leave it to the Central Government to enforcethe 2016 Act from an appointed date by notifying it in theofficial gazette, as mentioned in Section 1(2) of the 2016Act.

iii.It was further argued that when the statute carves outHdistinct penalties in respect of benami transactions entered

into in the unamended regime vis-a-vis the benamitransactions entered into after the amendment Act of 2016,it clearly indicates that the amended Act is prospective innature.

iv.Learned Senior Advocate also relied on the cases of R.Rajagopal Reddy v. Padmini Chandrasekharan, (1995)2 SCC 630and Mangathai Ammal v. Rajeswari, (2020)17 SCC 496, in the context of Sections 4(1), 4(2) and 3(2)of the parent Act, to contend that the abovementionedprovisions are prospective in nature.

v.It is also argued that insertion of Section 2(9) by anamendment to the parent Act provides new definition tobenami transactions and has substantially changed the scopeof the offence by enlarging its ambit. In the unamendedAct, only transfer of property was an offence. However,the 2016 Act has added multiple other actions as offencesunder the category of benami transactions. It is well settledprinciple of law that any enactment which substantiallyaffects the rights of people cannot be applied retrospectively,and therefore, the amended 2016 Act can only beprospective in nature. For this, the judgment of this Court inthe case of Commissioner of Income Tax (Central)-I,New Delhi v. Vatika Township Pvt. Ltd, (2015) 1 SCC 1was relied on.

13. INTRODUCTIONTOPRACTICEOFPROPERTIESHELDBENAMIIN

INDIA

13.1 Having heard the parties, it is necessary for this Court totrace the history of benami transactions in India. The term ‘benamitransaction’ generally implies that one purchases the property in the nameof somebody else, i.e., name lender, and the purchaser does not holdbeneficial interest in the property. Literally, ‘benami’ means ‘without aname’. The simplest of example is if person ‘A’ (real owner) purchasesa property from ‘B’ in the name of ‘C’ (benamidar/ostensible owner),wherein ‘A’ exercise rights/interest over the property.

13.2 The term ‘benami’, which was alien to statutory law duringthe colonial regime and in the early days of the Republic, was known inthe legal parlance of lawyers. Even in Mohammedan law, suchtransactions were commonly referred as furzee or farzi, derived from

CDE

AArabic word furaz.[1] Over the passage of time, this nebulous conceptappeared in cases without much clarity with respect to its basic contours.Conceptually, there are two views which arise from the Doctrine ofBenami. The first view is that the benamidar does not hold title over theproperty, and the second view is that although the title passes to thebenamidar, he holds it in trust.B

13.3 Eventually, there developed two loose categories oftransactions that were colloquially termed as benami, which can beexplained through the following examples:

(i.)Tripartite: ‘B’ sells property to ‘A’ (real owner), but theCsale deed mentions ‘C’ as the owner/benamidar.

(ii.)Bipartite: ‘A’ sells property to ‘B’ without intending to passthe title to ‘B’.

The first instance was usually termed as real benami transaction,and the second transaction was considered either as sham transactionDor “loosely” benami transaction. In Sree Meenakshi Mills Ltd. v.Commissioner of Income Tax, Madras, AIR 1957 SC 49, speakingfor the Bench, Venkatarama Ayyar, J., stated that the first category oftransactions is ‘usually’ termed as benami, while the second category is‘occasionally’ considered benami transaction. He added that it isE“perhaps not accurately so used”. In Thakur Bhim Singh v. ThakurKan Singh, AIR 1980 SC 727, Venkataramiah, J. straightway called thefirst category as benami but chose to describe the second category as“loosely” termed benami. This distinction is relevant and will be advertedto later.

13.4 Numerous reasons, some desirable and some undesirable,Fwere contributory factors for the proliferation of such practice in India.Some of them are as follows:

(i)Secret provisions for families within Hindu Joint familysystem;[2]

G(ii)Mitigation of political and social risk;[3]

1 McNaughten’s Selected Report Vol. I, Reporter’s Note at p. 368.

2 West and Buhler, ‘Hindu Law’, (Fourth Edition), Pg. 157, 563.

3 Pollock, The Law of fraud, Misrepresentation and Mistake in British India (1894),Hpage 83-84.

(iii)Defrauding creditors;[4]

(iv)Evasion of taxes.

13.5 Judicial recognition of such transactions came about in theearly 19[th] century under the colonial courts. In Mt. Bilas Kunwar v.Desraj Ranjit Singh, AIR 1915 PC 96, the Privy Council observed asunder:

“Down to the taluqdar’s death the natural inference is that thepurchase was benami transaction; dealing common to Hindusand Muhammadans alike, and much in use in India; it is quiteunobjectionable and has curious resemblance to the doctrine ofour English law that the trust of the legal estate results to the manwho pays the purchase money, and this again follows the analogyof our common law, that where feoffment is made withoutconsideration the use results to the feoffer.”

In Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38, theFederal Court, while evaluating the propriety of such transactions,observed as under:

“A notion has sometimes prevailed in this country that all benamitransactions must be regarded as reprehensible and improper ifnot illegal; but, as late as in 1915, Sir George Farwell, deliveringthe judgment of the Judicial Committee in 37 ALL. 557 spoke ofthem as ‘quite unobjectionable’ and as having their analogues inthe English law; and Mr. Amreer Ali, delivering the judgment ofthe Committee in 46 Cal. 566, observed that “there is nothinginherently wrong in it, and it accords, within its legitimate scope,with the ideas and habits of the people”. As indicated by thequalifying words “within its legitimate scope”, their Lordships’observations were clearly not meant to countenance transactionsentered into for fraudulent or illegal purposes.”

13.6 In Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171, thisCourt laid down test to determine whether transaction is benami ornot. The following factors were to be considered:

(i)The source from which the purchase money came;

(ii)The nature and possession of property after purchase;

4 K.. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884-85) Pg. 469-470.

A(iii)Motive, if any, for giving the transaction benami colour;

(iv)The position of the parties and the relationship, if any,between the Claimant and the alleged Benamidar.

(v)The custody of the title-deeds after the sale, and

(vi)The conduct of the parties concerned in dealing with theBproperty after the sale.

13.7 The judiciary came to establish the general principle that inlaw, the real owner is recognized over the ostensible owner.[5] This principlehad certain statutory exceptions, albeit limited, such as Section 66 ofCivil Procedure Code, 1908 with respect to properties wherein saleCcertificates are issued by courts; and Section 281A of the Income TaxAct, 1961, which allows filing of suit by the original owner to enforce hisright over benami property, only if the same is declared for taxingpurpose, as provided thereunder. Such provision under the Income TaxAct did not bar such benami transactions completely, rather it onlyDattempted to legitimize and bring them into the net of taxation. Suchprovision, while disincentivizing transactions beyond the taxation net, hadalso inevitably accepted the positive factors in recognizing the same.Further, it is matter of fact that the Indian Trusts Act has recognizedand accepted the principle behind benami transactions.

13.8 The 57[th] Report of the Law Commission (1973) succinctlyEcaptures the general principles prevailing as on that date, in the followingmanner:

“5.2 Summary of present position-in general-A few basic pointsconcerning benami transactions may be stated, as follows:

F(a)Benami transfer or transaction means the transfer by or toa person who acts only as the ostensible owner in place ofreal owner whose name is not disclosed;

(b)The question whether such transfer or transaction was realor benami depends upon the intention of the beneficiary;

G(c)The real owner in such cases may be called the beneficiary,and the ostensible owner the benamidar.

5 Murlidhar Narayandas v. Paramanand Luchmandas, AIR 1932 Bom. 190;Radhakishan Brijlal v. Union of India, AIR 1959 Bom. 102 (V46 C40); Gur Prasad v.HHansraj, AIR (33) 1946 Oudh. 144.

UNION OF INDIA & ANR. v. M/s. GANPATI DEALCOM PVT.LTD. [N. V. RAMANA, CJI]

5.3. Effect of benami transfer.- The effect of benami transferis as follows:-

(a)A person does not acquire any interest in property by merelyleading his name;

(b)The benamidar has no beneficial interest though he mayBre-present the legal owner as to third person.

(c)A benami transaction is legal, except in certainspecified situations.

(Emphasis supplied)

13.9 Prior to the 1973 Report, the broad position on the legality ofvarious kinds of benami transactions can be captured as follows:

ABCDEF

13.10 It may be necessary to note that the Law Commission,through its aforementioned 57[th] Report, did not find it suitable to acceptthe stringent provision of making benami transactions liable to criminalaction. Rather, it recommended adoption of certain less stringent, civilGalternatives in the following manner:

“6.3. Possible alternative for regulating benami transaction.- Several possible alternatives could be thought of, with referenceto prohibiting or regulating benami transactions for avoidingprejudice to private individuals or minimising litigation:-

(i) Entering into Benami transactions could be made anoffence;

(ii) provision may be enacted to the effect that in civil suita right shall not be enforced against the benamidar or against athird person, by or on behalf of the person claiming to be thereal owner of the property on the ground of benami; similarprovision could be made to bar defences on the ground ofbenami.

(This provision would be based on the principle on which theexisting provisions in the Civil Procedure Code and the newprovision in the Income-tax Act are based but could be wider inscope and more radical). -

(iii) The present presumption of resulting trust in favour of theperson who provided the consideration may be displaced (as inEngland) by the presumption of advancement, in cases where theperson to whom property is transferred is near relative of theperson who provided the consideration. (This would bring in thedoctrine of advancement, so as to rebut the presumption of resultingtrust under section 82 of the Trusts Act).

Whichever alternative is adopted, it may be desirable to make anexception for an acquisition made by the manager of joint Hindufamily in the name of one of the co-parceners, and similar cases.

6.24. First alternative not likely to be effective-The ûrstalternative referred to above, namely, the imposition of criminalprohibition against benami transactions, is the most drasticalternative, but it is not likely to be more effective than the others.A prohibition backed by criminal sanctions would not, moreover,be desirable, unless the mens rea is also included in the provisionto be enacted.

If this alternative is to be adopted, provision could be enacted onthe following lines:—

“Where property is transferred to one person for considerationpaid or provided by another person, and it appears that such persondid not intend to pay or provide such consideration for the beneûtof the transferee, the person paying or providing the consideration

shall be guilty of an offence punishable with imprisonment uptothree years, or with ûne, or both.

Provided that this section shall not apply where the transferee is aco-parcener in Hindu undivided family in which such other personis also co-parcener, and it is proved that such other personBintended to pay or provide such consideration for the beneût ofthe co-parceners in the family.

Exception—Nothing in this section shall be deemed to affectsection 66 of the Code of Civil Procedure, 1908 or any provisionsimilar thereto.”

Yet another device for giving effect to the first alternative, with arequirement of mens rea, would be to have law on the followinglines:

“Where property is transferred to one person for considerationpaid or provided by another person, and it appears that suchDperson did not intend to pay or provide such consideration forthe beneût of the transferee, the person paying: or providingthe consideration shall, if he has caused the transfer to beentered into with the intention of facilitating the evasion of anylaw, or defeating the claims of his creditors, or the creditors ofany other person be guilty of an offence punishable withEimprisonment upto three years, or with ûne, or with both.”

Yet another device to give effect to the ûrst alternative would beto add section in the Indian Penal Code as follows-

“421A. Whoever, dishonestly or fraudulently causes to betransferred to any person, any property, for which transfer heFhas paid or provided the consideration, intending thereby toprevent, or knowing to be likely that he will thereby prevent,the distribution of that property according to law among hiscreditors or the creditors of any other person, or intendingthereby to facilitate, or knowing it to be likely that he willGthereby facilitate, the evasion of any law, shall be punishedwith imprisonment of either description for term which mayextend to two years, or with ûne. or with both.”

6.25. Second alternative. —The second alternative is less drasticthan. the ûrst. In form. it could follow the existing statutory provisionlimiting the judicial recognition of benami transactions, such as,

section 66. Code of Civil Procedure, 1908. But its scope would bemuch wider. The provision’ could be to the effect that no suit shalllie to enforce right in respect of any property held benami, eitheragainst the person in whose name ‘the property is held or againstany other person, by or on behalf of person who claims to be thereal owner ‘of the property on the ground that the person in whosename the property is held is benamidar of the claimant. (Ifnecessary, defence can also be barred).

6.27. Second alternative refusal to recognise Benamipreferred. — In our opinion, the simplest alternative would bethe second alternative. The law should refuse to- recognise theBenami character of transactions, without making them an offence.The law should, in effect, provide that where property is transferredbenami, the benamidar will become the real owner. The result ofsuch provision will be that the fact that the benamidar did notprovide the consideration, or that the consideration was providedby third person, will not be ground for recognising personother than the benamidar as owner. To put the matter in broadterms, the doctrine of benami will, under the pro- posedamendment, cease to be part of the Indian law.It may be observed that in enacting the proposed provision, thelegislature will carry, to its logical conclusion, the trend illustratedby provisions, such as, section 66 of the Code of Civil Procedure.The section in the Code is applicable to involuntary alienations,while the proposed provision will extend the same principle tovoluntary transactions as Well.

We think that this will be the simplest and most effective course,and is, therefore, preferable to others.

The amendment will bring out change in the legal position insome of the situations where, at present, the benami character isre- cognised.

6.27 A. We are also of the view that it is not necessary to enact aprohibition attracting criminal penalties——which is the coursesuggested in the ûrst alternative. Such prohibition will have tobe ac- companied by requirement of mens rea, thus narrowingdown its scope and limiting its practical utility.”

A13.11 It must be noted that during this time, the Constitution wasundergoing slow churning qua the right to property. The abovepropositions, laid down by Federal Courts and Privy Council are to beunderstood in context where there was general common law right toproperty, which later made its forays into the Constitution of India underArticles 19(1)(f) and 31. In 1978, the Indian Parliament took drasticBmeasure and did away with this fundamental right to property andrelegated the same to constitutional right under Article 300A.

13.12 Further, it was an era during which India pursued ‘socialism’,which was also included in the Preamble of the Constitution through the42[nd] (Amendment) Act in 1976. Successive judicial opinions inCKesavananda Bharati v. State of Kerala, (1973) 4 SCC 225 etc.,viewed the right to property as stumbling block in the path of achievingsocial goals that the government of the time aspired to.

13.13 In 1988, an Ordinance –viz. The Benami Transactions(Prohibition of the Right of Recover Property) Ordinance, 1988D(Ordinance 2 of 1988.) – was promulgated. This statutory instrumentbeing not satisfactory, it was referred to the Law Commission again.

13.14 In any case, the issue was re-examined by the LawCommission in the year 1988 through its 130[th] Report. Although theLaw Commission characterized the 130[th] Report as continuation of itsEearlier recommendations, it can be observed that some radical changeswere suggested. Some of the key observations are as under:

“3.2 The first question that must engage our attention at once isthe width and coverage of the proposed legislation. In order toencompass benami transactions concerning various typesFof property, the legislation should cover both movable,immovable, tangible and intangible property. Unfortunatelyevery type of property, such as land, houses, shares,debentures, bonds, bank accounts, deposit receipts andnegotiable instruments, is capable of being held benami.GTherefore, it is equally legitimate to have an extensivecoverage of the proposed legislation by encompassingproperty of every denomination. …

3.18 Therefore, viewed from either angle, the Law CommissionHis of the firm opinion that the legislation replacing the ordinance

should also be retroactive in operation and that no locus penitentianeed be given to the persons who had entered into benamitransactions in the past. They had notice of one and half decadesto set their house in order. No more indulgence is called for. …

4.5 Before we conclude on this chapter, it is necessary to pointout that certain tax laws have confirmed legitimacy on the benamitransactions and derived benefit in the form of revenue collectionfrom it. It was, therefore, said that if now all benami transactionsare invalidated and an all-enveloping prohibition is imposed, therevenue laws would suffer loss of revenue. Reference in thisconnection was made to section 27 of the Income-tax Act, 1962dealing with income from house property. The various sub-sectionsof section 27 deal with transfer of property by husband to wifeand vice-versa. It also involves the case of impartable estate.The law commission is unable to appreciate how total prohibitionof benami transaction and the holder being made the real ownerwould defeat revenue laws. If one escapes, the other pays, and ifit is suggested that the other may not be within the dragnet of thetax laws and that both would benefit by the prohibition and abolitionof benami transactions. In the immediate future such effect maybe produced but the long term interest would help in defendingsuch spurious transactions between husband and wife. Section22 may be read accordingly. But it was pointed out that wheretransfer of flats is prohibited either by the rules of the co-operativesociety which has built the flats or by the rules of authorities likethe Delhi Development Authority, modus operandi has comeinto existence whereby violating the law, the flat is sold and thepurchaser would pay the amount and taken an irrevocable powerof attorney and enter into possession. It was further said that theprovisions of the Income-tax Act have recognized such transfersand treat the attorney as owner for the purpose of income-tax asper the provisions of the Finance Act, 1987. If the sole purpose ofentering into such transaction is the violation of existing lawwhich has been passed after due consideration, it is time that norecognition is conferred and the law is allowed to take its owncourse. Even in the name of revenue loss, violation of existinglaws cannot be protected.

A4.6 The Law Commission would like to make it very clear thatsome of provisions of the tax laws may become anachronisticbecause of the present approach of the law commission. This isinevitable. The tax laws were enacted at the time when benamiwas part of Indian law. Such laws would have to conform to thechanging legal order. Yet further solution is offered in this behalfBin the next chapter.”

(emphasis supplied)

14. FRAMEWORKUNDERTHE 1988 ACT

C14.1 This brings us to the statutory framework under the 1988unamended Act, having nine sections. Section 2(a) defines benamitransactions as any transaction in which property is transferred to oneperson for consideration paid or provided by another person. The lawchose to include only tripartite benami transactions, while bipartite/looselydescribed as benami transactions, were left out of the definition. ReadingDthe aforesaid definition to include sham/bipartite arrangements withinthe ambit would be against the strict reading of criminal law and wouldamount to judicial overreach.

14.2 The above definition does not capture the essence of benamitransactions as the broad formulation includes certain types of legitimateEtransactions as well. The transferee/property holder’s lack of beneficialinterest in the property was vital ingredient, as settled by years ofjudicial pronouncements and common parlance, and found to becompletely absent in the definition given in the Act. On literal applicationof the aforesaid Section 2(a), the following transactions could have beenFcaught in the web of the Act:(a)‘A’ purchases property in name of his son’s wife ‘B’, forthe benefit of the son’s family from person ‘Y’, treats theconsideration as gift to the son, and pays gift tax on it.

(b)‘A’ who is old and infirm, purchases property in the nameGof ‘B’, intending that ‘B’ will hold the property in trust ofthe son of ‘A’, who is mentally retarded.

(c)A firm ‘X’ purchases property in the name of the workingpartner ‘B’ for the benefit of the firm ‘X’, making thepayment out of the firm’s funds.H

14.3 Section 2(c) of the 1988 Act defines property to be propertyof any kind, whether movable or immovable, tangible, or intangible, andincludes any right or interest in such property. This definition appears tobe broad and inclusive of all kinds of property and includes various rightsand interests. Interestingly, the aforesaid broad formulation of propertycame about for the first time in the 130[th] Law Commission Report; suchdefinitional broadening was for the first time introduced only in 1988 andwas never contemplated during the 57[th] Report (1973). This aspectbecomes important, and will be addressed later, while analysing thequestion of retrospectivity.

14.4 Section 3 of 1988 Act states as under:

3. Prohibition of benami transactions- (1) No person shallenter into any benami transaction.

(2) Nothing in sub-section (1) shall apply to the purchase of propertyby any person in the name of his wife or unmarried daughter andit shall be presumed, unless the contrary is proved, that the saidproperty had been purchased for the benefit of the wife of theunmarried daughter.

(3) Whoever enters into any benami transaction shall be punishablewith imprisonment for term which may extend to three years orwith fine or with both.

(4) Notwithstanding anything contained in the Code of CriminalProcedure, 1973 (2 of 1974), an offence under this section shallbe non-cognizable and bailable.

Section 3 puts forth prohibitive provision. Further, it intended tocriminalize an act of entering into benami transaction.

14.5 Section 4 noted as under:

-4. Prohibition of the right to recover property held benami

(1) No suit, claim or action to enforce any right in respect of anyproperty held benami against the person in whose name theproperty is held or against any other person shall lie by or onbehalf of person claiming to be the real owner of such property.

(2) No defence based on any right in respect of any property heldbenami, whether against the person in whose name the propertyis held or against any other person, shall be allowed in any suit,

claim or action by or on behalf of person claiming to be the realowner of such property.

(3) Nothing in this section shall apply,—

(a) where the person in whose name the property is held is acoparcener in Hindu undivided family and the property is heldBfor the benefit of the coparceners in the family; or

(b) where the person in whose name the property is held is atrustee or other person standing in fiduciary capacity, and theproperty is held for the benefit of another person for whom he isa trustee or towards whom he stands in such capacity.

14.6 Section 5 states:

5. Property of benami liable to acquisition- (1) All propertiesheld benami shall be subject to acquisition by such authority, insuch manner and after following such procedure as may beprescribed.

(2) For the removal of doubts, it is hereby declared that no amountshall be payable for the acquisition of any property under sub-section (1).

It may be noted that Section 5 was never utilized as it was feltEthat there was requirement of additional statutory backing to make thelaw effective.[6]

14.7 Section 6 provided that nothing in the 1988 Act will affectSection 53 of the Transfer of Property Act or any law relating to transfersfor an illegal purpose. The object of Section 6 was to vest ownershipFrights in benamidars as opposed to the real owner. It was not the intentionof the 1988 Act to protect such persons from creditors who allegediversion of funds in fraudulent manner and allow them to escape theirliability to the creditors. Therefore, Section 6 limited the application ofSection 4 in such cases.

G14.8 Section 7 of the 1988 Act repealed Sections 81, 82 and 94 ofthe Indian Trusts Act, 1882 (2 of 1882); Section 66 of the Code of CivilProcedure, 1908 (5 of 1908.); and Section 281A of the Income Tax Act,

6 Standing Committee on Finance 2015-2016, 16th Lok Sabha, Ministry of Finance(Deptt. of Revenue), The Benami Transactions Prohibition (Amendment) Bill, 2015,H28[th] Report, Part I.

1961 (43 of 1961). Section 8 empowered the Central Government tomake rules to give effect to the Act. The final section, Section 9, repealedthe earlier Ordinance.

14.9 The main thrust of the argument put forth by the Union ofIndia in this appeal is that the amended 2016 Act only clarified the 1988Act. Law Officers appearing for the Union of India trained their gunson the point that the 1988 Act had already created substantial law forcriminalizing the offence and the 2016 amendments were merelyclarificatory and procedural, to give effect to the 1988 Act. Such asubmission mandates us to examine the law of the 1988 Act in detail anddetermine the scope of the earlier regime to understand as to whetherthe 2016 amendments were substantive or procedural.

14.10 Reading Section 2(a) along with Section 3 makes one thingclear -– the criminal provision envisaged under the aforesaid provisionsdoes not expressly contemplate mens rea. Under the Indian jurisprudence,the law on the subject is fairly well-settled. It has been subjected to thejudicial scrutiny of this Court on several occasions. It does not call for adetailed discussion and is enough to restate the principles. Mens rea isan essential ingredient of criminal offence. Doubtless, statute mayexclude the element of mens rea, but it is sound rule of constructionadopted in England – and also accepted in India – to construe statutoryprovision creating an offence in conformity with common law ratherthan against it, unless the statute expressly or by necessary implicationexcluded mens rea. The mere fact that the object of the statute is topromote welfare activities or to eradicate grave social evil which byitself is not decisive of the question as to whether the element of guiltymind is excluded from the ingredients of an offence. Mens rea bynecessary implication may be excluded from statute only where it isabsolutely clear that implementation of the object of the statute wouldotherwise be defeated. [refer Nathulal v. State of Madhya Pradesh,AIR 1966 SC 43]

14.11 In the above light, this Court’s first endeavour is to attemptto interpret the law to imply mens rea. However, the language of Section2(a) coupled with Section 3, completely ignores the aspect of mens rea,as it intends to criminalize the very act of one person paying considerationfor acquisition of property for another person. The mens rea aspect wasspecifically considered by the 57[th ]Law Commission Report, and thesame was not integrated into the unamended 1988 Act. The observations

Amade in the 130[th] Law Commission Report indicate that benamitransactions are abhorrent when it comes to public wealth and impedesthe government from achieving its social goals. This clearly allows us toinfer that the 1988 law was envisaged on the touchstone of strict liability.

14.12 Such strict statutory formulation under Section 2(a) readBwith Section 3 had left loose ends in the 1988 Act. In this light, theprosecution would only have to prove only that consideration was paidor consideration was provided by one person for another person andnothing more. In all the judicial precedents, this Court has had the occasionto examine this legislation on the civil side and never on the criminal side,which would bear higher standards. Conflation of the ingredients underCSection 3(1) and (2) with those of Section 4, to forcefully implied mensrea, cannot be accepted.

14.13 It may be noted that Supreme Court has dealt with theinterpretation of Section 4 of 1988 Act, on several occasions. In MithileshKumari v. Prem Behari Khare, (1989) 2 SCC 95, this Court was calledDupon to examine as to whether the aforesaid provision has retrospectiveapplication, held as under:

“22. As defined in Section 2(a) of the Act “ ‘benami transaction’means any transaction in which property is transferred to oneperson for consideration paid or provided by another person”. AEtransaction must, therefore, be benami irrespective of its date orduration. Section 3, subject to the exceptions, states that no personshall enter into any benami transaction. This section obviouslycannot have retrospective operation. However, Section 4 clearlyprovides that no suit, claim or action to enforce any right in respectFof any property held benami against the person in whose namethe property is held or against any other person shall lie, by or onbehalf of person claiming to be real owner of such property.This naturally relates to past transactions as well. Theexpression “any property held benami” is not limited toany particular time, date or duration. Once the property isGfound to have been held benami, no suit, claim or action to-enforce any right in respect thereof shall lie. Similarly, subsection (2) of Section 4 nullifies the defences based on anyright in respect of any property held benami whether againstthe person in whose name the property is held or againstHany other person in any suit, claim or action by or on behalfof person claiming to be the real owner of such property.It means that once property is found to have been held benami,the real owner is bereft of any defence against the person inwhose name the property is held or any other person. In otherwords in its sweep Section 4 envisages past benamitransactions also within its retroactivity. In this sense the Actis both penal and disqualifying statute. In case of qualifyingor disqualifying statute it may be necessarily retroactive. Forexample when Law of Representation declares that all whohave attained 18 years shall be eligible to vote, those who attained18 years in the past would be as much eligible as those who attainedthat age at the moment of the law coming into force. When anAct is declaratory in nature the presumption against retrospectivityis not applicable. Acts of this kind only declare. statute in effectdeclaring the benami transactions to be unenforceable belongs tothis type. The presumption against taking away vested right willnot apply in this case inasmuch as under law it is the benamidar inwhose name the property stands, and law only enabled the realowner to recover the property from him which right has nowbeen ceased by the Act. In one sense there was right to recoveror resist in the real owner against the benamidar. Ubi jus ibiremedium. Where there is right, there is remedy. Where theremedy is barred, the right is rendered unenforceable. In this senseit is disabling statute. All the real owners are equally affected bythe disability provision irrespective of the time of creation of theright. right is legally protected interest. The real owner’s rightwas hitherto protected and the Act has resulted in removal of thatprotection.

23. When the law nullifies the defences available to the realowner in recovering the benami property from the benamidar thelaw must apply irrespective of the time of the benami transactions.The expression “shall lie” in Section 4(1) and “shall be allowed”in Section 4(2) are prospective and shall apply to present (futurestages) and future suits, claims or actions only. This leads us tothe question whether there was present suit between therespondent-plaintiff and the defendant-appellant on the date ofthe law coming into force. We have noted the dates of filing thesuit and judgments of the courts below. On the date of Section 4of the Act coming into force, that is, 19-5-1988 this appeal was

[2022] 12 S.C.R.

Apending and, of course, is still pending. Can the suit itself be saidto be pending?

(emphasis supplied)

14.14 The aforesaid interpretation was re-examined by this Courtin R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCCB630 and while partly over-ruling Mitilesh Kumari (supra), it was heldas under:

11. … Thus it was enacted to efface the then existing right of thereal owners of properties held by others benami. Such an Actwas not given any retrospective effect by the legislature.Even when we come to Section 4, it is easy to visualise thatsub-section (1) of Section 4 states that no suit, claim oraction to enforce any right in respect of any property heldbenami against the person in whose name the property isheld or against any other shall lie by or on behalf of personclaiming to be the real owner of such property.As per Section4(1) no such suit shall thenceforth lie to recover the possession ofthe property held benami by the defendant. Plaintiff’s right to thateffect is sought to be taken away and any suit to enforce such aright after coming into operation of Section 4(1) that is 19-5-1988,shall not lie. The legislature in its wisdom has nowhereprovided in Section 4(1) that no such suit, claim or actionpending on the date when Section 4 came into force shallnot be proceeded with and shall stand abated.On the contrary,clear legislative intention is seen from the words “no such claim,suit or action shall lie”, meaning thereby no such suit, claim oraction shall be permitted to be filed or entertained or admitted tothe portals of any court for seeking such relief after coming intoforce of Section 4(1). …

The word ‘lie’ in connection with the suit, claim or action is notdefined by the Act. If we go by the aforesaid dictionary meaningit would mean that such suit, claim or action to get any propertydeclared benami will not be admitted on behalf of such plaintiff orapplicant against the defendant concerned in whose name theproperty is held on and from the date on which this prohibitionagainst entertaining of such suits comes into force. With respect,the view taken that Section 4(1) would apply even to such pendingsuits which were already filed and entertained prior to the date

when the section came into force and which has the effect ofdestroying the then existing right of plaintiff in connection withthe suit property cannot be sustained in the face of the clearlanguage of Section 4(1). It has to be visualised that the legislaturein its wisdom has not expressly made Section 4 retrospective.Then to imply by necessary implication that Section 4 would haveretrospective effect and would cover pending litigations filed priorto coming into force of the section would amount to taking viewwhich would run counter to the legislative scheme and intentprojected by various provisions of the Act to which we havereferred earlier. It is, however, true as held by the Division Benchthat on the express language of Section 4(1) any right inhering inthe real owner in respect of any property held benami would geteffaced once Section 4(1) operated, even if such transaction hadbeen entered into prior to the coming into operation of Section4(1), and henceafter Section 4(1) applied no suit can lie in respectto such past benami transaction. To that extent the section maybe retroactive. To highlight this aspect we may take an illustration.If benami transaction has taken place in 1980 and suit is filedin June 1988 by the plaintiff claiming that he is the real owner ofthe property and defendant is merely benamidar and theconsideration has flown from him, then such suit would not lieon account of the provisions of Section 4(1). Bar against filing,entertaining and admission of such suits would have becomeoperative by June 1988 and to that extent Section 4(1) would takein its sweep even past benami transactions which are sought tobe litigated upon after coming into force of the prohibitory provisionof Section 4(1); but that is the only effect of the retroactivity ofSection 4(1) and nothing more than that. From the conclusionthat Section 4(1) shall apply even to past benamitransactions to the aforesaid extent, the next step takenby the Division Bench that therefore, the then existingrights got destroyed and even though suits by real ownerswere filed prior to coming into operation of Section 4(1)they would not survive, does not logically follow.

12. So far as Section 4(2) is concerned, all that is provided is thatif suit is filed by plaintiff who claims to be the owner of theproperty under the document in his favour and holds the propertyin his name, once Section 4(2) applies, no defence will be permitted

CDEF

or allowed in any such suit, claim or action by or on behalf of aperson claiming to be the real owner of such property held benami.The disallowing of such defence which earlier was available,itself suggests that new liability or restriction is imposed bySection 4(2) on pre-existing right of the defendant. Such aprovision also cannot be said to be retrospective or retroactive bynecessary implication. It is also pertinent to note that Section 4(2)does not expressly seek to apply retrospectively. So far as such asuit which is covered by the sweep of Section 4(2) is concerned,the prohibition of Section 4(1) cannot apply to it as it is not claimor action filed by the plaintiff to enforce right in respect of anyproperty held benami. On the contrary, it is suit, claim or actionflowing from the sale deed or title deed in the name of the plaintiff.Even though such suit might have been filed prior to 19-5-1988,if before the stage of filing of defence by the real owner is reached,Section 4(2) becomes operative from 19-5-1988, then such adefence, as laid down by Section 4(2) will not be allowed to sucha defendant. However, that would not mean that Section 4(1) andSection 4(2) only on that score can be treated to be impliedlyretrospective so as to cover all the pending litigations in connectionwith enforcement of such rights of real owners who are parties tobenami transactions entered into prior to the coming into operationof the Act and specially Section 4 thereof. It is also pertinent tonote that Section 4(2) enjoins that no such defence “shall beallowed” in any claim, suit or action by or on behalf of personclaiming to be the real owner of such property. That is to say nosuch defence shall be allowed for the first time after coming intooperation of Section 4(2). If such defence is already allowed ina pending suit prior to the coming into operation of Section 4(2),enabling an issue to be raised on such defence, then the Court isbound to decide the issue arising from such an already alloweddefence as at the relevant time when such defence was allowedSection 4(2) was out of the picture. Section 4(2) nowhere usesthe words: “No defence based on any right in respect of anyproperty held benami whether against the person in whose namethe property is held or against any other person, shall be allowedto be raised or continued to be raised in any suit.” With respect, itwas wrongly assumed by the Division Bench that such an alreadyallowed defence in pending suit would also get destroyed after

coming into operation of Section 4(2). We may at this stage referto one difficulty projected by learned advocate for the respondentsin his written submissions, on the applicability of Section 4(2).These submissions read as under:

13. According to us this difficulty is inbuilt in Section 4(2) anddoes not provide the rationale to hold that this section appliesretrospectively. The legislature itself thought it fit to do so andthere is no challenge to the vires on the ground of violation ofArticle 14 of the Constitution. It is not open to us to rewrite thesection also. Even otherwise, in the operation of Section 4(1) and(2), no discrimination can be said to have been made amongstdifferent real owners of property, as tried to be pointed out in thewritten objections. In fact, those cases in which suits are filed byreal owners or defences are allowed prior to coming into operationof Section 4(2), would form separate class as compared to thosecases where stage for filing such suits or defences has still notreached by the time Section 4(1) and (2) starts operating.Consequently, latter type of cases would form distinct categoryof cases. There is no question of discrimination being meted outwhile dealing with these two classes of cases differently. realowner who has already been allowed defence on that groundprior to coming into operation of Section 4(2) cannot be said tohave been given better treatment as compared to the real ownerwho has still to take up such defence and in the meantime he ishit by the prohibition of Section 4(2). Equally there cannot be anycomparison between real owner who has filed such suit earlierand one who does not file such suit till Section 4(1) comes intooperation. All real owners who stake their claims regarding benamitransactions after Section 4(1) and (2) came into operation aregiven uniform treatment by these provisions, whether they comeas plaintiffs or as defendants. Consequently, the grievances raisedin this connection cannot be sustained.

14.15 Returning to the discussion at hand, there is no doubt thatthe unamended 1988 Act tried to create strict liability offence andallowed separate acquisition of benami property. This begs the questionwhether such criminal provision, which the State now intends to makeuse of, in order to confiscate properties after 28 years of dormancy,

Acould have existed in the books of law. Other than the abuse andunfairness such exercise intends to bring about, there is largerconstitutional question about existence of such strict provisions withoutadequate safeguards.

15. SUBSTANTIVEDUEPROCESS, MANIFESTARBITRARINESSANDBPROVISIONSUNDER 1988 ACT.

15.1 The simple question addressed by the counsel appearing forboth sides is whether the amended 2016 Act is retroactive or prospective.Answering the above question is inevitably tied to an intermediate questionas to whether the 1988 Act was constitutional in the first place. TheCarguments addressed by the Union of India hinges on the fact that the1988 Act was valid substantive law, which required only some gapfilling through the 2016 Act, to ensure that sufficient proceduralsafeguards and mechanisms are present to enforce the law. According,to the Union of India, the 2016 Act was mere gap filling exercise.

15.2 However, upon studying the provisions of the 1988 Act, weDfind that there are questions of legality and constitutionality which arisewith respect to Sections 3 and 5 of 1988 Act. The answers to suchquestions cannot be assumed in favour of constitutionality, simply becausethe same was never questioned before the Court of law. We are clarifyingthat we are not speaking of the presumption of constitutionality as aEmatter of burden of proof. Rather, we are indicating the assumptiontaken by the Union as to the validity of these provisions in the presentlitigation. Such assumption cannot be made when this Court is calledupon to answer whether the impugned provisions are attracted to thosetransactions that have taken place before 2016.F15.3 Indian jurisprudence has matured through years of judicialtempering, and the country has grown to be jurisdiction having‘substantive due process’. brief sketch of the jurisprudential journeythus far, may be necessary to aid our understanding.

15.4 There is no gain saying that deletion of the phrase ‘due processof law’ from the draft Constitution was inspired by the views of JamesGBradley Thayer and Justice Felix Frankfurter, who held that concentrationof power to examine reasonability of legislation through judicial reviewwould fall foul of separation of powers and denigration of parliamentarysovereignty. Dr. Ambedkar himself did not want to side with any of theabove opinions, rather he envisaged the situation as one who is caughtHbetween Charybdis and Scylla.

15.5 The emphasis on the aforesaid deletion by the majority inA.K Gopalan v. State of Madras, AIR 1950 SC 27, was somewhatdrawn back by the celebrated dissent of Fazal Ali, J., wherein the term“Procedure established by law” was interpreted to mean “Proceduraldue process”. This judicial quibbling was ultimately set to rest in ManekaGandhi v. Union of India, (1978) 1 SCC 248, wherein combinedreading of Articles 14, 19 and 21 would make it clear that the judiciary,so to say, always had the forensic power to examine reasonability of alaw, both procedural as well as substantive. Later expositions have onlygiven colour to expand what was implicit under the three golden Articlesof Part III. In Sunil Batra v. Delhi Administration, (1978) 4 SCC 494,the word law as occurring under Article 21 was interpreted to mean jusand not merely lex. It may be necessary to quote the observation of themajority in the aforesaid case in the following manner:

“228…The word “law” in the expression “procedure establishedby law” in Article 21 has been interpreted to mean in ManekaGandhi case that the law must be right, just and fair and not”arbitrary, fanciful or oppressive.

(Emphasis supplied)

15.6 Without burdening this judgment with series of precedentslaid down by this Court, we may refer only to the majority opinion in K.Puttaswamy v. Union of India, (2017) 10 SCC 1, wherein the law hasbeen settled by Nine-Judge Bench of this Court in the following manner:

“294. The Court, in the exercise of its power of judicial review,is unquestionably vested with the constitutional power to adjudicateupon the validity of law. When the validity of law is questionedon the ground that it violates guarantee contained in Article 21,the scope of the challenge is not confined only to whether theprocedure for the deprivation of life or personal liberty is fair, justand reasonable. Substantive challenges to the validity of lawsencroaching upon the right to life or personal liberty has beenconsidered and dealt with in varying contexts, such as the deathpenalty (Bachan Singh [Bachan Singh v. State of Punjab,(1980) 2 SCC 684 : 1980 SCC (Cri) 580] ) and mandatory deathsentence (Mithu [Mithu v. State of Punjab, (1983) 2 SCC 277 :1983 SCC (Cri) 405] ), among other cases. person cannot bedeprived of life or personal liberty except in accordance with the

procedure established by law. Article 14, as guarantee againstarbitrariness, infuses the entirety of Article 21. The interrelationshipbetween the guarantee against arbitrariness and the protection oflife and personal liberty operates in multi-faceted plane. First, itensures that the procedure for deprivation must be fair, just andreasonable. Second, Article 14 impacts both the procedure andthe expression “law”. law within the meaning of Article 21must be consistent with the norms of fairness which originate inArticle 14. As matter of principle, once Article 14 has connectwith Article 21, norms of fairness and reasonableness would applynot only to the procedure but to the law as well.295. Above all, it must be recognised that judicial review is apowerful guarantee against legislative encroachments on life andpersonal liberty. To cede this right would dilute the importance ofthe protection granted to life and personal liberty by the Constitution.Hence, while judicial review in constitutional challenges to thevalidity of legislation is exercised with conscious regard for thepresumption of constitutionality and for the separation of powersbetween the legislative, executive and judicial institutions, theconstitutional power which is vested in the Court must be retainedas vibrant means of protecting the lives and freedoms ofindividuals.

296. The danger of construing this as an exercise of“substantive due process” is that it results in the incorporation ofa concept from the American Constitution which was consciouslynot accepted when the Constitution was framed. Moreover, evenin the country of its origin, substantive due process has led tovagaries of judicial interpretation. Particularly having regard tothe constitutional history surrounding the deletion of that phrase inour Constitution, it would be inappropriate to equate the jurisdictionof constitutional court in India to entertain substantive challengeto the validity of law with the exercise of substantive due processunder the US Constitution. Reference to substantive due processin some of the judgments is essentially reference to substantivechallenge to the validity of law on the ground that its substantive(as distinct from procedural) provisions violate the Constitution.”

15.7 The law with respect to testing the unconstitutionality of astatutory instrument can be summarized as under:

a.Constitutional Courts can test constitutionality of legislativeAinstruments (statute and delegated legislations);

b.The Courts are empowered to test both on procedure aswell as substantive nature of these instruments.

c.The test should be based on combined reading of Articles14, 19 and 21 of the Constitution.

15.8 One of the offshoots of this test under Part III of theConstitution is the development of the doctrine of manifest arbitrariness.A doctrinal study of the development of this area may not be warrantedherein. It is well traced in Shayara Bano v. Union of India, (2017) 9SCC 1. We may only state that the development of jurisprudence hascome full circle from an overly formalistic test of classification to includethe test of manifest arbitrariness. broad formulation of the test wasnoted in the aforesaid case as under:

“95. On reading of this judgment in Natural ResourcesAllocation case [Natural Resources Allocation, In re, SpecialReference No. 1 of 2012, (2012) 10 SCC 1], it is clear that thisCourt did not read McDowell [State of A.P. v. McDowell andCo., (1996) 3 SCC 709] as being an authority for the propositionthat legislation can never be struck down as being arbitrary. Indeedthe Court, after referring to all the earlier judgments, and AjayHasia [Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC722] in particular, which stated that legislation can be struck downon the ground that it is “arbitrary” under Article 14, went on toconclude that “arbitrariness” when applied to legislation cannotbe used loosely. Instead, it broad based the test, stating that if aconstitutional infirmity is found, Article 14 will interdict suchinfirmity. And constitutional infirmity is found in Article 14 itselfwhenever legislation is “manifestly arbitrary” i.e. when it is notfair, not reasonable, discriminatory, not transparent,capricious, biased, with favouritism or nepotism and not inpursuit of promotion of healthy competition and equitabletreatment. Positively speaking, it should conform to norms whichare rational, informed with reason and guided by public interest,etc.”

(emphasis supplied)

15.9 In Joseph Shine v. Union of India, (2019) 3 SCC 39, thisCourt was concerned with the constitutionality of Section 497 of theIPC relating to the provision of adultery. While declaring the aforesaidprovision as unconstitutional on the aspect of it being manifestly arbitrary,this Court reiterated the test as under:

B“...The test of manifest arbitrariness, therefore, as laid down inthe aforesaid judgments would apply to invalidate legislation aswell as subordinate legislation Under Article 14. Manifestarbitrariness, therefore, must be something done by thelegislature capriciously, irrationally and/or without adequatedetermining principle. Also, when something is done whichCis excessive and disproportionate, such legislation wouldbe manifestly arbitrary. We are, therefore, of the view thatarbitrariness in the sense of manifest arbitrariness as pointed outby us above would apply to negate legislation as well Under Article14.”

(emphasis supplied)

15.10 In Hindustan Construction Co. Ltd v. Union of India,(2020) 17 SCC 324, this Court struck down Section 87 of the ArbitrationAct on the ground of manifest arbitrariness as the Parliament chose toignore the judgment of this Court, without removing the basis of theEsame or identifying principle for militating against the same.

15.11 Coming back to the 1988 Act, the two provisions with whichwe are concerned are Sections 3 and 5 of 1988 Act. They are requiredto be separately analysed herein. At the outset, we may notice that theenactment was merely shell, lacking the substance that criminalFlegislation requires for being sustained. The reasons for the same areenumerated in the following paragraphs.

15.12 First, the absence of mens rea creates harsh provisionhaving strict liability. Such an approach was frowned upon by the 57[th]Law Commission Report as concerns of tax evasion or sham transactionsGin order to avoid payment to creditors were adequately addressed by theexisting provisions of law. Even the 130[th] Law Commission Report didnot expressly rule out the inclusion of mens rea. The legislative move toignore earlier Law Commission Reports without there being principleidentified to do away with the aspect of mens rea should be contributoryfactor in analysing the constitutionality of the aforesaid criminal provisionHunder the 1988 Act.

15.13 Further, under the amended 2016 Act, the aspect of mensrea, is brought back through Section 53. Such resurrection clearlyindicates that doing away of the mens rea aspect, was without any rhymeor reason, and ended up creating an unusually harsh enactment.

15.14 Second, ignoring the essential ingredient of beneficialownership exercised by the real owner contributes to making the laweven more stringent and disproportionate with respect to benamitransactions that are tripartite in nature. The Court cannot forcefullyread the ingredients developed through judicial pronouncements or underSection 4 (having civil consequence) into the definition provided underSections 2 and 3 (espousing criminal consequences), to save theenactment from unconstitutionality. Such reading would violate theexpress language of Section 2(a), of excluding one ingredient from thedefinition of ‘benami transaction’, and would suffer from the vice ofjudicial transgression. In removing such an essential ingredient, thelegislature did not identify any reason or principle, which made the entireprovision of Section 3 susceptible to arbitrariness. Interestingly, fortripartite benami transactions, the 2016 Act brings back this ingredientthrough Section 2(9)(A)(b). In this context, we may state that it is asimple requirement under Article 20(1) that law needs to be clear andnot vague. It should not have incurable gaps which are yet to be legislated/filled in by judicial process.

15.15 Third, it is fairly admitted by the learned ASG, Mr. VikramjitBanerjee appearing for the Union of India, that the criminal provisionwas never utilized as there was significant hiatus in enabling thefunctioning of such provision.

15.16 Fourth, reading Section 2(a) with Section 3(1) would havecreated overly broad laws susceptible to be challenged on the groundsof manifest arbitrariness. If this Court reads criminal provisions of theBenami Act to have had force since 1988, then the following deleteriousconsequences would ensue:

(i.)Section 187C of the Companies Act, 1956 assuredprotection to nominal and beneficial holding of shares if theGprescribed declaration duly made are at serious risk.

(ii.)Benami cooking gas connections which have beenregularized from time to time are at risk.

(iii.)Housing colonies and benami allotments of DDA flats whichhave been regularised from time to time are at risk.

A15.17 The criminal provision under Section 3(1) of the 1988 Acthas serious lacunae which could not have been cured by judicial forums,even through some form of harmonious interpretation. conclusioncontrary to the above would make the aforesaid law suspect to beingoverly oppressive, fanciful and manifestly arbitrary, thereby violating the‘substantive due process’ requirement of the Constitution.B

15.18 Coming to Section 5 of the 1988 Act, it must be noted thatthe acquisition proceedings contemplated under the earlier Act were inrem proceedings against benami property. We may note that,jurisprudentially, such in rem proceedings transfer the guilt from the personwho utilized property which is general harm to the society, to theCproperty itself.

15.19 When such proceedings are contemplated under law, thereneed to be adequate safeguards built into the provisions, without whichthe law would be susceptible to challenge under Article 14 of theConstitution. Coming to Section 5 of the 1988 Act, it was conceived as aDhalf-baked provision which did not provide the following and rather leftthe same to be prescribed through delegated legislation:

(i)Whether the proceedings under Section 5 were independentor dependant on successful prosecution?

(ii)The standard of proof required to establish benamitransaction in terms of Section 5.

(iii)Mechanism for providing opportunity for person to establishhis defence.

(iv)No ‘defence of innocent owner’ was provided to saveFlegitimate innocent buyers.

(v)No adjudicatory mechanism was provided for.

(vi)No provision was included to determine vesting of acquiredproperty.

(vii)No provision to identify or trace benami properties.

(viii) Condemnation of property cannot include the power oftracing, which needs an express provision.

Such delegation of power to the Authority was squarely excessiveand arbitrary as it stood. From the aforesaid, the Union’s stand that theH2016 Act was merely procedural, cannot stand scrutiny.

15.20 In any case, such an inconclusive law, which left the essentialfeatures to be prescribed through delegation, can never be countenancedin law to be valid under Part III of the Constitution. The gaps left in the1988 Act were not merely procedural, rather the same were essentialand substantive. In the absence of such substantive provisions, theomissions create law which is fanciful and oppressive at the sametime. Such an overbroad provision was manifestly arbitrary as the opentexture of the law did not have sufficient safeguards to be proportionate.

15.21 At this stage, we may only note that when Court declaresa law as unconstitutional, the effect of the same is that such declarationwould render the law not to exist in the law books since its inception. Itis only limited exception under Constitutional law, or when substantialactions have been undertaken under such unconstitutional laws that goingback to the original position would be next to impossible. In those casesalone, would this Court take recourse to the concept of ‘prospectiveoverruling’.15.22 From the above, Section 3 (criminal provision) read withSection 2(a) and Section 5 (confiscation proceedings) of the 1988 Actare overly broad, disproportionately harsh, and operate without adequatesafeguards in place. Such provisions were still-born law and never utilizedin the first place. In this light, this Court finds that Sections 3 and 5 of the1988 Act were unconstitutional from their inception.

15.23 Having said so, we make it abundantly clear that theaforesaid discussion does not affect the civil consequences contemplatedunder Section 4 of the 1988 Act, or any other provisions.

16. 2016 ACTAND ITSANALYSIS

16.1 The next subject of examination is the 2016 Act, which amendsthe 1988 Act, and expanded the 1988 Act to 72 sections (from 9 sections),divided into 8 chapters. At the outset, we need to understand the generalscheme of the law. The definition of benami transactions, which is theheart of the entire 1988 Act, has undergone metamorphosis and standsas under:

[DEFINITIONS.

Section 2(9) “benami transaction” means:

(A) transaction or an arrangement-

(a) where property is transferred to, or is held by, person,and the consideration for such property has been provided, orpaid by, another person; and

(b) the property is held for the immediate or future benefit,direct or indirect, of the person who has provided theconsideration,

except when the property is held by-

(i) Karta, or member of Hindu undivided family, asthe case may be, and the property is held for his benefit orbenefit of other members in the family and the considerationfor such property has been provided or paid out of the knownsources of the Hindu undivided family;

(ii) person standing in fiduciary capacity for the benefitof another person towards whom he stands in such capacityand includes trustee, executor, partner, director of company,a depository or participant as an agent of depository underthe Depositories Act, 1996 (22 of 1996) and any other personas may be notified by the Central Government for this purpose;

(iii) any person being an individual in the name of his spouseor in the name of any child of such individual and theconsideration for such property has been provided or paid outof the known sources of the individual;

(iv) any person in the name of his brother or sister or linealascendant or descendant, where the names of brother or sisteror lineal ascendant or descendant and the individual appear asjoint-owners in any document, and the consideration for suchproperty has been provided or paid out of the known sourcesof the individual; or

(B) transaction or an arrangement in respect of propertycarried out or made in fictitious name; or

(C) transaction or an arrangement in respect of propertywhere the owner of the property is not aware of, or, deniesknowledge of, such ownership;

(D) transaction or an arrangement in respect of propertywhere the person providing the consideration is not traceableor is fictitious;

Explanation. - For the removal of doubts, it is hereby declaredthat benami transaction shall not include any transactioninvolving the allowing of possession of any property to be takenor retained in part performance of contract referred to insection 53A of the Transfer of Property Act, 1882, if, underany law for the time being in force,-

(i) consideration for such property has been provided by theperson to whom possession of property has been allowed butthe person who has granted possession thereof continues tohold ownership of such property;

(ii) stamp duty on such transaction or arrangement has beenpaid; and

(iii) the contract has been registered.

16.2 Major changes envisaged under the definition are as under:

(i)Expansion of the definition from arm’s length transactionscontemplated under the 1988 Act, to arrangements andschemes.

(ii)Additional ingredient of benefits flowing to the real owner,a lacuna pointed in the earlier part, under 1988 Act, is includedin terms of Section 2(9)(A)(b).

(iii)Expansion of the ambit through Section 2(9)(C), to thoseproperties where benamidar denies knowledge of suchownership.

(iv)Expansion of the ambit through Section 2(9)(D), whereinthe person providing the consideration is not traceable or isfictitious.

(v)Expansion from recognition of only tripartite transactionsunder 1988 Act, to also include bipartite transactions.

16.3 Section 2(26) of the 2016 Act defines property. Thisdefinition has been expanded to include proceeds from the property aswell. Such expansion allows for tracing of proceeds and is substantialchange as compared to the 1988 Act. Along with this, benami propertyhas been defined under Section 2(8). Benamidar is defined under Section2(10).

A16.4 Chapter 2 contains four provisions which are modifiedprovisions of the 1988 Act. Section 3 now bifurcates offences into twoseparate categories based on the time period of the benami transaction.Under Section 3(2), punishment of three years is mandated for thosewho have entered into benami transactions from 05.09.1988 to 25.10.2016.Section 3(3) applies to those benami transactions which have been enteredBinto after commencement of the amended 2016 Act and the punishmentfor the aforesaid is prescribed under Section 53 of Chapter VII. It maybe noted that under Section 3(3), the punishment is increased from threeyears to maximum of seven years and fine may be imposed whichextend up to 25% of the fair market value of the property. This distinctionCbetween Section 3(2) and 3(3) read with Section 53, contains the elementof mens rea.

16.5 Section 4 remains the same as under the 1988 Act, barringthe fact that Section 4(3) has integrated the exceptions provided underthe definition of benami transaction in terms of Section 2(9). The civilDconsequences provided under Section 4 continue to apply even post the2016 Act. The interpretation of the aforesaid section, as given in the R.Rajagopal Reddy Case (supra), continues to apply.

16.6 Section 5 on the other hand has been modified and it presentlystands as under:E5

5. Property held benami liable to confiscation. —Anyproperty, which is subject matter of benami transaction, shall beliable to be confiscated by the Central Government.

16.7 Chapter III relates to the administrative mechanism of theauthorities required for implementation of the 2016 Act. Chapter IVFrelates to attachment, adjudication, and confiscation of benami property.These provisions relate to forfeiture, which need to be analysedhereinafter.

16.8 Section 24(1) states that, if the initiating Officer, on thebasis of gathered material, having reason to believe, that particularGproperty is benami property, then he ought to issue notice[7] to thebeneficial owner (if identified) as well as to the ostensible owner (ifany) seeking an explanation as to why the property should not be treatedas Benami.

H7 In terms of Section 25 of the 2016 Act.

16.9 The 2016 Act provides for provisional attachment of theproperty where the concerned officer has genuine reason to believe,based on the material gathered, that the person in possession of theproperty held in benami may alienate the property. Such provisionalattachment cannot be taken recourse to every time. Recourse underSection 24(3) of the 2016 Act should be exercised in exceptionalcircumstance after previous approval of Approving Authority. Suchinterim provisional attachment is strictly limited by time.16.10 Adjudication under Section 24(4) is mandatory and requiresthe authority to examine the same on prima facie basis. Suchadjudication must take place after providing collected material to theaccused, along with the show cause notice. reasoned order is mandatedunder the aforesaid provision. The Officer is mandated to present astatement of case to the adjudicating officer, in terms of Section 24(5) ofthe 2016 Act.

16.11 Adjudication under Section 26 mandates notice and disclosureobligation to various other persons. The adjudicating authority can eitherpass an order in terms of Section 26(3)(c)(i) or (ii), or pass an order forfurther inquiries in terms of Section 26(3)(b).

16.12 Section 27(1) relates to confiscation of property, wherein ifa property is adjudicated as benami property under Section 26(3), thenthe adjudicating authority can give an opportunity to the concernedpersons, and after hearing the parties, pass an order confiscating theproperty. The aforesaid confiscation order is subject to the order passedby the Appellate Tribunal under Section 46. Order of confiscation vestssuch property absolutely in the Central Government, free from allencumbrances and no compensation shall be payable in respect of suchconfiscation.

16.13 Section 27(4) provides that in the interregnum of initiatingconfiscation proceedings, any third-party rights created to defeat thepurpose of the Act shall be null and void. Sub clause 5 mandates that ifno order of confiscation is made and the same has attained finality, noclaim can be made against the Government for the process.

16.14 Section 28 mandates appointment of an Administrator bythe Central Government to manage the property. Such an Administratorshall have the power to take possession of such property upon order ofconfiscation, in terms of Section 29.

A16.15 Chapters V and VI delineate the powers of the AppellateTribunal as well as Special Courts. Chapter VII consists of offencesand penalties. Specifically, we may refer to Section 53:

53. Penalty for Benami Transaction

(1) Where any person enters into benami transaction in order toBdefeat the provisions of any law or to avoid payment of statutorydues or to avoid payment to creditors, the beneficial owner,benamidar and any other person who abets or induces any personto enter into the benami transaction, shall be guilty of the offenceof Benami transaction.

(2) Whoever is found guilty of the offence of benami transactionreferred to in sub-section (1) shall be punishable with rigorousimprisonment for term which shall not be less than one year, butwhich may extend to seven years and shall also be liable to finewhich may extend to twenty-five per cent. of the fair marketDvalue of the property.

Interestingly, crime which attracted strict liability under the 1988Act, is modified to include mens rea aspect in terms of therecommendations of the 57[th] and 130[th] Law Commission Reports.

16.16 It may be necessary to note that no prosecution can beEinitiated without previous sanction of the competent authority as providedunder Section 55, which reads as under:

55. No prosecution shall be instituted against any person in respectof any offence under sections 3, 53 or section 54 without theprevious sanction of the Board.F16.17 Perusal of the remaining provisions is not required for thepurpose at hand.

17. WHETHER SECTION 3(1) AND CHAPTER IVREADWITH SECTION5 OFTHE 2016 ACTHAVERETROACTIVEEFFECT?

G17.1 The thrust of the arguments advanced by the Union of Indiacan be crystallized as under:

(i.)That the 1988 Act was valid enactment with proceduralgaps that were filled retrospectively by the 2016 amendment.

(ii.)That the provision of confiscation (civil forfeiture) underHthe 1988 Act, being in the domain of civil law, is not punitive

and therefore, the prohibition under Article 20(1) of theConstitution is not attracted in this case.

17.2 With respect to the first line of argument, our discussionabove can be summarized as under:

(a.)Section 3(1) of 1988 Act is vague and arbitrary.

(b.)Section 3(1) created an unduly harsh law against settledprinciples and Law Commission recommendations.

(c.)Section 5 of 1988 Act, the provision relating to civilforfeiture, was manifestly arbitrary.

(d.)Both provisions were unworkable and as matter of fact,were never implemented.

17.3 Having arrived at the aforesaid conclusions that Sections 3and 5 were unconstitutional under the 1988 Act, it would mean that the2016 amendments were, in effect, creating new provisions and newoffences. Therefore, there was no question of retroactive application ofthe 2016 Act. As for the offence under Section 3(1) for those transactionsthat were entered into between 05.09.1988 to 25.10.2016, the law cannotretroactively invigorate stillborn criminal offence, as established above.

17.4 As per the concession made by the Union of India and fairreading of Section 53 of the 2016 Act, the offence under the aforesaidprovision is prospective, and only applied to those transactions that wereentered into after the amendment came into force, viz., 25.10.2016. Anycontrary interpretation of Section 3 of the 1988 Act would be violative ofArticle 20(1) of the Constitution. Article 20(1) reads as under:

20. Protection in respect of conviction for offences

(1) No person shall be convicted of any offence except for violationof the law in force at the time of the commission of the act chargedas an offence, nor be subjected to penalty greater than thatwhich might have been inflicted under the law in force at the timeof the commission of the offence.

17.5 In T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, this Courthas expounded Article 20 (1) in the following manner:

“22. It is only retroactive criminal legislation that is prohibitedunder Article 20(1). The prohibition contained in Article 20(1) isthat no person shall be convicted of any offence except for violation

of law in force at the time of the commission of the act chargedas an offence prohibits nor shall he be subjected to penaltygreater than that which might have been inflicted under the law inforce at the time of the commission of the offence. It is quiteclear that insofar as the Central Amendment Act creates newoffences or enhances punishment for particular type of offenceno person can be convicted by such ex post facto law nor can theenhanced punishment prescribed by the amendment be applicable.But insofar as the Central Amendment Act reduces the punishmentfor an offence punishable under Section 16(1)(a) of the Act, thereis no reason why the accused should not have the benefit of suchreduced punishment. The rule of beneficial construction requiresthat even ex post facto law of such type should be applied tomitigate the rigour of the law. The principle is based both on soundreason and common sense. This finds support in the followingpassage from Craies on Statute Law, 7th Edn., at pp. 388-89:

“A retrospective statute is different from an ex post factostatute. “Every ex post facto law…” said Chase, J., in the Americancase of Calder v. Bull [3 US (3 Dall) 386: 1 L Ed 648 (1798)]“must necessarily be retrospective, but every retrospective law isnot an ex post facto law. Every law that takes away or impairsrights vested agreeably to existing laws is retrospective, and isgenerally unjust and may be oppressive; it is good general rulethat law should have no retrospect, but in cases in which thelaws may justly and for the benefit of the community and also ofindividuals relate to time antecedent to their commencement: asstatutes of oblivion or of pardon. They are certainly retrospective,and literally both concerning and after the facts committed. But Ido not consider any law ex post facto within the prohibitionthat mollifies the rigour of the criminal law, but only thosethat createor aggravate the crime, or increase the punishmentor change the rules of evidence for the purpose ofconviction.... There is great and apparent difference betweenmaking an unlawful act lawful and the making an innocent actioncriminal and punishing it as crime.”

17.6 In the case at hand, the 2016 Act containing the criminalprovisions is applicable only prospectively, as the relevant Sections ofthe pre-amendment 1988 Act containing the penal provision, have beenH

declared as unconstitutional. Therefore, the question of construction ofthe 2016 Act as retroactive qua the penal provisions under Sections 3 or53, does not arise.

17.7 The continued presence of an unconstitutional law on thestatute book, or the claim that such law was not challenged beforeConstitutional Courts, does not prevent this Court from holding that suchunconstitutional laws cannot enure to the benefit of or be utilized toretroactively amend laws to cure existing constitutional defects. If suchcuring is allowed, then Article 20(1) of the Constitution would be renderednugatory.

17.8 This brings us to the last aspect as to the retroactive operationof confiscation (forfeiture) under Section 5 read with Chapter IV of the2016 Act. It is the argument of the Union of India that civil forfeiturebeing in the domain of civil law is not punitive in nature. Therefore, itdoes not attract the prohibition contained under Article 20(1) of theConstitution. Meaning thereby, that if this Court holds that the civilforfeiture prescribed under the 2016 Act is punitive, only then will theprohibition under Article 20(1) apply. If not, then the prohibition does notapply.

17.9 Although we have held that Section 5 of the 1988 Act wasunconstitutional for being manifestly arbitrary, however such holding isof no consequence if this Court comes to the conclusion that confiscationunder Section 5 of 2016 Act read with Chapter IV, was civil in natureand is not punitive.

17.10 It is well settled that the legislature has power to enactretroactive/retrospective civil legislations under the Constitution. However,Article 20(1) mandates that no law mandating punitive provision canbe enacted retrospectively. Further, punitive provision cannot becouched as civil provision to by-pass the mandate under Article 20(1)of the Constitution which follows the settled legal principle that “whatcannot be done directly, cannot be done indirectly”.

17.11 Therefore, the immediate question which arises forconsideration is whether the retroactive confiscation provided underSection 5 read with Chapter IV of 2016 Act is punitive or not?

17.12 At the outset, we may note that Shri S. V. Raju, learnedASG, has submitted that acquisition provided under Section 5 of the 1988Act is same as confiscation provided under Section 5 read with Chapter

AIV of the 2016 Act. He states that both concepts are related to civil lawand is not concerned with punitive punishments as provided under theIndian Penal Code, 1860.

17.13 Acquisition under the earlier 1988 Act as well as confiscationunder the 2016 Act are said to have been enacted on the reasoning thatBthe property emanating from the benami transaction also gets tainted.The substantive difference between the acquisition provision under theearlier enactment and the confiscation provision under the 2016 Act isthat proceeds of benami transactions have been made traceable underthe 2016 Act.

C17.14 Before we analyse the other provisions, it is necessary togive brief introduction to the concept of civil forfeiture in India, as thesame was argued by the learned ASG. Under Admiralty jurisdiction, theconcerned Admiralty Courts had the jurisdiction to forfeit vessels underits civil jurisdiction in lieu of any maritime claim. Same was the lawacross various common law jurisdictions, such as the United States ofDAmerica and the United Kingdom.

17.15 Forfeiture occurs in various types, few of which are foundin India. Broadly, forfeitures can be categorized as civil and criminal. Onthe civil side, there can be in rem or in personam forfeitures. Punitiveforfeitures under the criminal law are in personam. Criminal forfeituresEusually take place at the conclusion of trial, when the guilt of the accusedis established. Standards of evidentiary requirement differ greatlybetween civil and criminal forfeiture.

17.16 The historic origin of in rem civil forfeiture in common lawjurisdictions was earlier mostly restricted to trans-national crimes. TheseFearly laws mandated that the property was subject to forfeiture becauseit was the instrument by which the offence was committed, and it wasnecessary to confiscate such property to remove it from circulation.However, the Twentieth century saw expansion of forfeiture laws into awide array of crimes. The modern forfeiture laws not only allow forfeitureGof property used to facilitate the crime, but cover the proceeds of theoffence as well. In the Supreme Court of the United States, constitutionalchallenges laid to such civil forfeiture laws have been dismissed as theywere usually attributed to historic prevalence of such forfeiture laws.However, such historic reasons of its existence cannot justify continuedexpansion of civil forfeiture laws, as has been observed by JusticeHClarence Thomas in the following manner:

“This system—where police can seize property with limited judicialoversight and retain it for their own use—has led to egregiousand well-chronicled abuses,” and “These forfeiture operationsfrequently target the poor and other groups least able to defendtheir interests in forfeiture proceedings”.[8]

17.17 In the case at hand, although expansion of forfeiture lawsoriginates from the Parliament’s concern for decriminalizing propertyholdings, however, we are reminded of Justice Oliver Wendell Holmes,who has stated as under:

“The customs beliefs or needs of primitive time establish ruleor formula. In the course of centuries, the custom, belief, ornecessity disappears, but the rule remains. The reason which gaverise to the rule has been forgotten, and ingenious minds setthemselves to enquire how it is to be accounted for. Some groundof policy is thought of, which seems to explain it and to reconcileit with the present state of things; and then the rule adapts itself tothe new reasons which have been found for it, and enters on anew career. The old form receives new content and in timeeven the form modifies itself to for the meaning which it hasreceived.”[9]17.18 While categorizing the forfeiture proceedings as civil orcriminal, the test laid down by the European Court of Human Rights inEngel v The Netherlands (No.1), [1976] 1 EHRR 647, have been treatedas giving authoritative guidance. Those tests are set out in paragraphs80 to 82 of the Report and are as follows:

“(i) The manner in which the domestic state classifies theproceedings. This normally carries comparatively little weight andis regarded as starting point rather than determinative — seeOzturk v Germany [1984] 6 EHRR 409 at 421 and 422.

(ii) The nature of the conduct in question classified objectivelybearing in mind the object and purpose of the Convention.

—(iii)The severity of any possible penalty severe penalties,including those with imprisonment in default and penaltiesintended to deter are pointers towards criminal

8 Leonard v. Texas, 137 S. Ct. 847, 847-48 (2017).

9 Oliver Wendell Holmes in The Common Law 5 (1881).

Aclassification of proceedings — see Schmautzer v Austria[1995] 21 EHRR 511.

In Lauko v Slovakia [1998] ECHR 26138/95 the court observedthat these criteria were alternatives and not cumulative althougha cumulative approach might be adopted where separate analysisBof each criterion did not make it possible to reach clear conclusionas to the existence of ‘criminal charge’.”

(emphasis supplied)

The aforesaid proposition has also been confirmed by the Houseof Lords in R v. H, [2003] 1 ALL ER 497.C

17.19 In Kennedy v Mendoza-Martinez, 372 US 144 (1963), theSupreme Court of the United States, while concerned with theconstitutionality of legislation that imposed forfeiture of citizenship onthose who had left or remained outside the United States during wartimeto evade military service, had laid down the following relevant factors toDclassify forfeiture law:

(a)Whether the sanction involves an affirmative disability orrestraint;

(b)Whether it has been historically regarded as punishment;

(c)Whether it is only applicable where there has been findingof scienter (that is, finding that an act has been doneknowingly and intentionally);

(d)Whether its operation promotes the traditional retributiveand deterrent aims of punishment;

(e)Whether the behaviour to which the statute applies is alreadya crime;

(f)Whether an alternative purpose to which it may be rationallyconnected is attributable to it; and

(g)Whether it appears excessive in light of the alternativepurpose assigned.

17.20 Coming to the Indian case laws, in State of West Bengal v.S. K. Gosh, AIR 1963 SC 255, this Court was concerned with the CriminalLaw Amendment Ordinance 38 of 1944, wherein the law provided onlyfor attachment of the property, after conviction is given effect to. UnlikeH

the present law, the taint on the property is squarely determined by theCriminal Court deciding the criminal conviction. Confiscation contemplatedunder Section 13 of the Criminal Law Amendment Ordinance 38 of1944 could only be given effect to after the verdict of guilty by CriminalCourt. In the light of such unique provisions, the Court characterizedsuch forfeiture laws as civil in nature. We may note that such law didnot contemplate an independent confiscation proceeding as created underthis law, rather, mechanism was devised to confiscate property aftercriminal conviction.

17.21 This Court, while noting that forfeiture is no doubt punitiveunder Article 20(1) of the Constitution as it is one of the punishmentsprescribed under Section 53 of IPC, held that Section 13(3) of the CriminalLaw Amendment Ordinance 38 of 1944 was not punitive as the samewas dependent on prior criminal prosecution and determination of amountwhich was to be forfeited in the following manner:

“12. Further what s. 13(3) of the 1944-Ordinance which providesfor forfeiture requires is that there should be in the final judgmentof the criminal court finding as to the amount of money or valueof property in pursuance of s. 12. As soon as that finding is there,the District Judge would know the amount he is to forfeit, and thepurpose of the finding is that if the District Judge is asked to makea forfeiture under s. 13(3) he should know exactly the amountwhich he is require to forfeit. So long therefore as the criminalcourt trying an offender has given finding as to the amount ofmoney or value of other property procured by means of the offencein the judgment that in our opinion is sufficient compliance with s.12(1) of the 1944-Ordinance and the requirement therein that itshould be on the representation of the prosecution is mereformality. Obviously, even determination under s. 10 of the 1943-Ordinance as amended in 1945 of the amount procured by theoffence must be at the instance of the prosecution for it is theprosecution which will provide the material for that determinationwhich in turn will be the basis on which the fine will be determinedby the court under s. 10. …

14. This brings us to the contention which found favour withBhattacharya J., namely, that the provision of s. 13(3) is apunishment and that as the 1944-Ordinance was not in force at

EFG

Athe time when the offence was committed s. 13(3) could not beapplied to the respondent inasmuch as Art. 20(1) lays down thatno person shall be subjected to penalty greater than that whichmight have been inflicted under the law in force at the time of thecommission of the offence. Two arguments have been urged onbehalf of the appellant in this connection. In the first place, it isBurged that the respondent remained in office till August 25, 1944while the Ordinance came into force on August 23, 1944 andtherefore the conspiracy by means of which the money wasprocured continued till after the Ordinance had come into forceand therefore Art. 20(1) can have no application, for it cannot beCsaid that the respondent was being subjected to penalty greaterthan that which might have been inflicted under the law in forceat the time of the commission of the offence. In the second place,it is urged that the forfeiture provided by s. 13(3) is not penaltyat all within the meaning of Art, 20(1), but is merely method ofrecovering money belonging to the Government which had beenDembezzled. It is urged that the Government could file suit torecover the money embezzled and s. 13(3) only provides speedierremedy for that purpose and the forfeiture provided therein is nota penalty within the meaning of Art. 20(1).”

17.22 In Divisional Forest Officer v. G. V. Sudhakar Rao, (1985)E4 SCC 573, this Court was concerned with the power of forfeiture underSection 44(2)(A) of Andhra Pradesh Forest Act, 1967. Noting thatSection 45 of the Forest Act prior to the amendment had provision forcivil forfeiture only after the conviction of an accused under the ForestAct, it was felt that such provision was insufficient to prevent theFgrowing menace of ruthless exploitation of government forests and illicitsmuggling of teak, red sandalwood, etc. It was in this context that aseparate mechanism was formulated to ensure that there was nounreasonable delay in confiscation of property.

17.23 It may be noted that this case did not involve constitutionalGchallenge under Article 20(1) to the aforesaid rules. In any case, thisCourt has held that the new mechanism formulated under the amendedAct was completely independent of criminal prosecution.

17.24 To the same extent, in State of Madhya Pradesh v. KalloBai, (2017) 14 SCC 502, this Court interpreted the Madhya PradeshHVan Upaj (Vyapar Viniyam) Adhiniyam, 1969 to have independent

confiscation proceedings from criminal prosecution in view of the non-obstante clause under Section 15C of the Adhiniyam. It may also benoted that there was no challenge to the aforesaid Act, as being violative

of Article 20(1) of the Constitution. The Court held as under:

“14. Sub-section (1) of Section 15 empowers forest officersconcerned to conduct search to secure compliance with theprovisions of the Adhiniyam. On plain reading of sub-section(2), it is clear that the officer concerned may seize vehicles, ropes,etc. if he has reason to believe that the said items were used forthe commission of an offence under the Adhiniyam. Confiscationproceedings as contemplated under Section 15 of the Adhiniyamis quasi-judicial proceedings and not criminal proceedings.Confiscation proceeds on the basis of the “satisfaction” of theauthorised officer with regard to the commission of forest offence.Sub-section (3) of the provision lays down the procedure to befollowed for confiscation under the Adhiniyam. Sub-section (3-A) authorises forest officers of rank not inferior to that of Ranger,who or whose subordinate, has seized any tools, boats, vehicles,ropes, chains or any other article as liable for confiscation, mayrelease the same on execution of security worth double theamount of the property so seized. This provision is similar to thatof Section 53 of the Forest Act as amended by the State of MadhyaPradesh. Sub-section (4) mandates that the officer concernedshould pass written order recording reasons for confiscation, ifhe is satisfied that forest offence has been committed by usingthe items marked for confiscation. Sub-section (5) prescribesvarious procedures for confiscation proceedings. Sub-section (5-A) prescribes that whenever an authorised officer havingjurisdiction over the case is himself involved in the seizure, thenext higher authority may transfer the case to any other officer ofthe same rank for conducting confiscation proceedings. Sub-section(6) provides that with respect to tools, vehicles, boats, ropes, chainsor any other article other than timber or forest produce seized,confiscation may be directed unless the person referred to in clause(b) of sub-section (5) is able to satisfy that the articles were usedwithout his knowledge or connivance or, as the case may be,without the knowledge or connivance of his servant or agent andthat all reasonable and necessary precautions had been takenagainst the use of such objects for commission of forest offence.”

A17.25 In Yogendra Kumar Jaiswal v. State of Bihar, (2016) 3SCC 183, Division Bench of this Court was concerned with theconstitutional challenge to various enactments such as the Orissa SpecialCourts Act, 2006 and the Bihar Special Courts Act, 2009. Both theenactments had provisions for confiscation. While interpreting theconfiscation provisions, this Court read down the same to only meanBinterim attachment. In other words, confiscation was interpreted as akinto attachment proceedings. The Court mandated that any confiscationwould be contingent on the final outcome of the criminal proceedingsand the logical corollary to the same was that confiscation proceedingswere not completely independent and ultimately had to be adjudicatedCalong with the trial of the main criminal case.

17.26 In Abdul Vahab v. State of Madhya Pradesh, (2022) SCCOnline SC 262, this Court was concerned with the interpretation of theMadhya Pradesh Cow Slaughter (Prohibition) Act, 2004, wherein it washeld that confiscation proceedings could not be independent of acquittalDin the criminal case. If contrary interpretation was taken, then thesame would be violative of Article 300A of the Constitution. This Courtdistinguished the case from the judgment of Kallo Bai (supra), by placingreliance on the absence of provision such as Section 15C of MadhyaPradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 under the MadhyaPradesh Cow Slaughter (Prohibition) Act, 2004.

17.27 In Vijay Madanlal Choudary & Ors v. Union of India,SLP (Civ.) No. 4634 of 2014 and others, this Court dealt with confiscationproceedings under Section 8 of the Prevention of Money LaunderingAct, 2002 (“PMLA”) and limited the application of Section 8(4) of PMLAconcerning interim possession by authority before conclusion of finalFtrial to exceptional cases. The Court distinguished the earlier cases inview of the unique scheme under the impugned legislation therein. Havingperused the said judgment, we are of the opinion that the aforesaid ratiorequires further expounding in an appropriate case, without which, muchscope is left for arbitrary application.

17.28 From the above discussion, it is manifest that the Courtshave read down the provisions of civil forfeiture to be dependent on theunderlying criminal prosecution to temper the harsh consequencesenvisaged under such provisions. No doubt, such reading down wasmandated to ameliorate harsh consequences of confiscatory laws whichHotherwise would have allowed the State agencies to take over the property

without seriously pursuing the criminal prosecutions. At this stage, wecan only recommend that the utility of independent provisions of forfeiture,distinct from criminal prosecution, needs to be utilised in proportionalmanner, looking at the gravity of the offence. Few examples which maypass the muster of proportionality for having such stringent civil forfeiture,may relate to crimes involving terrorist activities, drug cartels or organisedcriminal activities. As we have discussed, the application of such aprovision to numerous other offences which are not of such grave severity,would be of serious risk of being disproportionate, if proceduresindependent of criminal prosecution are prescribed. We may note thatthe proportionality of separate confiscation procedure prescribed underthe 2016 Act, has not been argued herein. Accordingly, we leave theaforesaid question of law open.

17.29 Under the IPC, forfeiture is recommended to be form ofpunishment under Section 53. Accordingly, the Code of CriminalProcedure, 1976 provides for mechanism for interim custody andforfeiture at the conclusion of trial under Section 451 of the Cr.P.C. (inpersonam forfeiture), which reads as under:

451. Order for custody and disposal of property pending

trial in certain cases. When any property is produced beforeany Criminal Court during any inquiry or trial, the Court may makesuch order as it thinks fit for the proper custody of such propertypending the conclusion of the inquiry or trial, and, if the property issubject to speedy and natural decay, or if it is otherwise expedientso to do, the Court may, after recording such evidence as it thinksnecessary, order it to be sold or otherwise disposed of.

Explanation.- For the purposes of this section,” property” includes-

(a) property of any kind or document which is produced beforethe Court or which is in its custody,

(b) any property regarding which an offence appears to have beencommitted or which appears to have been used for the commissionof any offence.

452. Order for disposal of property at conclusion of trial.

(1) When an inquiry or trial in any Criminal Court is concluded,the Court may make such order as it thinks fit for the disposal, bydestruction, confiscation or delivery to any person claiming to be

386SUPREME COURT REPORTS

Aentitle to possession thereof or otherwise, of any property ordocument produced before it or in its custody, or regarding whichany offence appears to have been committed, or which has beenused for the commission of any offence.

Aforesaid provisions under the Cr.P.C. have inbuilt safeguards ofBin personam criminal forfeiture, wherein confiscation occurs at the endof the trial. Under these provisions, confiscation is to be determined atan evidential standard of ‘beyond reasonable doubt’ and are dependenton the result of the criminal trial.

17.30 Coming to the Benami Act post the Amendment, the interplayCof Sections 27(3), (5) and 67 of the 2016 Act creates confiscationprocedure which is distinct from the procedure contemplated under theCrPC or any other enactment till now in India. This separation of theconfiscation mechanism is not merely procedural. It has also alteredsubstantive rights of the evidentiary standards from ‘beyond reasonabledoubt’ to ‘preponderance of probabilities’. Such change of standardsDcannot be merely termed as procedural.

17.31 Characterization of the confiscation proceedings underChapter IV of the 2016 Act as Civil may therefore not be appropriate.There is an implicit recognition of the forfeiture being punitive sanction,as the Officer is mandated to build case against the accused for suchEconfiscation, wherein the presumption of innocence is upheld structurally.Being punitive provision, it is trite that one integrates the ‘presumptionof innocence’ within the Chapter as the same forms part of thefundamental right.[10]

F17.32 Additionally, the 2016 Act now condemns not only thosetransactions which were traditionally denominated as benami, rather anew class of fictitious and sham transactions are also covered underthe same. In this regard, we may notice that the intention of thelegislature is to condemn such property and there is an implicit effortby the Parliament to take into consideration the fact that suchGtransactions are often acquired from ill-gotten wealth. Theseproceedings cannot be equated as enforcing civil obligations as, forexample, correcting deficiencies in the title. It goes further and thetaint attaches to the proceeds as well.

17.33 In view of the above discussion, it is manifest that the 2016Act contemplates an in-rem forfeiture, wherein the taint of entering intosuch benami transaction is transposed to the asset itself and the samebecomes liable to confiscation. At the cost of repetition, we may notethat the taint of benami transactions is not restricted to the person who isentering into the aforesaid transaction, rather, it attaches itself to theproperty perpetually and extends itself to all proceeds arising from sucha property, unless the defence of innocent ownership is established underSection 27(2) of the 2016 Act. When such taint is being created not onthe individual, but on the property itself, retroactive law wouldcharacterize itself as punitive for condemning the proceeds of sale whichmay also involve legitimate means of addition of wealth.17.34 Jurisprudentially, law may enable forfeiture of propertyby peculiar reason of its circumstances, of it being dangerous to thecommunity by reasons of any form or position that it assumes. In suchcases, forfeiture is not deemed to be punishment inflicted on its owner.By contrast, if the law provides that the Government shall forfeit aproperty ‘A’ for, (1) what was carried on in property ‘B’, or (2) what theowner does in matter not connected with property ‘A’ or (3) bareintent which does not necessarily relate to the conduct in property ‘A’, insuch cases, forfeiture is punishment without any exception. In this case,the property may not be inherently dangerous or denigrate any standardof morality. It is just the condemnation of the method of transfer andholding, which was once recognized form of property holding in India.In such case, the in rem civil proceeding utilized retroactively, wouldcharacterize itself as penal.

17.35 In the case at hand, the authority that initiates suchconfiscation, is granted extensive powers of discovery, inspection,compelling attendance, compelling production of documents. They arefurther empowered to take the assistance of police officers, customofficers, income tax officers and other relevant officers for furnishinginformation. It is also pertinent to note that any person who fails to furnishinformation, is subjected to penalty of ¹ 25,000/- (Rupees Twenty-FiveThousand) under Section 54(A). It is also necessary to note that personwho supplies false information before any authority, is subjected torigorous imprisonment of upto 5 years under Section 54 of the 2016 Act.

17.36 This Court is aware of the fact that the ‘Right to Property’is not fundamental right, rather it is constitutional right that can be

Aabridged by law. However, this Court is not concerned with theconstitutionality of such measure, wherein such considerations have tobe balanced. Rather, the focus is only on the characterization ofretroactive confiscation, which in these facts and circumstances, arepunitive.

B17.37 In view of the fact that this Court has already held that thecriminal provisions under the 1988 Act were arbitrary and incapable ofapplication, the law through the 2016 amendment could not retroactivelyapply for confiscation of those transactions entered into between05.09.1988 to 25.10.2016 as the same would tantamount to punitiveCpunishment, in the absence of any other form of punishment. It is in thisunique circumstance that confiscation contemplated under the periodbetween 05.09.1988 and 25.10.2016 would characterise itself as punitive,if such confiscation is allowed retroactively. Usually, when confiscationis enforced retroactively, the logical reason for accepting such an actionwould be that the continuation of such property or instrument, wouldDbe dangerous for the community to be left free in circulation. In R (onthe appln of the Director of the Assets Recovery Agency) v Jia JinHe and Dan Dan Chen, [2004] EWHC Admin 3021, where Collins, J.had stated thus:

“52. In Mudie, at page 1254, in the judgment of Laws LJ, whoEgave the only reasoned judgment, there is set out the citation fromButler which reads, so far as material, as follows:

“It is the applicant’s contention that the forfeiture of his moneyin reality represented severe criminal sanction, handed downin the absence of the procedural guarantees afforded to himFunder article 6 of the Convention, in particular his right to bepresumed innocence [sic]. The court does not accept that view.In its opinion, the forfeiture order was preventive measureand cannot be compared to criminal sanction, since it wasdesigned to take out of circulation money which was presumedGto be bound up with the international trade in illicit drugs. Itfollows that proceedings which led to the making of the orderdid not involve ‘the determination ... of criminal charge (seeRaimondo v Italy [1994] 18 EHRR 237, 264, at para 43; andmore recently Arcuri v Italy (Application No 52024/99),inadmissibility decision of 5th July 2001...””

17.38 When we come to the present enactment, history points toa different story wherein benami transactions were an accepted form ofholding in our country. In fact, the Privy Council had, at one point oftime, praised the sui generis evolution of the doctrine of trust in theIndian law. The response by the Government and the Law Commissionto curb benami transactions was also not sufficient as it was concededbefore this Court that Sections 3 and 5 of the 1988 Act in reality, dehorsthe legality, remained only on paper and were never implemented onground. Any attempt by the legislature to impose such restrictionsretroactively would no doubt be susceptible to prohibitions under Article20(1) of the Constitution.

17.39 Looked at from different angle, continuation of only thecivil provisions under Section 4, etc., would mean that the legislativeintention was to ensure that the ostensible owner would continue to havefull ownership over the property, without allowing the real owner tointerfere with the rights of benamidar. If that be the case, then withouteffective any enforcement proceedings for long span of time, the rightsthat have crystallized since 1988, would be in jeopardy. Such impliedintrusion into the right to property cannot be permitted to operateretroactively, as that would be unduly harsh and arbitrary.

18. Conclusion

18.1 In view of the above discussion, we hold as under:

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

b)In rem forfeiture provision under Section 5 of theunamended Act of 1988, prior to the 2016 Amendment Act,was unconstitutional for being manifestly arbitrary.

c)The 2016 Amendment Act was not merely procedural,rather, prescribed substantive provisions.

d)In rem forfeiture provision under Section 5 of the 2016 Act,being punitive in nature, can only be applied prospectivelyand not retroactively.

e)Concerned authorities cannot initiate or continue criminalprosecution or confiscation proceedings for transactions

390SUPREME COURT REPORTS

Aentered into prior to the coming into force of the 2016 Act,viz., 25.10.2016. As consequence of the above declaration,all such prosecutions or confiscation proceedings shall standquashed.

f)As this Court is not concerned with the constitutionality ofBsuch independent forfeiture proceedings contemplatedunder the 2016 Amendment Act on the other grounds, theaforesaid questions are left open to be adjudicated inappropriate proceedings.

18.2 The appeal is disposed of in the above terms.

Divya Pandey

Appeal disposed of.

(Assisted by : Deepak Panwar, LCRA)