Date: 27/08/2022

Relevance: GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Key Phrases: Benami Transactions (Prohibition) Amendment Act, 2016, disguised criminal, punitive provisions, civil liabilities, Sections 3, Section 5, Article 20, No ex-post-facto law, Benami Property, Appellate Tribunal, manifestly arbitrary, criminal prosecution, confiscation proceedings.

Why in News?

• The Supreme Court of India stated the provision of the Benami Transaction Amendment Act "unconstitutional" on the grounds of being "manifestly arbitrary".

Background:

• The Benami Transactions (Prohibition) Amendment Act, 2016, was declared not to have retrospective effect by the Calcutta High Court in December 2019.
• The decision of the Calcutta High Court was then appealed by the Central government to the Supreme Court.
• This issue came up with respect to the poor legislative rigour in the framing of Benami Transactions (Prohibition) Amendment Act, 2016.
• Chief Justice N.V Ramana stated that the Benami Transactions Amendment Act of 2016 should not be applied retrospectively.
• The court declared some provisions of the Benami Transactions (Prohibition) Act of 1988 and the 2016 amendments to the Act unconstitutional.

What is Benami Property?

• "Benami" means "no name" or "without name".
• Benami properties are those that are held by an owner through proxies. The property is purchased in the name of or held in the name of a person who has neither paid for it nor actually enjoys it.
• It may even be held in the name of a non-existent person.
• Such front person is known as 'Benamidar'. This name is only an alias for the actual owner, the 'Beneficial Owner'.
• Thus, the Benami property transaction is where the 'Beneficial Owner' buys the property in the name of a Benamidar but seeks to enjoy it himself.

Law in India against Benami Property:

• Benami Transactions (Prohibition) Act, 1988:
  • It is an act of the Indian parliament that disallows certain financial transactions.
  • This act labels a 'benami' transaction as any transaction in which property is transferred to one person for the amount paid by another person.
  • In legal terms, it means any transaction in which property is transferred to one person for a consideration paid or provided is called a 'benami transaction'.
  • The act establishes four authorities to conduct inquiries or investigations regarding benami transactions and also has provisions for an Appellate Tribunal.
  • Section 5 of the act said that “any benami property shall be liable to be confiscated by the Central Government”.
• Benami Transaction Amendment Act 2016:
  • In 2016, the government of India amended the Benami Transaction Act 1988. The motive of this amendment was to curb black money in India.
  • The Act defines a benami transaction.
  • Under the Amendment Act, the term “property” will cover movable, immovable, tangible and intangible properties. In case of joint ownership of property, the taxpayer will have to show financing sources.
  • It provides an Appellate Tribunal to hear appeals against any orders passed by the Adjudicating Authority. Appeals against orders of the Appellate Tribunal will lie to the high court.
  • The special court should conclude the trial within six months from the date of filing of the complaint.
  • The amendment inserted a sub-section 2 in section 3 of part 3 of the act. It specified that whoever enters a Benami transaction shall be punishable with imprisonment for a term of up to three years or a fine or both.
  • The new punishment was also being applied retrospectively to the transactions that took place before 2016.

Judgement made by the Supreme Court:

The declarations made by the Supreme Court are as follows:

• The Supreme Court's ruling confirmed the Calcutta High Court's ruling that the 2016 Benami Transactions Act modification cannot be enforced retroactively.
• The Supreme Court's also invalidated the provisions of the Benami Transactions (Prohibition) Act of 1988, which threatened people who engaged in "benami" transactions with up to three years in prison, a fine, or both.
• Supreme Court's also declared the forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, as unconstitutional for being manifestly arbitrary.
• Supreme Court's also declared concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.

Why Supreme Court held Benami Property Act Unconstitutional?

• The Supreme Court of India stated that the provision of the act violated Article 20(1) of the Indian Constitution.
• The Supreme Court of India stated the provision of the Benami Transaction Amendment Act "unconstitutional" on the grounds of being "manifestly arbitrary".
• The CJI said, "Section 3 (criminal provision) read with Section 2(a) and Section 5 (confiscation proceedings) of the 1988 Act are overly broad, disproportionately harsh, and operate without adequate safeguards in place. Such provisions were stillborn law and never utilised in the first place. In this light, this court finds that Sections 3 and 5 of the 1988 Act were unconstitutional from their inception.
• Benami Provisions Act 2016 has section 5 which states that "any property which is a subject matter of a benami transaction shall be liable to be confiscated by the central government.” The Supreme Court announced that this provision cannot be applied retrospectively.

Source: The Hindu BL

Mains Question:

Q. Discuss the law with respect to benami property in India. Why recently supreme courts held some provisions of Benami Property Act unconstitutional? (250 words).