On the Resurrection of Retrospective Proceedings Under Benami Law

The Supreme Court recently delivered its decision in a review petition filed by the government against the judgment in Union of India v. M/s. Ganpati Dealcom Pvt. Ltd., dated 23 August 2022.  

The judgment under review had addressed significant questions about the retrospective application of the Benami Transactions (Prohibition) Amendment Act, 2016 while also striking down certain key provisions of the pre-amendment Benami Property (Prohibition) Act, 1988.   

Now, vide its judgment dated 18 October 2024, while deciding the government’s review, the Supreme Court has recalled the Ganpati Dealcom judgment and has held that the matter be sent for re-adjudication by a different bench.

This decision could possibly lead to restarting a substantial number of benami transactions proceedings, which were put to rest earlier by Ganpati Dealcom, on grounds of such proceedings being retrospective and hence, impermissible. The Benami Transactions law is a penal law and it is settled that penal statutes cannot be applied retrospectively.

While the Supreme Court has recalled the Ganpati Dealcom judgment for other reasons (as discussed later), it has not specified that the judgment’s ratio in relation to retrospective application shall continue to apply. Consequently, even though the judgment is not found to be erroneous on this front, all proceedings under the benami law which were struck down basis the bar on retrospective application shall now stand to be revived.

Brief History of the Benami Law

The Benami Transactions law was enacted in 1988, primarily with the intent of preventing transactions deemed to be ‘benami’ and punishing persons entering into such transactions. In simple terms, a benami transaction is one where a property is purchased in the name of one person, while its consideration has been paid by another. Hence, the property is falsely projected in government records to be owned by a person different from the actual owner, with the intent of concealing the true owner. 

Such transactions can be conducted with various oblique motives, like avoidance of taxes, circumventing restrictions on land ownership, etc.

The 1988 law prohibited and criminalised such transactions, while also providing for acquisition of properties found to be benami. However, the said law was not implemented and the authorities required for execution of this law were not appointed/notified. Consequently, the said law remained defunct till 2016, when it was overhauled by a major amendment, which practically changed everything about the older law (including its name).  

The 2016 Amendment: Giving Teeth to a Toothless Act

The 2016 amendment, amongst other key changes, expanded the definitions of ‘benami property’ and ‘benami transaction’ while defining terms like ‘beneficial owner’, ‘benamidar’, etc. The amendment introduced stricter penalties, including imprisonment of up to seven years and substantial fines for those involved in benami transactions. Additionally, the amendment established the Benami Transactions Prohibition Unit (from the Income Tax Department) for enforcement of the law and shifted the burden of proof to the accused, requiring them to demonstrate the legitimacy of their ownership over a property.

The amended law also provides for interim attachment of property alleged to be benami, and its eventual confiscation, after adjudication by a special tribunal constituted for such purpose. Overall, these changes aimed to enhance the law's effectiveness in combating tax evasion and promoting financial transparency. 

The 2016 amendment garnered significant traction towards prohibiting benami property transactions, leading to a sudden increase in prosecution as well as attachment of property at the hands of the authorities empowered under the Benami Act.

While the amendment was a welcome change to revive the hitherto defunct law, it also created issues as the authorities sought to invoke their powers, retrospectively i.e. in relation to transactions executed prior to the date of the amendment. The Benami Act has criminal provisions, and it is settled law that criminal statutes cannot be applied retrospectively.  

Consequently, various parties approached Courts of law, seeking a declaration that the amendment shall not apply in a retrospective manner and shall only apply to transactions executed after the notification of the amendment. The issue eventually landed up before the Supreme Court in a batch of petitions, which were decided together via the Ganpati Dealcom judgment. 

Ganpati Dealcom 2022 Judgment

Via its judgment, the Court held that the amendment could only be given prospective effect, and any transactions entered into prior to the date of the amendment could not invite penalties under the amended law. Hence, all proceedings (prosecution or attachment) initiated by the authorities against persons executing benami transactions prior to the date of the amendment were rendered nugatory.   

Further, the Court also stuck down Sections 3(2) and 5 of the unamended Benami Act of 1988, while noting that the provisions were essentially “still-born law”, and were manifestly arbitrary and unconstitutional. These provisions criminalised benami transactions and provided for confiscation of benami properties.  

The Supreme Court struck down these provisions while noting that they created an unduly harsh law against settled principles and recommendations from the Law Committee. The Court also noted that the provision on acquisition of benami property had never been utilised as it needed additional statutory backing to be applied, and was hence, ‘half baked’.

Post the judgment, the tribunals constituted under the benami law, for hearing issues of attachment of benami property, disposed of cases covered by the judgment, in bulk, and held that such proceedings could be maintained in view of Ganpani Dealcom.  

The Review Judgment

Towards the end of 2022, the Union filed a review against Ganpati Dealcom. After hearing the concerned parties, the Supreme Court allowed the review petition on the ground that the judgment was erroneous as it unilaterally struck down Sections 3(2) and 5 of the unamended law, without there being any challenge to such provisions from the parties to the litigation.  

The Court noted that the parties to the Ganpati Dealcom case had never challenged the constitutional validity of these provisions; hence, these provisions should not have been struck down by the bench seized of the matter.

The Court did not comment on whether or not the issue of retrospective application was correctly decided in the judgment; however, the entire judgment stands recalled, as on date, without any exception. 

Effect of the Review Judgment

The foundational basis for recalling Ganpati Dealcom is the conclusion drawn in the said judgment on the constitutionality of the abovementioned provisions of the unamended benami law. However, the review judgment has reopened all issues settled by Ganpati Dealcom (including the issue of retrospective application of the amended law). The Court has specifically granted liberty to parties whose matters were disposed of by applying Ganpati Dealcom, to restart their litigation by filing appropriate review petitions before the concerned Courts/Tribunals. 

In view of the above, the authorities empowered under benami law are likely to approach the concerned tribunals/courts, seeking that the proceedings initiated by such authorities (for pre-2016 transactions) be reheard and decided on merits.  

Does the Judgment Create Unwanted Problems?

The review judgment could do more harm than good, as while the provisions which were struck down by Ganpati Dealcom (the core reason why the review has been allowed) had anyway been defunct for decades, the review judgment has recalled Ganpati in its entirety, thereby exposing parties to retrospective criminal litigation at the hands of the authorities under benami law. Considering it is already settled that criminal provisions should only apply prospectively, the Supreme Court ought to have specifically upheld Ganpati’s findings in this regard and avoided any reconsideration on this issue by a fresh bench.  

Additionally, it is well known that the right to property is an important constitutional right of all citizens. The aftermath of the review judgment could lead to attachment of the properties of persons who entered into transactions even before the date of the benami law being amended and enforced.

Such retrospective application goes against the tenets of Fundamental Rights in the constitution, as it would create an arbitrary law which penalises people and confiscates their property for actions taken even prior to creation of the law.

Considering that the review judgment does not record any finding against Ganpati’s conclusion regarding retrospective application of benami law, the Court (while passing the review judgment) ought to have clarified that Ganpati shall continue to apply in so far as this question is concerned. By failing to make such clarification, the Supreme Court has bundled all issues decided by the judgment for reconsideration and in the process, may have created thousands of litigations. 

The Supreme Court will hear the issues decided by Ganpati Dealcom, afresh, after the CJI constitutes an appropriate bench for this purpose. If the new bench (whenever constituted) also decides the retrospectivity question in the same manner as decided by the original judgment, the prosecution/attachment proceedings for pre-amendment transactions should once again be rendered null and void.  

However, if the Court decides otherwise, all such proceedings will have to be decided on merits. This would also lead to a situation where (in future) the government may bring in laws criminalising actions in a back dated and retrospective manner. Hence, the decision of the Court would have significant bearing on the future of benami transactions law as also general criminal law in India.

(Ishan Khanna is a Principal Associate in the Disputes practice of Khaitan & Co., and specialises in white collar criminal litigation and advisory. Uddeshya Singh is an Associate in the White Collar Crimes practice group of Khaitan and actively advises clients on criminal law disputes and risk assessment. He specialises in CBI and ED prosecution. This is an opinion article and the views expressed are the authors' own. The Quint neither endorses nor is responsible for them.)