It is a well settled principle of law that any enactment which substantially affects the rights of people cannot be applied retrospectively. This was upheld by the Hon’ble Supreme Court in the case of Union of India v. Ganpati Dealcom Pvt. Ltd., CIVIL APPEAL No. 5783 of 2022, decided on 23.08.2022, wherein it was declared that Section 3(2) and Section 5 of the unamended Prohibition of Benami Property Transactions Act, 1988 (“1988 Act”) were unconstitutional for being manifestly arbitrary. Further, it was held that Section 3(2) of the Benami Transactions (Prohibition) Amendment Act, 2016 (“Amendment Act”) violated Article 20(1) of the Constitution of India (“Article 20(1)”) and was hence unconstitutional. Additionally, it was held that in rem forfeiture provision under Section 5 of the Amendment Act was punitive and could only be applied prospectively.

This article endeavors to unravel the implications of this judgement on convicts and their respective confiscated properties. An attempt is made to analyze the legal questions by drawing parallels from existing jurisprudence on “unconstitutionality of law”.

Benami Transactions: Unconstitutionality of Section 3(2) and Section 5 of 1988 Act, juxtaposed in reference to legal implications for the criminal justice system.

A benami transaction is an agreement whereby property is transferred to or held by a person, but the consideration for the transfer is made by another person, who then holds the property for the present or future benefit of the person who made the payment.[1] Benami transactions occur when property is acquired in the name of a fictional person or when a fictitious person provides the consideration for the acquisition of property.[2] Furthermore, a transaction is deemed to be benami when the person shown as owner is either not aware about the ownership or denies the same.[3]

As per Section 3(2) of the 1988 Act, engaging in a benami transaction would result in imprisonment up to three years, a fine or both. Further, in a benami transaction, the punishment is not only confined to imprisonment, but also extends to the attachment of property as per Section 5 of the 1998 Act. This section lacked sufficient safeguards for not providing any mechanism wherein the person could defend the title of his property. In the absence of sufficient safeguards, the above provisions were held manifestly arbitrary and unconstitutional by the Apex Court.

The 2016 Amendment Act brought in the aspect of “retrospective application” under Section 3(2) which stated that three years imprisonment shall accrue for all transactions entered from 05.09.1988 to 25.10.2016. Thus, in the Ganpati Judgement (supra) Section 3(2) of the Amendment Act was held unconstitutional for being violative of Article 20(1).

Further, by virtue of the 2016 Amendment Act, scope of benami property under section 5, was expanded to include within its ambit the proceeds arising out of such a property.[4] Therein, the Apex Court held that in rem forfeiture effectuated post the 2016 Amendment Act, being punitive in nature could only be applied prospectively. All such prosecutions and confiscation processes were therefore quashed.

In light of this ratio, two legal issues which are left open and need to be addressed are impact of the judgment on conviction under Section 3(2) of the 1988 Act and devolution of the title of the confiscated properties under Section 5 of the 1988 Act.

Attention is drawn to the case of Behram Khurshed Pesikaka v. The State of Bombay[5], wherein the Hon’ble Supreme Court set aside the conviction which was based on the act that subsequently became unconstitutional.

At this juncture, it is imperative to note that the paramount right to life encapsulated under Article 21 states that “No person shall be deprived of his life or personal liberty except according to procedure by law”[6]. This implies that convictions based on a law that has become unconstitutional would fall within the purview of “illegal detentions”. This interpretation can be corroborated by the recent verdict of the Hon’ble Supreme Court in Bhola Kumhar v. State of Chhattisgarh[7], wherein under paragraph 17 it is noted that “detaining a convict beyond the actual release date would amount to imprisonment or detention sans sanction of law and would thus, violate not only Article 19(d) but also Article 21 of the Constitution of India. Considering this ratio, convictions based on Section 3(2) shall be quashed by approaching the Writ Jurisdiction of the appropriate Hon’ble High Court. The transaction pertaining to the confiscated property could be traced by seeking a report from the Administrator, the statutory authority which manages the benami property[8] and appropriate decision as to its title shall be decided based on facts and circumstances of each case.

Conclusion

The judgement propounds that “as a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed”, however the procedure to effectuate this ratio is not addressed and left open at the behest of judicial discretion. Conclusively, this judgement is a testimony to the fact that the common law is a living system exhibiting dynamism. Judicial Review exercised in this judgment is not encroaching the notion of separation of powers but merely ensuring that legislature do not overlook the fundamental rights guaranteed under Part-III of the Constitution of India. In the aftermath of this landmark decision, it is imperative that the pillars of criminal justice system work harmoniously and cohesively to ensure speedy justice.

Authored by: DSK Legal Partner, Mr. Samir Malik; Principal Associate, Mr. Aditya Sharma and Associate, Ms. Priyanshi Sarin.

[1] Section 2 (9) (A) of Prohibition of Benami Property Transactions Act, 1988.

[2] Section 2 (9) (B) and (D) of Prohibition of Benami Property Transactions Act, 1988.

[3] Section 2 (9) (C) of Prohibition of Benami Property Transactions Act, 1988.

[4] Section 2(8) of the Prohibition of Benami Property Transactions Act, 1988.

[5] Behram Khurshed Pesikaka v. The State of Bombay (AIR 1955 SC 123).

[6] Article 21 of the Constitution of India, 1950.

[7] Bhola Kumhar v. State of Chhattisgarh Criminal Appeal No. 937 of 2022.

[8] Section 28 of the Prohibition of Benami Property Transactions Act, 1988. It is a well settled principle of law that any enactment which substantially affects the rights of people cannot be applied retrospectively. This was upheld by the Hon’ble Supreme Court in the case of Union of India v. Ganpati Dealcom Pvt. Ltd., CIVIL APPEAL No. 5783 of 2022, decided on 23.08.2022, wherein it was declared that Section 3(2) and Section 5 of the unamended Prohibition of Benami Property Transactions Act, 1988 (“1988 Act”) were unconstitutional for being manifestly arbitrary. Further, it was held that Section 3(2) of the Benami Transactions (Prohibition) Amendment Act, 2016 (“Amendment Act”) violated Article 20(1) of the Constitution of India (“Article 20(1)”) and was hence unconstitutional. Additionally, it was held that in rem forfeiture provision under Section 5 of the Amendment Act was punitive and could only be applied prospectively.

This article endeavors to unravel the implications of this judgement on convicts and their respective confiscated properties. An attempt is made to analyze the legal questions by drawing parallels from existing jurisprudence on “unconstitutionality of law”.

Benami Transactions: Unconstitutionality of Section 3(2) and Section 5 of 1988 Act, juxtaposed in reference to legal implications for the criminal justice system.

A benami transaction is an agreement whereby property is transferred to or held by a person, but the consideration for the transfer is made by another person, who then holds the property for the present or future benefit of the person who made the payment.[1] Benami transactions occur when property is acquired in the name of a fictional person or when a fictitious person provides the consideration for the acquisition of property.[2] Furthermore, a transaction is deemed to be benami when the person shown as owner is either not aware about the ownership or denies the same.[3]

As per Section 3(2) of the 1988 Act, engaging in a benami transaction would result in imprisonment up to three years, a fine or both. Further, in a benami transaction, the punishment is not only confined to imprisonment, but also extends to the attachment of property as per Section 5 of the 1998 Act. This section lacked sufficient safeguards for not providing any mechanism wherein the person could defend the title of his property. In the absence of sufficient safeguards, the above provisions were held manifestly arbitrary and unconstitutional by the Apex Court.

The 2016 Amendment Act brought in the aspect of “retrospective application” under Section 3(2) which stated that three years imprisonment shall accrue for all transactions entered from 05.09.1988 to 25.10.2016. Thus, in the Ganpati Judgement (supra) Section 3(2) of the Amendment Act was held unconstitutional for being violative of Article 20(1).

Further, by virtue of the 2016 Amendment Act, scope of benami property under section 5, was expanded to include within its ambit the proceeds arising out of such a property.[4] Therein, the Apex Court held that in rem forfeiture effectuated post the 2016 Amendment Act, being punitive in nature could only be applied prospectively. All such prosecutions and confiscation processes were therefore quashed.

In light of this ratio, two legal issues which are left open and need to be addressed are impact of the judgment on conviction under Section 3(2) of the 1988 Act and devolution of the title of the confiscated properties under Section 5 of the 1988 Act.

Attention is drawn to the case of Behram Khurshed Pesikaka v. The State of Bombay[5], wherein the Hon’ble Supreme Court set aside the conviction which was based on the act that subsequently became unconstitutional.

At this juncture, it is imperative to note that the paramount right to life encapsulated under Article 21 states that “No person shall be deprived of his life or personal liberty except according to procedure by law”[6]. This implies that convictions based on a law that has become unconstitutional would fall within the purview of “illegal detentions”. This interpretation can be corroborated by the recent verdict of the Hon’ble Supreme Court in Bhola Kumhar v. State of Chhattisgarh[7], wherein under paragraph 17 it is noted that “detaining a convict beyond the actual release date would amount to imprisonment or detention sans sanction of law and would thus, violate not only Article 19(d) but also Article 21 of the Constitution of India. Considering this ratio, convictions based on Section 3(2) shall be quashed by approaching the Writ Jurisdiction of the appropriate Hon’ble High Court. The transaction pertaining to the confiscated property could be traced by seeking a report from the Administrator, the statutory authority which manages the benami property[8] and appropriate decision as to its title shall be decided based on facts and circumstances of each case.

Conclusion

The judgement propounds that “as a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed”, however the procedure to effectuate this ratio is not addressed and left open at the behest of judicial discretion. Conclusively, this judgement is a testimony to the fact that the common law is a living system exhibiting dynamism. Judicial Review exercised in this judgment is not encroaching the notion of separation of powers but merely ensuring that legislature do not overlook the fundamental rights guaranteed under Part-III of the Constitution of India. In the aftermath of this landmark decision, it is imperative that the pillars of criminal justice system work harmoniously and cohesively to ensure speedy justice.

Authored by: DSK Legal Partner, Mr. Samir Malik; Principal Associate, Mr. Aditya Sharma and Associate, Ms. Priyanshi Sarin.

[1] Section 2 (9) (A) of Prohibition of Benami Property Transactions Act, 1988.

[2] Section 2 (9) (B) and (D) of Prohibition of Benami Property Transactions Act, 1988.

[3] Section 2 (9) (C) of Prohibition of Benami Property Transactions Act, 1988.

[4] Section 2(8) of the Prohibition of Benami Property Transactions Act, 1988.

[5] Behram Khurshed Pesikaka v. The State of Bombay (AIR 1955 SC 123).

[6] Article 21 of the Constitution of India, 1950.

[7] Bhola Kumhar v. State of Chhattisgarh Criminal Appeal No. 937 of 2022.

[8] Section 28 of the Prohibition of Benami Property Transactions Act, 1988.