SC Holds Benami Transactions Prohibition (Amendment) Act, 2016 to apply prospectively, leaves open challenge to Constitutional validity of the 2016 Amendment Act

The Hon’ble Supreme Court of India in the matter of Union of India & Anr vs M/s Ganpati Dealcom Pvt Ltd (CA 5783 of 2022) has considered the matter of retroactive applicability of the Benami Transactions Prohibition (Amendment) Act, 2016 w.r.t to “benami transactions” in the intervening period of 05 September 1988 (Commencement of the 1988 Act & 25 October 2016 (Commencement of the amended Act).

The Hon’ble Supreme Court has HELD (Para 18:1) ::

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

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

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

4. In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively.

5. 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, viz., 25.10.2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.

6. As this Court is not concerned with the constitutionality of such independent forfeiture proceedings contemplated under the 2016 Amendment Act on the other grounds, the aforesaid questions are left open to be adjudicated in appropriate proceedings.

Further, as obiter dicta, the Supreme Court order mentions various grounds under which there can be possible challenge to the Constitutional Validity / “judicial reading down” of the 2016 Amendment Act; particularly ::

1. Section 5 of the 2016 Act as amended, providing for confiscation of any property which is the subject matter of Benami transaction; has been referred to a “punitive” provision (Para 17:31)

2. Post the 2016 Amendment, the interplay of Sections 27(3), (5) and 67 of the 2016 Act creates a confiscation procedure which is distinct from the procedure contemplated under the CrPC or any other enactment till now in India. …. It has also altered substantive rights of the evidentiary standards from ‘beyond reasonable doubt’ to ‘preponderance of probabilities’. (Para 17:30)

3. The Confiscation proceedings under Chapter IV of the 2016 Act being characterised as “civil” proceedings may not be appropriate. There is an implicit recognition of the forfeiture being a punitive sanction, as the Officer is mandated to build a case against the accused for such confiscation, wherein the presumption of innocence is upheld structurally. Being a punitive provision, it is trite that one integrates the ‘presumption of innocence’ within the Chapter as the same forms a part of the fundamental right. (Para 17:31).

4. Under the Cr.P.C. have inbuilt safeguards of in personam criminal forfeiture, wherein confiscation occurs at the end of the trial. Under these provisions, confiscation is to be determined at an evidential standard of ‘beyond reasonable doubt’ and are dependent on the result of the criminal trial.

5. From the above discussion, it is manifest that the Courts have read down the provisions of civil forfeiture to be dependent on the underlying criminal prosecution to temper the harsh consequences envisaged under such provisions. No doubt, such reading down was mandated to ameliorate harsh consequences of confiscatory laws which otherwise would have allowed the State agencies to take over the property without seriously pursuing the criminal prosecutions. At this stage, we can only recommend that the utility of independent provisions of forfeiture, distinct from criminal prosecution, needs to be utilised in a proportional manner, looking at the gravity of the offence. Few examples which may pass the muster of proportionality for having such stringent civil forfeiture, may relate to crimes involving terrorist activities, drug cartels or organised criminal activities. As we have discussed, the application of such a provision to numerous other offences which are not of such grave severity, would be of serious risk of being disproportionate, if procedures independent of criminal prosecution are prescribed. We may note that the proportionality of separate confiscation procedure prescribed under the 2016 Act, has not been argued herein. Accordingly, we leave the aforesaid question of law open. (Para 17:28)

(Author’s Comments : Under the 2016 Amendment Act, the confiscation occur simultaneously / or prior to [criminal prosecution proceedings under the Amended Act]. Additionally, in rem forfeiture provisions – the taint is perpetually on the property. Further, the evidential standard for such confiscation has been reduced from ‘beyond reasonable doubt’ to ‘preponderance of probabilities’.

The question of constitutionality (for alleged benami transactions post 25 October 2016) being left open –

1. Whether the provisions of the amended Act of 2016 are “unduly harsh”?

2. Whether the reduction in evidential standard for such harsh provision is “manifiestly arbitrary”.?

3. Whether the new scheme of “independent” confiscation under the 2016 law without completion of criminal proceedings / confiscation without conviction under the 2016 Amendment Act is arbitrary & unjustified on account of lack of safeguards as in Cr.P.C. / settled principles & jurisprudence on confiscation?

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