SC quashes prosecution, confiscation of benami transactions from 1988 to 2016

NEW DELHI: The Supreme Court on Tuesday struck down two vital provisions of the Prohibition of Benami Property Transactions Act, 1988 and set aside all prosecution carried out under the Act between 1988 and 2016 (when the law was amended), holding that a law which is overly broad, disproportionately harsh and operates without adequate safeguards is unconstitutional.

A three-judge bench headed by Chief Justice of India (CJI) NV Ramana held that the 1988 law was “still born” and “unconstitutional” and the 2016 amended law will apply only prospectively, and not retrospectively.

The bench, also comprising justices Krishna Murari and Hima Kohli said: “Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for (benami) transactions entered into prior to the coming into force of the 2016 Act, (period between September 5, 1988 to October 25, 2016). As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.”

The verdict came on an appeal filed by the central government challenging a Calcutta high court decision of December 12, 2019 quashing show cause notices issued by the Centre under the 2016 Act to owners of a company M/s Ganpati Dealcom Pvt Ltd. The high court held that the Act cannot be applied retrospectively as the transaction in question by the company relates to purchase of a property in 2011.

The judgment held Section 3 (that makes benami transaction punishable with a maximum sentence of three years imprisonment) and Section 5 (providing for confiscation of the said property) under the Act prior to its amendment in 2016 as unconstitutional and manifestly arbitrary.

The court said: “Section 3 read with Section 2(a) and Section 5 of the 1988 Act are overly broad, disproportionately harsh, and operate without adequate safeguards in place. Such provisions were stillborn law and never utilized in the first place. In this light, this Court finds that Sections 3 and 5 of the 1988 Act were unconstitutional from their inception.”

The decision will not apply to the prosecution and confiscation procedure under the 2016 Act as the same was not under consideration before the court.

The court’s reasoning in the present judgment comes after the July 27 verdict of the Supreme Court that upheld the provisions of the Prevention of Money Laundering Act, 2002. That case was decided by a three-judge bench comprising justice AM Khanwilkar (since retired), justices Dinesh Maheshwari and CT Ravikumar.

In the PMLA case, similar arguments were raised by more than 200 odd petitioners to challenge the broad, harsh provisions of the Act that entrusted wide, arbitrary powers of search, seizure, summon and arrest to officials of the Enforcement Directorate (ED).

The PMLA provisions were sought to be declared unconstitutional for it gave a complete go-by to constitutional safeguards of the accused, procedural safeguards under the Code of Criminal Procedure (CrPC), and lack of mens rea (intention to commit a crime). It was stated that under the offences included as predicate offences, offences having no nexus with money laundering were added to the Schedule under PMLA. Once a potential accused was called for questioning, his statement was admissible as evidence in court and for getting bail, the provisions were harsh as he had to prove his innocence without being supplied with a copy of the complaint, case diary or documents incriminating him that were available with ED.

In its judgment on Tuesday, the top court repelled the Centre’s argument that forfeiture or confiscation of property under the 1988 Act was civil in nature and hence the violation of fundamental rights under Article 20(1) will not be attracted.

According to Article 20(1), “No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.”

CJI Ramana, writing the 96-page judgment for the bench said, “A punitive provision cannot be couched as a civil provision to bypass the mandate under Article 20(1) of the Constitution which follows the settled legal principle that what cannot be done directly, cannot be done indirectly.” It even faulted Section 3 of the 1988 Act for not including “mens rea” as an essential ingredient of the offence and on this count held it to be unconstitutional.

The bench said, “Under the amended 2016 Act, the aspect of mens rea is brought back through Section 53. Such resurrection clearly indicates that doing away of the mens rea aspect, was without any rhyme or reason, and ended up creating an unusually harsh enactment.” Due to this reason, the Centre too conceded in court that the criminal provision under the 1988 Act was never utilized and this gap was sought to be corrected by making the 2016 Act retrospective.

It boldly asserted that any punitive provision must be integrated with presumption of innocence and said, “There is implicit recognition of the forfeiture being a punitive sanction….being a punitive provision, it is trite that one integrates the presumption of innocence within the Chapter IV of the 2016 Act (attachment, adjudication and confiscation) as the same forms a part of the fundamental right.”

The judgment referred to the PMLA judgment (Vijay Madanlal Choudary v Union of India) while discussing the aspect of confiscation of property and said certain aspects of the judgment left much scope for arbitrary application of the law.

Referring to the July 27 judgment on confiscation proceedings under Section 8 of PMLA, it said, “Having perused the said judgment, we are of the opinion that the aforesaid ratio requires further expounding in an appropriate case, without which, much scope is left for arbitrary application.”

The bench further stated that in any forfeiture proceedings, the gravity of offence will determine the proportionality of forfeiture provisions. It said that having “stringent civil forfeiture” may merit for crimes involving terrorist activities, drug cartels or organized criminal activities. “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.”