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REPORTABLE

N THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 5783 of 2022
[@ SPECIAL LEAVE PETITION (C) NO. 2784/2020]

UNION OF INDIA & ANR.                          … APPELLANT(S)

VERSUS

M/s. GANPATI DEALCOM PVT. LTD. … RESPONDENT(S)

JUDGMENT

 N.V.  RAMANA
   , CJI
   

1. Leave granted.

2. This   case   involves   a   tussle   between   the   normative   and

positivist   positions   regarding   the   nature   of   a   crime   and

punishment.   Treating   the   Constitution   as   a   flag   post,   a

result of this tussle is sought in the following deliberation.  

3. This  appeal is  filed  against the impugned judgment dated

12.12.2019   passed   by   the   High   Court   of   Judicature   at

Signature Not Verified

Calcutta in APO No. 8 of 2019 along with Writ Petition No.
Digitally signed by
Rajni Mukhi

687 of 2017.  
Date: 2022.08.23
17:18:34 IST
Reason:

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4. The   short   legal   question   which   arises   for   this   Court’s

consideration is whether the Prohibition of Benami Property

Transactions   Act,   1988   [for   short   ‘the   1988   Act’],   as

amended   by   the   Benami   Transactions   (Prohibition)

Amendment   Act,   2016   [for   short   the   ‘2016   Act’]   has   a

prospective effect. Although a purely legal question arises in

this   appeal,   it   is   necessary   to   have   a   brief   factual

background in mind before we advert to the analysis.  

5. On   02.05.2011,   the   respondent–company   purchased   a

property   in   its   name   from   various   sellers   for   a   total

consideration   of   Rs.9,44,00,000/­.     It   is   said   that   the

consideration for the aforesaid purchase was paid from the

capital   of   the   company.     On   31.03.2012,   99.9%   of   the

respondent–company   shareholdings  were  acquired  by   M/s

PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd.

at a discounted price of Rs.5/­ per share for a total amount

of   Rs.19,10,000/­.     It   is   a   matter   of   fact   that   the   two

directors   of   the   respondent­company   (viz.   Shruti   Goenka

and Ritu Goenka) also held directorship in the subsequent

purchaser company.   

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6. Accordingly,   on   29.08.2017,   the   Deputy   Commissioner   of

Income Tax (Adjudicating Authority) issued a notice to the

respondent–company invoking Section 24(1) of the 2016 Act

to show cause as to why the aforesaid property should not

be   considered   as   Benami   property   and   the   respondent

company as Benamidar within the meaning of Section 2(8)

of the 2016 Act.   On 06.09.2017, the respondent–company

replied to the aforesaid show­cause notice denying that the

scheduled property is a Benami property.

7. The   Adjudicating   Authority,   by   order   dated   24.11.2017,

passed an order under Section 24(4)(b)(i) of the 2016 Act,

provisionally attaching the property.

8. Aggrieved   by   the   aforesaid   attachment   order,   the

respondent­company   filed   a   Writ   Petition   (being   W.P.   No.

687   of   2017)   before   the   High   Court   of   Calcutta.     The

aforesaid writ petition was disposed of by the learned Single

Judge by an order dated 18.12.2018 with a direction to the

Adjudicating  Authority to conclude the proceedings within

12 weeks.  

9. Aggrieved, the respondent­company filed an appeal against

the aforesaid order being APO No. 8 of 2019.  

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10. The   High   Court,   vide   impugned   order   dated   12.12.2019,

while   quashing   the   show­cause   notice   dated   29.08.2017,

held   that   the   2016   Act   does   not   have   retrospective

application.  

(i) The 2016 Amendment Act, which came into force on
01.11.2016,   was   a   new   and   substantive   legislation,
inter alia, substituting and widening the definition of
‘benami   property   and   benami   transaction’,   and   in
order to have retrospective operation for the period or
transactions   entered   into   prior   to   01.11.2016,   a
provision   to   that   effect   should   have   been   specifically
providing   under   the   said   Act;   in   the   absence   of   any
express provision to that effect, simply by virtue of the
provisions contained in subsection (3) of Section 1 of
the 1988 Act [which remained unaltered by the 2016
Amendment Act, and have consequently been retained
under   the   Benami   Act],   the   provisions   of   the   2016
Amendment   Act   cannot   be   impliedly   construed   as
retrospective;
(ii) Reference was made to and reliance was placed on the
unreported   ruling  of   the   learned   Single  Judge  of   the
Rajasthan High Court dated 12.07.2019 in the case of
Niharika   Jain   v.   Union   of   India  [S.B.C.W.P.   No.
2915/2019], wherein, following the ruling of the Single
Judge of the Hon’ble Bombay High Court in the case of
Joseph   Isharat   v.   Mrs.   Rozy   Nishikant   Gaikwad
[S.A.   No.   749/2015;   decided   on
01.03.2017/30.03.2017], it was held that in terms of
the protection enshrined under clause (1) of Article 20
of the Constitution of India, the 2016 Amendment Act,
amending,   inter   alia,   the   definition   of   “benami
transaction”,   could   not   be   given   retrospective   effect,
and   the   amendments   brought   about   vide   the   said
(amendment) Act would be enforceable only with effect
from the date of the enactment / coming into force of
the said amendment Act i.e., on or after 01.11.2016 –
reliance in this regard was also placed on the ruling of
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this Court in the case of Rao Shiv Bahadur Singh vs.
State of Vindhya Pradesh, AIR 1953 SC 394;
(iii) The   1988   Act,   which   came   into   force   on   19.05.1988
[except   Section   3,   5   and   8   thereof   which   came   into
force   on   05.09.1988],   provided   for   punishment   for
persons   entering   into   a   “benami   transaction”,   which
was   made   non­cognizable   and   bailable,   and   also
however, provided for acquisition of property held to be
benami;   provisions   of   the   1988   Act,   were   never
operationalized since the rules and procedure required
to be framed under Section 8 of the said Act bringing
into existence the machinery for implementation of the
1988 Act, were never notified – therefore, although the
1988 Act was part of the statute book, the same was
rendered   a   “dead   letter”,   and   all   transactions   and
properties   alleged   ‘benami’,   carried   out   /   acquired
between   the   period   of   19.05.1988   and   01.11.2016,
were   deemed   to   have   been   accepted   by   the
Government  as valid ‘vesting rights’ in the parties to
such   alleged   transactions;  ergo,   the   Central
Government, having waived its right of implementation
and operationalisation of the 1988 Act for the period
prior   to   01.11.2016,   cannot   now   do   so   indirectly   by
way of retrospective operation of the 2016 Amendment
Act.

11. Aggrieved   by   the   aforesaid   impugned   order,   the   Union   of

India is in appeal before this Court.

12.  SUBMISSIONS 

12.1 Shri   S.V   Raju,   learned Additional  Solicitor  General  (‘ASG’)

has contended as under:

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i. As   per   the   pre­amendment   Act,   there   was   no

machinery   or   procedure   in   place   to   effectuate

proceedings   against   Benami   transactions.   It   is

submitted   that   in   order   to   remedy   this   mischief   of

lack of procedure, the Amendment Act, which was a

consolidating Act, was brought in.

ii. It   was   not   an   offence   that   is   sought   to   be

implemented   retrospectively,   but   merely   the

procedures   are   laid   down   to   implement   the   Act   of

1988. He stated that the pre­amendment Act already

recognizes   Benami transactions  as contrary  to law,

and hence no new or substantive law is being made.

iii. It is settled law that procedural law can be applied

retrospectively,   and   the   bar   against   retrospective

application is only applicable to substantive law.

iv. The legislative intent for bringing an amendment to

the existing act, and not enacting a new law, was to

ensure that no immunity is granted to persons who

engaged   in   benami   transactions   while   the   pre­

amendment Act was in operation.

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v. It was further submitted that  Section 5 and Section

27   of   the   Act   are   to  be  read  together   as  the   latter

provides the mechanism through which the Benami

property   may   be   confiscated   by   the   Adjudicating

Authority. As per Section 27(3), once the confiscation

order   is   passed  by   the   Authority,   the  rights  in   the

property   are   vested  in  the   Central  Government.     It

was   reiterated   that   confiscation   is   not   a   penal

provision, as the same has civil consequences. Both,

acquisition and confiscation are civil in nature, and

therefore,   they   can   be   used   interchangeably.

Therefore,   any   amendment   act   which   is

consolidating   in  nature, can  have  provisions which

are   confiscatory   in   nature   and   the   same   can   be

applied   retrospectively.  For   this,   the   learned   ASG

referred   to  Yogendra   Kumar   Jaiswal   v.   State   of

Bihar,  (2016) 3 SCC 183, para 149, and submitted

that   in   this   judgment,   this   Court   has   held   that

confiscation   is   not   a   punishment,   and   that   Article

20(1)   is   not   attracted.   The   Court   also   held  that

confiscation   as   imposed   by   the   Adjudicating

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Authority would not amount to any punishment, and

is only a deprivation of the property of the person in

question. 

vi. The learned ASG also referred to Mithilesh Kumari

v. Prem Behari Khare, (1989) 2 SCC 95, para 21, to

submit that by necessary implication, the machinery

and   procedural   provisions   of   the   amended   Act   are

retrospective in nature.

12.2 Shri   Vikramjit   Banerjee,   learned   ASG   has   submitted   as

under:

i. The   Parliament   has   the   power   to   enact   retrospective

legislation even in case of a criminal Statute, as long as

it   complies   with   Article   20(1)   of   the   Constitution   of

India.   He   further   argued   that   as   per   Article   20(1),

prohibition exists only on conviction and sentencing of

the  ex­post  facto  law, and not against passing such a

law. 

ii. Forfeiture,   acquisition,   and   confiscation   are   not

punishments and therefore not subject to Article 20(1)

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restrictions. He then pointed out that the adjudication

proceedings are also not in the nature of prosecution,

and hence cannot be restricted by Article 20. 

iii. That   acquisition   of   property   without   paying

compensation   amounts   to   confiscation,   and

confiscation envisages a civil liability. 

12.3 Dr.   Abhishek   Manu   Singhvi,   learned   Senior   Advocate

appearing for the respondent has contended as under:

i. The   1988   Act   did   not   make   its   provisions   applied

retrospectively.   The   Parliament   purposely   ensured

that  when   the  1988 Ordinance was replaced by  the

parent   Act,   only   the   provisions   from   the   1988

Ordinance   were   continued   from   the   date   of   the

promulgation  of  the ordinance. The other  provisions

introduced   by   the   parent   Act,   namely   Sections   3,   5

and 8, were made only prospectively applicable from

the   date   on   which   the   parent   Act   was   brought   into

effect.

ii. The 2016 Act was not intended to be retrospectively

applicable   as   the   same   is   not   explicitly   stated.

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Parliament   deemed   it   fit   to   leave   it   to   the   Central

Government   to   enforce   the   2016   Act   from   an

appointed date by notifying it in the official gazette, as

mentioned in Section 1(2) of the 2016 Act.

iii. It was further argued that when the statute carves out

distinct   penalties   in   respect   of   benami   transactions

entered   into   in   the   unamended   regime  vis­a­vis  the

benami   transactions   entered   into   after   the

amendment Act of 2016, it clearly indicates that the

amended Act is prospective in nature. 

iv. Learned Senior Advocate also relied on the cases of R.

Rajagopal   Reddy   v.   Padmini   Chandrasekharan,

(1995)   2   SCC   630  and  Mangathai   Ammal   v.

Rajeswari,   (2020)   17   SCC   496,   in   the   context   of

Sections   4(1),   4(2)   and   3(2)   of   the   parent   Act,   to

contend   that   the   abovementioned   provisions   are

prospective in nature.

v. It is also argued that insertion of Section 2(9) by an

amendment   to   the   parent   Act   provides   a   new

definition   to   benami   transactions   and   has

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substantially   changed   the   scope   of   the   offence   by

enlarging   its   ambit.   In   the   unamended   Act,   only

transfer   of   property   was   an   offence.   However,   the

2016 Act has added multiple other actions as offences

under the category of benami transactions. It is a well

settled   principle   of   law   that   any   enactment   which

substantially   affects   the   rights   of   people   cannot   be

applied   retrospectively,   and   therefore,   the   amended

2016 Act can only be prospective in nature. For this,

the   judgment   of   this   Court   in   the   case   of

Commissioner   of   Income   Tax   (Central)­I,   New

Delhi v. Vatika Township Pvt. Ltd, (2015) 1 SCC 1

was relied on.

13.  INTRODUCTION TO PRACTICE OF PROPERTIES HELD BENAMI IN INDIA 

13.1Having heard the parties, it is necessary for this Court to trace

the   history   of   benami   transactions   in   India.   The   term

‘benami   transaction’   generally   implies   that   one   purchases

the   property   in   the   name   of   somebody   else,   i.e.,   a   name

lender, and the purchaser does not hold beneficial interest

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in the property. Literally, ‘benami’ means ‘without a name’.

The   simplest   of   example   is   if   person   ‘A’   (real   owner)

purchases   a   property   from   ‘B’   in   the   name   of   ‘C’

(benamidar/ostensible   owner),   wherein   ‘A’   exercise

rights/interest over the property.

13.2 The term ‘benami’, which was alien to statutory law during

the colonial regime and in the early days of the Republic,

was   known   in   the   legal   parlance   of   lawyers.   Even   in

Mohammedan   law,   such   transactions   were   commonly

referred as  furzee  or  farzi, derived from Arabic word furaz.1

Over the passage of time, this nebulous concept appeared in

cases   without   much   clarity   with   respect   to   its   basic

contours.   Conceptually,   there   are   two   views   which   arise

from   the   Doctrine   of   Benami.   The   first   view   is   that   the

benamidar   does   not   hold   title   over   the   property,   and   the

second   view   is   that   although   the   title   passes   to   the

benamidar, he holds it in trust. 

13.3 Eventually,   there   developed   two   loose   categories   of

transactions that were colloquially termed as benami, which

can be explained through the following examples:

1 McNaughten’s Selected Report Vol. I, Reporter’s Note at p. 368.

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(i.) Tripartite: ‘B’ sells a property to ‘A’ (real owner),

but   the   sale   deed   mentions   ‘C’   as   the

owner/benamidar. 
(ii.) Bipartite:   ‘A’   sells   property   to   ‘B’   without

intending to pass the title to ‘B’.

The   first   instance   was   usually   termed   as   a   real   benami

transaction,   and   the   second   transaction   was   considered

either   as   a   sham   transaction   or   “loosely”   benami

transaction.   In  Sree   Meenakshi   Mills   Ltd.   v.

Commissioner of Income Tax, Madras, AIR 1957 SC 49,

speaking for the Bench, Venkatarama Ayyar, J., stated that

the   first   category   of   transactions   is   ‘usually’   termed   as

benami,   while   the   second   category   is   ‘occasionally’

considered   a   benami   transaction.   He   added   that   it   is

“perhaps not accurately so used”. In  Thakur  Bhim Singh

v. Thakur Kan Singh, AIR 1980 SC 727, Venkataramiah,

J. straightway called the first category as benami but chose

to describe the second category as “loosely” termed benami.

This distinction is relevant and will be adverted to later.

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13.4 Numerous reasons,  some desirable and some undesirable,

were   contributory   factors   for   the   proliferation   of   such   a

practice in India. Some of them are as follows:
(i) Secret   provisions   for   families   within   Hindu   Joint

family system;2 
(ii) Mitigation of political and social risk;3 
(iii)Defrauding creditors;4 
(iv) Evasion of taxes.

13.5 Judicial recognition of such transactions came about in the

early 19th  century  under the colonial courts. In  Mt.  Bilas

Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96, the Privy

Council observed as under:

“Down   to   the   taluqdar’s   death   the   natural

inference is that the purchase was a benami
transaction; a dealing common to Hindus and
Muhammadans   alike,   and   much   in   use   in
India;   it   is   quite   unobjectionable   and   has   a
curious   resemblance   to   the   doctrine   of   our
English  law that the trust of the legal estate
results   to   the   man   who   pays   the   purchase
money, and  this again follows the analogy of
our   common   law,   that   where   a   feoffment   is
made without consideration the use results to
the feoffer.”

2 West and Buhler, ‘Hindu Law’, (Fourth Edition), Pg. 157, 563.
3 Pollock, The Law of fraud, Misrepresentation and Mistake in British India (1894), page 83­
84.
4 K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884­85) Pg. 469­470.

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In Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38,

the   Federal   Court,   while   evaluating   the   propriety   of   such

transactions, observed as under:

“A   notion   has   sometimes   prevailed   in   this

country that all benami transactions must be
regarded as reprehensible and improper if not
illegal;   but,   as   late   as   in   1915,   Sir   George
Farwell, delivering the judgment of the Judicial
Committee   in   37   ALL.  557   spoke   of  them   as
‘quite   unobjectionable’   and   as   having   their
analogues in the English law; and Mr. Amreer
Ali, delivering the judgment of the Committee
in 46 Cal. 566, observed that “there is nothing
inherently wrong in it, and it accords, within
its legitimate scope, with the ideas and habits
of  the  people”.  As indicated by the qualifying
words   “within   its   legitimate   scope”,   their
Lordships’ observations were clearly not meant
to   countenance   transactions   entered   into   for
fraudulent or illegal purposes.”

13.6 In Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171, this

Court laid down a test to determine whether a transaction is

benami or not. The following factors were to be considered: 
(i) The source from which the purchase money came;
(ii) The nature and possession of property after purchase;
(iii) Motive,   if   any,   for   giving   the   transaction   a   benami

colour;
(iv) The position of the parties and the relationship, if any,

between the Claimant and the alleged Benamidar.
(v) The custody of the title­deeds after the sale, and

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(vi) The conduct of the parties concerned in dealing with

the property after the sale.

13.7 The judiciary came to establish the general principle that in

law, the real owner is recognized over the ostensible owner. 5

This   principle   had   certain   statutory   exceptions,   albeit

limited, such as Section 66 of Civil Procedure Code, 1908

with   respect   to   properties   wherein   sale   certificates   are

issued by courts; and Section 281A of the Income Tax Act,

1961,   which   allows   filing   of   suit   by   the   original   owner   to

enforce his right over a benami property, only if the same is

declared for taxing purpose, as provided thereunder. Such

provision   under   the   Income   Tax   Act   did   not   bar   such

benami transactions completely, rather it only attempted to

legitimize   and   bring   them   into   the   net   of   taxation.   Such

provision,   while   disincentivizing   transactions   beyond   the

taxation   net,   had   also   inevitably   accepted   the   positive

factors  in  recognizing  the same. Further, it is a matter  of

fact that the Indian Trusts Act has recognized and accepted

the principle behind benami transactions.

5 Murlidhar Narayandas v. Paramanand Luchmandas, AIR 1932 Bom. 190;  Radhakishan
Brijlal v. Union of India, AIR 1959 Bom. 102 (V46 C40);  Gur Prasad v. Hansraj, AIR (33)
1946 Oudh. 144.

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13.8 The   57th  Report   of   the   Law   Commission   (1973)   succinctly

captures the general principles prevailing as on that date, in

the following manner:
“5.2  Summary   of   present   position­in   general­A   few
basic   points   concerning  benami   transactions   may   be
stated, as follows:
(a) Benami transfer or transaction means the transfer
by  or  to  a  person who acts only  as the ostensible
owner   in   place   of   real   owner   whose   name   is   not
disclosed;
(b)The question whether such transfer or transaction
was real or benami depends upon the intention of
the beneficiary;
(c) The   real   owner   in   such   cases   may   be   called   the
beneficiary,   and   the   ostensible   owner   the
benamidar.
…
5.3. Effect of benami transfer.­ The effect of a benami
transfer is as follows:­
(a) A person does not acquire any interest in property
by merely leading his name;
(b)The benamidar has no beneficial interest though he
may re­present the legal owner as to third person.
(c)A benami transaction is legal, except in certain
specified situations.

(Emphasis supplied)

13.9 Prior to the 1973 Report, the broad position on the legality

of various kinds of benami transactions can be captured as

follows:

SL. NATURE OF TRANSFER LEGALITY AND

NO. CONSEQUENCES
A Transfer in favour of wife or Governed   by   Section
child   (whether   or   not   with 64,   Income­tax   Act

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the object of transferring title (also   see   point   G   in

to  the   wife  or  child) without table).   [No   criminal
adequate consideration liability   unless   the
case   falls   within
Section 415 to 424 or
Section   206­207   of
Indian Penal Code]
B Transfer in favour of wife or Governed   by   Section
child   for   consideration,   but 6(h)(2) and Section 58
for a fraudulent purpose and of Transfer of Property
not in good faith Act.   [Criminal   liability
if the case falls within
Section 415 to 424 or
Section   206­207   of
Indian Penal Code]
C Transfer in favour of wife or Not   covered   by   any
child   for   consideration,   and provision   (No   criminal
with   genuine   object   of liability)
transferring   title   to   the   wife
or child
D Transfer in favour of a  Not   covered   by   any
(i) person other than wife  provision. (No criminal
or child without  liability)
consideration, but with 
the genuine object of 
transferring title and 
with no fraudulent 
purpose

Transfer   in   favour   of   a Governed   by   Section

(ii) person   other   than   wife 281A   of   Income   Tax
or   child   without Act,   1961   (also   see
consideration,   and point   G   in   table).   [No
without   intent   to criminal liability]
transfer   title,   but   with
no fraudulent purpose.
(iii) Transfer   in   favour   of   a Governed   by   Section
person   other   than   wife 6(h)(2) and Section 53
or   child   without of Transfer of Property
consideration,   and   with Act.   [Criminal   liability
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intent   to   transfer   title, if the case falls within

but   for   a   fraudulent Section 415 to 424 or
purpose and not in good Section   206­207   of
faith. Indian Penal Code]
(iv) Transfer   in   favour   of   a Governed   by   Section
person   other   than   wife 281A   of   Income   Tax
or   child   without Act, 1961 (See point G
consideration,   without in   table).   Also   section
intent   to   transfer   title 6(h)(2) and Section 59,
and   for   fraudulent Transfer   of   Property
purpose. Act.   (Criminal   liability
if   case   falls   within
Section   415   to   424   of
Indian   Penal   Code   or
Section   206­207   of
that Code)
E Transfer   in  favour  of  person Governed   by   Section
other   than   wife   or   child   for 6(h)(g) and Section 53,
consideration,  with intent to Transfer   of   Property
transfer   title,   but   for   a Act.   (criminal   liability
fraudulent   purpose   and   not if   case   falls   within
in good faith. Section   415   to   424   of
Indian   penal   Code   or
Section   206­207   of
that Code
F Transfer   in  favour  of  person Not   covered   by   any
other than wife or child with provision.
consideration,   but   with
genuine object of transferring
ownership   and   with   no
fraudulent intent
G Transfer   in   favour   of   any Object of checking tax
person   benami   (i.e.,   without evasion   substantially
consideration   and   with   no achieved   by   barring   a
genuine intent to transfer) suit instituted without
informing   the   taxing
authorities.   See
Section   231A,   Income
Tax   Act   (inserted   by
Act 45 of 1972)

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13.10 It   may   be   necessary   to   note   that   the   Law   Commission,

through   its   aforementioned   57th  Report,   did   not   find   it

suitable to accept the stringent provision of making benami

transactions   liable   to   criminal   action.   Rather,   it

recommended   adoption   of   certain   less   stringent,   civil

alternatives in the following manner:

“6.3.  Possible   alternative   for   regulating   benami

transaction.   ­   Several   possible   alternatives   could   be
thought of, with reference to prohibiting or regulating
benami  transactions  for  avoiding   prejudice  to  private
individuals or minimising litigation:­
(i) Entering into a Benami transactions could be
made an offence;
(ii) A provision may be enacted to the effect that
in a civil suit a right shall not be enforced against
the benamidar or against a third person, by or on
behalf of the person claiming to be the real owner
of the property on the ground of benami; a similar
provision could be made to bar defences on the
ground of benami.

(This   provision   would   be   based   on   the   principle   on

which   the   existing   provisions   in   the   Civil   Procedure
Code and the new provision in the Income­tax Act are
based but could be wider in scope and more radical). ­
(iii)   The   present   presumption   of   a   resulting   trust   in
favour   of   the   person   who   provided   the   consideration
may be displaced (as in England) by the presumption
of  advancement, in cases where the person to whom
property is transferred is a near relative of the person
who provided the consideration. (This would bring in
the   doctrine   of   advancement,   so   as   to   rebut   the
presumption of resulting trust under section 82 of the
Trusts Act).
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Whichever alternative is adopted, it may be desirable
to make an exception for an acquisition made by the
manager of a joint Hindu family in the name of one of
the co­parceners, and similar cases.
…
6.24. First alternative not likely to be effective­The
first   alternative   referred   to   above,   namely,   the
imposition   of   a   criminal   prohibition   against   benami
transactions, is the most drastic alternative, but it is
not   likely   to   be   more   effective   than   the   others.   A
prohibition   backed   by   criminal   sanctions   would   not,
moreover,   be   desirable,   unless   the   mens   rea   is   also
included in the provision to be enacted.
  If this alternative is to be adopted, a provision could
be enacted on the following lines:­­
"Where   property   is   transferred   to   one   person   for   a
consideration paid or provided by another person, and
it appears that such person did not intend to pay or
provide   such   consideration   for   the   benefit   of   the
transferee,   the   person   paying   or   providing   the
consideration shall be guilty of an offence punishable
with  imprisonment upto  three years,  or  with  fine, or
both. 
Provided   that   this   section   shall   not   apply   where   the
transferee is a co­parcener in a Hindu undivided family
in which such other person is also a co­parcener, and
it is proved that such other person intended to pay or
provide   such   consideration   for   the   benefit   of   the   co­
parceners in the family.

Exception­­Nothing in this section shall be deemed to
affect section 66 of the Code of Civil Procedure, 1908
or any provision similar thereto."

Yet   another   device   for   giving   effect   to   the   first

alternative, with a requirement of mens rea, would be
to have a law on the following lines:
"Where property is transferred to one person for a
consideration paid or provided by another person,
and it appears that such person did not intend to
pay or provide such consideration for the benefit

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of the transferee, the person paying: or providing
the   consideration   shall,   if   he   has   caused   the
transfer to be entered into with the intention of
facilitating   the   evasion   of   any   law,   or   defeating
the claims of his creditors, or the creditors of any
other   person   be   guilty   of   an   offence  punishable
with imprisonment upto three years, or with fine,
or with both."

Yet another device to give effect to the first alternative
would be to add a section in the Indian Penal Code as
follows­
"421A.   Whoever,   dishonestly   or   fraudulently
causes   to   be   transferred   to   any   person,   any
property,   for   which   transfer   he   has   paid   or
provided  the consideration, intending thereby to
prevent,   or   knowing   to   be   likely   that   he   will
thereby prevent, the distribution of that property
according   to   law   among   his   creditors   or   the
creditors   of   any   other   person,   or   intending
thereby to facilitate, or knowing it to be likely that
he will thereby facilitate, the evasion of any law,
shall   be   punished   with   imprisonment   of   either
description for a term which may extend to two
years, or with fine. or with both."

6.25.  Second alternative. ­­The second alternative is
less drastic than. the first. In form. it could follow the
existing   statutory   provision   limiting   the   judicial
recognition   of   benami   transactions,   such   as,   section
66. Code of Civil Procedure, 1908. But its scope would
be   much   wider.  The  provision'   could  be  to   the  effect
that no suit shall lie to enforce a right in respect of any
property   held   benami,   either   against   the   person   in
whose name 'the property is held or against any other
person, by or on behalf of a person who claims to be
the real owner 'of the property on the ground that the
person   in   whose   name   the   property   is   held   is   a
benamidar of the claimant. (If necessary, a defence can
also be barred).
…

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6.27.  Second   alternative   refusal   to   recognise

Benami   preferred.  ­­   In   our   opinion,   the   simplest
alternative   would   be   the   second   alternative.   The   law
should   refuse   to­   recognise   the   Benami   character   of
transactions, without making them an offence. The law
should,   in   effect,   provide   that   where   property   is
transferred   benami,   the   benamidar   will   become   the
real owner. The result of such a provision will be that
the   fact   that   the   benamidar   did   not   provide   the
consideration, or that the consideration was provided
by a third person, will not be a ground for recognising
a person other than the benamidar as owner. To put
the matter in broad terms, the doctrine of benami will,
under the pro­ posed amendment, cease to be a part of
the Indian law.
It   may   be   observed   that   in   enacting   the   proposed
provision,   the   legislature   will   carry,   to   its   logical
conclusion,   the   trend   illustrated   by   provisions,   such
as,   section   66   of   the   Code   of   Civil   Procedure.   The
section   in the   Code is   applicable   to   involuntary
alienations,   while   the   proposed   provision   will   extend
the same principle to voluntary transactions as Well.

We   think   that   this   will   be   the   simplest   and   most

effective course, and is, therefore, preferable to others. 

The   amendment   will  bring   out   a   change  in   the   legal

position  in  some of  the  situations where, at  present,
the benami character is re­ cognised.

6.27A. We are also of the view that it is not necessary
to enact a prohibition attracting criminal penalties­­­­
which is the course suggested in the first alternative.
Such a prohibition will have to be ac­ companied by a
requirement   of   mens   rea,   thus   narrowing   down   its
scope and limiting its practical utility.”

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13.11 It must be noted that during this time, the Constitution was

undergoing a slow churning  qua  the right to property. The

above propositions, laid down by Federal Courts and Privy

Council are to be understood in a context where there was a

general common law right to property, which later made its

forays into the Constitution of India under Articles 19(1)(f)

and   31.   In   1978,   the   Indian   Parliament   took   a   drastic

measure   and   did   away   with   this   fundamental   right   to

property   and   relegated   the   same   to   a   constitutional   right

under Article 300A.

13.12 Further,   it   was   an   era   during   which   India   pursued

‘socialism’, which was also included in the Preamble of the

Constitution   through   the   42nd  (Amendment)   Act   in   1976.

Successive   judicial   opinions   in  Kesavananda   Bharati   v.

State of Kerala, (1973) 4 SCC 225 etc., viewed the right to

property as a stumbling block in the path of achieving social

goals that the government of the time aspired to.

13.13 In   1988,   an   Ordinance   –viz.   The   Benami   Transactions

(Prohibition   of   the   Right   of   Recover   Property)   Ordinance,

1988   (Ordinance   2   of   1988.)   –   was   promulgated.   This

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statutory instrument being not satisfactory, it  was referred

to the Law Commission again.

13.14 In   any   case,   the   issue   was   re­examined   by   the   Law

Commission   in   the   year   1988   through   its   130 th  Report.

Although   the   Law   Commission   characterized   the   130 th

Report as a continuation of its earlier recommendations, it

can be observed that some radical changes were suggested.

Some of the key observations are as under:
“3.2  The first question that must engage our
attention at once is the width and coverage
of   the   proposed   legislation.  In   order   to
encompass   benami   transactions
concerning various types of property, the
legislation   should   cover   both   movable,
immovable,   tangible   and   intangible
property.   Unfortunately   every   type   of
property,   such   as   land,   houses,   shares,
debentures,   bonds,   bank   accounts,
deposit   receipts   and   negotiable
instruments,   is   capable   of   being   held
benami. Therefore, it is equally legitimate
to   have   an   extensive   coverage   of   the
proposed   legislation   by   encompassing
property of every denomination. …
…
3.18 Therefore, viewed from either angle,
the   Law  Commission is of the firm opinion
that   the   legislation   replacing   the  ordinance
should  also  be retroactive in operation and
that no locus penitentia need be given to the
persons   who   had   entered   into   benami
transactions in the past. They had notice of

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one   and   half   decades to set their  house in

order. No more indulgence is called for. …
…

4.5Before we conclude on this chapter, it is
necessary to point out that certain tax laws
have   confirmed   legitimacy   on   the   benami
transactions and derived benefit in the form
of   revenue   collection   from   it.   It   was,
therefore,   said   that   if   now   all   benami
transactions   are   invalidated   and   an   all­
enveloping   prohibition   is   imposed,   the
revenue   laws   would   suffer   loss   of   revenue.
Reference   in   this   connection   was   made   to
section   27   of   the   Income­tax   Act,   1962
dealing   with   income   from   house   property.
The various sub­sections of section 27 deal
with transfer of property by husband to wife
and  vice­versa.
      It also involves the case of
impartable   estate.   The   law   commission   is
unable to appreciate how a total prohibition
of benami transaction and the holder being
made   the   real   owner   would   defeat   revenue
laws. If one escapes, the other pays, and if it
is   suggested   that   the   other   may   not   be
within the dragnet of the tax laws and that
both   would   benefit   by   the   prohibition   and
abolition   of   benami   transactions.   In   the
immediate   future   such   effect   may   be
produced   but   the   long   term   interest   would
help   in   defending   such   spurious
transactions   between   husband   and   wife.
Section 22 may be read accordingly. But it
was pointed out that where transfer of flats
is   prohibited   either   by   the   rules   of   the   co­
operative society which has built the flats or
by   the   rules   of   authorities   like   the   Delhi
Development   Authority,   a  modus   operandi
has   come   into   existence   whereby   violating
the   law,   the   flat is sold  and  the purchaser
would   pay   the   amount   and   taken   an

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irrevocable power of attorney and enter into
possession.   It   was   further   said   that   the
provisions   of   the   Income­tax   Act   have
recognized   such   transfers   and   treat   the
attorney as owner for the purpose of income­
tax as per the provisions of the Finance Act,
1987.   If   the   sole   purpose   of   entering   into
such a transaction is the violation of existing
law   which   has   been   passed   after   due
consideration, it is time that no recognition
is conferred and the law is allowed to take
its own course. Even in the name of revenue
loss,   violation   of   existing   laws   cannot   be
protected. 
4.6The Law Commission would like to make
it  very  clear   that  some of provisions of the
tax laws may become anachronistic because
of   the   present   approach   of   the   law
commission. This is inevitable. The tax laws
were enacted at the time when benami was a
part of Indian law. Such laws would have to
conform   to   the   changing   legal   order.   Yet   a
further   solution   is   offered   in   this   behalf   in
the next chapter.”

(emphasis supplied)
14.  FRAMEWORK UNDER THE 1988 ACT 
14.1 This brings us to the statutory framework under the 1988

unamended Act, having nine sections. Section 2(a) defines

benami transactions as any transaction in which property is

transferred   to   one   person   for   a   consideration   paid   or

provided by another person. The law chose to include only

tripartite   benami   transactions,   while   bipartite/loosely

described   as   benami   transactions,   were   left   out   of   the

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definition.   Reading   the   aforesaid   definition   to   include

sham/bipartite   arrangements   within   the   ambit   would   be

against the strict reading of criminal law and would amount

to judicial overreach.
 
14.2 The above definition does not capture the essence of benami

transactions as the broad formulation includes certain types

of   legitimate   transactions   as   well.  The   transferee/property

holder’s lack of beneficial interest in the property was a vital

ingredient,   as  settled by  years of judicial pronouncements

and common parlance, and found to be completely absent in

the definition given in the Act. On literal application of the

aforesaid Section 2(a), the following transactions could have

been caught in the web of the Act:
(a) ‘A’ purchases property in name of his son’s wife ‘B’, for

the benefit of the son’s family from person ‘Y’, treats the

consideration as a gift to the son, and pays gift tax on it.
(b)‘A’   who   is   old   and   infirm,   purchases   a   property   in   the

name of ‘B’, intending that ‘B’ will hold the property in

trust of the son of ‘A’, who is mentally retarded.
(c) A firm ‘X’ purchases property in the name of the working

partner   ‘B’   for   the   benefit   of   the   firm   ‘X’,   making   the

payment out of the firm’s funds.
 

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14.3 Section 2(c) of the 1988 Act defines property to be property

of   any   kind,   whether   movable   or   immovable,   tangible,   or

intangible,   and   includes   any   right   or   interest   in   such

property. This definition appears to be broad and inclusive

of   all   kinds   of   property   and   includes   various   rights   and

interests.   Interestingly,   the   aforesaid   broad   formulation   of

property   came   about   for   the   first   time   in   the   130 th  Law

Commission   Report;   such   definitional   broadening   was   for

the   first   time   introduced   only   in   1988   and   was   never

contemplated   during   the   57th  Report   (1973).   This   aspect

becomes   important,   and   will   be   addressed   later,   while

analysing the question of retrospectivity.

14.4 Section 3 of 1988 Act states as under:

3. Prohibition of benami transactions­ (1) No
person   shall   enter   into   any   benami
transaction. 

(2) Nothing in sub­section (1) shall apply to the
purchase   of   property   by   any   person   in   the
name of his wife or unmarried daughter and it
shall   be   presumed,   unless   the   contrary   is
proved,   that   the   said   property   had   been
purchased   for   the   benefit   of   the   wife   of   the
unmarried daughter. 

(3)   Whoever   enters   into   any   benami

transaction   shall   be   punishable   with

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imprisonment for a term which may extend to
three years or with fine or with both. 

(4) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974),
an   offence   under   this   section   shall   be   non­
cognizable and bailable. 

Section   3   puts   forth   a   prohibitive   provision.   Further,   it

intended   to   criminalize   an   act   of   entering   into   a   benami

transaction. 

14.5 Section 4 noted as under:

4.Prohibition   of   the   right   to   recover

property held benami­ (1) No suit, claim or
action to enforce any right in respect of any
property held benami against the person in
whose name the property is held or against
any other person shall lie by or on behalf of
a   person   claiming   to   be   the   real   owner   of
such property. 

(2) No defence based on any right in respect
of   any   property   held   benami,   whether
against   the   person   in   whose   name   the
property is held or against any other person,
shall be allowed in any suit, claim or action
by   or   on   behalf of  a  person  claiming   to  be
the real owner of such property. 

(3) Nothing in this section shall apply,­­ 

(a)   where   the   person   in   whose   name   the

property is held is a coparcener in a Hindu
undivided family and the property is held for
the benefit of the coparceners in the family;
or

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(b)   where   the   person   in   whose   name   the

property is held is a trustee or other person
standing   in   a   fiduciary   capacity,   and   the
property   is   held   for   the   benefit   of   another
person for whom he is a trustee or towards
whom he stands in such capacity.  

14.6 Section 5 states:
5. Property of benami liable to acquisition­
(1) All properties held benami shall be subject
to   acquisition   by   such   authority,   in   such
manner and after following such procedure as
may be prescribed. 
(2)   For   the   removal   of   doubts,   it   is   hereby
declared that no amount shall be payable for
the   acquisition   of   any   property   under   sub­
section (1). 

It may be noted that Section 5 was never utilized as it was

felt   that   there   was   requirement   of   additional   statutory

backing to make the law effective.6 

14.7 Section 6 provided that nothing in the 1988 Act will affect

Section 53 of the Transfer of Property Act or any law relating

to transfers for an illegal purpose. The object of Section 6

was to vest ownership rights in benamidars as opposed to

the real owner. It was not the intention of the 1988 Act to

protect such persons from creditors who allege diversion of

6 Standing Committee on Finance 2015-2016, 16th Lok Sabha, Ministry of Finance (Deptt. of Revenue), The
Benami Transactions Prohibition (Amendment) Bill, 2015, 28th Report, Part I.

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funds   in   a   fraudulent   manner   and   allow   them   to   escape

their   liability   to   the   creditors. Therefore, Section  6 limited

the application of Section 4 in such cases.

14.8 Section 7 of the 1988 Act repealed Sections 81, 82 and 94 of

the Indian Trusts Act, 1882 (2 of 1882); Section 66 of the

Code of Civil Procedure, 1908 (5 of 1908.); and Section 281A

of   the   Income   Tax   Act,   1961   (43   of   1961).   Section   8

empowered  the  Central Government to make rules to give

effect to the Act. The final section, Section 9, repealed the

earlier Ordinance.

14.9 The main thrust of the argument put forth by the Union of

India   in   this   appeal   is   that   the   amended   2016   Act   only

clarified the 1988 Act. Law Officers appearing for the Union

of India trained their guns on the point that the 1988 Act

had   already   created   substantial   law   for   criminalizing   the

offence and the 2016 amendments were merely clarificatory

and   procedural,   to   give   effect   to   the   1988   Act.   Such   a

submission mandates us to examine the law of the 1988 Act

in  detail   and   determine  the  scope  of the earlier   regime to

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understand   as   to   whether   the   2016   amendments   were

substantive or procedural.

14.10 Reading Section 2(a) along with Section 3 makes one thing

clear – the criminal provision envisaged under the aforesaid

provisions does not expressly contemplate mens rea. Under

the   Indian   jurisprudence,   the   law   on   the   subject   is   fairly

well­settled. It has been subjected to the judicial scrutiny of

this   Court   on   several   occasions.   It   does   not   call   for   a

detailed discussion and is enough to restate the principles.

Mens   rea  is   an   essential   ingredient   of   a   criminal   offence.

Doubtless, a statute may exclude the element of  mens rea,

but it is a sound rule of construction adopted in England –

and   also   accepted   in   India   –   to   construe   a   statutory

provision   creating   an   offence   in   conformity   with   common

law rather than against it, unless the statute expressly or by

necessary implication excluded mens rea. The mere fact that

the object of the statute is to promote welfare activities or to

eradicate a grave social evil which by itself is not decisive of

the question as to whether the element of  a guilty mind is

excluded   from   the   ingredients   of   an   offence.  Mens   rea  by

necessary implication may be excluded from a statute only
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where it is absolutely clear that implementation of the object

of the statute would otherwise be defeated. [refer  Nathulal

v. State of Madhya Pradesh, AIR 1966 SC 43]

14.11 In the above light, this Court’s first endeavour is to attempt

to   interpret   the   law   to   imply  mens   rea.   However,   the

language of Section 2(a) coupled with Section 3, completely

ignores the aspect of  mens rea, as it intends to criminalize

the   very   act   of   one   person   paying   consideration   for

acquisition   of   property   for   another   person.   The  mens   rea

aspect   was   specifically   considered   by   the   57 th  Law

Commission Report, and the same was not integrated into

the   unamended   1988   Act.   The   observations   made   in   the

130th  Law   Commission   Report   indicate   that   benami

transactions are abhorrent when it comes to public wealth

and impedes the government from achieving its social goals.

This   clearly   allows   us   to   infer   that   the   1988   law   was

envisaged on the touchstone of strict liability.

14.12 Such   strict   statutory   formulation   under   Section   2(a)   read

with Section 3 had left loose ends in the 1988 Act. In this

light,   the   prosecution   would   only   have   to   prove   only   that

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consideration   was   paid   or   consideration   was   provided   by

one person for another person and nothing more. In all the

judicial   precedents,   this   Court   has   had   the   occasion   to

examine this legislation on the civil side and never on the

criminal   side,   which   would   bear   a   higher   standards.

Conflation of the ingredients under Section 3(1) and (2) with

those of Section 4, to forcefully implied mens rea, cannot be

accepted.

14.13 It   may   be   noted   that   Supreme   Court   has   dealt   with   the

interpretation of Section 4 of 1988 Act, on several occasions.

In Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC

95, this Court was called upon to examine as to whether the

aforesaid   provision   has   retrospective   application,   held   as

under:

“22. As   defined   in   Section   2(a)   of   the   Act   “

‘benami transaction’ means any transaction in
which property is transferred to one person for
a   consideration   paid   or   provided   by   another
person”.   A   transaction   must,   therefore,   be
benami   irrespective   of   its   date   or   duration.
Section   3,   subject   to   the   exceptions,   states
that   no   person   shall   enter   into   any   benami
transaction.   This   section   obviously   cannot
have retrospective operation. However, Section
4 clearly provides that no suit, claim or action
to enforce any right in respect of any property
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held benami against the person in whose name
the   property   is   held   or   against   any   other
person   shall   lie,   by   or   on   behalf  of   a   person
claiming   to   be   real   owner   of   such   property.
This   naturally   relates   to   past   transactions
as well. The expression “any property held
benami”   is   not   limited   to   any   particular
time, date or duration. Once the property is
found   to   have   been   held   benami,   no   suit,
claim   or   action   to   enforce   any   right   in
respect   thereof   shall   lie.   Similarly,   sub­
section   (2)   of   Section   4   nullifies   the
defences   based   on   any   right   in   respect   of
any   property   held   benami  whether   against
the person in whose name the property is
held   or   against   any   other   person   in   any
suit,   claim   or   action   by   or   on   behalf   of   a
person   claiming   to   be   the   real   owner   of
such property. It means that once a property
is   found   to   have   been   held   benami,   the   real
owner   is   bereft   of   any   defence   against   the
person in whose name the property is held or
any other person. In other words in its sweep
Section   4   envisages   past   benami
transactions also within its retroactivity. In
this   sense   the   Act   is   both   a   penal   and   a
disqualifying statute. In case of a qualifying or
disqualifying   statute   it   may   be   necessarily
retroactive.   For   example   when   a   Law   of
Representation   declares   that   all   who   have
attained   18   years   shall   be   eligible   to   vote,
those who attained 18 years in the past would
be as much eligible as those who attained that
age   at   the   moment   of   the   law   coming   into
force. When an Act is declaratory in nature the
presumption   against   retrospectivity   is   not
applicable.   Acts   of   this   kind   only   declare.   A
statute   in   effect   declaring   the   benami

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transactions   to   be   unenforceable   belongs   to

this   type.   The   presumption   against   taking
away   vested   right   will   not   apply   in   this   case
inasmuch as under law it is the benamidar in
whose name the property stands, and law only
enabled the real owner to recover the property
from him which right has now been ceased by
the   Act.   In   one   sense   there   was   a   right   to
recover or resist in the real owner against the
benamidar. Ubi jus ibi remedium. Where there
is a right, there is a remedy. Where the remedy
is barred, the right is rendered unenforceable.
In this sense it is a disabling statute. All the
real   owners   are   equally   affected   by   the
disability  provision irrespective of the time of
creation   of   the   right.   A   right   is   a   legally
protected interest. The real owner's right was
hitherto protected and the Act has resulted in
removal of that protection.
23. When   the   law   nullifies   the   defences
available   to   the   real   owner   in   recovering   the
benami property from the benamidar the law
must   apply   irrespective   of   the   time   of   the
benami transactions. The expression “shall lie”
in   Section   4(1)   and   “shall   be   allowed”   in
Section 4(2) are prospective and shall apply to
present (future stages) and future suits, claims
or actions only. This leads us to the question
whether there was a present suit between the
respondent­plaintiff   and   the   defendant­
appellant  on  the date of the law coming  into
force. We have noted the dates of filing the suit
and   judgments   of   the   courts   below.   On   the
date of Section 4 of the Act coming into force,
that   is,   19­5­1988   this   appeal   was   pending
and,   of   course,  is still  pending. Can the  suit
itself be said to be pending?
(emphasis supplied)

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14.14 The aforesaid interpretation was re­examined by this Court

in  R.   Rajagopal   Reddy   v.   Padmini   Chandrasekharan,

(1995)   2   SCC   630   and   while   partly   over­ruling  Mitilesh

Kumari (supra), it was held as under:

11. … Thus it was enacted to efface the then
existing right of the real owners of properties
held by others benami.  Such an Act was not
given   any   retrospective   effect   by   the
legislature.  Even when we come to Section
4, it is easy to visualise that sub­section (1)
of   Section   4   states   that   no   suit,   claim   or
action   to   enforce   any   right   in   respect   of
any   property   held   benami   against   the
person in whose name the property is held
or against any other shall lie by or on behalf
of a person claiming to be the real owner of
such   property.  As   per   Section   4(1)   no   such
suit   shall   thenceforth   lie   to   recover   the
possession of the property held benami by the
defendant.   Plaintiff's   right   to   that   effect   is
sought   to   be   taken   away   and   any   suit   to
enforce   such   a   right   after   coming   into
operation   of   Section   4(1)   that   is   19­5­1988,
shall   not   lie.  The   legislature   in   its   wisdom
has   nowhere  provided   in   Section  4(1)  that
no   such   suit,   claim   or   action   pending   on
the   date   when   Section   4   came   into   force
shall not be proceeded with and shall stand
abated.  On   the   contrary,   clear   legislative
intention   is   seen   from   the   words   “no   such
claim,   suit   or   action   shall   lie”,   meaning
thereby no such suit, claim or action shall be
permitted to be filed or entertained or admitted

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to the portals of any court for seeking such a
relief after coming into force of Section 4(1). …

The   word   ‘lie’   in   connection   with   the   suit,

claim or action is not defined by the Act. If we
go   by   the   aforesaid   dictionary   meaning   it
would mean that such suit, claim or action to
get  any  property declared benami will not be
admitted   on   behalf   of   such   plaintiff   or
applicant  against the defendant concerned in
whose name the property is held on and from
the   date   on   which   this   prohibition   against
entertaining   of   such   suits   comes   into   force.
With respect, the view taken that Section 4(1)
would apply even to such pending suits which
were already filed and entertained prior to the
date   when   the   section   came   into   force   and
which   has   the   effect   of   destroying   the   then
existing right of plaintiff in connection with the
suit property cannot be sustained in the face
of the clear language of Section 4(1). It has to
be visualised that the legislature in its wisdom
has   not   expressly   made   Section   4
retrospective.   Then   to   imply   by   necessary
implication   that   Section   4   would   have
retrospective   effect   and   would   cover   pending
litigations filed prior to coming into force of the
section would amount to taking a view which
would   run   counter   to   the   legislative   scheme
and   intent   projected   by   various   provisions   of
the Act to which we have referred earlier. It is,
however,   true   as   held   by   the   Division   Bench
that   on   the   express   language   of   Section   4(1)
any right inhering in the real owner in respect
of any property held benami would get effaced
once   Section   4(1)   operated,   even   if   such
transaction had been entered into prior to the
coming   into   operation   of   Section   4(1),   and
henceafter Section 4(1) applied no suit can lie
in respect to such a past benami transaction.
To that extent the section may be retroactive.

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To   highlight   this   aspect   we   may   take   an

illustration. If a benami transaction has taken
place in 1980 and a suit is filed in June 1988
by   the   plaintiff   claiming   that   he   is   the   real
owner of the property and defendant is merely
a benamidar and the consideration has flown
from   him,   then such a suit would  not lie on
account of the provisions of Section 4(1). Bar
against   filing,   entertaining   and   admission   of
such   suits   would   have   become   operative   by
June   1988   and   to   that   extent   Section   4(1)
would   take   in   its   sweep   even   past   benami
transactions   which   are   sought   to   be   litigated
upon after coming into force of the prohibitory
provision of Section 4(1); but that is the only
effect   of   the   retroactivity   of   Section   4(1)   and
nothing more than that. From the conclusion
that   Section   4(1)   shall   apply   even   to   past
benami   transactions   to   the   aforesaid
extent, the next step taken by the Division
Bench   that   therefore,   the   then   existing
rights got destroyed and even though suits
by   real   owners   were   filed   prior   to   coming
into   operation   of   Section   4(1)   they   would
not survive, does not logically follow.

12. So far as Section 4(2) is concerned, all that
is provided is that if a suit is filed by a plaintiff
who   claims   to   be   the   owner   of   the   property
under   the   document  in  his favour  and holds
the   property   in   his   name,   once   Section   4(2)
applies,   no   defence   will   be   permitted   or
allowed in any such suit, claim or action by or
on behalf of a person claiming to be the real
owner   of   such   property   held   benami.   The
disallowing   of   such   a   defence   which   earlier
was   available,   itself   suggests   that   a   new
liability   or   restriction   is   imposed   by   Section

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4(2)   on   a   pre­existing   right  of  the   defendant.

Such   a   provision   also   cannot   be   said   to   be
retrospective   or   retroactive   by   necessary
implication.   It   is   also   pertinent   to   note   that
Section 4(2) does not expressly seek to apply
retrospectively. So far as such a suit which is
covered   by   the   sweep   of   Section   4(2)   is
concerned,   the   prohibition   of   Section   4(1)
cannot apply to it as it is not a claim or action
filed by the plaintiff to enforce right in respect
of any property held benami. On the contrary,
it   is   a   suit,   claim   or   action   flowing   from   the
sale   deed   or   title   deed   in   the   name   of   the
plaintiff. Even though such a suit might have
been   filed   prior   to   19­5­1988,   if   before   the
stage of filing of defence by the real owner is
reached,  Section 4(2) becomes operative from
19­5­1988, then such a defence, as laid down
by Section 4(2) will not be allowed to such a
defendant. However, that would not mean that
Section   4(1)   and   Section   4(2)   only   on   that
score   can   be   treated   to   be   impliedly
retrospective   so   as   to   cover   all   the   pending
litigations   in   connection   with   enforcement   of
such rights of real owners who are parties to
benami transactions entered into prior to the
coming into operation of the Act and specially
Section 4  thereof. It is also pertinent to note
that Section 4(2) enjoins that no such defence
“shall be allowed” in any claim, suit or action
by or on behalf of a person claiming to be the
real owner of such property. That is to say no
such defence shall be allowed for the first time
after coming into operation of Section 4(2). If
such a defence is already allowed in a pending
suit   prior   to   the   coming   into   operation   of
Section 4(2), enabling an issue to be raised on
such   a   defence,   then   the   Court   is   bound   to
decide the issue arising from such an already
allowed defence as at the relevant time when
such defence was allowed Section 4(2) was out

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of the picture. Section 4(2) nowhere uses the
words:   “No   defence   based   on   any   right   in
respect  of   any   property  held benami  whether
against the person in whose name the property
is  held   or  against any  other person, shall be
allowed to be raised or continued to be raised
in   any   suit.”   With   respect,   it   was   wrongly
assumed by the Division Bench that such an
already   allowed   defence   in   a   pending   suit
would   also   get   destroyed   after   coming   into
operation of Section 4(2). We may at this stage
refer   to   one   difficulty   projected   by   learned
advocate   for   the   respondents   in   his   written
submissions,   on   the   applicability   of   Section
4(2). These submissions read as under:

13. According to us this difficulty is inbuilt in
Section 4(2) and does not provide the rationale
to   hold   that   this   section   applies
retrospectively. The legislature itself thought it
fit   to   do   so   and   there   is   no   challenge   to   the
vires on the ground of violation of Article 14 of
the Constitution. It is not open to us to rewrite
the   section   also.   Even   otherwise,   in   the
operation   of   Section   4(1)   and   (2),   no
discrimination can be said to have been made
amongst  different real owners of property, as
tried   to   be   pointed   out   in   the   written
objections. In fact, those cases in which suits
are filed by real owners or defences are allowed
prior to coming into operation of Section 4(2),
would   form   a   separate   class   as   compared   to
those cases where a stage for filing such suits
or defences has still not reached by the time
Section   4(1)   and   (2)   starts   operating.
Consequently, latter type of cases would form
a   distinct   category   of   cases.   There   is   no
question   of   discrimination   being   meted   out
while  dealing with these two classes of cases

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differently. A real owner who has already been
allowed   defence   on   that   ground   prior   to
coming into operation of Section 4(2) cannot be
said to have been given a better treatment as
compared   to   the   real   owner   who   has   still   to
take up such a defence and in the meantime
he   is   hit   by   the   prohibition   of   Section   4(2).
Equally   there   cannot   be   any   comparison
between a real owner who has filed such suit
earlier and one who does not file such suit till
Section   4(1)   comes   into   operation.   All   real
owners   who   stake   their   claims   regarding
benami transactions after Section 4(1) and (2)
came   into   operation   are   given   uniform
treatment   by   these   provisions,   whether   they
come   as   plaintiffs   or   as   defendants.
Consequently,   the   grievances   raised   in   this
connection cannot be sustained.

14.15 Returning to the discussion at hand, there is no doubt that

the   unamended   1988   Act   tried   to   create   a   strict   liability

offence and allowed separate acquisition of benami property.

This begs the question whether such a criminal provision,

which   the   State   now   intends   to   make   use   of,   in   order   to

confiscate properties after 28 years of dormancy, could have

existed   in   the   books   of   law.   Other   than   the   abuse   and

unfairness such exercise intends to bring about, there is a

larger constitutional question about existence of such strict

provisions without adequate safeguards.

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15.  SUBSTANTIVE  DUE  PROCESS,   MANIFEST  ARBITRARINESS  AND 

 PROVISIONS UNDER 1988 ACT .
15.1 The simple question addressed by the counsel appearing for

both sides is whether the amended 2016 Act is retroactive

or  prospective.   Answering  the  above question is inevitably

tied to an intermediate question as to whether the 1988 Act

was   constitutional   in   the   first   place.   The   arguments

addressed by the Union of India hinges on the fact that the

1988 Act was a valid substantive law, which required only

some   gap   filling   through   the   2016   Act,   to   ensure   that

sufficient   procedural   safeguards   and   mechanisms   are

present to enforce the law. According, to the Union of India,

the 2016 Act was a mere gap filling exercise.
15.2 However, upon studying the provisions of the 1988 Act, we

find that there are questions of legality and constitutionality

which arise with respect to Sections 3 and 5 of 1988 Act.

The answers to such questions cannot be assumed in favour

of   constitutionality,   simply   because   the   same   was   never

questioned before the Court of law. We are clarifying that we

are not speaking of the presumption of constitutionality as a

matter   of   burden   of   proof.   Rather,   we   are   indicating   the

assumption taken by the Union as to the validity of these
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provisions in the present litigation. Such assumption cannot

be made when this Court is called upon to answer whether

the impugned provisions are attracted to those transactions

that have taken place before 2016.

15.3 Indian jurisprudence has matured through years of judicial

tempering, and the country has grown to be a jurisdiction

having   ‘substantive   due   process’.   A   brief   sketch   of   the

jurisprudential   journey   thus   far,   may   be   necessary   to   aid

our understanding.  

15.4 There   is   no   gain   saying   that   deletion   of   the   phrase   ‘due

process of law’ from the draft Constitution was inspired by

the   views   of   James   Bradley   Thayer   and   Justice   Felix

Frankfurter,   who   held   that   concentration   of   power   to

examine reasonability of a legislation through judicial review

would   fall   foul   of   separation   of  powers  and  denigration   of

parliamentary   sovereignty.   Dr.   Ambedkar   himself   did   not

want   to   side   with   any   of   the   above   opinions,   rather   he

envisaged   the   situation   as   one   who   is   caught   between

Charybdis and Scylla. 

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15.5 The emphasis on the aforesaid deletion by the majority in

A.K   Gopalan   v.   State   of  Madras,  AIR 1950  SC  27,  was

somewhat drawn back by the celebrated dissent of Fazal Ali,

J.,   wherein   the   term   “Procedure   established   by   law”   was

interpreted to mean “Procedural due process”. This judicial

quibbling was ultimately set to rest in  Maneka Gandhi v.

Union   of   India,   (1978)   1   SCC   248,   wherein   a   combined

reading of Articles 14, 19 and 21 would make it clear that

the  judiciary,  so to say, always had the forensic power  to

examine reasonability of a law, both procedural as well as

substantive.   Later   expositions   have   only   given   colour   to

expand what was implicit under the three golden Articles of

Part III. In Sunil Batra v. Delhi Administration, (1978) 4

SCC 494, the word law as occurring under Article 21 was

interpreted   to   mean  jus  and   not   merely  lex.   It   may   be

necessary   to   quote   the   observation   of   the   majority   in   the

aforesaid case in the following manner: 
“228…The   word   “law”   in   the   expression
“procedure established by law” in Article 21
has   been   interpreted   to   mean   in  Maneka
Gandhi case that the law must be right,
just   and   fair   and   not   arbitrary,   fanciful
or oppressive.”
(Emphasis supplied)
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15.6 Without   burdening   this   judgment   with   a   series   of

precedents laid down by this Court, we may refer only to the

majority   opinion   in  K.   Puttaswamy   v.   Union   of   India,

(2017)   10   SCC   1,   wherein   the   law   has   been   settled   by   a

Nine­Judge Bench of this Court in the following manner: 

“294. The   Court,   in   the   exercise   of   its

power of judicial review, is unquestionably
vested   with   the   constitutional   power   to
adjudicate upon the validity of a law. When
the   validity   of   a   law   is   questioned   on   the
ground   that   it   violates   a   guarantee
contained   in   Article   21,   the   scope   of   the
challenge   is   not   confined   only   to   whether
the procedure for the deprivation of life or
personal liberty is fair, just and reasonable.
Substantive   challenges   to   the   validity   of
laws   encroaching  upon  the  right  to  life or
personal   liberty   has   been   considered   and
dealt with in varying contexts, such as the
death   penalty   (Bachan   Singh [Bachan
Singh v. State of Punjab, (1980) 2 SCC 684 :
1980 SCC (Cri) 580] ) and mandatory death
sentence   (Mithu [Mithu v. State   of   Punjab,
(1983) 2 SCC 277 : 1983 SCC (Cri) 405] ),
among   other   cases.   A   person   cannot   be
deprived of life or personal liberty except in
accordance with the procedure established
by  law.  Article 14, as a guarantee against
arbitrariness, infuses the entirety of Article
21.   The   interrelationship   between   the
guarantee   against   arbitrariness   and   the
protection   of   life   and   personal   liberty
operates   in   a  multi­faceted  plane.  First,  it
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ensures that the procedure for deprivation
must be fair, just and reasonable. Second,
Article 14 impacts both the procedure and
the   expression   “law”.   A   law   within   the
meaning   of   Article   21   must   be   consistent
with the norms of fairness which originate
in Article 14. As a matter of principle, once
Article   14   has   a   connect   with   Article   21,
norms   of   fairness   and   reasonableness
would apply not only to the procedure but
to the law as well.

295. Above   all,   it   must   be   recognised

that judicial review is a powerful guarantee
against   legislative   encroachments   on   life
and   personal   liberty.   To   cede   this   right
would   dilute   the   importance   of   the
protection   granted   to   life   and   personal
liberty   by   the   Constitution.   Hence,   while
judicial  review in constitutional challenges
to the validity of legislation is exercised with
a conscious regard for the presumption of
constitutionality   and   for   the   separation   of
powers   between   the   legislative,   executive
and judicial institutions, the constitutional
power which is vested in the Court must be
retained   as   a   vibrant   means   of   protecting
the lives and freedoms of individuals.

296. The danger of construing this as an
exercise of “substantive due process” is that
it results in the incorporation of a concept
from the American Constitution which was
consciously   not   accepted   when   the
Constitution was framed. Moreover, even in
the   country   of   its   origin,   substantive   due
process   has   led   to   vagaries   of   judicial
interpretation. Particularly having regard to

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the   constitutional   history   surrounding   the

deletion of that phrase in our Constitution,
it   would   be   inappropriate   to   equate   the
jurisdiction   of   a   constitutional   court   in
India   to   entertain   a   substantive   challenge
to the validity of a law with the exercise of
substantive   due   process   under   the   US
Constitution. Reference to substantive due
process   in   some   of   the   judgments   is
essentially   a   reference   to   a   substantive
challenge   to   the   validity   of   a   law   on   the
ground   that   its   substantive   (as   distinct
from   procedural)   provisions   violate   the
Constitution.”

15.7 The law with respect to testing the unconstitutionality of a

statutory instrument can be summarized as under:
a. Constitutional   Courts   can   test   constitutionality   of

legislative   instruments   (statute   and   delegated

legislations);

b. The Courts are empowered to test both on procedure as

well as substantive nature of these instruments.

c. The   test   should   be   based   on   a   combined   reading   of

Articles 14, 19 and 21 of the Constitution.

15.8 One   of   the   offshoots   of   this   test   under   Part   III   of   the

Constitution is the development of the doctrine of manifest

arbitrariness. A doctrinal study of the development of this

area   may   not   be   warranted   herein.   It   is   well   traced   in

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Shayara Bano v. Union of India, (2017) 9 SCC 1. We may

only state that the development of jurisprudence has come

full circle from an overly formalistic test of classification to

include   the   test   of   manifest   arbitrariness.   A   broad

formulation of the test was noted in the aforesaid case as

under:
“95. On   a   reading   of   this   judgment
in Natural   Resources   Allocation
case [Natural   Resources   Allocation,   In   re,
Special Reference No. 1 of 2012, (2012) 10
SCC 1], it is clear that this Court did not
read McDowell [State   of   A.P. v. McDowell
and   Co.,   (1996)   3   SCC   709]   as   being   an
authority   for   the   proposition   that
legislation   can   never   be   struck   down   as
being   arbitrary.   Indeed   the   Court,   after
referring   to   all   the   earlier   judgments,
and Ajay   Hasia [Ajay   Hasia v. Khalid
Mujib   Sehravardi,   (1981)   1   SCC   722]   in
particular,   which   stated   that   legislation
can be struck down on the ground that it
is “arbitrary” under Article 14, went on to
conclude that “arbitrariness” when applied
to   legislation   cannot   be   used   loosely.
Instead,   it   broad   based   the   test,   stating
that if a constitutional infirmity is found,
Article 14 will interdict such infirmity. And
a   constitutional   infirmity   is   found   in
Article   14   itself   whenever   legislation   is
“manifestly   arbitrary”  i.e.   when  it  is   not
fair, not reasonable, discriminatory, not
transparent,   capricious,   biased,   with
favouritism   or   nepotism   and   not   in
pursuit   of   promotion   of   healthy
competition   and   equitable   treatment.

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Positively   speaking,   it   should   conform   to

norms   which   are   rational,   informed   with
reason and guided by public interest, etc.”
(emphasis supplied)

15.9 In Joseph Shine v. Union of India, (2019) 3 SCC 39, this

Court   was   concerned   with   the   constitutionality   of   Section

497 of the IPC relating to the provision of adultery. While

declaring the aforesaid provision as unconstitutional on the

aspect of it being manifestly arbitrary, this Court reiterated

the test as under:
“...The   test   of   manifest   arbitrariness,
therefore,   as   laid   down   in   the   aforesaid
judgments   would   apply   to   invalidate
legislation   as   well   as   subordinate
legislation   Under   Article   14.  Manifest
arbitrariness,   therefore,   must   be
something   done   by   the   legislature
capriciously,   irrationally   and/or
without   adequate   determining
principle. Also, when something is done
which   is   excessive   and
disproportionate, such legislation would
 be   manifestly   arbitrary .  We   are,
therefore, of the view that arbitrariness in
the   sense   of   manifest   arbitrariness   as
pointed   out   by   us   above   would   apply   to
negate   legislation   as   well   Under   Article
14.”
(emphasis supplied)

15.10 In  Hindustan   Construction   Co.   Ltd   v.   Union   of   India,

(2020) 17 SCC 324, this Court struck down Section 87 of

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the Arbitration Act on the ground of manifest arbitrariness

as   the   Parliament   chose   to   ignore   the   judgment   of   this

Court, without removing the basis of the same or identifying

a principle for militating against the same.

15.11 Coming back to the 1988 Act, the two provisions with which

we are concerned are Sections 3 and 5 of 1988 Act. They are

required to be separately analysed herein. At the outset, we

may notice that the enactment was merely a shell, lacking

the substance that a criminal legislation requires for being

sustained. The reasons for the same are enumerated in the

following paragraphs. 

15.12 First,   the   absence   of  mens   rea  creates   a   harsh   provision

having strict liability. Such an approach was frowned upon

by   the   57th  Law   Commission   Report   as   concerns   of   tax

evasion or sham transactions in order to avoid payment to

creditors   were   adequately   addressed   by   the   existing

provisions   of   law.   Even  the 130th  Law Commission Report

did   not   expressly   rule  out   the  inclusion  of  mens   rea.  The

legislative move to ignore earlier Law Commission Reports

without  there   being   a principle identified to  do  away  with

the  aspect  of  mens rea  should be a contributory factor in

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analysing   the   constitutionality   of   the   aforesaid   criminal

provision under the 1988 Act.  

15.13 Further, 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.

15.14 Second,   ignoring   the   essential   ingredient   of   beneficial

ownership   exercised   by   the   real   owner   contributes   to

making   the   law   even   more   stringent   and   disproportionate

with   respect   to   benami   transactions   that   are   tripartite   in

nature.   The   Court   cannot   forcefully   read   the   ingredients

developed   through   judicial   pronouncements   or   under

Section   4   (having   civil   consequence)   into   the   definition

provided   under   Sections   2   and   3   (espousing   criminal

consequences),   to   save   the   enactment   from

unconstitutionality.   Such   a   reading   would   violate   the

express language of Section 2(a), of excluding one ingredient

from the definition of ‘benami transaction’, and would suffer

from the vice of judicial transgression. In removing such an

essential   ingredient,   the   legislature   did   not   identify   any

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reason   or   principle,   which   made   the   entire   provision   of

Section   3   susceptible   to   arbitrariness.   Interestingly,   for

tripartite   benami   transactions,   the   2016   Act   brings   back

this ingredient through Section 2(9)(A)(b). In this context, we

may state that it is a simple requirement under Article 20(1)

that a law needs to be clear and not vague. It should not

have incurable gaps which are yet to be legislated/filled in

by judicial process. 

15.15 Third, it is fairly admitted by the learned ASG, Mr. Vikramjit

Banerjee appearing for the Union of India, that the criminal

provision   was   never   utilized   as   there   was   a   significant

hiatus in enabling the functioning of such a provision. 

15.16 Fourth,   reading   Section 2(a) with  Section 3(1) would have

created   overly   broad   laws  susceptible  to  be  challenged  on

the   grounds   of   manifest   arbitrariness.   If   this   Court   reads

criminal   provisions   of   the   Benami   Act   to   have   had   force

since   1988,   then   the   following   deleterious   consequences

would ensue:

(i.) Section 187C of the Companies Act, 1956 assured

protection   to   nominal   and   beneficial   holding   of

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shares if the prescribed declaration duly made are

at serious risk.

(ii.) Benami   cooking   gas   connections   which   have   been

regularized from time to time are at risk.

(iii.) Housing   colonies   and   benami   allotments   of   DDA

flats which have been regularised from time to time

are at risk.

15.17 The criminal provision under Section 3(1) of the 1988 Act

has   serious   lacunae   which   could   not   have   been  cured  by

judicial   forums,   even   through   some   form   of   harmonious

interpretation.   A   conclusion   contrary   to   the   above   would

make the aforesaid law suspect to being overly oppressive,

fanciful   and   manifestly   arbitrary,   thereby   violating   the

‘substantive due process’ requirement of the Constitution. 

15.18 Coming to Section 5 of the 1988 Act, it must be noted that

the acquisition proceedings contemplated under the earlier

Act  were  in   rem  proceedings against   benami  property.  We

may   note   that,   jurisprudentially,   such  in   rem  proceedings

transfer   the  guilt  from the person who utilized a property

which is a general harm to the society, to the property itself.
 

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15.19 When such proceedings are contemplated under law, there

need   to   be   adequate   safeguards   built   into   the   provisions,

without   which   the   law   would   be   susceptible   to   challenge

under Article 14 of the Constitution. Coming to Section 5 of

the   1988   Act,   it   was   conceived   as   a   half­baked   provision

which did not provide the following and rather left the same

to be prescribed through a delegated legislation:

(i) Whether   the   proceedings   under   Section   5   were

independent or dependant on successful prosecution?

(ii) The   standard   of   proof   required   to   establish   benami

transaction in terms of Section 5.

(iii) Mechanism   for   providing  opportunity  for  a  person  to

establish his defence.

(iv) No   ‘defence   of   innocent   owner’   was   provided   to   save

legitimate innocent buyers.

(v) No adjudicatory mechanism was provided for.

(vi) No   provision   was   included   to   determine   vesting   of

acquired property.

(vii) No provision to identify or trace benami properties.

(viii) Condemnation of property cannot include the power of

tracing, which needs an express provision.

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Such   delegation   of   power   to   the   Authority   was   squarely

excessive and arbitrary as it stood. From the aforesaid, the

Union’s   stand   that   the   2016   Act   was   merely   procedural,

cannot stand scrutiny.

15.20 In   any   case,   such   an   inconclusive   law,   which   left   the

essential features to be prescribed through delegation, can

never be countenanced in law to be valid under Part III of

the   Constitution.   The   gaps   left   in   the   1988   Act   were   not

merely   procedural,   rather   the   same   were   essential   and

substantive. In the absence of such substantive provisions,

the omissions create a law which is fanciful and oppressive

at   the   same   time.   Such   an   overbroad   provision   was

manifestly arbitrary as the open texture of the law did not

have sufficient safeguards to be proportionate.

15.21 At this stage, we may only note that when a Court declares

a law as unconstitutional, the effect of the same is that such

a declaration would render the law not to exist in the law

books   since   its   inception.   It   is   only   a   limited   exception

under Constitutional law, or when substantial actions have

been   undertaken   under   such   unconstitutional   laws   that

going   back   to   the   original   position   would   be   next   to

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impossible.   In   those   cases   alone,   would   this   Court   take

recourse to the concept of ‘prospective overruling’. 

15.22 From   the   above,   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 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.

15.23 Having   said   so,   we   make   it   abundantly   clear   that   the

aforesaid discussion does not affect the civil consequences

contemplated under Section 4 of the 1988 Act, or any other

provisions.

16. 2016 A
  CT AND ITS ANALYSIS 

16.1 The   next   subject   of   examination   is   the   2016   Act,   which

amends   the   1988   Act,   and   expanded   the   1988   Act   to   72

sections   (from   9   sections),  divided into  8 chapters.  At the

outset,   we   need   to   understand   the   general   scheme   of   the

law.   The   definition   of   benami   transactions,   which   is   the

heart   of   the   entire   1988   Act,   has   undergone   a

metamorphosis and stands as under:
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[DEFINITIONS.
Section 2(9) "benami transaction" means:

(A) a transaction or an arrangement­

       (a) where a property is transferred to,
or   is   held   by,   a   person,   and   the
consideration for such property has been
provided, or paid by, another person; and

        (b)   the   property   is   held   for   the

immediate   or   future   benefit,   direct   or
indirect, of the person who has provided
the consideration, 

except when the property is held by­

        (i) a Karta, or a member of a Hindu
undivided family, as the case may be, and
the   property   is   held   for   his   benefit   or
benefit   of   other   members   in   the   family
and   the   consideration   for   such   property
has   been   provided   or   paid   out   of   the
known   sources   of   the   Hindu   undivided
family;

        (ii) a person standing in a fiduciary
capacity for the benefit of another person
towards whom he stands in such capacity
and includes a trustee, executor, partner,
director of a company, a depository or a
participant   as   an   agent   of   a   depository
under   the   Depositories   Act,   1996   (22   of
1996)   and   any   other   person   as   may   be
notified   by   the   Central   Government   for
this purpose;

         (iii) any person being an individual
in the name of his spouse or in the name
of   any   child   of   such   individual   and   the
consideration for such property has been
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provided   or   paid   out   of   the   known

sources of the individual;

               (iv) any person in the name of his
brother   or   sister   or   lineal   ascendant   or
descendant, where the names of brother
or   sister   or   lineal   ascendant   or
descendant and the individual appear as
joint­owners   in   any   document,   and   the
consideration for such property has been
provided   or   paid   out   of   the   known
sources of the individual; or

(B)   a   transaction   or   an   arrangement   in

respect of a property carried out or made
in a fictitious name; or

(C)   a   transaction   or   an   arrangement   in

respect of a property where the owner of
the   property   is   not   aware   of,   or,   denies
knowledge of, such ownership;

(D)   a   transaction   or   an   arrangement   in

respect   of   a   property   where   the   person
providing   the   consideration   is   not
traceable or is fictitious;

Explanation. ­ For the removal of doubts,
it   is   hereby   declared   that   benami
transaction   shall   not   include   any
transaction   involving   the   allowing   of
possession of any property to be taken or
retained in part performance of a contract
referred to in section 53A of the Transfer
of  Property  Act, 1882, if, under any law
for the time being in force,­

(i)   consideration   for   such   property   has

been   provided   by   the   person   to   whom
possession of  property has been allowed
but   the   person   who   has   granted

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possession   thereof   continues   to   hold

ownership of such property;

(ii)   stamp   duty   on   such   transaction   or

arrangement has been paid; and

(iii) the contract has been registered.

16.2 Major changes envisaged under the definition are as under:
(i) Expansion   of   the   definition   from   arm’s   length

transactions contemplated under the 1988 Act, to

arrangements and schemes.

(ii) Additional   ingredient   of   benefits   flowing   to   the

real owner, a lacuna pointed in the earlier part,

under 1988 Act, is included in terms of Section

2(9)(A)(b).

(iii) Expansion of the ambit through Section 2(9)(C),

to   those   properties   where   benamidar   denies

knowledge of such ownership.

(iv) Expansion of the ambit through Section 2(9)(D),

wherein the person providing the consideration is

not traceable or is fictitious.

(v) Expansion   from   recognition   of   only   tripartite

transactions   under   1988   Act,   to   also   include

bipartite transactions.

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16.3 Section   2(26)   of   the   2016   Act   defines   a   property.   This

definition has been expanded to include proceeds from the

property   as   well.   Such   expansion   allows   for   tracing   of

proceeds   and   is   a  substantial  change as  compared to  the

1988 Act. Along with this, benami property has been defined

under   Section   2(8).   Benamidar   is   defined   under   Section

2(10).

16.4 Chapter   2   contains   four   provisions   which   are   modified

provisions   of   the   1988   Act.   Section   3   now   bifurcates

offences   into   two   separate   categories   based   on   the   time

period   of   the   benami   transaction.   Under   Section   3(2),

punishment of three years is mandated for those who have

entered   into   benami   transactions   from   05.09.1988   to

25.10.2016.   Section   3(3)   applies   to   those   benami

transactions   which   have   been   entered   into   after

commencement   of   the   amended   2016   Act   and   the

punishment for the aforesaid is prescribed under Section 53

of Chapter VII. It may be noted that under Section 3(3), the

punishment is increased from three years to a maximum of

seven years and a fine may be imposed which extend up to

25% of the fair market value of the property. This distinction

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between Section 3(2) and 3(3) read with Section 53, contains

the element of mens rea.

16.5Section 4 remains the same as under the 1988 Act, barring the

fact that Section 4(3) has integrated the exceptions provided

under   the   definition   of   benami   transaction   in   terms   of

Section 2(9). The civil consequences provided under Section

4   continue   to   apply   even   post   the   2016   Act.   The

interpretation   of   the   aforesaid   section,   as   given   in   the  R.

Rajagopal Reddy Case (supra), continues to apply.

16.6 Section   5   on   the   other   hand   has   been   modified   and   it

presently stands as under:

5.   Property   held   benami   liable   to

confiscation. —Any property, which is subject
matter of benami transaction, shall be liable to
be confiscated by the Central Government. 

16.7 Chapter III relates to the administrative mechanism of the

authorities   required   for   implementation   of   the   2016   Act.

Chapter   IV   relates   to   attachment,   adjudication,   and

confiscation of benami property. These provisions relate to

forfeiture, which need to be analysed hereinafter.

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16.8 Section   24(1)   states   that,   if   the   initiating   Officer,   on   the

basis of gathered material, having reason to believe, that a

particular property is a benami property, then he ought to

issue notice7 to the beneficial owner (if identified) as well as

to the ostensible owner (if any) seeking an explanation as to

why the property should not be treated as Benami. 

16.9 The   2016   Act   provides   for   provisional   attachment   of   the

property where the concerned officer has genuine reason to

believe, based on the material gathered, that the person in

possession of the property held in benami may alienate the

property.   Such   provisional   attachment   cannot   be   taken

recourse to every time. Recourse under Section 24(3) of the

2016 Act should  be exercised in exceptional circumstance

after previous approval of Approving Authority. Such interim

provisional attachment is strictly limited by time.

16.10 Adjudication under Section 24(4) is mandatory and requires

the authority to examine the same on a  prima facie  basis.

Such adjudication must take place after providing collected

material to the accused, along with the show cause notice. A

reasoned order is mandated under the aforesaid provision.

7 In terms of Section 25 of the 2016 Act.

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The Officer is mandated to present a statement of case to

the   adjudicating   officer,   in   terms   of   Section   24(5)   of   the

2016 Act.

16.11 Adjudication   under   Section   26   mandates   notice   and

disclosure   obligation   to   various   other   persons.   The

adjudicating authority can either pass an order in terms of

Section   26(3)(c)(i)   or   (ii),   or   pass   an   order   for   further

inquiries in terms of Section 26(3)(b).

16.12 Section 27(1) relates to confiscation of property, wherein if a

property is adjudicated as a benami property under Section

26(3),   then   the   adjudicating   authority   can   give   an

opportunity to the concerned persons, and after hearing the

parties,   pass   an   order   confiscating   the   property.   The

aforesaid confiscation order is subject to the order passed

by   the   Appellate   Tribunal   under   Section   46.   Order   of

confiscation   vests   such   property   absolutely  in   the   Central

Government,   free   from   all   encumbrances   and   no

compensation   shall   be   payable   in   respect   of   such

confiscation.

16.13 Section 27(4) provides that in the interregnum of initiating

confiscation   proceedings,   any   third­party   rights   created  to

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defeat the   purpose  of the Act shall be null and void. Sub

clause 5 mandates that if no order of confiscation is made

and the same has attained finality, no claim can be made

against the Government for the process.

16.14 Section   28   mandates   appointment   of   an   Administrator   by

the Central Government to manage the property. Such an

Administrator   shall   have   the   power   to   take   possession   of

such   a   property   upon   order   of   confiscation,   in   terms   of

Section 29.

16.15 Chapters   V   and   VI   delineate   the   powers   of   the   Appellate

Tribunal as well as Special Courts. Chapter VII consists of

offences and penalties. Specifically, we may refer to Section

53:

53. Penalty for Benami Transaction
  (1)   Where   any   person   enters   into   a
benami transaction in order to defeat the
provisions of any law or to avoid payment
of   statutory  dues or  to   avoid  payment  to
creditors, the beneficial owner, benamidar
and   any   other   person   who   abets   or
induces   any   person   to   enter   into   the
benami transaction, shall be guilty of the
offence of Benami transaction. 
(2) Whoever is found guilty of the offence
of benami  transaction referred to in sub­
section   (1)   shall   be   punishable   with
rigorous   imprisonment   for   a   term   which

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shall not be less than one year, but which
may extend to seven years and shall also
be   liable   to   fine   which   may   extend   to
twenty­five   per   cent.   of   the   fair   market
value of the property.

Interestingly, a crime which attracted strict liability under

the 1988 Act, is modified to include a  mens rea  aspect in

terms   of   the   recommendations   of   the   57 th  and   130th  Law

Commission Reports. 

16.16 It   may   be   necessary   to   note   that   no   prosecution   can   be

initiated   without   previous   sanction   of   the   competent

authority   as   provided   under   Section   55,   which   reads   as

under:
55. No prosecution shall be instituted against
any   person   in   respect   of   any   offence   under
sections   3,   53   or   section   54   without   the
previous sanction of the Board.

16.17 Perusal of the remaining provisions is not required for the

purpose at hand.

17.  WHETHER SECTION 3(1) AND CHAPTER IV READ  WITH SECTION 5 OF 

 THE 2016 ACT HAVE RETROACTIVE EFFECT? 

17.1 The thrust of the arguments advanced by the Union of India

can be crystallized as under:

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(i.) That   the   1988   Act   was   a   valid   enactment   with

procedural   gaps   that   were   filled   retrospectively   by

the 2016 amendment.
(ii.) That   the   provision   of   confiscation   (civil   forfeiture)

under the 1988 Act, being in the domain of civil law,

is not punitive and therefore, the prohibition under

Article 20(1) of the Constitution is not attracted in

this case.  

17.2With respect to the first line of argument, our discussion above

can be summarized as under:

(a.) Section 3(1) of 1988 Act is vague and arbitrary.

(b.) Section   3(1)   created   an   unduly   harsh   law   against

settled   principles   and   Law   Commission

recommendations.

(c.) Section   5   of   1988   Act,   the   provision   relating   to   civil

forfeiture, was manifestly arbitrary.

(d.) Both provisions  were unworkable and as a matter  of

fact, were never implemented.

17.3 Having arrived at the aforesaid conclusions that Sections 3

and 5 were unconstitutional under the 1988 Act, it would

mean   that   the   2016   amendments  were, in   effect,  creating

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new provisions  and  new offences. Therefore, there was no

question   of   retroactive application  of the 2016 Act. As for

the   offence   under   Section   3(1)   for   those   transactions   that

were   entered   into   between   05.09.1988   to   25.10.2016,   the

law   cannot   retroactively   invigorate   a   stillborn   criminal

offence, as established above.

17.4 As per the concession made by the Union of India and a fair

reading of Section 53 of the 2016 Act, the offence under the

aforesaid provision is prospective, and only applied to those

transactions   that   were   entered   into   after   the   amendment

came   into   force,  viz.,   25.10.2016.   Any   contrary

interpretation of Section 3 of the 1988 Act would be violative

of   Article   20(1)   of   the   Constitution.   Article   20(1)   reads   as

under:

20. Protection in respect of conviction for
offences
(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.

17.5 In T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, this Court

has expounded Article 20 (1) in the following manner:
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“22. It   is   only   retroactive   criminal   legislation

that   is   prohibited   under   Article   20(1).   The
prohibition contained in Article 20(1) is that no
person shall be convicted of any offence except
for violation of a law in force at the time of the
commission   of   the   act  charged  as  an   offence
prohibits nor shall he 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. It is quite clear
that   insofar   as   the   Central   Amendment   Act
creates new offences or enhances punishment
for a particular type of offence no person can
be convicted by such ex post facto law nor can
the   enhanced   punishment   prescribed   by   the
amendment be applicable. But insofar as the
Central   Amendment   Act   reduces   the
punishment   for   an   offence   punishable   under
Section 16(1)(a) of the Act, there is no reason
why the accused should not have the benefit of
such   reduced   punishment.   The   rule   of
beneficial   construction   requires   that   even   ex
post facto law of such a type should be applied
to mitigate the rigour of the law. The principle
is  based  both on sound reason and common
sense.   This   finds   support   in   the   following
passage from Craies on Statute Law, 7th Edn.,
at pp. 388­89:
“A retrospective statute is different from an
ex   post   facto   statute.   “Every   ex   post   facto
law…”   said   Chase,   J.,   in   the   American   case
of Calder v. Bull [3 US (3 Dall) 386: 1 L Ed 648
(1798)] “must necessarily be retrospective, but
every retrospective law is not an ex post facto
law.   Every   law   that   takes   away   or   impairs
rights   vested   agreeably   to   existing   laws   is
retrospective, and is generally unjust and may
be oppressive; it is a good general rule that a
law should have no retrospect, but in cases in
which the laws may justly and for the benefit
of the community and also of individuals relate
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to a time antecedent to their commencement:
as statutes of oblivion or of pardon. They are
certainly   retrospective,   and   literally   both
concerning   and   after   the   facts   committed.
But I   do   not   consider   any   law   ex   post   facto
within the prohibition that mollifies the rigour of
the criminal law, but only those that create
 or   aggravate   the   crime ,  or   increase   the
punishment   or   change   the   rules   of
evidence   for   the   purpose   of
conviction.... There   is   a   great   and   apparent
difference   between   making   an   unlawful   act
lawful   and   the   making   an   innocent   action
criminal and punishing it as a crime.”

17.6 In the case at hand, the 2016 Act containing the criminal

provisions  is applicable only  prospectively, as the relevant

Sections   of   the   pre­amendment   1988   Act   containing   the

penal   provision,   have   been   declared   as   unconstitutional.

Therefore, the question of construction of the 2016 Act as

retroactive qua the penal provisions under Sections 3 or 53,

does not arise. 

17.7 The continued presence of an unconstitutional law on the

statute book, or the claim that such law was not challenged

before   Constitutional   Courts,   does   not   prevent   this   Court

from holding that such unconstitutional laws cannot enure

to the benefit of or be utilized to retroactively amend laws to

cure   existing   constitutional   defects.   If   such   curing   is

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allowed,   then   Article   20(1)   of   the   Constitution   would   be

rendered nugatory.

17.8This brings us to the last aspect as to the retroactive operation of

confiscation (forfeiture) under Section 5 read with Chapter

IV of the 2016 Act. It is the argument of the Union of India

that civil forfeiture being in the domain of civil law is not

punitive   in   nature.   Therefore,   it   does   not   attract   the

prohibition   contained   under   Article   20(1)   of   the

Constitution. Meaning thereby, that if this Court holds that

the civil forfeiture prescribed under the 2016 Act is punitive,

only  then  will  the  prohibition under Article 20(1) apply. If

not, then the prohibition does not apply.

17.9Although   we   have   held   that   Section   5   of   the   1988   Act   was

unconstitutional   for   being   manifestly   arbitrary,   however

such holding is of no consequence if this Court comes to the

conclusion   that   confiscation   under   Section   5   of   2016   Act

read   with   Chapter   IV,   was   civil   in   nature   and   is   not

punitive.

17.10 It   is   well   settled   that   the   legislature   has   power   to   enact

retroactive/retrospective   civil   legislations   under   the

Constitution. However, Article 20(1) mandates that no law

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mandating   a   punitive   provision   can   be   enacted

retrospectively.   Further,   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”.

17.11 Therefore,   the   immediate   question   which   arises   for

consideration   is   whether   the   retroactive   confiscation

provided under Section 5 read with Chapter IV of 2016 Act

is punitive or not?

17.12 At   the   outset,   we   may   note   that   Shri   S.   V.   Raju,   learned

ASG, has submitted that acquisition provided under Section

5 of  the 1988 Act is same as confiscation provided under

Section 5 read with Chapter IV of the 2016 Act. He states

that   both   concepts   are   related   to   civil   law   and   is   not

concerned with punitive punishments as provided under the

Indian Penal Code, 1860.

17.13 Acquisition   under   the   earlier   1988   Act   as   well   as

confiscation   under   the   2016   Act   are   said   to   have   been

enacted on the reasoning that the property emanating from

the   benami   transaction   also   gets   tainted.   The   substantive

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difference   between   the   acquisition   provision   under   the

earlier enactment and the confiscation provision under the

2016 Act is that proceeds of benami transactions have been

made traceable under the 2016 Act.

17.14 Before   we   analyse   the   other   provisions,   it   is   necessary   to

give a brief introduction to the concept of civil forfeiture in

India, as the same was argued by the learned ASG. Under

Admiralty jurisdiction, the concerned Admiralty Courts had

the jurisdiction to forfeit vessels under its civil jurisdiction

in   lieu  of   any   maritime   claim.   Same   was   the   law   across

various   common   law   jurisdictions,   such   as   the   United

States of America and the United Kingdom.

17.15 Forfeiture occurs in various types, few of which are found in

India.   Broadly,   forfeitures   can   be   categorized   as   civil   and

criminal.   On   the   civil   side,   there   can   be  in   rem  or  in

personam forfeitures. Punitive forfeitures under the criminal

law are in personam. Criminal forfeitures usually take place

at the conclusion of a trial, when the guilt of the accused is

established.   Standards   of   evidentiary   requirement   differ

greatly between civil and criminal forfeiture.

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17.16 The historic origin of  in rem  civil forfeiture in common law

jurisdictions was earlier mostly restricted to trans­national

crimes.   These   early   laws   mandated   that   the   property   was

subject to forfeiture because it was the instrument by which

the   offence   was   committed,   and   it   was   necessary   to

confiscate   such   property   to   remove   it   from   circulation.

However, the Twentieth century saw expansion of forfeiture

laws into a wide array of crimes. The modern forfeiture laws

not   only   allow   forfeiture   of   property   used   to   facilitate   the

crime, but cover the proceeds of the offence as well. In the

Supreme   Court   of   the   United   States,   constitutional

challenges   laid   to   such   civil   forfeiture   laws   have   been

dismissed   as   they   were   usually   attributed   to   historic

prevalence   of   such   forfeiture   laws.   However,   such   historic

reasons of its existence cannot justify continued expansion

of   civil   forfeiture   laws,   as   has   been   observed   by   Justice

Clarence Thomas in the following manner: 

“This   system—where   police   can   seize

property   with   limited   judicial   oversight   and
retain   it   for   their   own   use—has   led   to
egregious   and   well­chronicled   abuses,”   and
“These   forfeiture   operations   frequently   target

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the poor and other groups least able to defend
their interests in forfeiture proceedings”. 8

17.17 In the case at hand, although expansion of forfeiture laws

originates from the Parliament’s concern for decriminalizing

property   holdings,   however,   we   are   reminded   of   Justice

Oliver Wendell Holmes, who has stated as under:

“The customs beliefs or needs of a primitive
time   establish   a   rule   or   a  formula.  In   the
course   of   centuries,   the   custom,   belief,   or
necessity disappears, but the rule remains.
The reason which gave rise to the rule has
been   forgotten,   and   ingenious   minds   set
themselves   to   enquire   how   it   is   to   be
accounted   for.   Some   ground   of   policy   is
thought of, which seems to explain it and to
reconcile it with the present state of things;
and then the rule adapts itself to the new
reasons which have been found for it, and
enters   on   a   new   career.   The   old   form
receives a new content and in time even the
form   modifies   itself   to   for   the   meaning
which it has received.”9

17.18 While   categorizing   the   forfeiture   proceedings   as   civil   or

criminal,   the   test   laid   down   by   the   European   Court   of

Human Rights in Engel v The Netherlands (No.1), [1976] 1

EHRR   647,   have   been   treated   as   giving   authoritative

guidance. Those tests are set out in paragraphs 80 to 82 of

the Report and are as follows: 
8 Leonard v. Texas, 137 S. Ct. 847, 847-48 (2017).
9 Oliver Wendell Holmes in The Common Law 5 (1881).

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"(i)   The   manner   in   which   the   domestic   state

classifies   the   proceedings.   This   normally
carries   comparatively   little   weight   and   is
regarded   as   a   starting   point   rather   than
determinative ­­ see Ozturk v Germany [1984]
6 EHRR 409 at 421 and 422. 
(ii)   The   nature   of   the   conduct   in   question
classified objectively bearing in mind the object
and purpose of the Convention. 
(iii)  The  severity  of  any  possible  penalty  ­­
severe   penalties,   including   those   with
imprisonment   in   default   and   penalties
intended   to   deter   are   pointers   towards   a
criminal classification of proceedings ­­ see
Schmautzer v Austria [1995] 21 EHRR 511. 

In   Lauko   v   Slovakia   [1998]   ECHR   26138/95

the   court   observed   that   these   criteria   were
alternatives   and   not   cumulative   although   a
cumulative approach might be adopted where
a   separate   analysis   of   each   criterion   did   not
make it possible to reach a clear conclusion as
to the existence of a 'criminal charge'." 
(emphasis supplied)

The   aforesaid   proposition   has   also  been   confirmed  by   the

House of Lords in R v. H, [2003] 1 ALL ER 497.

17.19 In  Kennedy v Mendoza­Martinez,  372 US 144 (1963), the

Supreme Court of the United States, while concerned with

the constitutionality of legislation that imposed forfeiture of

citizenship on those who had left or remained outside the

United States during wartime to evade military service, had

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laid down the following relevant factors to classify forfeiture

law:

(a)   Whether   the   sanction   involves   an   affirmative

disability or restraint; 

(b)   Whether it has been historically regarded as a
punishment; 

(c)   Whether   it   is   only   applicable   where   there   has

been a finding of scienter (that is, a finding that an
act has been done knowingly and intentionally); 

(d)   Whether   its   operation   promotes   the   traditional

retributive and deterrent aims of punishment;

(e)   Whether   the   behaviour   to   which   the   statute

applies is already a crime; 

(f)  Whether an alternative purpose to which it may
be rationally connected is attributable to it; and 

(g)   Whether   it   appears   excessive   in   light   of   the

alternative purpose assigned. 

17.20 Coming to the Indian case laws, in State of West Bengal v.

S.   K.  Gosh,  AIR   1963 SC  255, this Court was concerned

with the Criminal Law Amendment Ordinance 38 of 1944,

wherein   the   law   provided   only   for   attachment   of   the

property,   after   conviction   is   given   effect   to.   Unlike   the

present   law,   the   taint   on   the   property   is   squarely

determined   by   the   Criminal   Court   deciding   the   criminal

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conviction. Confiscation contemplated under Section 13 of

the Criminal Law Amendment Ordinance 38 of 1944 could

only be given effect to after the verdict of guilty by Criminal

Court.   In   the   light   of   such   unique   provisions,   the   Court

characterized such forfeiture laws as civil in nature. We may

note that such a law did not contemplate an independent

confiscation proceeding as created under this law, rather, a

mechanism   was   devised   to   confiscate   a   property   after

criminal conviction.

17.21 This Court, while noting that forfeiture is no doubt punitive

under   Article   20(1)   of  the   Constitution   as  it   is  one   of   the

punishments prescribed under Section 53 of IPC, held that

Section 13(3) of the Criminal Law Amendment Ordinance 38

of   1944   was   not   punitive   as   the   same   was   dependent   on

prior   criminal   prosecution   and   determination   of   amount

which was to be forfeited in the following manner:

“12.  Further   what   s.   13(3)   of   the   1944­

Ordinance   which   provides   for   forfeiture
requires   is   that   there   should   be   in   the   final
judgment of the criminal court a finding as to
the  amount of  money or value of property in
pursuance of s. 12. As soon as that finding is
there,   the   District   Judge   would   know   the
amount he is to forfeit, and the purpose of the
finding is that if the District Judge is asked to

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make   a   forfeiture   under   s.   13(3)   he   should

know exactly the amount which he is require
to   forfeit.   So   long   therefore   as   the   criminal
court trying an offender has given a finding as
to   the   amount   of   money   or   value   of   other
property procured by means of the offence in
the judgment that in our opinion is sufficient
compliance   with   s.   12(1)   of   the   1944­
Ordinance and the requirement therein that it
should   be   on   the   representation   of   the
prosecution   is   a   mere   formality.   Obviously,
even a determination under s. 10 of the 1943­
Ordinance as amended in 1945 of the amount
procured   by   the   offence   must   be   at   the
instance   of   the   prosecution   for   it   is   the
prosecution which will provide the material for
that   determination   which   in   turn   will   be   the
basis on which the fine will be determined by
the court under s. 10. …
…
14.   This   brings   us   to   the   contention   which
found   favour   with   Bhattacharya   J.,   namely,
that the provision of s. 13(3) is a punishment
and   that   as   the   1944­Ordinance   was   not   in
force   at   the   time   when   the   offence   was
committed s. 13(3) could not be applied to the
respondent inasmuch as Art. 20(1) lays down
that no person shall 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. Two arguments
have been urged on behalf of the appellant in
this connection. In the first place, it is urged
that   the   respondent   remained   in   office   till
August   25,   1944   while   the   Ordinance   came
into   force   on   August   23,   1944   and   therefore
the conspiracy by means of which the money
was   procured   continued   till   after   the
Ordinance   had  come into  force and  therefore
Art.   20(1)   can   have   no   application,   for   it
cannot be said that the respondent was being

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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.   In   the   second   place,  it  is   urged  that
the   forfeiture   provided   by   s.   13(3)   is   not   a
penalty at all within the meaning of Art, 20(1),
but   is   merely   a   method   of   recovering   money
belonging to the Government which had been
embezzled.   It   is   urged   that   the   Government
could   file   a   suit   to   recover   the   money
embezzled   and   s.   13(3)   only   provides   a
speedier   remedy   for   that   purpose   and   the
forfeiture   provided   therein   is   not   a   penalty
within the meaning of Art. 20(1).”

17.22 In  Divisional   Forest   Officer   v.   G.   V.   Sudhakar   Rao,

(1985) 4 SCC 573, this Court was concerned with the power

of   forfeiture   under   Section   44(2)(A)   of   Andhra   Pradesh

Forest Act, 1967. Noting that Section 45 of the Forest Act

prior to the amendment had a provision for civil forfeiture

only after the conviction of an accused under the Forest Act,

it was felt that such a provision was insufficient to prevent

the growing menace of ruthless exploitation of government

forests and illicit smuggling of teak, red sandalwood, etc. It

was   in   this   context   that   a   separate   mechanism   was

formulated to ensure that there was no unreasonable delay

in confiscation of property.
 

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17.23 It   may   be   noted   that   this   case   did   not   involve   a

constitutional challenge under Article 20(1) to the aforesaid

rules.   In   any   case,   this   Court   has   held   that   the   new

mechanism   formulated   under   the   amended   Act   was

completely independent of criminal prosecution.

17.24 To the same extent, in State of Madhya Pradesh v. Kallo

Bai, (2017) 14 SCC 502, this Court interpreted the Madhya

Pradesh   Van   Upaj   (Vyapar   Viniyam)   Adhiniyam,   1969   to

have  independent   confiscation   proceedings   from   criminal

prosecution   in   view   of   the   non­obstante   clause   under

Section   15C   of   the   Adhiniyam.   It   may   also   be   noted   that

there   was   no   challenge   to   the   aforesaid   Act,   as   being

violative of Article 20(1) of the Constitution. The Court held

as under:

“14. Sub­section   (1)   of   Section   15   empowers

forest officers concerned to  conduct  search to
secure   compliance   with   the   provisions   of   the
Adhiniyam. On a plain reading of sub­section
(2), it  is clear  that the officer concerned may
seize vehicles, ropes, etc. if he has reason to
believe  that the said items were used for the
commission   of   an   offence   under   the
Adhiniyam.   Confiscation   proceedings   as
contemplated   under   Section   15   of   the
Adhiniyam is a quasi­judicial proceedings and
not   a   criminal   proceedings.   Confiscation
proceeds   on   the   basis   of  the   “satisfaction”   of
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the   authorised   officer   with   regard   to   the

commission of forest offence. Sub­section (3) of
the   provision   lays   down   the   procedure   to   be
followed for confiscation under the Adhiniyam.
Sub­section   (3­A)   authorises   forest   officers   of
rank not inferior to that of a Ranger, who or
whose   subordinate,   has   seized   any   tools,
boats,   vehicles,   ropes,   chains   or   any   other
article   as   liable   for   confiscation,   may   release
the   same   on   execution   of   a   security   worth
double the amount of the property so seized.
This provision is similar to that of Section 53
of the Forest Act as amended by the State of
Madhya   Pradesh.   Sub­section   (4)   mandates
that   the   officer   concerned   should   pass   a
written   order   recording   reasons   for
confiscation,   if   he   is   satisfied   that   a   forest
offence has been committed by using the items
marked   for   confiscation.   Sub­section   (5)
prescribes various procedures for confiscation
proceedings. Sub­section (5­A) prescribes that
whenever   an   authorised   officer   having
jurisdiction over the case is himself involved in
the   seizure,   the   next   higher   authority   may
transfer   the   case   to   any   other   officer   of   the
same   rank   for   conducting   confiscation
proceedings. Sub­section (6) provides that with
respect to tools, vehicles, boats, ropes, chains
or any other article other than timber or forest
produce   seized,   confiscation   may   be   directed
unless  the  person referred to in clause (b) of
sub­section   (5)   is   able   to   satisfy   that   the
articles   were   used   without   his   knowledge   or
connivance or, as the case may be, without the
knowledge   or   connivance   of   his   servant   or
agent   and   that   all   reasonable   and   necessary
precautions had been taken against the use of
such objects for commission of forest offence.”

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17.25 In  Yogendra Kumar Jaiswal v. State of Bihar, (2016) 3

SCC   183,   a   Division   Bench   of   this   Court   was   concerned

with   the   constitutional   challenge   to   various   enactments

such as the Orissa Special Courts Act, 2006 and the Bihar

Special   Courts   Act,   2009.   Both   the   enactments   had

provisions   for   confiscation.   While   interpreting   the

confiscation provisions, this Court read down the same to

only mean interim attachment. In other words, confiscation

was   interpreted   as   akin   to   attachment   proceedings.   The

Court mandated that any confiscation would be contingent

on   the   final   outcome   of   the   criminal   proceedings   and   the

logical   corollary   to   the   same   was   that   confiscation

proceedings were not completely independent and ultimately

had   to   be   adjudicated   along   with   the   trial   of   the   main

criminal case. 

17.26 In Abdul Vahab v. State of Madhya Pradesh, (2022) SCC

Online   SC   262,   this   Court   was   concerned   with   the

interpretation   of   the   Madhya   Pradesh   Cow   Slaughter

(Prohibition) Act, 2004, wherein it was held that confiscation

proceedings   could   not   be   independent   of   acquittal   in   the

criminal case. If a contrary interpretation was taken, then
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the   same   would   be   violative   of   Article   300A   of   the

Constitution.   This   Court   distinguished   the   case   from   the

judgment of  Kallo Bai  (supra), by placing reliance on the

absence   of   a   provision   such   as   Section   15C   of  Madhya

Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 under

the Madhya Pradesh Cow Slaughter (Prohibition) Act, 2004.

17.27 In  Vijay   Madanlal   Choudary   &   Ors   v.   Union   of   India,

SLP   (Civ.)   No.   4634   of   2014   and   others,   this   Court   dealt

with   confiscation   proceedings   under   Section   8   of   the

Prevention   of   Money   Laundering   Act,   2002   (“PMLA”)   and

limited the application of Section 8(4) of PMLA concerning

interim   possession   by   authority   before   conclusion   of   final

trial   to   exceptional   cases.   The   Court   distinguished   the

earlier   cases   in   view   of   the   unique   scheme   under   the

impugned   legislation   therein.   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. 

17.28 From  the  above  discussion, it is manifest that the Courts

have   read   down   the   provisions   of   civil   forfeiture   to   be

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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. 

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17.29 Under the  IPC, forfeiture is recommended to be a form of

punishment   under   Section   53.   Accordingly,   the   Code   of

Criminal   Procedure,   1976   provides   for   a   mechanism   for

interim   custody   and   forfeiture   at   the   conclusion   of   trial

under   Section   451   of   the   Cr.P.C.   (in   personam  forfeiture),

which reads as under:

451.   Order   for   custody   and   disposal   of

property   pending   trial   in   certain   cases.
When   any   property   is   produced   before   any
Criminal Court during any inquiry or trial, the
Court may make such order as it thinks fit for
the   proper   custody   of   such   property   pending
the   conclusion  of the  inquiry  or   trial,  and, if
the property is subject to speedy and natural
decay, or if it is otherwise expedient so to do,
the Court may, after recording such evidence
as   it  thinks   necessary, order  it to  be sold or
otherwise disposed of. 
Explanation.­   For   the   purposes   of   this
section," property" includes­
(a) property of any kind or document which is
produced   before   the   Court   or  which   is   in   its
custody,
(b) any   property   regarding   which   an   offence
appears   to   have   been   committed   or   which
appears to have been used for the commission
of any offence.

452.   Order   for   disposal   of   property   at

conclusion of trial.
(1) When   an   inquiry   or   trial   in   any   Criminal
Court is concluded, the Court may make such
order   as   it   thinks   fit   for   the   disposal,   by
destruction,   confiscation   or   delivery   to   any
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person   claiming   to   be   entitle   to   possession

thereof   or   otherwise,   of   any   property   or
document produced before it or in its custody,
or regarding which any offence appears to have
been  committed, or  which  has been  used for
the commission of any offence.

Aforesaid   provisions   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. 

17.30 Coming   to   the   Benami   Act   post   the   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.   This   separation   of   the

confiscation   mechanism   is   not   merely   procedural.   It   has

also altered substantive rights of the evidentiary standards

from   ‘beyond   reasonable   doubt’   to   ‘preponderance   of

probabilities’. Such a change of standards cannot be merely

termed as procedural.

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17.31 Characterization   of   the   confiscation   proceedings   under

Chapter   IV  of   the   2016  Act  as  Civil  may  therefore  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.10

17.32 Additionally,   the   2016   Act   now   condemns   not   only   those

transactions   which   were   traditionally   denominated   as

benami,   rather   a   new   class   of   fictitious   and   sham

transactions   are   also   covered   under   the   same.   In   this

regard, we may notice that the intention of the legislature is

to condemn such property and there is an implicit effort by

the Parliament to take into consideration the fact that such

transactions are often acquired from ill­gotten wealth. These

proceedings cannot be equated as enforcing civil obligations

10 Narendra Singh v. State of Madhya Pradesh, (2004) 10 SCC 699.

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as, for example, correcting deficiencies in the title. It goes

further and the taint attaches to the proceeds as well. 

17.33 In view of the above discussion, it is manifest that the 2016

Act contemplates an  in­rem  forfeiture, wherein the taint of

entering into such a benami transaction is transposed to the

asset itself and the same becomes liable to confiscation. At

the cost of repetition, we may note that the taint of benami

transactions is not restricted to the person who is entering

into the aforesaid transaction, rather, it attaches itself to the

property   perpetually   and   extends   itself   to   all   proceeds

arising from such a property, unless the defence of innocent

ownership   is   established   under   Section   27(2)   of   the   2016

Act.   When   such   a   taint   is   being   created   not   on   the

individual, but on the property itself, a retroactive law would

characterize itself as punitive for condemning the proceeds

of sale which may also involve legitimate means of addition

of wealth.

17.34 Jurisprudentially, a law may enable forfeiture of property by

peculiar reason of its circumstances, of it being dangerous

to the community by reasons of any form or position that it

assumes.   In   such   cases,   forfeiture   is   not   deemed   to   be

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punishment  inflicted on its owner. By contrast, if the law

provides that the Government shall forfeit a property ‘A’ for,

(1) what was carried on in property ‘B’, or (2) what the owner

does   in   a   matter   not   connected   with   property   ‘A’   or   (3)   a

bare intent which does not necessarily relate to the conduct

in   property   ‘A’,   in   such   cases,   forfeiture   is   punishment

without any exception. In this case, the property may not be

inherently dangerous or denigrate any standard of morality.

It is just the condemnation of the method of transfer and

holding,   which   was   once   a   recognized   form   of   property

holding in India. In such a case, the in rem civil proceeding

utilized retroactively, would characterize itself as penal.

17.35 In   the   case   at   hand,   the   authority   that   initiates   such

confiscation,   is   granted   extensive   powers   of   discovery,

inspection, compelling attendance, compelling production of

documents.   They   are   further   empowered   to   take   the

assistance   of   police   officers,   custom   officers,   income   tax

officers   and   other   relevant   officers   for   furnishing

information. It is also pertinent to note that any person who

fails   to   furnish   information,   is   subjected   to   a   penalty   of

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₹25,000/­   (Rupees   Twenty­Five   Thousand)   under   Section

54(A).   It   is   also   necessary   to   note   that   a   person   who

supplies false information before any authority, is subjected

to rigorous imprisonment of upto 5 years under Section 54

of the 2016 Act.

17.36 This Court is aware of the fact that the ‘Right to Property’ is

not a fundamental right, rather it is a constitutional right

that   can   be   abridged   by   law.   However,   this   Court   is   not

concerned   with   the   constitutionality   of   such   a   measure,

wherein such considerations have to be balanced. Rather,

the   focus   is   only   on   the   characterization   of   retroactive

confiscation,   which   in   these   facts   and   circumstances,   are

punitive. 

17.37 In view of the fact that this Court has already held that the

criminal provisions under the 1988 Act were arbitrary and

incapable   of   application,   the   law   through   the   2016

amendment could not retroactively apply for confiscation of

those   transactions   entered   into   between  05.09.1988   to

25.10.2016  as   the   same   would   tantamount   to   punitive

punishment,   in   the   absence   of   any   other   form   of

punishment.   It   is   in   this   unique   circumstance   that

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confiscation   contemplated   under   the   period   between

05.09.1988   and   25.10.2016  would   characterise   itself   as

punitive,   if   such   confiscation   is   allowed   retroactively.

Usually,   when   confiscation   is   enforced   retroactively,   the

logical  reason  for  accepting  such an action would be that

the continuation of such a property or instrument, would be

dangerous for the community to be left free in circulation. In

R (on the appln of the Director of the Assets Recovery

Agency) v Jia Jin He and Dan Dan Chen, [2004] EWHC

Admin 3021, where Collins, J. had stated thus: 
“52.   In   Mudie,   at   page   1254,   in   the
judgment   of   Laws   LJ,   who   gave   the   only
reasoned   judgment,   there   is   set   out   the
citation from Butler which reads, so far as
material, as follows: 

"It   is   the  applicant's   contention   that

the forfeiture of his money in reality
represented   a   severe   criminal
sanction,   handed   down   in   the
absence of the procedural guarantees
afforded to him under article 6 of the
Convention, in particular his right to
be   presumed   innocence   [sic].   The
court does not accept that view. In its
opinion,   the   forfeiture   order   was   a
preventive   measure   and   cannot   be
compared   to   a   criminal   sanction,
since   it  was   designed  to   take  out  of
circulation   money   which   was
presumed   to   be   bound   up   with   the
international trade in illicit drugs. It
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follows that proceedings which led to
the   making   of   the   order   did   not
involve   'the   determination   ...   of   a
criminal charge (see Raimondo v Italy
[1994] 18 EHRR 237, 264, at para 43;
and   more   recently   Arcuri   v   Italy
(Application   No   52024/99),
inadmissibility   decision   of   5th   July
2001..."”

17.38 When we come to the present enactment, history points to a

different   story   wherein   benami   transactions   were   an

accepted form of holding in our country. In fact, the Privy

Council had,  at one point of time, praised the  sui generis

evolution   of   the   doctrine   of   trust   in   the   Indian   law.   The

response   by   the   Government   and  the   Law   Commission   to

curb benami transactions was also not sufficient as it was

conceded   before   this   Court   that   Sections   3   and   5   of   the

1988   Act   in   reality,  dehors  the   legality,   remained   only   on

paper and were never implemented on ground. Any attempt

by  the legislature  to impose such restrictions retroactively

would no doubt be susceptible to prohibitions under Article

20(1) of the Constitution.

17.39 Looked   at  from  a  different  angle, continuation  of only  the

civil provisions under Section 4, etc., would mean that the

legislative intention was to ensure that the ostensible owner

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would   continue   to   have   full   ownership   over   the   property,

without allowing the real owner to interfere with the rights

of benamidar. If that be the case, then without effective any

enforcement proceedings for a long span of time, the rights

that   have   crystallized   since   1988,   would   be   in   jeopardy.

Such implied intrusion into the right to property cannot be

permitted to operate retroactively, as that would be unduly

harsh and arbitrary.

18. Conclusion

18.1 In view of the above discussion, we hold as under: 

a) 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.

b) 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. 

c) The   2016   Amendment   Act   was   not   merely   procedural,

rather, prescribed substantive provisions. 

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d) In  rem  forfeiture   provision under  Section 5 of the 2016

Act,   being   punitive   in   nature,   can   only   be   applied

prospectively and not retroactively.

e) 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. 

f) 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. 

18.2 The appeal is disposed of in the above terms.

...........................CJI.
(N.V. RAMANA)
      
 ...........................J.
(KRISHNA MURARI)

...........................J.
(HIMA KOHLI)
NEW DELHI;
AUGUST 23, 2022.

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