Union of India and Anr. v. Ganpati Dealcom Pvt. Ltd
[Citation -2022-LL-0823-1]

Citation 2022-LL-0823-1
Appellant Name Union of India and Anr.
Respondent Name Ganpati Dealcom Pvt. Ltd.
Relevant Act Other Acts
Date of Order 23/08/2022
Judgment View Judgment
Keyword Tags acquisition of property • beyond reasonable doubt • retrospective operation • adequate consideration • criminal proceedings • transfer of property • retrospective effect • purchase of property • beneficial ownership • competent authority • benami transaction • unmarried daughter • revenue collection • power of attorney • fair market value • right to property • value of property • discounted price • benami property • legal position • revenue loss • satisfaction • civil suit • real owner • stamp duty • commission • debentures • sale deed
Bot Summary: No criminal adequate consideration liability unless the case falls within Section 415 to 424 or Section 206 207 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. 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. 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. 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. Coming to Section 5 of the 1988 Act, it was conceived as a half baked provision which did not provide the following and rather left the same to be prescribed through a delegated legislation: Whether the proceedings under Section 5 were independent or dependant on successful prosecution The standard of proof required to establish benami transaction in terms of Section 5. 15.22 From the above, Section 3 read with Section 2(a) and Section 5 of the 1988 Act are overly broad, disproportionately harsh, and operate without adequate safeguards in place. 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.

REPORTABLE N 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 tussle between normative and positivist positions regarding nature of crime and punishment. Treating Constitution as flag post, result of this tussle is sought in following deliberation. 3. This appeal is filed against impugned judgment dated 12.12.2019 passed by 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: 1 4. short legal question which arises for this Court s consideration is whether Prohibition of Benami Property Transactions Act, 1988 [for short 1988 Act ], as amended by Benami Transactions (Prohibition) Amendment Act, 2016 [for short 2016 Act ] has prospective effect. Although purely legal question arises in this appeal, it is necessary to have brief factual background in mind before we advert to analysis. 5. On 02.05.2011, respondent company purchased property in its name from various sellers for total consideration of Rs.9,44,00,000/ . It is said that consideration for aforesaid purchase was paid from capital of company. On 31.03.2012, 99.9% of respondent company shareholdings were acquired by M/s PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd. at discounted price of Rs.5/ per share for total amount of Rs.19,10,000/ . It is matter of fact that two directors of respondent company (viz. Shruti Goenka and Ritu Goenka) also held directorship in subsequent purchaser company. 2 6. Accordingly, on 29.08.2017, Deputy Commissioner of Income Tax (Adjudicating Authority) issued notice to respondent company invoking Section 24(1) of 2016 Act to show cause as to why aforesaid property should not be considered as Benami property and respondent company as Benamidar within meaning of Section 2(8) of 2016 Act. On 06.09.2017, respondent company replied to aforesaid show cause notice denying that scheduled property is Benami property. 7. Adjudicating Authority, by order dated 24.11.2017, passed order under Section 24(4)(b)(i) of 2016 Act, provisionally attaching property. 8. Aggrieved by aforesaid attachment order, respondent company filed Writ Petition (being W.P. No. 687 of 2017) before High Court of Calcutta. aforesaid writ petition was disposed of by learned Single Judge by order dated 18.12.2018 with direction to Adjudicating Authority to conclude proceedings within 12 weeks. 9. Aggrieved, respondent company filed appeal against aforesaid order being APO No. 8 of 2019. 3 10. High Court, vide impugned order dated 12.12.2019, while quashing show cause notice dated 29.08.2017, held that 2016 Act does not have retrospective application. (i) 2016 Amendment Act, which came into force on 01.11.2016, was new and substantive legislation, inter alia, substituting and widening definition of benami property and benami transaction , and in order to have retrospective operation for period or transactions entered into prior to 01.11.2016, provision to that effect should have been specifically providing under said Act; in absence of any express provision to that effect, simply by virtue of provisions contained in subsection (3) of Section 1 of 1988 Act [which remained unaltered by 2016 Amendment Act, and have consequently been retained under Benami Act], provisions of 2016 Amendment Act cannot be impliedly construed as retrospective; (ii) Reference was made to and reliance was placed on unreported ruling of learned Single Judge of Rajasthan High Court dated 12.07.2019 in case of Niharika Jain v. Union of India [S.B.C.W.P. No. 2915/2019], wherein, following ruling of Single Judge of Hon ble Bombay High Court in 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 protection enshrined under clause (1) of Article 20 of Constitution of India, 2016 Amendment Act, amending, inter alia, definition of benami transaction , could not be given retrospective effect, and amendments brought about vide said (amendment) Act would be enforceable only with effect from date of enactment / coming into force of said amendment Act i.e., on or after 01.11.2016 reliance in this regard was also placed on ruling of 4 this Court in case of Rao Shiv Bahadur Singh vs. State of Vindhya Pradesh, AIR 1953 SC 394; (iii) 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 benami transaction , which was made non cognizable and bailable, and also however, provided for acquisition of property held to be benami; provisions of 1988 Act, were never operationalized since rules and procedure required to be framed under Section 8 of said Act bringing into existence machinery for implementation of 1988 Act, were never notified therefore, although 1988 Act was part of statute book, same was rendered dead letter , and all transactions and properties alleged benami , carried out / acquired between period of 19.05.1988 and 01.11.2016, were deemed to have been accepted by Government as valid vesting rights in parties to such alleged transactions; ergo, Central Government, having waived its right of implementation and operationalisation of 1988 Act for period prior to 01.11.2016, cannot now do so indirectly by way of retrospective operation of 2016 Amendment Act. 11. Aggrieved by aforesaid impugned order, 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: 5 i. As per pre amendment 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, Amendment Act, which was consolidating Act, was brought in. ii. It was not offence that is sought to be implemented retrospectively, but merely procedures are laid down to implement Act of 1988. He stated that pre amendment 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 bar against retrospective application is only applicable to substantive law. iv. legislative intent for bringing amendment to existing act, and not enacting new law, was to ensure that no immunity is granted to persons who engaged in benami transactions while pre amendment Act was in operation. 6 v. It was further submitted that Section 5 and Section 27 of Act are to be read together as latter provides mechanism through which Benami property may be confiscated by Adjudicating Authority. As per Section 27(3), once confiscation order is passed by Authority, rights in property are vested in Central Government. It was reiterated that confiscation is not penal provision, as 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 same can be applied retrospectively. For this, 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 punishment, and that Article 20(1) is not attracted. Court also held that confiscation as imposed by Adjudicating 7 Authority would not amount to any punishment, and is only deprivation of property of person in question. vi. learned ASG also referred to Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95, para 21, to submit that by necessary implication, machinery and procedural provisions of amended Act are retrospective in nature. 12.2 Shri Vikramjit Banerjee, learned ASG has submitted as under: i. Parliament has power to enact retrospective legislation even in case of criminal Statute, as long as it complies with Article 20(1) of Constitution of India. He further argued that as per Article 20(1), prohibition exists only on conviction and sentencing of ex post facto law, and not against passing such law. ii. Forfeiture, acquisition, and confiscation are not punishments and therefore not subject to Article 20(1) 8 restrictions. He then pointed out that adjudication proceedings are also not in 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 civil liability. 12.3 Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing for respondent has contended as under: i. 1988 Act did not make its provisions applied retrospectively. Parliament purposely ensured that when 1988 Ordinance was replaced by parent Act, only provisions from 1988 Ordinance were continued from date of promulgation of ordinance. other provisions introduced by parent Act, namely Sections 3, 5 and 8, were made only prospectively applicable from date on which parent Act was brought into effect. ii. 2016 Act was not intended to be retrospectively applicable as same is not explicitly stated. 9 Parliament deemed it fit to leave it to Central Government to enforce 2016 Act from appointed date by notifying it in official gazette, as mentioned in Section 1(2) of 2016 Act. iii. It was further argued that when statute carves out distinct penalties in respect of benami transactions entered into in unamended regime vis vis benami transactions entered into after amendment Act of 2016, it clearly indicates that amended Act is prospective in nature. iv. Learned Senior Advocate also relied on cases of R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630 and Mangathai Ammal v. Rajeswari, (2020) 17 SCC 496, in context of Sections 4(1), 4(2) and 3(2) of parent Act, to contend that abovementioned provisions are prospective in nature. v. It is also argued that insertion of Section 2(9) by amendment to parent Act provides new definition to benami transactions and has 10 substantially changed scope of offence by enlarging its ambit. In unamended Act, only transfer of property was offence. However, 2016 Act has added multiple other actions as offences under category of benami transactions. It is well settled principle of law that any enactment which substantially affects rights of people cannot be applied retrospectively, and therefore, amended 2016 Act can only be prospective in nature. For this, judgment of this Court in 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 parties, it is necessary for this Court to trace history of benami transactions in India. term benami transaction generally implies that one purchases property in name of somebody else, i.e., name lender, and purchaser does not hold beneficial interest 11 in property. Literally, benami means without name . simplest of example is if person (real owner) purchases property from B in name of C (benamidar/ostensible owner), wherein exercise rights/interest over property. 13.2 term benami , which was alien to statutory law during colonial regime and in early days of Republic, was known in legal parlance of lawyers. Even in Mohammedan law, such transactions were commonly referred as furzee or farzi, derived from Arabic word furaz.1 Over 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 Doctrine of Benami. first view is that benamidar does not hold title over property, and second view is that although title passes to 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 following examples: 1 McNaughten s Selected Report Vol. I, Reporter s Note at p. 368. 12 (i.) Tripartite: B sells property to (real owner), but sale deed mentions C as owner/benamidar. (ii.) Bipartite: sells property to B without intending to pass title to B . first instance was usually termed as real benami transaction, and second transaction was considered either as sham transaction or loosely benami transaction. In Sree Meenakshi Mills Ltd. v. Commissioner of Income Tax, Madras, AIR 1957 SC 49, speaking for Bench, Venkatarama Ayyar, J., stated that first category of transactions is usually termed as benami, while second category is occasionally considered 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 first category as benami but chose to describe second category as loosely termed benami. This distinction is relevant and will be adverted to later. 13 13.4 Numerous reasons, some desirable and some undesirable, were contributory factors for proliferation of such 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 early 19th century under colonial courts. In Mt. Bilas Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96, Privy Council observed as under: Down to taluqdar s death natural inference is that purchase was benami transaction; dealing common to Hindus and Muhammadans alike, and much in use in India; it is quite unobjectionable and has curious resemblance to doctrine of our English law that trust of legal estate results to man who pays purchase money, and this again follows analogy of our common law, that where feoffment is made without consideration use results to feoffer. 2 West and Buhler, Hindu Law , (Fourth Edition), Pg. 157, 563. 3 Pollock, Law of fraud, Misrepresentation and Mistake in British India (1894), page 83 84. 4 K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884 85) Pg. 469 470. 14 In Punjab Province v. Daulat Singh, AIR (29) 1942 FC 38, Federal Court, while evaluating propriety of such transactions, observed as under: 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 judgment of Judicial Committee in 37 ALL. 557 spoke of them as quite unobjectionable and as having their analogues in English law; and Mr. Amreer Ali, delivering judgment of Committee in 46 Cal. 566, observed that there is nothing inherently wrong in it, and it accords, within its legitimate scope, with ideas and habits of people . As indicated by 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 test to determine whether transaction is benami or not. following factors were to be considered: (i) source from which purchase money came; (ii) nature and possession of property after purchase; (iii) Motive, if any, for giving transaction benami colour; (iv) position of parties and relationship, if any, between Claimant and alleged Benamidar. (v) custody of title deeds after sale, and 15 (vi) conduct of parties concerned in dealing with property after sale. 13.7 judiciary came to establish general principle that in law, real owner is recognized over 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 Income Tax Act, 1961, which allows filing of suit by original owner to enforce his right over benami property, only if same is declared for taxing purpose, as provided thereunder. Such provision under Income Tax Act did not bar such benami transactions completely, rather it only attempted to legitimize and bring them into net of taxation. Such provision, while disincentivizing transactions beyond taxation net, had also inevitably accepted positive factors in recognizing same. Further, it is matter of fact that Indian Trusts Act has recognized and accepted 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. 16 13.8 57th Report of Law Commission (1973) succinctly captures general principles prevailing as on that date, in following manner: 5.2 Summary of present position in general few basic points concerning benami transactions may be stated, as follows: (a) Benami transfer or transaction means transfer by or to person who acts only as 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 intention of beneficiary; (c) real owner in such cases may be called beneficiary, and ostensible owner benamidar. 5.3. Effect of benami transfer. effect of benami transfer is as follows: (a) person does not acquire any interest in property by merely leading his name; (b)The benamidar has no beneficial interest though he may re present legal owner as to third person. (c)A benami transaction is legal, except in certain specified situations. (Emphasis supplied) 13.9 Prior to 1973 Report, broad position on legality of various kinds of benami transactions can be captured as follows: SL. NATURE OF TRANSFER LEGALITY AND NO. CONSEQUENCES Transfer in favour of wife or Governed by Section child (whether or not with 64, Income tax Act 17 object of transferring title (also see point G in to wife or child) without table). [No criminal adequate consideration liability unless case falls within Section 415 to 424 or Section 206 207 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 fraudulent purpose and of Transfer of Property not in good faith Act. [Criminal liability if case falls within Section 415 to 424 or Section 206 207 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 wife or child D Transfer in favour of Not covered by any (i) person other than wife provision. (No criminal or child without liability) consideration, but with genuine object of transferring title and with no fraudulent purpose Transfer in favour of 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 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 18 intent to transfer title, if case falls within but for fraudulent Section 415 to 424 or purpose and not in good Section 206 207 of faith. Indian Penal Code] (iv) Transfer in favour of 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 206 207 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 Act. (criminal liability fraudulent purpose and not if case falls within in good faith. Section 415 to 424 of Indian penal Code or Section 206 207 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 genuine intent to transfer) suit instituted without informing taxing authorities. See Section 231A, Income Tax Act (inserted by Act 45 of 1972) 19 13.10 It may be necessary to note that Law Commission, through its aforementioned 57th Report, did not find it suitable to accept stringent provision of making benami transactions liable to criminal action. Rather, it recommended adoption of certain less stringent, civil alternatives in 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 Benami transactions could be made offence; (ii) provision may be enacted to effect that in civil suit right shall not be enforced against benamidar or against third person, by or on behalf of person claiming to be real owner of property on ground of benami; similar provision could be made to bar defences on ground of benami. (This provision would be based on principle on which existing provisions in Civil Procedure Code and new provision in Income tax Act are based but could be wider in scope and more radical). (iii) present presumption of resulting trust in favour of person who provided consideration may be displaced (as in England) by presumption of advancement, in cases where person to whom property is transferred is near relative of person who provided consideration. (This would bring in doctrine of advancement, so as to rebut presumption of resulting trust under section 82 of Trusts Act). 20 Whichever alternative is adopted, it may be desirable to make exception for acquisition made by manager of joint Hindu family in name of one of co parceners, and similar cases. 6.24. First alternative not likely to be effective rst alternative referred to above, namely, imposition of criminal prohibition against benami transactions, is most drastic alternative, but it is not likely to be more effective than others. prohibition backed by criminal sanctions would not, moreover, be desirable, unless mens rea is also included in provision to be enacted. If this alternative is to be adopted, provision could be enacted on following lines: "Where property is transferred to one person for consideration paid or provided by another person, and it appears that such person did not intend to pay or provide such consideration for bene t of transferee, person paying or providing consideration shall be guilty of offence punishable with imprisonment upto three years, or with ne, or both. Provided that this section shall not apply where transferee is co parcener in Hindu undivided family in which such other person is also co parcener, and it is proved that such other person intended to pay or provide such consideration for bene t of co parceners in family. Exception Nothing in this section shall be deemed to affect section 66 of Code of Civil Procedure, 1908 or any provision similar thereto." Yet another device for giving effect to first alternative, with requirement of mens rea, would be to have law on following lines: "Where property is transferred to one person for consideration paid or provided by another person, and it appears that such person did not intend to pay or provide such consideration for bene t 21 of transferee, person paying: or providing consideration shall, if he has caused transfer to be entered into with intention of facilitating evasion of any law, or defeating claims of his creditors, or creditors of any other person be guilty of offence punishable with imprisonment upto three years, or with ne, or with both." Yet another device to give effect to rst alternative would be to add section in 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 consideration, intending thereby to prevent, or knowing to be likely that he will thereby prevent, distribution of that property according to law among his creditors or creditors of any other person, or intending thereby to facilitate, or knowing it to be likely that he will thereby facilitate, evasion of any law, shall be punished with imprisonment of either description for term which may extend to two years, or with ne. or with both." 6.25. Second alternative. second alternative is less drastic than. rst. In form. it could follow existing statutory provision limiting judicial recognition of benami transactions, such as, section 66. Code of Civil Procedure, 1908. But its scope would be much wider. provision' could be to effect that no suit shall lie to enforce right in respect of any property held benami, either against person in whose name 'the property is held or against any other person, by or on behalf of person who claims to be real owner 'of property on ground that person in whose name property is held is benamidar of claimant. (If necessary, defence can also be barred). 22 6.27. Second alternative refusal to recognise Benami preferred. In our opinion, simplest alternative would be second alternative. law should refuse to recognise Benami character of transactions, without making them offence. law should, in effect, provide that where property is transferred benami, benamidar will become real owner. result of such provision will be that fact that benamidar did not provide consideration, or that consideration was provided by third person, will not be ground for recognising person other than benamidar as owner. To put matter in broad terms, doctrine of benami will, under pro posed amendment, cease to be part of Indian law. It may be observed that in enacting proposed provision, legislature will carry, to its logical conclusion, trend illustrated by provisions, such as, section 66 of Code of Civil Procedure. section in Code is applicable to involuntary alienations, while proposed provision will extend same principle to voluntary transactions as Well. We think that this will be simplest and most effective course, and is, therefore, preferable to others. amendment will bring out change in legal position in some of situations where, at present, benami character is re cognised. 6.27A. We are also of view that it is not necessary to enact prohibition attracting criminal penalties which is course suggested in rst alternative. Such prohibition will have to be ac companied by requirement of mens rea, thus narrowing down its scope and limiting its practical utility. 23 13.11 It must be noted that during this time, Constitution was undergoing slow churning qua right to property. above propositions, laid down by Federal Courts and Privy Council are to be understood in context where there was general common law right to property, which later made its forays into Constitution of India under Articles 19(1)(f) and 31. In 1978, Indian Parliament took drastic measure and did away with this fundamental right to property and relegated same to constitutional right under Article 300A. 13.12 Further, it was era during which India pursued socialism , which was also included in Preamble of Constitution through 42nd (Amendment) Act in 1976. Successive judicial opinions in Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225 etc., viewed right to property as stumbling block in path of achieving social goals that government of time aspired to. 13.13 In 1988, Ordinance viz. Benami Transactions (Prohibition of Right of Recover Property) Ordinance, 1988 (Ordinance 2 of 1988.) was promulgated. This 24 statutory instrument being not satisfactory, it was referred to Law Commission again. 13.14 In any case, issue was re examined by Law Commission in year 1988 through its 130 th Report. Although Law Commission characterized 130 th Report as continuation of its earlier recommendations, it can be observed that some radical changes were suggested. Some of key observations are as under: 3.2 first question that must engage our attention at once is width and coverage of proposed legislation. In order to encompass benami transactions concerning various types of property, 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 extensive coverage of proposed legislation by encompassing property of every denomination. 3.18 Therefore, viewed from either angle, Law Commission is of firm opinion that legislation replacing ordinance should also be retroactive in operation and that no locus penitentia need be given to persons who had entered into benami transactions in past. They had notice of 25 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 benami transactions and derived benefit in form of revenue collection from it. It was, therefore, said that if now all benami transactions are invalidated and all enveloping prohibition is imposed, revenue laws would suffer loss of revenue. Reference in this connection was made to section 27 of Income tax Act, 1962 dealing with income from house property. various sub sections of section 27 deal with transfer of property by husband to wife and vice versa. It also involves case of impartable estate. law commission is unable to appreciate how total prohibition of benami transaction and holder being made real owner would defeat revenue laws. If one escapes, other pays, and if it is suggested that other may not be within dragnet of tax laws and that both would benefit by prohibition and abolition of benami transactions. In immediate future such effect may be produced but 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 rules of co operative society which has built flats or by rules of authorities like Delhi Development Authority, modus operandi has come into existence whereby violating law, flat is sold and purchaser would pay amount and taken 26 irrevocable power of attorney and enter into possession. It was further said that provisions of Income tax Act have recognized such transfers and treat attorney as owner for purpose of income tax as per provisions of Finance Act, 1987. If sole purpose of entering into such transaction is violation of existing law which has been passed after due consideration, it is time that no recognition is conferred and law is allowed to take its own course. Even in 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 tax laws may become anachronistic because of present approach of law commission. This is inevitable. tax laws were enacted at time when benami was part of Indian law. Such laws would have to conform to changing legal order. Yet further solution is offered in this behalf in next chapter. (emphasis supplied) 14. FRAMEWORK UNDER 1988 ACT 14.1 This brings us to statutory framework under 1988 unamended Act, having nine sections. Section 2(a) defines benami transactions as any transaction in which property is transferred to one person for consideration paid or provided by another person. law chose to include only tripartite benami transactions, while bipartite/loosely described as benami transactions, were left out of 27 definition. Reading aforesaid definition to include sham/bipartite arrangements within ambit would be against strict reading of criminal law and would amount to judicial overreach. 14.2 above definition does not capture essence of benami transactions as broad formulation includes certain types of legitimate transactions as well. transferee/property holder s lack of beneficial interest in property was vital ingredient, as settled by years of judicial pronouncements and common parlance, and found to be completely absent in definition given in Act. On literal application of aforesaid Section 2(a), following transactions could have been caught in web of Act: (a) purchases property in name of his son s wife B , for benefit of son s family from person Y , treats consideration as gift to son, and pays gift tax on it. (b) who is old and infirm, purchases property in name of B , intending that B will hold property in trust of son of , who is mentally retarded. (c) firm X purchases property in name of working partner B for benefit of firm X , making payment out of firm s funds. 28 14.3 Section 2(c) of 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, aforesaid broad formulation of property came about for first time in 130 th Law Commission Report; such definitional broadening was for first time introduced only in 1988 and was never contemplated during 57th Report (1973). This aspect becomes important, and will be addressed later, while analysing 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 sub section (1) shall apply to purchase of property by any person in name of his wife or unmarried daughter and it shall be presumed, unless contrary is proved, that said property had been purchased for benefit of wife of unmarried daughter. (3) Whoever enters into any benami transaction shall be punishable with 29 imprisonment for term which may extend to three years or with fine or with both. (4) Notwithstanding anything contained in Code of Criminal Procedure, 1973 (2 of 1974), offence under this section shall be non cognizable and bailable. Section 3 puts forth prohibitive provision. Further, it intended to criminalize act of entering into benami transaction. 14.5 Section 4 noted as under: 4.Prohibition of right to recover property held benami (1) No suit, claim or action to enforce any right in respect of any property held benami against person in whose name property is held or against any other person shall lie by or on behalf of person claiming to be real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against person in whose name property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of person claiming to be real owner of such property. (3) Nothing in this section shall apply, (a) where person in whose name property is held is coparcener in Hindu undivided family and property is held for benefit of coparceners in family; or 30 (b) where person in whose name property is held is trustee or other person standing in fiduciary capacity, and property is held for benefit of another person for whom he is 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 removal of doubts, it is hereby declared that no amount shall be payable for 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 law effective.6 14.7 Section 6 provided that nothing in 1988 Act will affect Section 53 of Transfer of Property Act or any law relating to transfers for illegal purpose. object of Section 6 was to vest ownership rights in benamidars as opposed to real owner. It was not intention of 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), Benami Transactions Prohibition (Amendment) Bill, 2015, 28th Report, Part I. 31 funds in fraudulent manner and allow them to escape their liability to creditors. Therefore, Section 6 limited application of Section 4 in such cases. 14.8 Section 7 of 1988 Act repealed Sections 81, 82 and 94 of Indian Trusts Act, 1882 (2 of 1882); Section 66 of Code of Civil Procedure, 1908 (5 of 1908.); and Section 281A of Income Tax Act, 1961 (43 of 1961). Section 8 empowered Central Government to make rules to give effect to Act. final section, Section 9, repealed earlier Ordinance. 14.9 main thrust of argument put forth by Union of India in this appeal is that amended 2016 Act only clarified 1988 Act. Law Officers appearing for Union of India trained their guns on point that 1988 Act had already created substantial law for criminalizing offence and 2016 amendments were merely clarificatory and procedural, to give effect to 1988 Act. Such submission mandates us to examine law of 1988 Act in detail and determine scope of earlier regime to 32 understand as to whether 2016 amendments were substantive or procedural. 14.10 Reading Section 2(a) along with Section 3 makes one thing clear criminal provision envisaged under aforesaid provisions does not expressly contemplate mens rea. Under Indian jurisprudence, law on subject is fairly well settled. It has been subjected to judicial scrutiny of this Court on several occasions. It does not call for detailed discussion and is enough to restate principles. Mens rea is essential ingredient of criminal offence. Doubtless, statute may exclude element of mens rea, but it is sound rule of construction adopted in England and also accepted in India to construe statutory provision creating offence in conformity with common law rather than against it, unless statute expressly or by necessary implication excluded mens rea. mere fact that object of statute is to promote welfare activities or to eradicate grave social evil which by itself is not decisive of question as to whether element of guilty mind is excluded from ingredients of offence. Mens rea by necessary implication may be excluded from statute only 33 where it is absolutely clear that implementation of object of statute would otherwise be defeated. [refer Nathulal v. State of Madhya Pradesh, AIR 1966 SC 43] 14.11 In above light, this Court s first endeavour is to attempt to interpret law to imply mens rea. However, language of Section 2(a) coupled with Section 3, completely ignores aspect of mens rea, as it intends to criminalize very act of one person paying consideration for acquisition of property for another person. mens rea aspect was specifically considered by 57 th Law Commission Report, and same was not integrated into unamended 1988 Act. observations made in 130th Law Commission Report indicate that benami transactions are abhorrent when it comes to public wealth and impedes government from achieving its social goals. This clearly allows us to infer that 1988 law was envisaged on touchstone of strict liability. 14.12 Such strict statutory formulation under Section 2(a) read with Section 3 had left loose ends in 1988 Act. In this light, prosecution would only have to prove only that 34 consideration was paid or consideration was provided by one person for another person and nothing more. In all judicial precedents, this Court has had occasion to examine this legislation on civil side and never on criminal side, which would bear higher standards. Conflation of 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 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 aforesaid provision has retrospective application, held as under: 22. As defined in Section 2(a) of Act benami transaction means any transaction in which property is transferred to one person for consideration paid or provided by another person . transaction must, therefore, be benami irrespective of its date or duration. Section 3, subject to 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 35 held benami against person in whose name property is held or against any other person shall lie, by or on behalf of person claiming to be real owner of such property. This naturally relates to past transactions as well. expression any property held benami is not limited to any particular time, date or duration. Once 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 defences based on any right in respect of any property held benami whether against person in whose name property is held or against any other person in any suit, claim or action by or on behalf of person claiming to be real owner of such property. It means that once property is found to have been held benami, real owner is bereft of any defence against person in whose name 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 Act is both penal and disqualifying statute. In case of qualifying or disqualifying statute it may be necessarily retroactive. For example when Law of Representation declares that all who have attained 18 years shall be eligible to vote, those who attained 18 years in past would be as much eligible as those who attained that age at moment of law coming into force. When Act is declaratory in nature presumption against retrospectivity is not applicable. Acts of this kind only declare. statute in effect declaring benami 36 transactions to be unenforceable belongs to this type. presumption against taking away vested right will not apply in this case inasmuch as under law it is benamidar in whose name property stands, and law only enabled real owner to recover property from him which right has now been ceased by Act. In one sense there was right to recover or resist in real owner against benamidar. Ubi jus ibi remedium. Where there is right, there is remedy. Where remedy is barred, right is rendered unenforceable. In this sense it is disabling statute. All real owners are equally affected by disability provision irrespective of time of creation of right. right is legally protected interest. real owner's right was hitherto protected and Act has resulted in removal of that protection. 23. When law nullifies defences available to real owner in recovering benami property from benamidar law must apply irrespective of time of benami transactions. 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 question whether there was present suit between respondent plaintiff and defendant appellant on date of law coming into force. We have noted dates of filing suit and judgments of courts below. On date of Section 4 of Act coming into force, that is, 19 5 1988 this appeal was pending and, of course, is still pending. Can suit itself be said to be pending? (emphasis supplied) 37 14.14 aforesaid interpretation was re examined by this Court in R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630 and while partly over ruling Mitilesh Kumari (supra), it was held as under: 11. Thus it was enacted to efface then existing right of real owners of properties held by others benami. Such Act was not given any retrospective effect by legislature. Even when we come to Section 4, it is easy to visualise that sub section (1) of Section 4 states that no suit, claim or action to enforce any right in respect of any property held benami against person in whose name property is held or against any other shall lie by or on behalf of person claiming to be real owner of such property. As per Section 4(1) no such suit shall thenceforth lie to recover possession of property held benami by defendant. Plaintiff's right to that effect is sought to be taken away and any suit to enforce such right after coming into operation of Section 4(1) that is 19 5 1988, shall not lie. legislature in its wisdom has nowhere provided in Section 4(1) that no such suit, claim or action pending on date when Section 4 came into force shall not be proceeded with and shall stand abated. On contrary, clear legislative intention is seen from 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 38 to portals of any court for seeking such relief after coming into force of Section 4(1). word lie in connection with suit, claim or action is not defined by Act. If we go by 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 defendant concerned in whose name property is held on and from date on which this prohibition against entertaining of such suits comes into force. With respect, view taken that Section 4(1) would apply even to such pending suits which were already filed and entertained prior to date when section came into force and which has effect of destroying then existing right of plaintiff in connection with suit property cannot be sustained in face of clear language of Section 4(1). It has to be visualised that 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 section would amount to taking view which would run counter to legislative scheme and intent projected by various provisions of Act to which we have referred earlier. It is, however, true as held by Division Bench that on express language of Section 4(1) any right inhering in 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 coming into operation of Section 4(1), and henceafter Section 4(1) applied no suit can lie in respect to such past benami transaction. To that extent section may be retroactive. 39 To highlight this aspect we may take illustration. If benami transaction has taken place in 1980 and suit is filed in June 1988 by plaintiff claiming that he is real owner of property and defendant is merely benamidar and consideration has flown from him, then such suit would not lie on account of 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 prohibitory provision of Section 4(1); but that is only effect of retroactivity of Section 4(1) and nothing more than that. From conclusion that Section 4(1) shall apply even to past benami transactions to aforesaid extent, next step taken by Division Bench that therefore, 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 suit is filed by plaintiff who claims to be owner of property under document in his favour and holds 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 person claiming to be real owner of such property held benami. disallowing of such defence which earlier was available, itself suggests that new liability or restriction is imposed by Section 40 4(2) on pre existing right of defendant. Such 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 suit which is covered by sweep of Section 4(2) is concerned, prohibition of Section 4(1) cannot apply to it as it is not claim or action filed by plaintiff to enforce right in respect of any property held benami. On contrary, it is suit, claim or action flowing from sale deed or title deed in name of plaintiff. Even though such suit might have been filed prior to 19 5 1988, if before stage of filing of defence by real owner is reached, Section 4(2) becomes operative from 19 5 1988, then such defence, as laid down by Section 4(2) will not be allowed to such 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 pending litigations in connection with enforcement of such rights of real owners who are parties to benami transactions entered into prior to coming into operation of 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 person claiming to be real owner of such property. That is to say no such defence shall be allowed for first time after coming into operation of Section 4(2). If such defence is already allowed in pending suit prior to coming into operation of Section 4(2), enabling issue to be raised on such defence, then Court is bound to decide issue arising from such already allowed defence as at relevant time when such defence was allowed Section 4(2) was out 41 of picture. Section 4(2) nowhere uses words: No defence based on any right in respect of any property held benami whether against person in whose name 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 Division Bench that such already allowed defence in 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 respondents in his written submissions, on 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 rationale to hold that this section applies retrospectively. legislature itself thought it fit to do so and there is no challenge to vires on ground of violation of Article 14 of Constitution. It is not open to us to rewrite section also. Even otherwise, in 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 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 separate class as compared to those cases where stage for filing such suits or defences has still not reached by time Section 4(1) and (2) starts operating. Consequently, latter type of cases would form distinct category of cases. There is no question of discrimination being meted out while dealing with these two classes of cases 42 differently. 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 better treatment as compared to real owner who has still to take up such defence and in meantime he is hit by prohibition of Section 4(2). Equally there cannot be any comparison between 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, grievances raised in this connection cannot be sustained. 14.15 Returning to discussion at hand, there is no doubt that unamended 1988 Act tried to create strict liability offence and allowed separate acquisition of benami property. This begs question whether such criminal provision, which State now intends to make use of, in order to confiscate properties after 28 years of dormancy, could have existed in books of law. Other than abuse and unfairness such exercise intends to bring about, there is larger constitutional question about existence of such strict provisions without adequate safeguards. 43 15. SUBSTANTIVE DUE PROCESS, MANIFEST ARBITRARINESS AND PROVISIONS UNDER 1988 ACT . 15.1 simple question addressed by counsel appearing for both sides is whether amended 2016 Act is retroactive or prospective. Answering above question is inevitably tied to intermediate question as to whether 1988 Act was constitutional in first place. arguments addressed by Union of India hinges on fact that 1988 Act was valid substantive law, which required only some gap filling through 2016 Act, to ensure that sufficient procedural safeguards and mechanisms are present to enforce law. According, to Union of India, 2016 Act was mere gap filling exercise. 15.2 However, upon studying provisions of 1988 Act, we find that there are questions of legality and constitutionality which arise with respect to Sections 3 and 5 of 1988 Act. answers to such questions cannot be assumed in favour of constitutionality, simply because same was never questioned before Court of law. We are clarifying that we are not speaking of presumption of constitutionality as matter of burden of proof. Rather, we are indicating assumption taken by Union as to validity of these 44 provisions in present litigation. Such assumption cannot be made when this Court is called upon to answer whether 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 country has grown to be jurisdiction having substantive due process . brief sketch of jurisprudential journey thus far, may be necessary to aid our understanding. 15.4 There is no gain saying that deletion of phrase due process of law from draft Constitution was inspired by views of James Bradley Thayer and Justice Felix Frankfurter, who held that concentration of power to examine reasonability of 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 above opinions, rather he envisaged situation as one who is caught between Charybdis and Scylla. 45 15.5 emphasis on aforesaid deletion by majority in A.K Gopalan v. State of Madras, AIR 1950 SC 27, was somewhat drawn back by celebrated dissent of Fazal Ali, J., wherein 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 combined reading of Articles 14, 19 and 21 would make it clear that judiciary, so to say, always had forensic power to examine reasonability of law, both procedural as well as substantive. Later expositions have only given colour to expand what was implicit under three golden Articles of Part III. In Sunil Batra v. Delhi Administration, (1978) 4 SCC 494, word law as occurring under Article 21 was interpreted to mean jus and not merely lex. It may be necessary to quote observation of majority in aforesaid case in following manner: 228 word law in expression procedure established by law in Article 21 has been interpreted to mean in Maneka Gandhi case that law must be right, just and fair and not arbitrary, fanciful or oppressive. (Emphasis supplied) 46 15.6 Without burdening this judgment with series of precedents laid down by this Court, we may refer only to majority opinion in K. Puttaswamy v. Union of India, (2017) 10 SCC 1, wherein law has been settled by Nine Judge Bench of this Court in following manner: 294. Court, in exercise of its power of judicial review, is unquestionably vested with constitutional power to adjudicate upon validity of law. When validity of law is questioned on ground that it violates guarantee contained in Article 21, scope of challenge is not confined only to whether procedure for deprivation of life or personal liberty is fair, just and reasonable. Substantive challenges to validity of laws encroaching upon right to life or personal liberty has been considered and dealt with in varying contexts, such as 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. person cannot be deprived of life or personal liberty except in accordance with procedure established by law. Article 14, as guarantee against arbitrariness, infuses entirety of Article 21. interrelationship between guarantee against arbitrariness and protection of life and personal liberty operates in multi faceted plane. First, it 47 ensures that procedure for deprivation must be fair, just and reasonable. Second, Article 14 impacts both procedure and expression law . law within meaning of Article 21 must be consistent with norms of fairness which originate in Article 14. As matter of principle, once Article 14 has connect with Article 21, norms of fairness and reasonableness would apply not only to procedure but to law as well. 295. Above all, it must be recognised that judicial review is powerful guarantee against legislative encroachments on life and personal liberty. To cede this right would dilute importance of protection granted to life and personal liberty by Constitution. Hence, while judicial review in constitutional challenges to validity of legislation is exercised with conscious regard for presumption of constitutionality and for separation of powers between legislative, executive and judicial institutions, constitutional power which is vested in Court must be retained as vibrant means of protecting lives and freedoms of individuals. 296. danger of construing this as exercise of substantive due process is that it results in incorporation of concept from American Constitution which was consciously not accepted when Constitution was framed. Moreover, even in country of its origin, substantive due process has led to vagaries of judicial interpretation. Particularly having regard to 48 constitutional history surrounding deletion of that phrase in our Constitution, it would be inappropriate to equate jurisdiction of constitutional court in India to entertain substantive challenge to validity of law with exercise of substantive due process under US Constitution. Reference to substantive due process in some of judgments is essentially reference to substantive challenge to validity of law on ground that its substantive (as distinct from procedural) provisions violate Constitution. 15.7 law with respect to testing unconstitutionality of statutory instrument can be summarized as under: a. Constitutional Courts can test constitutionality of legislative instruments (statute and delegated legislations); b. Courts are empowered to test both on procedure as well as substantive nature of these instruments. c. test should be based on combined reading of Articles 14, 19 and 21 of Constitution. 15.8 One of offshoots of this test under Part III of Constitution is development of doctrine of manifest arbitrariness. doctrinal study of development of this area may not be warranted herein. It is well traced in 49 Shayara Bano v. Union of India, (2017) 9 SCC 1. We may only state that development of jurisprudence has come full circle from overly formalistic test of classification to include test of manifest arbitrariness. broad formulation of test was noted in aforesaid case as under: 95. On 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 authority for proposition that legislation can never be struck down as being arbitrary. Indeed Court, after referring to all 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 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 test, stating that if constitutional infirmity is found, Article 14 will interdict such infirmity. And 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. 50 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 constitutionality of Section 497 of IPC relating to provision of adultery. While declaring aforesaid provision as unconstitutional on aspect of it being manifestly arbitrary, this Court reiterated test as under: ...The test of manifest arbitrariness, therefore, as laid down in aforesaid judgments would apply to invalidate legislation as well as subordinate legislation Under Article 14. Manifest arbitrariness, therefore, must be something done by 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 view that arbitrariness in 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 51 Arbitration Act on ground of manifest arbitrariness as Parliament chose to ignore judgment of this Court, without removing basis of same or identifying principle for militating against same. 15.11 Coming back to 1988 Act, two provisions with which we are concerned are Sections 3 and 5 of 1988 Act. They are required to be separately analysed herein. At outset, we may notice that enactment was merely shell, lacking substance that criminal legislation requires for being sustained. reasons for same are enumerated in following paragraphs. 15.12 First, absence of mens rea creates harsh provision having strict liability. Such approach was frowned upon by 57th Law Commission Report as concerns of tax evasion or sham transactions in order to avoid payment to creditors were adequately addressed by existing provisions of law. Even 130th Law Commission Report did not expressly rule out inclusion of mens rea. legislative move to ignore earlier Law Commission Reports without there being principle identified to do away with aspect of mens rea should be contributory factor in 52 analysing constitutionality of aforesaid criminal provision under 1988 Act. 15.13 Further, under amended 2016 Act, aspect of mens rea, is brought back through Section 53. Such resurrection clearly indicates that doing away of mens rea aspect, was without any rhyme or reason, and ended up creating unusually harsh enactment. 15.14 Second, ignoring essential ingredient of beneficial ownership exercised by real owner contributes to making law even more stringent and disproportionate with respect to benami transactions that are tripartite in nature. Court cannot forcefully read ingredients developed through judicial pronouncements or under Section 4 (having civil consequence) into definition provided under Sections 2 and 3 (espousing criminal consequences), to save enactment from unconstitutionality. Such reading would violate express language of Section 2(a), of excluding one ingredient from definition of benami transaction , and would suffer from vice of judicial transgression. In removing such essential ingredient, legislature did not identify any 53 reason or principle, which made entire provision of Section 3 susceptible to arbitrariness. Interestingly, for tripartite benami transactions, 2016 Act brings back this ingredient through Section 2(9)(A)(b). In this context, we may state that it is simple requirement under Article 20(1) that 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 learned ASG, Mr. Vikramjit Banerjee appearing for Union of India, that criminal provision was never utilized as there was significant hiatus in enabling functioning of such provision. 15.16 Fourth, reading Section 2(a) with Section 3(1) would have created overly broad laws susceptible to be challenged on grounds of manifest arbitrariness. If this Court reads criminal provisions of Benami Act to have had force since 1988, then following deleterious consequences would ensue: (i.) Section 187C of Companies Act, 1956 assured protection to nominal and beneficial holding of 54 shares if 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 criminal provision under Section 3(1) of 1988 Act has serious lacunae which could not have been cured by judicial forums, even through some form of harmonious interpretation. conclusion contrary to above would make aforesaid law suspect to being overly oppressive, fanciful and manifestly arbitrary, thereby violating substantive due process requirement of Constitution. 15.18 Coming to Section 5 of 1988 Act, it must be noted that acquisition proceedings contemplated under earlier Act were in rem proceedings against benami property. We may note that, jurisprudentially, such in rem proceedings transfer guilt from person who utilized property which is general harm to society, to property itself. 55 15.19 When such proceedings are contemplated under law, there need to be adequate safeguards built into provisions, without which law would be susceptible to challenge under Article 14 of Constitution. Coming to Section 5 of 1988 Act, it was conceived as half baked provision which did not provide following and rather left same to be prescribed through delegated legislation: (i) Whether proceedings under Section 5 were independent or dependant on successful prosecution? (ii) standard of proof required to establish benami transaction in terms of Section 5. (iii) Mechanism for providing opportunity for 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 power of tracing, which needs express provision. 56 Such delegation of power to Authority was squarely excessive and arbitrary as it stood. From aforesaid, Union s stand that 2016 Act was merely procedural, cannot stand scrutiny. 15.20 In any case, such inconclusive law, which left essential features to be prescribed through delegation, can never be countenanced in law to be valid under Part III of Constitution. gaps left in 1988 Act were not merely procedural, rather same were essential and substantive. In absence of such substantive provisions, omissions create law which is fanciful and oppressive at same time. Such overbroad provision was manifestly arbitrary as open texture of law did not have sufficient safeguards to be proportionate. 15.21 At this stage, we may only note that when Court declares law as unconstitutional, effect of same is that such declaration would render law not to exist in law books since its inception. It is only limited exception under Constitutional law, or when substantial actions have been undertaken under such unconstitutional laws that going back to original position would be next to 57 impossible. In those cases alone, would this Court take recourse to concept of prospective overruling . 15.22 From above, Section 3 (criminal provision) read with Section 2(a) and Section 5 (confiscation proceedings) of 1988 Act are overly broad, disproportionately harsh, and operate without adequate safeguards in place. Such provisions were still born law and never utilized in first place. In this light, this Court finds that Sections 3 and 5 of 1988 Act were unconstitutional from their inception. 15.23 Having said so, we make it abundantly clear that aforesaid discussion does not affect civil consequences contemplated under Section 4 of 1988 Act, or any other provisions. 16. 2016 CT AND ITS ANALYSIS 16.1 next subject of examination is 2016 Act, which amends 1988 Act, and expanded 1988 Act to 72 sections (from 9 sections), divided into 8 chapters. At outset, we need to understand general scheme of law. definition of benami transactions, which is heart of entire 1988 Act, has undergone metamorphosis and stands as under: 58 [DEFINITIONS. Section 2(9) "benami transaction" means: (A) transaction or arrangement (a) where property is transferred to, or is held by, person, and consideration for such property has been provided, or paid by, another person; and (b) property is held for immediate or future benefit, direct or indirect, of person who has provided consideration, except when property is held by (i) Karta, or member of Hindu undivided family, as case may be, and property is held for his benefit or benefit of other members in family and consideration for such property has been provided or paid out of known sources of Hindu undivided family; (ii) person standing in fiduciary capacity for benefit of another person towards whom he stands in such capacity and includes trustee, executor, partner, director of company, depository or participant as agent of depository under Depositories Act, 1996 (22 of 1996) and any other person as may be notified by Central Government for this purpose; (iii) any person being individual in name of his spouse or in name of any child of such individual and consideration for such property has been 59 provided or paid out of known sources of individual; (iv) any person in name of his brother or sister or lineal ascendant or descendant, where names of brother or sister or lineal ascendant or descendant and individual appear as joint owners in any document, and consideration for such property has been provided or paid out of known sources of individual; or (B) transaction or arrangement in respect of property carried out or made in fictitious name; or (C) transaction or arrangement in respect of property where owner of property is not aware of, or, denies knowledge of, such ownership; (D) transaction or arrangement in respect of property where person providing consideration is not traceable or is fictitious; Explanation. For removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving allowing of possession of any property to be taken or retained in part performance of contract referred to in section 53A of Transfer of Property Act, 1882, if, under any law for time being in force, (i) consideration for such property has been provided by person to whom possession of property has been allowed but person who has granted 60 possession thereof continues to hold ownership of such property; (ii) stamp duty on such transaction or arrangement has been paid; and (iii) contract has been registered. 16.2 Major changes envisaged under definition are as under: (i) Expansion of definition from arm s length transactions contemplated under 1988 Act, to arrangements and schemes. (ii) Additional ingredient of benefits flowing to real owner, lacuna pointed in earlier part, under 1988 Act, is included in terms of Section 2(9)(A)(b). (iii) Expansion of ambit through Section 2(9)(C), to those properties where benamidar denies knowledge of such ownership. (iv) Expansion of ambit through Section 2(9)(D), wherein person providing consideration is not traceable or is fictitious. (v) Expansion from recognition of only tripartite transactions under 1988 Act, to also include bipartite transactions. 61 16.3 Section 2(26) of 2016 Act defines property. This definition has been expanded to include proceeds from property as well. Such expansion allows for tracing of proceeds and is substantial change as compared to 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 1988 Act. Section 3 now bifurcates offences into two separate categories based on time period of 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 amended 2016 Act and punishment for aforesaid is prescribed under Section 53 of Chapter VII. It may be noted that under Section 3(3), punishment is increased from three years to maximum of seven years and fine may be imposed which extend up to 25% of fair market value of property. This distinction 62 between Section 3(2) and 3(3) read with Section 53, contains element of mens rea. 16.5Section 4 remains same as under 1988 Act, barring fact that Section 4(3) has integrated exceptions provided under definition of benami transaction in terms of Section 2(9). civil consequences provided under Section 4 continue to apply even post 2016 Act. interpretation of aforesaid section, as given in R. Rajagopal Reddy Case (supra), continues to apply. 16.6 Section 5 on 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 Central Government. 16.7 Chapter III relates to administrative mechanism of authorities required for implementation of 2016 Act. Chapter IV relates to attachment, adjudication, and confiscation of benami property. These provisions relate to forfeiture, which need to be analysed hereinafter. 63 16.8 Section 24(1) states that, if initiating Officer, on basis of gathered material, having reason to believe, that particular property is benami property, then he ought to issue notice7 to beneficial owner (if identified) as well as to ostensible owner (if any) seeking explanation as to why property should not be treated as Benami. 16.9 2016 Act provides for provisional attachment of property where concerned officer has genuine reason to believe, based on material gathered, that person in possession of property held in benami may alienate property. Such provisional attachment cannot be taken recourse to every time. Recourse under Section 24(3) of 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 authority to examine same on prima facie basis. Such adjudication must take place after providing collected material to accused, along with show cause notice. reasoned order is mandated under aforesaid provision. 7 In terms of Section 25 of 2016 Act. 64 Officer is mandated to present statement of case to adjudicating officer, in terms of Section 24(5) of 2016 Act. 16.11 Adjudication under Section 26 mandates notice and disclosure obligation to various other persons. adjudicating authority can either pass order in terms of Section 26(3)(c)(i) or (ii), or pass order for further inquiries in terms of Section 26(3)(b). 16.12 Section 27(1) relates to confiscation of property, wherein if property is adjudicated as benami property under Section 26(3), then adjudicating authority can give opportunity to concerned persons, and after hearing parties, pass order confiscating property. aforesaid confiscation order is subject to order passed by Appellate Tribunal under Section 46. Order of confiscation vests such property absolutely in 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 interregnum of initiating confiscation proceedings, any third party rights created to 65 defeat purpose of Act shall be null and void. Sub clause 5 mandates that if no order of confiscation is made and same has attained finality, no claim can be made against Government for process. 16.14 Section 28 mandates appointment of Administrator by Central Government to manage property. Such Administrator shall have power to take possession of such property upon order of confiscation, in terms of Section 29. 16.15 Chapters V and VI delineate powers of 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 benami transaction in order to defeat provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, beneficial owner, benamidar and any other person who abets or induces any person to enter into benami transaction, shall be guilty of offence of Benami transaction. (2) Whoever is found guilty of offence of benami transaction referred to in sub section (1) shall be punishable with rigorous imprisonment for term which 66 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 twenty five per cent. of fair market value of property. Interestingly, crime which attracted strict liability under 1988 Act, is modified to include mens rea aspect in terms of recommendations of 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 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 previous sanction of Board. 16.17 Perusal of remaining provisions is not required for purpose at hand. 17. WHETHER SECTION 3(1) AND CHAPTER IV READ WITH SECTION 5 OF 2016 ACT HAVE RETROACTIVE EFFECT? 17.1 thrust of arguments advanced by Union of India can be crystallized as under: 67 (i.) That 1988 Act was valid enactment with procedural gaps that were filled retrospectively by 2016 amendment. (ii.) That provision of confiscation (civil forfeiture) under 1988 Act, being in domain of civil law, is not punitive and therefore, prohibition under Article 20(1) of Constitution is not attracted in this case. 17.2With respect to 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 unduly harsh law against settled principles and Law Commission recommendations. (c.) Section 5 of 1988 Act, provision relating to civil forfeiture, was manifestly arbitrary. (d.) Both provisions were unworkable and as matter of fact, were never implemented. 17.3 Having arrived at aforesaid conclusions that Sections 3 and 5 were unconstitutional under 1988 Act, it would mean that 2016 amendments were, in effect, creating 68 new provisions and new offences. Therefore, there was no question of retroactive application of 2016 Act. As for offence under Section 3(1) for those transactions that were entered into between 05.09.1988 to 25.10.2016, law cannot retroactively invigorate stillborn criminal offence, as established above. 17.4 As per concession made by Union of India and fair reading of Section 53 of 2016 Act, offence under aforesaid provision is prospective, and only applied to those transactions that were entered into after amendment came into force, viz., 25.10.2016. Any contrary interpretation of Section 3 of 1988 Act would be violative of Article 20(1) of 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 law in force at time of commission of act charged as offence, nor be subjected to penalty greater than that which might have been inflicted under law in force at time of commission of offence. 17.5 In T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, this Court has expounded Article 20 (1) in following manner: 69 22. It is only retroactive criminal legislation that is prohibited under Article 20(1). prohibition contained in Article 20(1) is that no person shall be convicted of any offence except for violation of law in force at time of commission of act charged as offence prohibits nor shall he be subjected to penalty greater than that which might have been inflicted under law in force at time of commission of offence. It is quite clear that insofar as Central Amendment Act creates new offences or enhances punishment for particular type of offence no person can be convicted by such ex post facto law nor can enhanced punishment prescribed by amendment be applicable. But insofar as Central Amendment Act reduces punishment for offence punishable under Section 16(1)(a) of Act, there is no reason why accused should not have benefit of such reduced punishment. rule of beneficial construction requires that even ex post facto law of such type should be applied to mitigate rigour of law. principle is based both on sound reason and common sense. This finds support in following passage from Craies on Statute Law, 7th Edn., at pp. 388 89: retrospective statute is different from ex post facto statute. Every ex post facto law said Chase, J., in 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 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 good general rule that law should have no retrospect, but in cases in which laws may justly and for benefit of community and also of individuals relate 70 to time antecedent to their commencement: as statutes of oblivion or of pardon. They are certainly retrospective, and literally both concerning and after facts committed. But I do not consider any law ex post facto within prohibition that mollifies rigour of criminal law, but only those that create or aggravate crime , or increase punishment or change rules of evidence for purpose of conviction.... There is great and apparent difference between making unlawful act lawful and making innocent action criminal and punishing it as crime. 17.6 In case at hand, 2016 Act containing criminal provisions is applicable only prospectively, as relevant Sections of pre amendment 1988 Act containing penal provision, have been declared as unconstitutional. Therefore, question of construction of 2016 Act as retroactive qua penal provisions under Sections 3 or 53, does not arise. 17.7 continued presence of unconstitutional law on statute book, or claim that such law was not challenged before Constitutional Courts, does not prevent this Court from holding that such unconstitutional laws cannot enure to benefit of or be utilized to retroactively amend laws to cure existing constitutional defects. If such curing is 71 allowed, then Article 20(1) of Constitution would be rendered nugatory. 17.8This brings us to last aspect as to retroactive operation of confiscation (forfeiture) under Section 5 read with Chapter IV of 2016 Act. It is argument of Union of India that civil forfeiture being in domain of civil law is not punitive in nature. Therefore, it does not attract prohibition contained under Article 20(1) of Constitution. Meaning thereby, that if this Court holds that civil forfeiture prescribed under 2016 Act is punitive, only then will prohibition under Article 20(1) apply. If not, then prohibition does not apply. 17.9Although we have held that Section 5 of 1988 Act was unconstitutional for being manifestly arbitrary, however such holding is of no consequence if this Court comes to 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 legislature has power to enact retroactive/retrospective civil legislations under Constitution. However, Article 20(1) mandates that no law 72 mandating punitive provision can be enacted retrospectively. Further, punitive provision cannot be couched as civil provision to by pass mandate under Article 20(1) of Constitution which follows settled legal principle that what cannot be done directly, cannot be done indirectly . 17.11 Therefore, immediate question which arises for consideration is whether retroactive confiscation provided under Section 5 read with Chapter IV of 2016 Act is punitive or not? 17.12 At outset, we may note that Shri S. V. Raju, learned ASG, has submitted that acquisition provided under Section 5 of 1988 Act is same as confiscation provided under Section 5 read with Chapter IV of 2016 Act. He states that both concepts are related to civil law and is not concerned with punitive punishments as provided under Indian Penal Code, 1860. 17.13 Acquisition under earlier 1988 Act as well as confiscation under 2016 Act are said to have been enacted on reasoning that property emanating from benami transaction also gets tainted. substantive 73 difference between acquisition provision under earlier enactment and confiscation provision under 2016 Act is that proceeds of benami transactions have been made traceable under 2016 Act. 17.14 Before we analyse other provisions, it is necessary to give brief introduction to concept of civil forfeiture in India, as same was argued by learned ASG. Under Admiralty jurisdiction, concerned Admiralty Courts had jurisdiction to forfeit vessels under its civil jurisdiction in lieu of any maritime claim. Same was law across various common law jurisdictions, such as United States of America and 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 civil side, there can be in rem or in personam forfeitures. Punitive forfeitures under criminal law are in personam. Criminal forfeitures usually take place at conclusion of trial, when guilt of accused is established. Standards of evidentiary requirement differ greatly between civil and criminal forfeiture. 74 17.16 historic origin of in rem civil forfeiture in common law jurisdictions was earlier mostly restricted to trans national crimes. These early laws mandated that property was subject to forfeiture because it was instrument by which offence was committed, and it was necessary to confiscate such property to remove it from circulation. However, Twentieth century saw expansion of forfeiture laws into wide array of crimes. modern forfeiture laws not only allow forfeiture of property used to facilitate crime, but cover proceeds of offence as well. In Supreme Court of 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 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 well chronicled abuses, and These forfeiture operations frequently target 75 poor and other groups least able to defend their interests in forfeiture proceedings . 8 17.17 In case at hand, although expansion of forfeiture laws originates from Parliament s concern for decriminalizing property holdings, however, we are reminded of Justice Oliver Wendell Holmes, who has stated as under: customs beliefs or needs of primitive time establish rule or formula. In course of centuries, custom, belief, or necessity disappears, but rule remains. reason which gave rise to 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 present state of things; and then rule adapts itself to new reasons which have been found for it, and enters on new career. old form receives new content and in time even form modifies itself to for meaning which it has received. 9 17.18 While categorizing forfeiture proceedings as civil or criminal, test laid down by European Court of Human Rights in Engel v 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 Report and are as follows: 8 Leonard v. Texas, 137 S. Ct. 847, 847-48 (2017). 9 Oliver Wendell Holmes in Common Law 5 (1881). 76 "(i) manner in which domestic state classifies proceedings. This normally carries comparatively little weight and is regarded as starting point rather than determinative see Ozturk v Germany [1984] 6 EHRR 409 at 421 and 422. (ii) nature of conduct in question classified objectively bearing in mind object and purpose of Convention. (iii) severity of any possible penalty severe penalties, including those with imprisonment in default and penalties intended to deter are pointers towards criminal classification of proceedings see Schmautzer v Austria [1995] 21 EHRR 511. In Lauko v Slovakia [1998] ECHR 26138/95 court observed that these criteria were alternatives and not cumulative although cumulative approach might be adopted where separate analysis of each criterion did not make it possible to reach clear conclusion as to existence of 'criminal charge'." (emphasis supplied) aforesaid proposition has also been confirmed by House of Lords in R v. H, [2003] 1 ALL ER 497. 17.19 In Kennedy v Mendoza Martinez, 372 US 144 (1963), Supreme Court of United States, while concerned with constitutionality of legislation that imposed forfeiture of citizenship on those who had left or remained outside United States during wartime to evade military service, had 77 laid down following relevant factors to classify forfeiture law: (a) Whether sanction involves affirmative disability or restraint; (b) Whether it has been historically regarded as punishment; (c) Whether it is only applicable where there has been finding of scienter (that is, finding that act has been done knowingly and intentionally); (d) Whether its operation promotes traditional retributive and deterrent aims of punishment; (e) Whether behaviour to which statute applies is already crime; (f) Whether alternative purpose to which it may be rationally connected is attributable to it; and (g) Whether it appears excessive in light of alternative purpose assigned. 17.20 Coming to Indian case laws, in State of West Bengal v. S. K. Gosh, AIR 1963 SC 255, this Court was concerned with Criminal Law Amendment Ordinance 38 of 1944, wherein law provided only for attachment of property, after conviction is given effect to. Unlike present law, taint on property is squarely determined by Criminal Court deciding criminal 78 conviction. Confiscation contemplated under Section 13 of Criminal Law Amendment Ordinance 38 of 1944 could only be given effect to after verdict of guilty by Criminal Court. In light of such unique provisions, Court characterized such forfeiture laws as civil in nature. We may note that such law did not contemplate independent confiscation proceeding as created under this law, rather, mechanism was devised to confiscate property after criminal conviction. 17.21 This Court, while noting that forfeiture is no doubt punitive under Article 20(1) of Constitution as it is one of punishments prescribed under Section 53 of IPC, held that Section 13(3) of Criminal Law Amendment Ordinance 38 of 1944 was not punitive as same was dependent on prior criminal prosecution and determination of amount which was to be forfeited in following manner: 12. Further what s. 13(3) of 1944 Ordinance which provides for forfeiture requires is that there should be in final judgment of criminal court finding as to amount of money or value of property in pursuance of s. 12. As soon as that finding is there, District Judge would know amount he is to forfeit, and purpose of finding is that if District Judge is asked to 79 make forfeiture under s. 13(3) he should know exactly amount which he is require to forfeit. So long therefore as criminal court trying offender has given finding as to amount of money or value of other property procured by means of offence in judgment that in our opinion is sufficient compliance with s. 12(1) of 1944 Ordinance and requirement therein that it should be on representation of prosecution is mere formality. Obviously, even determination under s. 10 of 1943 Ordinance as amended in 1945 of amount procured by offence must be at instance of prosecution for it is prosecution which will provide material for that determination which in turn will be basis on which fine will be determined by court under s. 10. 14. This brings us to contention which found favour with Bhattacharya J., namely, that provision of s. 13(3) is punishment and that as 1944 Ordinance was not in force at time when offence was committed s. 13(3) could not be applied to respondent inasmuch as Art. 20(1) lays down that no person shall be subjected to penalty greater than that which might have been inflicted under law in force at time of commission of offence. Two arguments have been urged on behalf of appellant in this connection. In first place, it is urged that respondent remained in office till August 25, 1944 while Ordinance came into force on August 23, 1944 and therefore conspiracy by means of which money was procured continued till after Ordinance had come into force and therefore Art. 20(1) can have no application, for it cannot be said that respondent was being 80 subjected to penalty greater than that which might have been inflicted under law in force at time of commission of offence. In second place, it is urged that forfeiture provided by s. 13(3) is not penalty at all within meaning of Art, 20(1), but is merely method of recovering money belonging to Government which had been embezzled. It is urged that Government could file suit to recover money embezzled and s. 13(3) only provides speedier remedy for that purpose and forfeiture provided therein is not penalty within 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 power of forfeiture under Section 44(2)(A) of Andhra Pradesh Forest Act, 1967. Noting that Section 45 of Forest Act prior to amendment had provision for civil forfeiture only after conviction of accused under Forest Act, it was felt that such provision was insufficient to prevent growing menace of ruthless exploitation of government forests and illicit smuggling of teak, red sandalwood, etc. It was in this context that separate mechanism was formulated to ensure that there was no unreasonable delay in confiscation of property. 81 17.23 It may be noted that this case did not involve constitutional challenge under Article 20(1) to aforesaid rules. In any case, this Court has held that new mechanism formulated under amended Act was completely independent of criminal prosecution. 17.24 To same extent, in State of Madhya Pradesh v. Kallo Bai, (2017) 14 SCC 502, this Court interpreted Madhya Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 to have independent confiscation proceedings from criminal prosecution in view of non obstante clause under Section 15C of Adhiniyam. It may also be noted that there was no challenge to aforesaid Act, as being violative of Article 20(1) of Constitution. Court held as under: 14. Sub section (1) of Section 15 empowers forest officers concerned to conduct search to secure compliance with provisions of Adhiniyam. On plain reading of sub section (2), it is clear that officer concerned may seize vehicles, ropes, etc. if he has reason to believe that said items were used for commission of offence under Adhiniyam. Confiscation proceedings as contemplated under Section 15 of Adhiniyam is quasi judicial proceedings and not criminal proceedings. Confiscation proceeds on basis of satisfaction of 82 authorised officer with regard to commission of forest offence. Sub section (3) of provision lays down procedure to be followed for confiscation under Adhiniyam. Sub section (3 A) authorises forest officers of rank not inferior to that of Ranger, who or whose subordinate, has seized any tools, boats, vehicles, ropes, chains or any other article as liable for confiscation, may release same on execution of security worth double amount of property so seized. This provision is similar to that of Section 53 of Forest Act as amended by State of Madhya Pradesh. Sub section (4) mandates that officer concerned should pass written order recording reasons for confiscation, if he is satisfied that forest offence has been committed by using items marked for confiscation. Sub section (5) prescribes various procedures for confiscation proceedings. Sub section (5 A) prescribes that whenever authorised officer having jurisdiction over case is himself involved in seizure, next higher authority may transfer case to any other officer of same rank for conducting confiscation proceedings. Sub section (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 person referred to in clause (b) of sub section (5) is able to satisfy that articles were used without his knowledge or connivance or, as case may be, without knowledge or connivance of his servant or agent and that all reasonable and necessary precautions had been taken against use of such objects for commission of forest offence. 83 17.25 In Yogendra Kumar Jaiswal v. State of Bihar, (2016) 3 SCC 183, Division Bench of this Court was concerned with constitutional challenge to various enactments such as Orissa Special Courts Act, 2006 and Bihar Special Courts Act, 2009. Both enactments had provisions for confiscation. While interpreting confiscation provisions, this Court read down same to only mean interim attachment. In other words, confiscation was interpreted as akin to attachment proceedings. Court mandated that any confiscation would be contingent on final outcome of criminal proceedings and logical corollary to same was that confiscation proceedings were not completely independent and ultimately had to be adjudicated along with trial of main criminal case. 17.26 In Abdul Vahab v. State of Madhya Pradesh, (2022) SCC Online SC 262, this Court was concerned with interpretation of Madhya Pradesh Cow Slaughter (Prohibition) Act, 2004, wherein it was held that confiscation proceedings could not be independent of acquittal in criminal case. If contrary interpretation was taken, then 84 same would be violative of Article 300A of Constitution. This Court distinguished case from judgment of Kallo Bai (supra), by placing reliance on absence of provision such as Section 15C of Madhya Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 under 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 Prevention of Money Laundering Act, 2002 ( PMLA ) and limited application of Section 8(4) of PMLA concerning interim possession by authority before conclusion of final trial to exceptional cases. Court distinguished earlier cases in view of unique scheme under impugned legislation therein. Having perused said judgment, we are of opinion that aforesaid ratio requires further expounding in appropriate case, without which, much scope is left for arbitrary application. 17.28 From above discussion, it is manifest that Courts have read down provisions of civil forfeiture to be 85 dependent on underlying criminal prosecution to temper 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 State agencies to take over property without seriously pursuing criminal prosecutions. At this stage, we can only recommend that utility of independent provisions of forfeiture, distinct from criminal prosecution, needs to be utilised in proportional manner, looking at gravity of offence. Few examples which may pass 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, application of such 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 proportionality of separate confiscation procedure prescribed under 2016 Act, has not been argued herein. Accordingly, we leave aforesaid question of law open. 86 17.29 Under IPC, forfeiture is recommended to be form of punishment under Section 53. Accordingly, Code of Criminal Procedure, 1976 provides for mechanism for interim custody and forfeiture at conclusion of trial under Section 451 of 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, Court may make such order as it thinks fit for proper custody of such property pending conclusion of inquiry or trial, and, if property is subject to speedy and natural decay, or if it is otherwise expedient so to do, Court may, after recording such evidence as it thinks necessary, order it to be sold or otherwise disposed of. Explanation. For purposes of this section," property" includes (a) property of any kind or document which is produced before Court or which is in its custody, (b) any property regarding which offence appears to have been committed or which appears to have been used for commission of any offence. 452. Order for disposal of property at conclusion of trial. (1) When inquiry or trial in any Criminal Court is concluded, Court may make such order as it thinks fit for disposal, by destruction, confiscation or delivery to any 87 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 commission of any offence. Aforesaid provisions under Cr.P.C. have inbuilt safeguards of in personam criminal forfeiture, wherein confiscation occurs at end of trial. Under these provisions, confiscation is to be determined at evidential standard of beyond reasonable doubt and are dependent on result of criminal trial. 17.30 Coming to Benami Act post Amendment, interplay of Sections 27(3), (5) and 67 of 2016 Act creates confiscation procedure which is distinct from procedure contemplated under CrPC or any other enactment till now in India. This separation of confiscation mechanism is not merely procedural. It has also altered substantive rights of evidentiary standards from beyond reasonable doubt to preponderance of probabilities . Such change of standards cannot be merely termed as procedural. 88 17.31 Characterization of confiscation proceedings under Chapter IV of 2016 Act as Civil may therefore not be appropriate. There is implicit recognition of forfeiture being punitive sanction, as Officer is mandated to build case against accused for such confiscation, wherein presumption of innocence is upheld structurally. Being punitive provision, it is trite that one integrates presumption of innocence within Chapter as same forms part of fundamental right.10 17.32 Additionally, 2016 Act now condemns not only those transactions which were traditionally denominated as benami, rather new class of fictitious and sham transactions are also covered under same. In this regard, we may notice that intention of legislature is to condemn such property and there is implicit effort by Parliament to take into consideration fact that such transactions are often acquired from ill gotten wealth. These proceedings cannot be equated as enforcing civil obligations 10 Narendra Singh v. State of Madhya Pradesh, (2004) 10 SCC 699. 89 as, for example, correcting deficiencies in title. It goes further and taint attaches to proceeds as well. 17.33 In view of above discussion, it is manifest that 2016 Act contemplates in rem forfeiture, wherein taint of entering into such benami transaction is transposed to asset itself and same becomes liable to confiscation. At cost of repetition, we may note that taint of benami transactions is not restricted to person who is entering into aforesaid transaction, rather, it attaches itself to property perpetually and extends itself to all proceeds arising from such property, unless defence of innocent ownership is established under Section 27(2) of 2016 Act. When such taint is being created not on individual, but on property itself, retroactive law would characterize itself as punitive for condemning proceeds of sale which may also involve legitimate means of addition of wealth. 17.34 Jurisprudentially, law may enable forfeiture of property by peculiar reason of its circumstances, of it being dangerous to community by reasons of any form or position that it assumes. In such cases, forfeiture is not deemed to be 90 punishment inflicted on its owner. By contrast, if law provides that Government shall forfeit property for, (1) what was carried on in property B , or (2) what owner does in matter not connected with property or (3) bare intent which does not necessarily relate to conduct in property , in such cases, forfeiture is punishment without any exception. In this case, property may not be inherently dangerous or denigrate any standard of morality. It is just condemnation of method of transfer and holding, which was once recognized form of property holding in India. In such case, in rem civil proceeding utilized retroactively, would characterize itself as penal. 17.35 In case at hand, authority that initiates such confiscation, is granted extensive powers of discovery, inspection, compelling attendance, compelling production of documents. They are further empowered to take 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 penalty of 91 25,000/ (Rupees Twenty Five Thousand) under Section 54(A). It is also necessary to note that person who supplies false information before any authority, is subjected to rigorous imprisonment of upto 5 years under Section 54 of 2016 Act. 17.36 This Court is aware of fact that Right to Property is not fundamental right, rather it is constitutional right that can be abridged by law. However, this Court is not concerned with constitutionality of such measure, wherein such considerations have to be balanced. Rather, focus is only on characterization of retroactive confiscation, which in these facts and circumstances, are punitive. 17.37 In view of fact that this Court has already held that criminal provisions under 1988 Act were arbitrary and incapable of application, law through 2016 amendment could not retroactively apply for confiscation of those transactions entered into between 05.09.1988 to 25.10.2016 as same would tantamount to punitive punishment, in absence of any other form of punishment. It is in this unique circumstance that 92 confiscation contemplated under 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, logical reason for accepting such action would be that continuation of such property or instrument, would be dangerous for community to be left free in circulation. In R (on appln of Director of 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 judgment of Laws LJ, who gave only reasoned judgment, there is set out citation from Butler which reads, so far as material, as follows: "It is applicant's contention that forfeiture of his money in reality represented severe criminal sanction, handed down in absence of procedural guarantees afforded to him under article 6 of Convention, in particular his right to be presumed innocence [sic]. court does not accept that view. In its opinion, forfeiture order was preventive measure and cannot be compared to criminal sanction, since it was designed to take out of circulation money which was presumed to be bound up with international trade in illicit drugs. It 93 follows that proceedings which led to making of order did not involve 'the determination ... of 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 present enactment, history points to different story wherein benami transactions were accepted form of holding in our country. In fact, Privy Council had, at one point of time, praised sui generis evolution of doctrine of trust in Indian law. response by Government and Law Commission to curb benami transactions was also not sufficient as it was conceded before this Court that Sections 3 and 5 of 1988 Act in reality, dehors legality, remained only on paper and were never implemented on ground. Any attempt by legislature to impose such restrictions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of Constitution. 17.39 Looked at from different angle, continuation of only civil provisions under Section 4, etc., would mean that legislative intention was to ensure that ostensible owner 94 would continue to have full ownership over property, without allowing real owner to interfere with rights of benamidar. If that be case, then without effective any enforcement proceedings for long span of time, rights that have crystallized since 1988, would be in jeopardy. Such implied intrusion into right to property cannot be permitted to operate retroactively, as that would be unduly harsh and arbitrary. 18. Conclusion 18.1 In view of above discussion, we hold as under: a) Section 3(2) of unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of 2016 Act is also unconstitutional as it is violative of Article 20(1) of Constitution. b) In rem forfeiture provision under Section 5 of unamended Act of 1988, prior to 2016 Amendment Act, was unconstitutional for being manifestly arbitrary. c) 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions. 95 d) In rem forfeiture provision under Section 5 of 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 coming into force of 2016 Act, viz., 25.10.2016. As consequence of above declaration, all such prosecutions or confiscation proceedings shall stand quashed. f) As this Court is not concerned with constitutionality of such independent forfeiture proceedings contemplated under 2016 Amendment Act on other grounds, aforesaid questions are left open to be adjudicated in appropriate proceedings. 18.2 appeal is disposed of in above terms. ...........................CJI. (N.V. RAMANA) ...........................J. (KRISHNA MURARI) ...........................J. (HIMA KOHLI) NEW DELHI; AUGUST 23, 2022. 96 Union of India and Anr. v. Ganpati Dealcom Pvt. Ltd
Report Error