Introduction

New-age laws that seek to remedy economic wrongs are interesting. Economic wrongs could be civil or criminal in character. Clearly, any person who cheats and deprives people of their property is an offender and is a threat to the society at large. He needs to be dealt with through a criminal law. However, another person who breaches a contractual obligation would need to cough up damages and a civil law would be apt and sufficient to deal with this private matter. This simple distinction becomes complex in case of certain economic wrongs – the remedy, whether to be civil or criminal or a mix of both, is difficult to decide.

Legislative approaches

International legislative approaches adopt five methods to counter new-age economic wrongs – criminalization, confiscation, forfeiture, civil recovery, and heavy taxation. Criminalization refers to making the wrong as a punishable offence, while confiscation and forfeiture refer to taking away from the wrongdoer, the result of the wrong or the instrumentalities used in committing such wrong, respectively. These three remedies, undoubtedly, would lie within criminal law. Civil recovery and heavy taxation, on the other hand, are more deterrent and retributive in nature, and fall within the domain of civil law^[1].

The recent Indian legislations are inspired by the first two methods – criminalization and confiscation. The money laundering law criminalizes money laundering^[2] besides also providing for confiscation^[3] of the proceeds of crime. The Benami Act as enacted in 1988^[4] (‘unamended Benami Act’) did not provide for confiscation, but only criminalized benami transactions. However, in line with the current legislative approach, the law has been drastically amended by the Benami Transactions (Prohibition) Amendment Act, 2016 (‘the Amendment Act’). Now, the amended Benami Act also provides for confiscation of benami properties besides criminalizing benami transactions.

Decision of the Rajasthan High Court and its analysis

This shift in remedial approach in the legislation was put to judicial scrutiny recently before the Rajasthan High Court in the case of Niharika Jain & Ors. v Union of India^[5]. The central issue that was put to the Court for decision was that whether the consequences of the Amendment Act were retrospective in nature^[6]

The brief facts of the case were that the petitioner had entered into transactions of purchase of lands. These transactions were entered into before 01-11-2016, i.e., the period prior to the coming in force of the Amendment Act. It was alleged by the authorities that these transactions were benami transactions and consequently the said properties were provisionally attached under Section 24 of the amended Benami Act. Against the said attachment order, a writ petition was filed challenging the actions of the authorities.

On the issue of retrospectivity, various arguments were extended by both the sides. It was argued by the petitioner that it was only by way of the Amendment Act that the provisions for confiscation of benami properties were introduced in law. Earlier, a benami property could not be confiscated by the Central Government. Further, since confiscation amounted to a criminal remedy, an amendment bringing such provisions could not be retrospective.

On the other hand, it was argued by the Revenue that the earlier law provided for acquisition without compensation. An analogy could be drawn between the terms ‘confiscation’ of benami assets as used in the Amendment Act and ‘acquisition without compensation’, which was provided for in the unamended Benami Act. The Revenue argued that both the terms were similar and as such, there was no new or enhanced punishment that was brought in by the Amendment Act. It was argued that the main object behind the unamended law was to make the act of entering into benami transactions an offence and consequently acquire such benami properties through acquisition without compensation, so that the offender could be divorced from unjust gains and benefits. Hence, keeping in view the intendment and object in introduction of the earlier law, the necessary amendments introduced through the Amendment Act only clarified the intention of legislature. Such intention was to effectively cure and curb the mischief of ever increasing corruption, which was also intended under the unamended Benami Act. Thus, confiscation of the benami property was a mere replacement for acquisition, and was not a new introduction in toto to the benami law.

The Court did not go into much depth of this argument and held that these provisions are in nature of substantive provisions which affect the rights of the parties and in absence of any express provision providing for retrospective operation, are prospective in nature. In the backdrop of the objectives sought to be achieved by the Amendment Act, the larger question of substitution of the term ‘acquisition’ by the term ‘confiscation’ in the statute and to then determine its penal nature, was not answered by the court and will probably be determined in times to come. Of course, the said analogy must be drawn qua the famous Hayden's rule while addressing the question of retrospective application of the amended provisions vis-à-vis the object sought to be achieved by the unamended Benami Act in order to cure the mischief.

It is also to be noted that though there was a specific provision under the unamended Benami Act^[7], which provided for acquisition of benami properties without compensation, the same could not have been implemented by the authorities, until the procedure was put in place by the Amendment Act. Thus, in absence of the adequate machinery provisions prescribed under the unamended Benami Act, how far does would the substantive part be considered useful is another big question left unaddressed by the Hon’ble Court.

Furthermore, the argument on retrospectivity was furthered by the petitioner by questioning as to whether the amendment was declaratory or substantive in nature. It was contended that a declaratory enactment declares and clarifies the real intention of the legislature in connection with an earlier existing transaction or enactment. It does not create new rights or obligations. It was also argued that in absence of contrary intention in the statute, a legislation must be presumed to be prospective. The court contemplated on the techniques which are required to draft a legislation- known as legislative drafting, and as regards to those ones required to understand a legislation which are found in the various principles of ‘Interpretation of Statutes’. The Court while considering plethora of judgments^[8] in accordance with the principle of ‘fairness’ and the maxim lex prospicit non respicit, which means that the law looks forward not backward, held that it is a settled law that a substantive provision unless specifically made retrospective or otherwise intended by the parliament should always be held to be prospective.

Lastly, it was argued by the petitioner that the Benami Rules^[9] have been notified on 25-10-2016, while the corresponding provision that empowers the Central Government to make such rules has come into force only on 01-11-2016. Thus, it was argued that the rules are bad in law and deserve to be set aside. The Court found substance in such argument. However, the Court did not conclusively opine on this contention and stopped short of setting aside the provisional attachment order on this basis. It is relevant here to refer to the General Clauses Act, 1897. Section 22 of this Act, which inter alia provides for making of rules between passing and commencement of enactment, squarely applies to this argument. The section provides that rule-making power may be exercised any time after the passing of an Act, including even before the Act comes into force. However, rules so framed shall not take effect till the commencement of such Act. The underlying idea behind the section is to enable the formulation of rules which may be needed to bring the Act into operation^[10]. Applying this to the present factual matrix, the Benami Rules were notified after the passing of the Amendment Act, but before such Act came into force. This would be perfectly valid as per the General Clauses Act.

Before concluding, it is also noteworthy that this decision serves as a comprehensive judicial referencer on the benami law, lucidly explaining the law and rulings on the subject matter. For instance, it points out the distinction between the English law of trusts (based on the doctrine of advancement), which is in contradistinction to the Indian law. It also explains the nature of a benami transaction in the Indian context, and its two types – one, wherein there is an operative transfer of title (e.g. where A purchases a property in his own name from the seller B, while the consideration for the same is provided for by C – in this case, there is a real operative transfer happening from B to A), and two, where there is no operative transfer (e.g. where A transfers a property to B without losing on the possession and enjoyment – in such case, there is no operative transfer and A continues to be the real owner)^[11]. This is a fundamental distinction and serves as a crucial point to be kept in mind while reading the new benami law.

Conclusion

The Amendment Act has been enacted as an aspirational measure. An Act comprising of merely nine sections (the unamended Benami Act) was transformed into a seventy-two-section draconian law^[12], through an amending Act, rather than enacting a new law on the subject matter of Benami transactions.

The reasons for ‘amending’ rather than re-enacting, were explained by the Ministry of Finance to the Parliamentary Standing Committee^[13]. It was submitted that a new Bill was drafted and forwarded to the Ministry of Law – under such proposed Bill, transactions entered into between 1988 and present, would also be covered within the purview of the offence of Benami transactions. However, the Ministry of Law opined that such a measure would be violative of Article 20 of the Constitution^[14]. The Ministry of Law, therefore, suggested that it would be advisable to comprehensively amend the existing law so that the offences committed during from 1988 to present would also be covered. The Amendment Act, therefore, came into being.

It is pertinent to appreciate the separation of powers enshrined in the Constitution in light of the above context. The only organ of the State which is empowered to decipher the sententia legis i.e. the intention of the Legislature behind any law, is the judiciary. The present case evidently establishes this. Despite the intent of the Government behind amending the then existing law on Benami transactions rather than enacting a new law, the Court has held otherwise. The Court has made it abundantly clear that the law, as amended now, would not be applicable to Benami transactions entered into before the Amendment Act came into force. The principle against retrospectivity as laid down in Article 20(1) of the Constitution, has been reiterated, bringing much clarity to current and prospective litigation.

[The author is an Associate, Direct Tax Team, Lakshmikumaran & Sridharan, Mumbai]

1. [1] Refer to Money Laundering Law by Peter Alldridge, Hart Publishers, ISBN 1-84113-264-0, for an extensive discussion on these five methods.
2. [2] Section 3 of the Prevention of Money Laundering Act, 2002 (‘PMLA’) defines the offence of money laundering.
3. [3] Section 8 of the PMLA provides that proceeds of crime would be confiscated by the Central Government, if the accused is convicted of the offence of money laundering.
4. [4] Benami Transactions (Prohibition) Act, 1988
5. [5] S.B. Civil Writ Petition No. 2915/2019, order dated 12th July 2019
6. [6] It is to be noted that the Amendment Act came into force from 01.11.2016, considerably expanding the scope of application of the Benami Act, which had been enacted in 1988.
7. [7] Section 5 of the Benami Transactions (Prohibition) Act, 1988
8. [8] Sukhdev Singh v. State of Haryana (2013) 2 SCC 212; J.S Yadav v. State of U.P. & Ors. 2011 6 SCC 570
9. [9] Prohibition of Benami Property Transactions Rules, 2016, notified on 25.10.2016 vide GSR 1004(E).
10. [10] Kishore Singh v. Revenue Board, AIR 1953 Raj 37
11. [11] Thakur Bhim Singh v. Thakur Kan Singh (1980) 3 SCC 72. Also, see Meenakshi Mills v. CIT [1957] 31 ITR 28 (SC).
12. [12] The Standing Committee of the Parliament, which analysed the proposed amendments in great detail, has remarked in its 28th Report that the proposed legislation was ‘draconian’ – Para 9.2, Page 34 of the Report.
13. [13] Para 5, Page 3 of the Report (Ibid).
14. [14] Article 20(1) of the Constitution prohibits laws which punish retrospectively.