Prospective Nature of the Benami Transactions (Prohibition) Act, 1988

What is Benami and what is the purpose of the Benami Transactions (Prohibitions) Act, 1988?

“Benami” is a Hindi word meaning “without name” or “nameless”. Webster’s dictionary defines the term, “Benami” to mean : made, held, done, or transacted in the name of (another person).

The Benami Transactions (Prohibitions) Act, 1988 (herein referred to as the “Act”) uses the word ‘benami’ to define a transaction in which the actual beneficiary is not the one in whose name the property is purchased – who is basically an identity cloak – the “benamidar”. To help clear the air, an illustration might suffice:

Mr. X agrees to purchase and register a property under his name. However, the payment for such purchase is made by Mr. Y, and Mr. X merely agrees to be the holder of the property, a la front for Mr. Y; This makes Mr. Y the beneficial holder and Mr. X the “benamidar” of the property and hence, is subject to the provisions of the Act.

In the New Act, the term “Benami Transaction” is defined in section 2(9) as under:

“(9) “benami transaction” means,—

(A) a transaction or an arrangement—
(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and
(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by—
(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose;
(iii) any person being an individual in the name of his spouse or in the name of any child of such in-dividual and the consideration for such property has been provided or paid out of the known sources of the individual;
(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint own-ers in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or

(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

(C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

(D) a transaction or an arrangement in respect of a property where the person providing the consid-eration is not traceable or is fictitious;”

The Benami Transactions (Prohibition) Amendment Act, 2016 (“Amendment Act”) came into force with effect from 01/11/16. The goal of the Amendment Act is to streamline the provisions of the Benami Transactions (Prohibition) Act, 1988 (“Principal Act”) to curb the issues of black money and money laundering in the country. The Act incorporates a litany of changes, as under:

     i. It has widened the scope of the original act Benami Transaction (Prohibition) Act, 1988 and has been made stricter in nature;
     ii. It has clearly defined the meaning of benami transaction, and its exceptions and estab-lished a regulatory authority to look into such transactions;
     iii. It has established an appellate tribunal for hearing appeals regarding benami transaction.
     iv. The Amendment Act provides for the procedure of confiscating a Benami property, a de-parture from the Old Act where no such provision was given.

The Act is strict in nature and has a bevy of punishments listed under it such as, a penalty of 25% of the fair market value of the property can be levied on both the benamidar and the real property owner, and a punishment of rigorous imprisonment for 1-7 years. There is also a prohibition on re-transfer of the property held benami from the benamidar back to the real owner. If a property is held benami, it can be confiscated by the central government.

The intention of the law is very clear, and laudable—to ensure that persons acquiring undisclosed properties do not hold them in the names of their relatives or friends. This is one of the prongs in the attack against black money and corruption. Unfortunately, the law does not restrict itself to cases of properties acquired out of undisclosed funds. It applies to all cases where the property is held in an-other person’s name, unless it is covered by one of the exceptions.

Whether the Benami Act is prospective or retrospective in nature?

Article 20(1) of the Indian Constitution imposes certain limitations on the construction of statutes and offer a safeguard to persons accused of crimes, namely, it prohibits the retrospective application of criminal laws (it should be noted, however, that civil laws are retrospectively applicable). The Ar-ticle clearly states – “ no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence”, thus, guaranteeing protection against ex-post facto laws.

Usually, an enactment is prospective in nature, meaning it has no impact on what has already happened, i.e. something in the past; unless expressly stated within the enactment that such is not the case, the presumption is held that it is prospective in nature and concerned with future dealings and thus, does not impact current rights and liabilities of persons.

On the other hand, if an enactment explicitly and unequivocally states that it is deemed to come in-to effect from a past date, and thus affects existing rights and obligations, and is construed to take away, impair or curtail, a vested right which had been acquired under some existing law, then it is a prospective application.

In Mangathai Ammal v. Rajeshwari the Supreme Court made the following observations – “By Be-nami Amendment Act, 2016, Section 3(2) of the Benami Transaction Act, 1988 the statutory pre-sumption, which was rebuttable, has been omitted. … …As held by this Court in Binapani Paul Pratima Ghosh the Benami Transaction Act would not be applicable retrospectively.”

In Joseph Isharat v. Rozy Nishikant Gaikwad , the Bombay High Court was tasked with deliberating on the nature of the act and came to the conclusion as long as the matter is concerning substantive rights, the enactment will have a prospect nature; and the only way it could be so otherwise is if the amended law provided for an explicit and clear intention of granting it a retrospective action, which the Amendment Act fails to do.

Similarly, the Rajasthan High Court, mulled upon the question whether the provisions of Benami Amendment Act, 2016, shall be applicable retrospectively or not. The Court, in Niharika Jain v. Un-ion of India stated the following:

94. “It is made clear that this Court has neither examined nor commented upon merits of the writ applications but has considered only the larger question of retrospective applicability of the Benami Amendment Act, 2016 amending the original Benami Act of 1988. Thus, the authority concerned would examine each case on its own merits keeping in view the fact that amended provisions intro-duced and the amendments enacted and made enforceable w.e.f. 1-11-2016; would be prospective and not retrospective.”

The High Court of Rajasthan then proceeded to take into consideration another pleading of the Re-spondent, i.e. vis-a-vis Section 5 of the Act lays down that all properties held benami shall be sub-ject to confiscation without compensation, and that the provision in essence is the same as confiscation which already existed in the 1988 (“Old Act”) and thus, should be subject to retrospective applicability. The Court however, decided that the nature of these provisions is substantive in nature and that they affect the rights of the parties and operating on the principle it laid down earlier that due to there being a lack of explicit or express provision providing for retrospective action, the pro-visions are prospective in nature. The Court took into consideration the legal maxim lex prospicit non respicit which translates as “the law looks forwards, not backwards” and emphasising once more that it is a settled principle of law that unless a substantive provision is specifically made retrospective in nature or that the parliament intends to make it so, the provision will be prospective in nature. 

Current status of the Benami Act

The most recent update(s) law w.r.t. to the nature of the Amendment Act comes from the judgment passed by the Calcutta High Court, where in the Hon’ble High Court observed, in accordance with the judgement passed by the Bombay High Court and the Rajasthan High Court , in its judgment in Ganpati Dealcom Pvt. Ltd. v. Union of India that on account of being a new legislation, the Amendment Act should have explicitly and clearly expressed its intention of having a retrospective application. The Court, holding the amendment Act as a prospective law held that the rights in a property, which have already been vested, now cannot be taken away by the state qua the retrospective effect to the amending act as the state has waived off its rights of taking any action previously, owing to non-prescription of any rules/procedure/machinery to do the same.

The decision of the Calcutta High Court was challenged by the Govt. in the Supreme Court by way of a Special Leave Petition (SLP) . The SC, granted a stay on the order of the Calcutta HC on the 3rd of February, 2020 (03.02.2020). As of writing (07.02.2021), the status is pending [motion hearing] – and has not been resolved.