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TMI Blog2022 (8) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to have a brief factual background in mind before we advert to the analysis. 5. On 02.05.2011, the respondent-company purchased a property in its name from various sellers for a total consideration of Rs.9,44,00,000/. It is said that the consideration for the aforesaid purchase was paid from the capital of the company. On 31.03.2012, 99.9% of the respondent-company shareholdings were acquired by M/s PLD Properties Pvt. Ltd. and M/s Ginger Marketing Pvt. Ltd. at a discounted price of Rs.5/per share for a total amount of Rs.19,10,000/. It is a matter of fact that the two directors of the respondent-company (viz. Shruti Goenka and Ritu Goenka) also held directorship in the subsequent purchaser company. 6. Accordingly, on 29.08.2017, the Deputy Commissioner of Income Tax (Adjudicating Authority) issued a notice to the respondent-company invoking Section 24(1) of the 2016 Act to show cause as to why the aforesaid property should not be considered as Benami property and the respondent company as Benamidar within the meaning of Section 2(8) of the 2016 Act. On 06.09.2017, the respondent-company replied to the aforesaid show-cause notice denying that the scheduled property is a Benam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., on or after 01.11.2016 - reliance in this regard was also placed on the ruling of this Court in the case of Rao Shiv Bahadur Singh vs. State of Vindhya Pradesh, AIR 1953 SC 394; (iii) The 1988 Act, which came into force on 19.05.1988 [except Section 3, 5 and 8 thereof which came into force on 05.09.1988], provided for punishment for persons entering into a "benami transaction", which was made noncognizable and bailable, and also however, provided for acquisition of property held to be benami; provisions of the 1988 Act, were never operationalized since the rules and procedure required to be framed under Section 8 of the said Act bringing into existence the machinery for implementation of the 1988 Act, were never notified - therefore, although the 1988 Act was part of the statute book, the same was rendered a "dead letter", and all transactions and properties alleged 'benami', carried out / acquired between the period of 19.05.1988 and 01.11.2016, were deemed to have been accepted by the Government as valid 'vesting rights' in the parties to such alleged transactions; ergo, the Central Government, having waived its right of implementation and operationalisation of the 1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deprivation of the property of the person in question. vi. The learned ASG also referred to Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95, para 21, to submit that by necessary implication, the machinery and procedural provisions of the amended Act are retrospective in nature. 12.2 Shri Vikramjit Banerjee, learned ASG has submitted as under: i. The Parliament has the power to enact retrospective legislation even in case of a criminal Statute, as long as it complies with Article 20(1) of the Constitution of India. He further argued that as per Article 20(1), prohibition exists only on conviction and sentencing of the expost facto law, and not against passing such a law. ii. Forfeiture, acquisition, and confiscation are not punishments and therefore not subject to Article 20(1) restrictions. He then pointed out that the adjudication proceedings are also not in the nature of prosecution, and hence cannot be restricted by Article 20. iii. That acquisition of property without paying compensation amounts to confiscation, and confiscation envisages a civil liability. 12.3 Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing for the respondent has contended as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the name of somebody else, i.e., a name lender, and the purchaser does not hold beneficial interest in the property. Literally, 'benami' means 'without a name'. The simplest of example is if person 'A' (real owner) purchases a property from 'B' in the name of 'C' (benamidar/ostensible owner), wherein 'A' exercise rights/interest over the property. 13.2 The term 'benami', which was alien to statutory law during the colonial regime and in the early days of the Republic, was known in the legal parlance of lawyers. Even in Mohammedan law, such transactions were commonly referred as furzee or farzi, derived from Arabic word furaz. McNaughten's Selected Report Vol. I, Reporter's Note at p. 368 Over the passage of time, this nebulous concept appeared in cases without much clarity with respect to its basic contours. Conceptually, there are two views which arise from the Doctrine of Benami. The first view is that the benamidar does not hold title over the property, and the second view is that although the title passes to the benamidar, he holds it in trust. 13.3 Eventually, there developed two loose categories of transactions that were colloquially termed as benami, which can be expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transactions, observed as under: "A notion has sometimes prevailed in this country that all benami transactions must be regarded as reprehensible and improper if not illegal; but, as late as in 1915, Sir George Farwell, delivering the judgment of the Judicial Committee in 37 ALL. 557 spoke of them as 'quite unobjectionable' and as having their analogues in the English law; and Mr. Amreer Ali, delivering the judgment of the Committee in 46 Cal. 566, observed that "there is nothing inherently wrong in it, and it accords, within its legitimate scope, with the ideas and habits of the people". As indicated by the qualifying words "within its legitimate scope", their Lordships' observations were clearly not meant to countenance transactions entered into for fraudulent or illegal purposes." 13.6 In Jaydayal Poddar v. Bibi Hazra, AIR 1974 SC 171, this Court laid down a test to determine whether a transaction is benami or not. The following factors were to be considered: (i) The source from which the purchase money came; (ii) The nature and possession of property after purchase; (iii) Motive, if any, for giving the transaction a benami colour; (iv) The position of the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uations. (Emphasis supplied) 13.9 Prior to the 1973 Report, the broad position on the legality of various kinds of benami transactions can be captured as follows: SL. NO. NATURE OF TRANSFER LEGALITY AND CONSEQUENCES A Transfer in favour of wife or child (whether or not with the object of transferring title to the wife or child) without adequate consideration Governed by Section 64, Incometax Act (also see point G in table). [No criminal liability unless the case falls within Section 415 to 424 or Section 206207 of Indian Penal Code] B Transfer in favour of wife or child for consideration, but for a fraudulent purpose and not in good faith Governed by Section 6(h)(2) and Section 58 of Transfer of Property Act. [Criminal liability if the case falls within Section 415 to 424 or Section 206207 of Indian Penal Code] C Transfer in favour of wife or child for consideration, and with genuine object of transferring title to the wife or child Not covered by any provision (No criminal liability) D (i) Transfer in favour of a person other than wife or child without consideration, but with the genuine object of transferring title and with no fraudulent purpose N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g benami transactions for avoiding prejudice to private individuals or minimising litigation: (i) Entering into a Benami transactions could be made an offence; (ii) A provision may be enacted to the effect that in a civil suit a right shall not be enforced against the benamidar or against a third person, by or on behalf of the person claiming to be the real owner of the property on the ground of benami; a similar provision could be made to bar defences on the ground of benami. (This provision would be based on the principle on which the existing provisions in the Civil Procedure Code and the new provision in the Incometax Act are based but could be wider in scope and more radical). (iii) The present presumption of a resulting trust in favour of the person who provided the consideration may be displaced (as in England) by the presumption of advancement, in cases where the person to whom property is transferred is a near relative of the person who provided the consideration. (This would bring in the doctrine of advancement, so as to rebut the presumption of resulting trust under section 82 of the Trusts Act). Whichever alternative is adopted, it may be desirable to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch transfer he has paid or provided the consideration, intending thereby to prevent, or knowing to be likely that he will thereby prevent, the distribution of that property according to law among his creditors or the creditors of any other person, or intending thereby to facilitate, or knowing it to be likely that he will thereby facilitate, the evasion of any law, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine. or with both." 6.25. Second alternative. The second alternative is less drastic than. the first. In form. it could follow the existing statutory provision limiting the judicial recognition of benami transactions, such as, section 66. Code of Civil Procedure, 1908. But its scope would be much wider. The provision' could be to the effect that no suit shall lie to enforce a right in respect of any property held benami, either against the person in whose name 'the property is held or against any other person, by or on behalf of a person who claims to be the real owner 'of the property on the ground that the person in whose name the property is held is a benamidar of the claimant. (If necessary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42nd (Amendment) Act in 1976. Successive judicial opinions in Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225 etc., viewed the right to property as a stumbling block in the path of achieving social goals that the government of the time aspired to. 13.13 In 1988, an Ordinance -viz. The Benami Transactions (Prohibition of the Right of Recover Property) Ordinance, 1988 (Ordinance 2 of 1988.) - was promulgated. This statutory instrument being not satisfactory, it was referred to the Law Commission again. 13.14 In any case, the issue was reexamined by the Law Commission in the year 1988 through its 130th Report. Although the Law Commission characterized the 130th Report as a continuation of its earlier recommendations, it can be observed that some radical changes were suggested. Some of the key observations are as under: "3.2 The first question that must engage our attention at once is the width and coverage of the proposed legislation. In order to encompass benami transactions concerning various types of property, the legislation should cover both movable, immovable, tangible and intangible property. Unfortunately every type of property, such as land, houses, shares, debent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of incometax as per the provisions of the Finance Act, 1987. If the sole purpose of entering into such a transaction is the violation of existing law which has been passed after due consideration, it is time that no recognition is conferred and the law is allowed to take its own course. Even in the name of revenue loss, violation of existing laws cannot be protected. 4.6The Law Commission would like to make it very clear that some of provisions of the tax laws may become anachronistic because of the present approach of the law commission. This is inevitable. The tax laws were enacted at the time when benami was a part of Indian law. Such laws would have to conform to the changing legal order. Yet a further solution is offered in this behalf in the next chapter." (emphasis supplied) 14. FRAMEWORK UNDER THE 1988 ACT 14.1 This brings us to the statutory framework under the 1988 unamended Act, having nine sections. Section 2(a) defines benami transactions as any transaction in which property is transferred to one person for a consideration paid or provided by another person. The law chose to include only tripartite benami transactions, while bipartite/loosely described as ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), an offence under this section shall be noncognizable and bailable. Section 3 puts forth a prohibitive provision. Further, it intended to criminalize an act of entering into a benami transaction. 14.5 Section 4 noted as under: 4.Prohibition of the right to recover property held benami( 1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property. (3) Nothing in this section shall apply,( a) where the person in whose name the property is held is a coparcener in a Hindu undivided family a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in detail and determine the scope of the earlier regime to understand as to whether the 2016 amendments were substantive or procedural. 14.10 Reading Section 2(a) along with Section 3 makes one thing clear - the criminal provision envisaged under the aforesaid provisions does not expressly contemplate mens rea. Under the Indian jurisprudence, the law on the subject is fairly wellsettled. It has been subjected to the judicial scrutiny of this Court on several occasions. It does not call for a detailed discussion and is enough to restate the principles. Mens rea is an essential ingredient of a criminal offence. Doubtless, a statute may exclude the element of mens rea, but it is a sound rule of construction adopted in England - and also accepted in India - to construe a statutory provision creating an offence in conformity with common law rather than against it, unless the statute expressly or by necessary implication excluded mens rea. The mere fact that the object of the statute is to promote welfare activities or to eradicate a grave social evil which by itself is not decisive of the question as to whether the element of a guilty mind is excluded from the ingredients of an offence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie, by or on behalf of a person claiming to be real owner of such property. This naturally relates to past transactions as well. The expression "any property held benami" is not limited to any particular time, date or duration. Once the property is found to have been held benami, no suit, claim or action to enforce any right in respect thereof shall lie. Similarly, subsection (2) of Section 4 nullifies the defences based on any right in respect of any property held benami whether against the person in whose name the property is held or against any other person in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property. It means that once a property is found to have been held benami, the real owner is bereft of any defence against the person in whose name the property is held or any other person. In other words in its sweep Section 4 envisages past benami transactions also within its retroactivity. In this sense the Act is both a penal and a disqualifying statute. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was enacted to efface the then existing right of the real owners of properties held by others benami. Such an Act was not given any retrospective effect by the legislature. Even when we come to Section 4, it is easy to visualise that subsection (1) of Section 4 states that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other shall lie by or on behalf of a person claiming to be the real owner of such property. As per Section 4(1) no such suit shall thenceforth lie to recover the possession of the property held benami by the defendant. Plaintiff's right to that effect is sought to be taken away and any suit to enforce such a right after coming into operation of Section 4(1) that is 1951988, shall not lie. The legislature in its wisdom has nowhere provided in Section 4(1) that no such suit, claim or action pending on the date when Section 4 came into force shall not be proceeded with and shall stand abated. On the contrary, clear legislative intention is seen from the words "no such claim, suit or action shall lie", meaning thereby no such suit, claim or action shall be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions which are sought to be litigated upon after coming into force of the prohibitory provision of Section 4(1); but that is the only effect of the retroactivity of Section 4(1) and nothing more than that. From the conclusion that Section 4(1) shall apply even to past benami transactions to the aforesaid extent, the next step taken by the Division Bench that therefore, the then existing rights got destroyed and even though suits by real owners were filed prior to coming into operation of Section 4(1) they would not survive, does not logically follow. 12. So far as Section 4(2) is concerned, all that is provided is that if a suit is filed by a plaintiff who claims to be the owner of the property under the document in his favour and holds the property in his name, once Section 4(2) applies, no defence will be permitted or allowed in any such suit, claim or action by or on behalf of a person claiming to be the real owner of such property held benami. The disallowing of such a defence which earlier was available, itself suggests that a new liability or restriction is imposed by Section 4(2) on a preexisting right of the defendant. Such a provision also cannot be said to be retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These submissions read as under: ... 13. According to us this difficulty is inbuilt in Section 4(2) and does not provide the rationale to hold that this section applies retrospectively. The legislature itself thought it fit to do so and there is no challenge to the vires on the ground of violation of Article 14 of the Constitution. It is not open to us to rewrite the section also. Even otherwise, in the operation of Section 4(1) and (2), no discrimination can be said to have been made amongst different real owners of property, as tried to be pointed out in the written objections. In fact, those cases in which suits are filed by real owners or defences are allowed prior to coming into operation of Section 4(2), would form a separate class as compared to those cases where a stage for filing such suits or defences has still not reached by the time Section 4(1) and (2) starts operating. Consequently, latter type of cases would form a distinct category of cases. There is no question of discrimination being meted out while dealing with these two classes of cases differently. A real owner who has already been allowed defence on that ground prior to coming into operation of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, we are indicating the assumption taken by the Union as to the validity of these provisions in the present litigation. Such assumption cannot be made when this Court is called upon to answer whether the impugned provisions are attracted to those transactions that have taken place before 2016. 15.3 Indian jurisprudence has matured through years of judicial tempering, and the country has grown to be a jurisdiction having 'substantive due process'. A brief sketch of the jurisprudential journey thus far, may be necessary to aid our understanding. 15.4 There is no gain saying that deletion of the phrase 'due process of law' from the draft Constitution was inspired by the views of James Bradley Thayer and Justice Felix Frankfurter, who held that concentration of power to examine reasonability of a legislation through judicial review would fall foul of separation of powers and denigration of parliamentary sovereignty. Dr. Ambedkar himself did not want to side with any of the above opinions, rather he envisaged the situation as one who is caught between Charybdis and Scylla. 15.5 The emphasis on the aforesaid deletion by the majority in A.K Gopalan v. State of Madras, AIR 1950 SC 27, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The interrelationship between the guarantee against arbitrariness and the protection of life and personal liberty operates in a multifaceted plane. First, it ensures that the procedure for deprivation must be fair, just and reasonable. Second, Article 14 impacts both the procedure and the expression "law". A law within the meaning of Article 21 must be consistent with the norms of fairness which originate in Article 14. As a matter of principle, once Article 14 has a connect with Article 21, norms of fairness and reasonableness would apply not only to the procedure but to the law as well. 295. Above all, it must be recognised that judicial review is a powerful guarantee against legislative encroachments on life and personal liberty. To cede this right would dilute the importance of the protection granted to life and personal liberty by the Constitution. Hence, while judicial review in constitutional challenges to the validity of legislation is exercised with a conscious regard for the presumption of constitutionality and for the separation of powers between the legislative, executive and judicial institutions, the constitutional power which is vested in the Court must be reta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier judgments, and Ajay Hasia [Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722] in particular, which stated that legislation can be struck down on the ground that it is "arbitrary" under Article 14, went on to conclude that "arbitrariness" when applied to legislation cannot be used loosely. Instead, it broad based the test, stating that if a constitutional infirmity is found, Article 14 will interdict such infirmity. And a constitutional infirmity is found in Article 14 itself whenever legislation is "manifestly arbitrary" i.e. when it is not fair, not reasonable, discriminatory, not transparent, capricious, biased, with favouritism or nepotism and not in pursuit of promotion of healthy competition and equitable treatment. Positively speaking, it should conform to norms which are rational, informed with reason and guided by public interest, etc." (emphasis supplied) 15.9 In Joseph Shine v. Union of India, (2019) 3 SCC 39, this Court was concerned with the constitutionality of Section 497 of the IPC relating to the provision of adultery. While declaring the aforesaid provision as unconstitutional on the aspect of it being manifestly arbitrary, this Court rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship exercised by the real owner contributes to making the law even more stringent and disproportionate with respect to benami transactions that are tripartite in nature. The Court cannot forcefully read the ingredients developed through judicial pronouncements or under Section 4 (having civil consequence) into the definition provided under Sections 2 and 3 (espousing criminal consequences), to save the enactment from unconstitutionality. Such a reading would violate the express language of Section 2(a), of excluding one ingredient from the definition of 'benami transaction', and would suffer from the vice of judicial transgression. In removing such an essential ingredient, the legislature did not identify any reason or principle, which made the entire provision of Section 3 susceptible to arbitrariness. Interestingly, for tripartite benami transactions, the 2016 Act brings back this ingredient through Section 2(9)(A)(b). In this context, we may state that it is a simple requirement under Article 20(1) that a law needs to be clear and not vague. It should not have incurable gaps which are yet to be legislated/filled in by judicial process. 15.15 Third, it is fairly admitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to save legitimate innocent buyers. (v) No adjudicatory mechanism was provided for. (vi) No provision was included to determine vesting of acquired property. (vii) No provision to identify or trace benami properties. (viii) Condemnation of property cannot include the power of tracing, which needs an express provision. Such delegation of power to the Authority was squarely excessive and arbitrary as it stood. From the aforesaid, the Union's stand that the 2016 Act was merely procedural, cannot stand scrutiny. 15.20 In any case, such an inconclusive law, which left the essential features to be prescribed through delegation, can never be countenanced in law to be valid under Part III of the Constitution. The gaps left in the 1988 Act were not merely procedural, rather the same were essential and substantive. In the absence of such substantive provisions, the omissions create a law which is fanciful and oppressive at the same time. Such an overbroad provision was manifestly arbitrary as the open texture of the law did not have sufficient safeguards to be proportionate. 15.21 At this stage, we may only note that when a Court declares a law as unconstitutional, the effect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose; (iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual; (iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as jointowners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or (B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or (C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; (D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious; Explanation. For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty. This distinction between Section 3(2) and 3(3) read with Section 53, contains the element of mens rea. 16.5 Section 4 remains the same as under the 1988 Act, barring the fact that Section 4(3) has integrated the exceptions provided under the definition of benami transaction in terms of Section 2(9). The civil consequences provided under Section 4 continue to apply even post the 2016 Act. The interpretation of the aforesaid section, as given in the R. Rajagopal Reddy Case (supra), continues to apply. 16.6 Section 5 on the other hand has been modified and it presently stands as under: 5. Property held benami liable to confiscation. -Any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government. 16.7 Chapter III relates to the administrative mechanism of the authorities required for implementation of the 2016 Act. Chapter IV relates to attachment, adjudication, and confiscation of benami property. These provisions relate to forfeiture, which need to be analysed hereinafter. 16.8 Section 24(1) states that, if the initiating Officer, on the basis of gathered material, having reason to believe, that a particular pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.14 Section 28 mandates appointment of an Administrator by the Central Government to manage the property. Such an Administrator shall have the power to take possession of such a property upon order of confiscation, in terms of Section 29. 16.15 Chapters V and VI delineate the powers of the Appellate Tribunal as well as Special Courts. Chapter VII consists of offences and penalties. Specifically, we may refer to Section 53: 53. Penalty for Benami Transaction (1) Where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of Benami transaction. (2) Whoever is found guilty of the offence of benami transaction referred to in subsection (1) shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to twentyfive per cent. of the fair market value of the property. Interestingly, a crime which attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Section 3 of the 1988 Act would be violative of Article 20(1) of the Constitution. Article 20(1) reads as under: 20. Protection in respect of conviction for offences (1) No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. 17.5 In T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, this Court has expounded Article 20 (1) in the following manner: "22. It is only retroactive criminal legislation that is prohibited under Article 20(1). The prohibition contained in Article 20(1) is that no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence prohibits nor shall he be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. It is quite clear that insofar as the Central Amendment Act creates new offences or enhances punishment for a particular type of offence no person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch unconstitutional laws cannot enure to the benefit of or be utilized to retroactively amend laws to cure existing constitutional defects. If such curing is allowed, then Article 20(1) of the Constitution would be rendered nugatory. 17.8This brings us to the last aspect as to the retroactive operation of confiscation (forfeiture) under Section 5 read with Chapter IV of the 2016 Act. It is the argument of the Union of India that civil forfeiture being in the domain of civil law is not punitive in nature. Therefore, it does not attract the prohibition contained under Article 20(1) of the Constitution. Meaning thereby, that if this Court holds that the civil forfeiture prescribed under the 2016 Act is punitive, only then will the prohibition under Article 20(1) apply. If not, then the prohibition does not apply. 17.9Although we have held that Section 5 of the 1988 Act was unconstitutional for being manifestly arbitrary, however such holding is of no consequence if this Court comes to the conclusion that confiscation under Section 5 of 2016 Act read with Chapter IV, was civil in nature and is not punitive. 17.10 It is well settled that the legislature has power to enact retroactive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law jurisdictions was earlier mostly restricted to transnational crimes. These early laws mandated that the property was subject to forfeiture because it was the instrument by which the offence was committed, and it was necessary to confiscate such property to remove it from circulation. However, the Twentieth century saw expansion of forfeiture laws into a wide array of crimes. The modern forfeiture laws not only allow forfeiture of property used to facilitate the crime, but cover the proceeds of the offence as well. In the Supreme Court of the United States, constitutional challenges laid to such civil forfeiture laws have been dismissed as they were usually attributed to historic prevalence of such forfeiture laws. However, such historic reasons of its existence cannot justify continued expansion of civil forfeiture laws, as has been observed by Justice Clarence Thomas in the following manner: "This system-where police can seize property with limited judicial oversight and retain it for their own use-has led to egregious and well - chronicled abuses," and "These forfeiture operations frequently target the poor and other groups least able to defend their interests in forfei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kennedy v MendozaMartinez, 372 US 144 (1963), the Supreme Court of the United States, while concerned with the constitutionality of legislation that imposed forfeiture of citizenship on those who had left or remained outside the United States during wartime to evade military service, had laid down the following relevant factors to classify forfeiture law: (a) Whether the sanction involves an affirmative disability or restraint; (b) Whether it has been historically regarded as a punishment; (c) Whether it is only applicable where there has been a finding of scienter (that is, a finding that an act has been done knowingly and intentionally); (d) Whether its operation promotes the traditional retributive and deterrent aims of punishment; (e) Whether the behaviour to which the statute applies is already a crime; (f) Whether an alternative purpose to which it may be rationally connected is attributable to it; and (g) Whether it appears excessive in light of the alternative purpose assigned. 17.20 Coming to the Indian case laws, in State of West Bengal v. S. K. Gosh, AIR 1963 SC 255, this Court was concerned with the Criminal Law Amendment Ordinance 38 of 1944, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a J., namely, that the provision of s. 13(3) is a punishment and that as the 1944Ordinance was not in force at the time when the offence was committed s. 13(3) could not be applied to the respondent inasmuch as Art. 20(1) lays down that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. Two arguments have been urged on behalf of the appellant in this connection. In the first place, it is urged that the respondent remained in office till August 25, 1944 while the Ordinance came into force on August 23, 1944 and therefore the conspiracy by means of which the money was procured continued till after the Ordinance had come into force and therefore Art. 20(1) can have no application, for it cannot be said that the respondent was being subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. In the second place, it is urged that the forfeiture provided by s. 13(3) is not a penalty at all within the meaning of Art, 20(1), but is merely a method of recovering money belonging to the Government which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am. Subsection (3A) authorises forest officers of rank not inferior to that of a Ranger, who or whose subordinate, has seized any tools, boats, vehicles, ropes, chains or any other article as liable for confiscation, may release the same on execution of a security worth double the amount of the property so seized. This provision is similar to that of Section 53 of the Forest Act as amended by the State of Madhya Pradesh. Subsection (4) mandates that the officer concerned should pass a written order recording reasons for confiscation, if he is satisfied that a forest offence has been committed by using the items marked for confiscation. Subsection (5) prescribes various procedures for confiscation proceedings. Subsection (5A) prescribes that whenever an authorised officer having jurisdiction over the case is himself involved in the seizure, the next higher authority may transfer the case to any other officer of the same rank for conducting confiscation proceedings. Subsection (6) provides that with respect to tools, vehicles, boats, ropes, chains or any other article other than timber or forest produce seized, confiscation may be directed unless the person referred to in clause (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, without which, much scope is left for arbitrary application. 17.28 From the above discussion, it is manifest that the Courts have read down the provisions of civil forfeiture to be dependent on the underlying criminal prosecution to temper the harsh consequences envisaged under such provisions. No doubt, such reading down was mandated to ameliorate harsh consequences of confiscatory laws which otherwise would have allowed the State agencies to take over the property without seriously pursuing the criminal prosecutions. At this stage, we can only recommend that the utility of independent provisions of forfeiture, distinct from criminal prosecution, needs to be utilised in a proportional manner, looking at the gravity of the offence. Few examples which may pass the muster of proportionality for having such stringent civil forfeiture, may relate to crimes involving terrorist activities, drug cartels or organised criminal activities. As we have discussed, the application of such a provision to numerous other offences which are not of such grave severity, would be of serious risk of being disproportionate, if procedures independent of criminal prosecution are prescribed. We may note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This separation of the confiscation mechanism is not merely procedural. It has also altered substantive rights of the evidentiary standards from 'beyond reasonable doubt' to 'preponderance of probabilities'. Such a change of standards cannot be merely termed as procedural. 17.31 Characterization of the confiscation proceedings under Chapter IV of the 2016 Act as Civil may therefore not be appropriate. There is an implicit recognition of the forfeiture being a punitive sanction, as the Officer is mandated to build a case against the accused for such confiscation, wherein the presumption of innocence is upheld structurally. Being a punitive provision, it is trite that one integrates the 'presumption of innocence' within the Chapter as the same forms a part of the fundamental right. Narendra Singh v. State of Madhya Pradesh, (2004) 10 SCC 699 17.32 Additionally, the 2016 Act now condemns not only those transactions which were traditionally denominated as benami, rather a new class of fictitious and sham transactions are also covered under the same. In this regard, we may notice that the intention of the legislature is to condemn such property and there is an implicit effort by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax officers and other relevant officers for furnishing information. It is also pertinent to note that any person who fails to furnish information, is subjected to a penalty of Rs.25,000/( Rupees TwentyFive Thousand) under Section 54(A). It is also necessary to note that a person who supplies false information before any authority, is subjected to rigorous imprisonment of upto 5 years under Section 54 of the 2016 Act. 17.36 This Court is aware of the fact that the 'Right to Property' is not a fundamental right, rather it is a constitutional right that can be abridged by law. However, this Court is not concerned with the constitutionality of such a measure, wherein such considerations have to be balanced. Rather, the focus is only on the characterization of retroactive confiscation, which in these facts and circumstances, are punitive. 17.37 In view of the fact that this Court has already held that the criminal provisions under the 1988 Act were arbitrary and incapable of application, the law through the 2016 amendment could not retroactively apply for confiscation of those transactions entered into between 05.09.1988 to 25.10.2016 as the same would tantamount to punitive punishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Constitution. 17.39 Looked at from a different angle, continuation of only the civil provisions under Section 4, etc., would mean that the legislative intention was to ensure that the ostensible owner would continue to have full ownership over the property, without allowing the real owner to interfere with the rights of benamidar. If that be the case, then without effective any enforcement proceedings for a long span of time, the rights that have crystallized since 1988, would be in jeopardy. Such implied intrusion into the right to property cannot be permitted to operate retroactively, as that would be unduly harsh and arbitrary. 18. Conclusion 18.1 In view of the above discussion, we hold as under: a) Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution. b) In rem forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary. c) The 2016 Amendment Act was not merely procedural, rather, prescribed subst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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