The Benami Transactions (Prohibition) Act, 1988 (‘1988 Act’) was less an Act and more a two-page Statement of Intent. It was shorn of details and the Government had made a promise to flesh out, in the future sometime, the skeletal structure with procedures to be prescribed and rules to be notified in the Official Gazette. That day never came. What came was a twenty-two-page Benami Transactions (Prohibition) Amendment Act, 2016 (‘2016 Act’). It is a comprehensive, self -contained code containing law and procedure. It has carried out such wholesale changes to the parent 1988 Act (it has even changed its title) and added multitudinous provisions, that calling it an Amendment Act would be a bit of a stretch. In substance, it is a new act.

But why not introduce a new act and scrap the old one? To apply the tough provisions of the 2016 Act to the parent 1988 Act, an Act that was toothless and unimpactful, the Government had no choice but to bring out an amendment rather than a new act.

But can the 2016 Act be applied retrospectively? This is one of the most critical issues confronting the implementation of the 2016 Act.

Under the 1988 Act, there were only nine sections. Of these, four sections are relevant to this discussion.

Section 1(3) – The provisions of sections 3,5 and 8 shall come into force at once. (5.9.1988)

Section 2(a) – benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person.

Section 3(1) – No person shall enter into any benami transaction.

Section 3(3) – Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.

Section 5(1) – All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure as be prescribed.

The 2016 Act, with 1.11.2016 as the appointed date, has brought about sweeping changes by way of Chapters on definitions; authorities; attachment, adjudication and confiscation; appellate tribunal; special courts; offences and prosecution; and miscellaneous. Section 3(1) of the 1988 Act (prohibiting benami transactions) has been retained, as has Section 3(3) (prescribing punishment) though now re-numbered as section 3 (2). A new section 3 (3) has been introduced, w.e.f 1.11.2016, prescribing a much harsher punishment (Rigorous imprisonment for a term between one to seven years, plus a fine up to twenty-five per cent of fair market value of benami property; in the 1988 Act the term was up to three years, and the fine was neither mandatory nor quantified). By retaining the punishment as provided in the 1988 Act, the Government has been mindful of the fact that the new punishment provisions of the 2016 Act cannot be applied retrospectively in view of Article 20(1) of the Indian Constitution and a plethora of court decisions.

There is now a new definition of benami transactions. It is a detailed definition containing four categories of transactions, as compared to only one category in the 1988 Act. The old category has been retained but with an additional requirement that the property is held for immediate or future benefit of the person providing consideration. Now transactions in a fictitious name; or where the owner is not aware of or denies knowledge of such ownership; or the person providing consideration is not traceable or fictitious, are covered. There are four exceptions provided (as compared to only one in the 1988 Act).

Does the 2016 Act have retrospective operation with respect to the new transactions now covered? How about confiscation of property (Sections 5 and 27)? In 1988 Act, the term used was ‘acquisition’. The word ‘person’ was not defined in the 1988 Act though it is now defined in the 2016 Act (Section 2 (24)) to include inter alia a company. So, would a company be covered in the 1988 Act?

The tax officers’ standpoint is that Section 3(1) of the 1988 Act provides that 'no person shall enter into any benami transaction'. Though the term ‘person' was not specifically defined in the 1988 Act, the term 'person' always meant to include a 'company'. They rely on section 3(42) of The General Clauses Act, 1897, which provides that ‘person’ shall include any company or association or body of individuals, whether incorporated or not. So, a company would also be covered in the 1988 Act.

Section 3(1) of the 1988 Act remains unchanged and is retained as Section 3(1) of the 2016 Act as well. Thus, benami transactions are prohibited under the 1988 Act as well as under the 2016 Act. The machinery provisions warrant retrospective effect to meet the ends envisaged in the Statement of Object and Reasons as per which the provisions in the 1988 Act were inadequate and the amendment has been given effect to do away with the inadequacy that existed. Due to lack of proper machinery, the provisions of the 1988 Act could not be properly implemented. The scope of the 1988 Act was restricted and, hence, unable to solve the problems, render justice and security to the people who were distressed because of the benami transactions. The 1988 Act was also unable to acquire properties which were in hands of the benamidars; thus, the Government could not use those properties for the benefit of the people at large.

If the amendments are not allowed to be given effect to then the persons who are beneficiaries of benami properties would be immune from the 1988 Act, which would in turn aid them in continuing to enjoy their ill-gotten wealth at the cost of well-being of the society. The 2016 Act is an attempt to secure the socio-economic justice and it strives to minimize the inequalities in income and wealth, which in turn would promote the welfare of the people.

Further, the provisions for imprisonment exist both in the 1988 Act as well as the 2016 Act.

The 2016 Act, read with the Statement of Object and Reasons, signifies that machinery provisions have been introduced only to plug the loopholes in the 1988 Act coming in the way of punishing people for entering into benami transactions. The machinery provisions supplement the substantive provision that are anterior to the 2016 Act. Section 24 of the 2016 Act, which deals with provisional attachment and continuation thereof, is a machinery provision only to prevent the disposal of ill-gotten wealth of the beneficial owner which is held by the benamidar pending the adjudication proceedings. As per Section 1(3) of the 1988 Act, Section 3 of the 1988 Act is deemed to be effective from 5.9.1988 whereas Section 24 of the 2016 Act is the machinery provision that provides for provisional attachment of the benami property and it is the intent of the legislature that Section 1(3) and Section 3 of the 1988 Act be read in harmony with Section 24 of the2016 Act to make the 1988 Act workable. If these provisions are not harmonized then beneficial owners would continue to enjoy the fruits of ill-gotten wealth and the society at large would continue to suffer, which would run counter to the very object and purpose behind the 1988 Act as also the 2016 Act.

The tax officers also contend that Article 20(1) of the Indian Constitution has no application as provisional attachment, per se, is not penal in nature and, thus, falls outside the domain of ex post facto law. The words used in Article 20 (1) -"convicted", "commission of the act charged as an offence", "be subjected to a penalty", "commission of the offence”, indicate that the proceedings contemplated are of the nature of criminal proceedings before a court of law or a judicial Tribunal and the prosecution in this context would mean an initiation or starting of proceedings of a criminal nature before a court of law or judicial Tribunal.

The tax officers also rely upon the judgement of the Calcutta High Court dated 30.10.2017 in Writ Petition number 25474(W) in the case of M/s BRC Construction Company Pvt. Ltd. & Anr. Vs. Union of India & Others. The Court held that the 1988 Act, as amended in 2016, imbibes the color of a statute in restraint of acts constituting benami transactions. The Act does not seek to create any vested /substantive rights, only indirectly protecting transactions which fall within the exception of a benami transaction, viz. Section 2(9)(A)(i) to (iv). Furthermore, Section 1(3) of the 1988 Act itself provides for prospective application of its operative portions, viz. its penal clauses, in contra distinction to its defining provisions.

The assessees, however, contend otherwise.

Article 20(1) of the Indian Constitution enjoins that no person would 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, offences under the 1988 Act would invite punishment only as per the 1988 Act.

If an act creates a new offence, it will bring into its fold only those offenders who commit all ingredients of the offence after the act comes into operation. This would cover all such benami transactions which have been covered in the expanded definition in the 2016 Act but were not covered in the 1988 Act. These transactions were not punishable under the 1988 Act and cannot be punished retrospectively. Hence, confiscation of property, which is a penal action, cannot be invoked retrospectively with respect to such transactions.

There is a strong presumption against retrospective operation of a statue, which if allowed to operate retrospectively will prejudice the vested substantive rights. In addition, it would also question the legality of past transactions or impair contracts or impose new duty and would attach disability with respect to a past transaction or consideration that has already passed. The 2016 Act, by being applied retrospectively, will impair the past transactions and rights of the parties.

The 2016 Act lays down the procedure for provisional attachment, appeal before the Adjudicating Authority, confirmation of attachment by the Authority in case of an adverse order, confiscation of property by the Authority subject to order passed by the Appellate Tribunal, and appeal before the Appellate Tribunal. The procedure for confiscation of property and the manner and the conditions by which the said property will be received and managed by the Administrator have yet to be prescribed.

Some assessees go even further. They contend that since the procedure (some of which is yet to be prescribed) in the 2016 Act deals with ‘attachment’ and ‘confiscation’, and since the 1988 Act only referred to ‘acquisition’ (which is distinct from ‘confiscation’) for which no procedure was prescribed, and there was no provision for ‘attachment’, procedure laid out in the 2016 Act cannot be applied to ‘acquisition’ of property even for transactions considered as benami by the 1988 Act.

They also assert that ‘attachment’ is a penal action which can only be done prospectively. As held in Pyare Lai Sharma v. Managing Director, Jammu & Kashmir Industries Ltd (1989) 3 SCO 448, it is the basic principle of natural justice that no one can be penalized on the ground of a conduct which was not penal on the day it was committed. Therefore, a penal provision cannot be retroactive. Retroactivity of penal laws is not restricted to acts providing for criminal offences but applies also to laws which provide for penal consequences of other nature, such as attachment of property.

The result would be that even transactions defined to be benami under the 1988 Act would have no consequences for the benami property and the only consequence would be a jail term up to three years with or without penalty.

The definition of benami transaction in the 1988 Act did not qualify that the property needed to for the immediate or future benefit of the person providing consideration. So, the definition is less beneficial to that extent. Also, there are four exemptions to transactions considered as benami in the 2016 Act as compared only one in the 1988 Act. Can an assessee claim that the more generous provisions of the 2016 Act apply to him? That is another discussion for another day.