/2022 INSC 0738/
N THE 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)
J U D G M E N T
N.V.     RAMANA    , CJI   
1. Leave granted.
2. This   case   involves   a   tussle   between   the   normative   and
positivist   positions   regarding   the   nature   of   a   crime   and
punishment.   Treating   the   Constitution   as   a   flag   post,   a
result of this tussle is sought in the following deliberation.  
3. This   appeal   is   filed   against   the   impugned   judgment   dated
12.12.2019   passed   by   the   High   Court   of   Judicature   at
Calcutta  in  APO No. 8 of  2019  along  with  Writ Petition  No.
687 of 2017.  
1 REPORTABLE

4. The   short   legal   question   which   arises   for   this   Court’s
consideration is whether the Prohibition of Benami Property
Transactions   Act,   1988   [for   short   ‘the   1988   Act’],   as
amended   by   the   Benami   Transactions   (Prohibition)
Amendment   Act,   2016   [for   short   the   ‘2016   Act’]   has   a
prospective effect. Although a purely legal question arises in
this   appeal,   it   is   necessary   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   respondent­company   (viz.   Shruti   Goenka
and   Ritu   Goenka)   also   held   directorship   in   the   subsequent
purchaser company.   
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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 show­cause notice denying that the
scheduled property is a Benami property.
7. The   Adjudicating   Authority,   by   order   dated   24.11.2017,
passed   an   order   under   Section   24(4)(b)(i)   of   the   2016   Act,
provisionally attaching the property.
8. Aggrieved   by   the   aforesaid   attachment   order,   the
respondent­company   filed   a   Writ   Petition   (being   W.P.   No.
687   of   2017)   before   the   High   Court   of   Calcutta.     The
aforesaid writ petition was disposed of by the learned Single
Judge by an order dated 18.12.2018 with a direction to the
Adjudicating   Authority   to   conclude   the   proceedings   within
12 weeks.  
9. Aggrieved,   the   respondent­company   filed   an   appeal   against
the aforesaid order being APO No. 8 of 2019.  
3

10. The   High   Court,   vide   impugned   order   dated   12.12.2019,
while   quashing   the   show­cause   notice   dated   29.08.2017,
held   that   the   2016   Act   does   not   have   retrospective
application.  
(i) The   2016   Amendment   Act,   which   came   into   force   on
01.11.2016,   was   a   new   and   substantive   legislation,
inter   alia,   substituting   and   widening   the   definition   of
‘benami   property   and   benami   transaction’,   and   in
order  to   have   retrospective  operation   for   the   period  or
transactions   entered   into   prior   to   01.11.2016,   a
provision   to   that   effect   should   have   been   specifically
providing   under   the   said   Act;   in   the   absence   of   any
express provision to that effect, simply by virtue of the
provisions   contained   in   subsection   (3)   of   Section   1   of
the   1988   Act   [which   remained   unaltered   by   the   2016
Amendment Act, and have consequently been retained
under   the   Benami   Act],   the   provisions   of   the   2016
Amendment   Act   cannot   be   impliedly   construed   as
retrospective;
(ii) Reference was made to and reliance was placed on the
unreported   ruling   of   the   learned   Single   Judge   of   the
Rajasthan High Court dated 12.07.2019 in the case of
Niharika   Jain   v.   Union   of   India   [S.B.C.W.P.   No.
2915/2019], wherein, following the ruling of the Single
Judge of the Hon’ble Bombay High Court in the 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
the protection enshrined under clause (1) of Article 20
of the Constitution of India, the 2016 Amendment Act,
amending,   inter   alia,   the   definition   of   “benami
transaction”,   could   not   be   given   retrospective   effect,
and   the   amendments   brought   about   vide   the   said
(amendment) Act would be enforceable only with effect
from   the   date  of   the  enactment   /   coming   into   force  of
the said amendment Act i.e., on or after 01.11.2016 –
reliance in this regard was also placed on the ruling of
4

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   Act   for   the   period
prior   to   01.11.2016,   cannot   now   do   so   indirectly   by
way of retrospective operation of the 2016 Amendment
Act.
11. Aggrieved   by   the   aforesaid   impugned   order,   the   Union   of
India is in appeal before this Court.
12. S UBMISSIONS   
12.1 Shri   S.V   Raju,   learned   Additional   Solicitor   General   (‘ASG’)
has contended as under:
5

i. As   per   the   pre­amendment   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, the Amendment Act, which was a
consolidating Act, was brought in.
ii. It   was   not   an   offence   that   is   sought   to   be
implemented   retrospectively,   but   merely   the
procedures   are   laid   down   to   implement   the   Act   of
1988. He stated that the pre­amendment 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   the   bar   against   retrospective
application is only applicable to substantive law.
iv. The   legislative   intent   for   bringing   an   amendment   to
the existing act, and not enacting a new law, was to
ensure   that   no   immunity   is   granted   to   persons   who
engaged   in   benami   transactions   while   the   pre­
amendment Act was in operation.
6

v. It  was  further   submitted   that   Section   5   and   Section
27   of   the   Act   are   to   be   read   together   as   the   latter
provides   the   mechanism   through   which   the   Benami
property   may   be   confiscated   by   the   Adjudicating
Authority. As per Section 27(3), once the confiscation
order   is   passed   by   the   Authority,   the   rights   in   the
property   are   vested   in   the   Central   Government.     It
was   reiterated   that   confiscation   is   not   a   penal
provision, as the 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   the   same   can   be
applied   retrospectively.   For   this,   the   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   a   punishment,   and   that   Article
20(1)   is   not   attracted .   The   Court   also   held   that
confiscation   as   imposed   by   the   Adjudicating
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Authority would not amount to any punishment, and
is only a 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)
8

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 under:
i. The   1988   Act   did   not   make   its   provisions   applied
retrospectively.   The   Parliament   purposely   ensured
that   when   the   1988   Ordinance   was   replaced   by   the
parent   Act,   only   the   provisions   from   the   1988
Ordinance   were   continued   from   the   date   of   the
promulgation   of   the   ordinance.   The   other   provisions
introduced   by   the   parent   Act,   namely   Sections   3,   5
and   8,   were   made   only   prospectively   applicable   from
the   date   on   which   the   parent   Act   was   brought   into
effect.
ii. The   2016   Act   was   not   intended   to   be   retrospectively
applicable   as   the   same   is   not   explicitly   stated.
9

Parliament   deemed   it   fit   to   leave   it   to   the   Central
Government   to   enforce   the   2016   Act   from   an
appointed date by notifying it in the official gazette, as
mentioned in Section 1(2) of the 2016 Act.
iii. It was further argued that when the statute carves out
distinct   penalties   in   respect   of   benami   transactions
entered   into   in   the   unamended   regime   vis­a­vis   the
benami   transactions   entered   into   after   the
amendment   Act   of   2016,   it   clearly   indicates   that   the
amended Act is prospective in nature. 
iv. Learned Senior Advocate also relied on the cases of   R.
Rajagopal   Reddy   v.   Padmini   Chandrasekharan,
(1995)   2   SCC   630   and   Mangathai   Ammal   v.
Rajeswari ,   (2020)   17   SCC   496,   in   the   context   of
Sections   4(1),   4(2)   and   3(2)   of   the   parent   Act,   to
contend   that   the   abovementioned   provisions   are
prospective in nature.
v. It   is   also   argued   that   insertion   of   Section   2(9)   by   an
amendment   to   the   parent   Act   provides   a   new
definition   to   benami   transactions   and   has
10

substantially   changed   the   scope   of   the   offence   by
enlarging   its   ambit.   In   the   unamended   Act,   only
transfer   of   property   was   an   offence.   However,   the
2016 Act has added multiple other actions as offences
under the category of benami transactions. It is a well
settled   principle   of   law   that   any   enactment   which
substantially   affects   the   rights   of   people   cannot   be
applied   retrospectively,   and   therefore,   the   amended
2016 Act can only be prospective in nature. For  this,
the   judgment   of   this   Court   in   the   case   of
Commissioner   of   Income   Tax   (Central)­I,   New
Delhi  v. Vatika Township Pvt. Ltd,   (2015) 1 SCC 1
was relied on.
13. I NTRODUCTION   TO   PRACTICE   OF   PROPERTIES   HELD   BENAMI   IN  I NDIA   
13.1 Having   heard   the   parties,   it   is   necessary   for   this   Court   to   trace
the   history   of   benami   transactions   in   India.   The   term
‘benami   transaction’   generally   implies   that   one   purchases
the   property   in   the   name   of   somebody   else,   i.e.,   a   name
lender,   and   the   purchaser   does   not   hold   beneficial   interest
11

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 . 1
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 explained through the following examples:
1   McNaughten’s Selected Report Vol. I, Reporter’s Note at p. 368.
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(i.) Tripartite: ‘B’ sells a property to ‘A’ (real owner),
but   the   sale   deed   mentions   ‘C’   as   the
owner/benamidar. 
(ii.) Bipartite:   ‘A’   sells   property   to   ‘B’   without
intending to pass the title to ‘B’.
The   first   instance   was   usually   termed   as   a   real   benami
transaction,   and   the   second   transaction   was   considered
either   as   a   sham   transaction   or   “loosely”   benami
transaction.   In   Sree   Meenakshi   Mills   Ltd.   v.
Commissioner   of   Income   Tax,   Madras ,   AIR   1957   SC   49,
speaking for the Bench, Venkatarama Ayyar, J., stated that
the   first   category   of   transactions   is   ‘usually’   termed   as
benami,   while   the   second   category   is   ‘occasionally’
considered   a   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 the first category as benami but chose
to describe the 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   the   proliferation   of   such   a
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 the
early   19 th
  century   under   the   colonial   courts.   In   Mt.   Bilas
Kunwar v. Desraj Ranjit Singh , AIR 1915 PC 96, the Privy
Council observed as under:
“Down   to   the   taluqdar’s   death   the   natural
inference   is   that   the   purchase   was   a   benami
transaction; a dealing common to Hindus and
Muhammadans   alike,   and   much   in   use   in
India;   it   is   quite   unobjectionable   and   has   a
curious   resemblance   to   the   doctrine   of   our
English   law   that   the   trust   of   the   legal   estate
results   to   the   man   who   pays   the   purchase
money,   and   this   again   follows   the   analogy   of
our   common   law,   that   where   a   feoffment   is
made without consideration the use results to
the feoffer.”
2   West and Buhler, ‘Hindu Law’, (Fourth Edition), Pg. 157, 563.
3   Pollock, The Law of fraud, Misrepresentation and Mistake in British India (1894), page 83­
84.
4   K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884­85) Pg. 469­470.
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In  Punjab Province v. Daulat Singh , AIR (29) 1942 FC 38,
the   Federal   Court,   while   evaluating   the   propriety   of   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 parties and the relationship, if any,
between the Claimant and the alleged Benamidar.
(v) The custody of the title­deeds after the sale, and
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(vi) The   conduct   of   the   parties   concerned   in   dealing   with
the property after the sale.
13.7 The judiciary came to establish the general principle that in
law, the real owner is recognized over the 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  the   Income  Tax   Act,
1961,   which   allows   filing   of   suit   by   the   original   owner   to
enforce his right over a benami property, only if the same is
declared   for   taxing   purpose,   as   provided   thereunder.   Such
provision   under   the   Income   Tax   Act   did   not   bar   such
benami transactions completely, rather it only attempted to
legitimize   and   bring   them   into   the   net   of   taxation.   Such
provision,   while   disincentivizing   transactions   beyond   the
taxation   net,   had   also   inevitably   accepted   the   positive
factors   in   recognizing   the   same.   Further,   it   is   a   matter   of
fact that the Indian Trusts Act has recognized and accepted
the 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.
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13.8 The   57 th
  Report   of   the   Law   Commission   (1973)   succinctly
captures the general principles prevailing as on that date, in
the following manner:
“5.2   Summary   of   present   position ­in   general­A   few
basic   points   concerning   benami   transactions   may   be
stated, as follows:
(a) Benami   transfer   or   transaction   means   the   transfer
by   or   to   a   person   who   acts   only   as   the   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   the   intention   of
the beneficiary;
(c) The   real   owner   in   such   cases   may   be   called   the
beneficiary,   and   the   ostensible   owner   the
benamidar.
…
5.3.  Effect of benami transfer .­ The effect of a benami
transfer is as follows:­
(a) A   person   does   not   acquire   any   interest   in   property
by merely leading his name;
(b) The benamidar has no beneficial interest though he
may re­present the legal owner as to third person.
(c) A   benami   transaction   is   legal,   except   in   certain
specified situations.
(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:
S L .
N O . N ATURE   OF  T RANSFER L EGALITY   AND
CONSEQUENCES
A Transfer   in   favour   of   wife   or
child   (whether   or   not   with Governed   by   Section
64,   Income­tax   Act
17

the object of transferring title
to   the   wife   or   child)   without
adequate consideration (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 Not   covered   by   any
provision.   (No   criminal
liability)
(ii) Transfer   in   favour   of   a
person   other   than   wife
or   child   without
consideration,   and
without   intent   to
transfer   title,   but   with
no fraudulent purpose. Governed   by   Section
281A   of   Income   Tax
Act,   1961   (also   see
point   G   in   table).   [No
criminal liability]
(iii) Transfer   in   favour   of   a
person   other   than   wife
or   child   without
consideration,   and   with Governed   by   Section
6(h)(2)   and   Section   53
of   Transfer   of   Property
Act.   [Criminal   liability
18

intent   to   transfer   title,
but   for   a   fraudulent
purpose and not in good
faith. if   the   case   falls   within
Section   415   to   424   or
Section   206­207   of
Indian Penal Code]
(iv) Transfer   in   favour   of   a
person   other   than   wife
or   child   without
consideration,   without
intent   to   transfer   title
and   for   fraudulent
purpose. Governed   by   Section
281A   of   Income   Tax
Act, 1961 (See point G
in   table).   Also   section
6(h)(2) and Section 59,
Transfer   of   Property
Act.   (Criminal   liability
if   case   falls   within
Section   415   to   424   of
Indian   Penal   Code   or
Section   206­207   of
that Code)
E Transfer   in   favour   of   person
other   than   wife   or   child   for
consideration,   with   intent   to
transfer   title,   but   for   a
fraudulent   purpose   and   not
in good faith. Governed   by   Section
6(h)(g) and  Section   53,
Transfer   of   Property
Act.   (criminal   liability
if   case   falls   within
Section   415   to   424   of
Indian   penal   Code   or
Section   206­207   of
that Code
F Transfer   in   favour   of   person
other   than   wife   or   child  with
consideration,   but   with
genuine object of transferring
ownership   and   with   no
fraudulent intent Not   covered   by   any
provision.
G Transfer   in   favour   of   any
person   benami   (i.e.,   without
consideration   and   with   no
genuine intent to transfer) Object   of   checking   tax
evasion   substantially
achieved   by   barring   a
suit   instituted   without
informing   the   taxing
authorities.   See
Section   231A,   Income
Tax   Act   (inserted   by
Act 45 of 1972)
19

13.10 It   may   be   necessary   to   note   that   the   Law   Commission,
through   its   aforementioned   57 th
  Report,   did   not   find   it
suitable to accept the stringent provision of making benami
transactions   liable   to   criminal   action.   Rather,   it
recommended   adoption   of   certain   less   stringent,   civil
alternatives in the 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   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).
20

Whichever   alternative   is   adopted,   it   may   be   desirable
to   make   an   exception   for   an   acquisition   made   by   the
manager of a joint Hindu family in the name of one of
the co­parceners, and similar cases.
…
6.24.   First alternative not likely to be effective ­The
first   alternative   referred   to   above,   namely,   the
imposition   of   a   criminal   prohibition   against   benami
transactions,   is   the   most   drastic   alternative,   but   it   is
not   likely   to   be   more   effective   than   the   others.   A
prohibition   backed   by   criminal   sanctions   would   not,
moreover,   be   desirable,   unless   the   mens   rea   is   also
included in the provision to be enacted.
  If   this   alternative   is   to   be   adopted,   a   provision   could
be enacted on the following lines:­­
"Where   property   is   transferred   to   one   person   for   a
consideration paid or provided by another person, and
it   appears   that   such   person   did   not   intend   to   pay   or
provide   such   consideration   for   the   benefit   of   the
transferee,   the   person   paying   or   providing   the
consideration   shall   be   guilty   of   an   offence   punishable
with   imprisonment   upto   three   years,   or   with   fine,   or
both. 
Provided   that   this   section   shall   not   apply   where   the
transferee is a co­parcener in a Hindu undivided family
in which such other person is also a co­parcener, and
it is proved that such other person intended to pay or
provide   such   consideration   for   the   benefit   of   the   co­
parceners in the family.
Exception­­Nothing   in   this   section   shall   be   deemed   to
affect   section   66   of   the   Code   of   Civil   Procedure,   1908
or any provision similar thereto."
Yet   another   device   for   giving   effect   to   the   first
alternative,   with   a  requirement   of  mens  rea,  would   be
to have a law on the following lines:
"Where property is transferred to one person for a
consideration paid or provided by another person,
and it appears that such person did not intend to
pay   or   provide  such  consideration   for  the  benefit
21

of the transferee, the person paying: or providing
the   consideration   shall,   if   he   has   caused   the
transfer   to   be   entered   into   with   the   intention   of
facilitating   the   evasion   of   any   law,   or   defeating
the claims of his creditors, or the creditors of any
other   person   be   guilty   of   an   offence   punishable
with imprisonment upto three years, or with fine,
or with both."
Yet another device to give effect to the first alternative
would be to add a section in   the 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   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, a defence can
also be barred).
…
22

6.27.   Second   alternative   refusal   to   recognise
Benami   preferred.   ­­   In   our   opinion,   the   simplest
alternative   would   be   the   second   alternative.   The   law
should   refuse   to­   recognise   the   Benami   character   of
transactions, without making them an offence. The law
should,   in   effect,   provide   that   where   property   is
transferred   benami,   the   benamidar   will   become   the
real owner. The result of such a provision will be that
the   fact   that   the   benamidar   did   not   provide   the
consideration,   or   that   the   consideration   was   provided
by a third person, will not be a ground for recognising
a   person   other   than   the   benamidar   as   owner.   To   put
the matter in broad terms, the doctrine of benami will,
under the pro­ posed amendment, cease to be a part of
the Indian law.
It   may   be   observed   that   in   enacting   the   proposed
provision,   the   legislature   will   carry,   to   its   logical
conclusion,   the   trend   illustrated   by   provisions,   such
as,   section   66   of   the   Code   of   Civil   Procedure.   The
section   in   the   Code   is   applicable   to   involuntary
alienations,   while   the   proposed   provision   will   extend
the same principle to voluntary transactions as Well.
We   think   that   this   will   be   the   simplest   and   most
effective course, and is, therefore, preferable to others. 
The   amendment   will   bring   out   a   change   in   the   legal
position   in   some   of   the   situations   where,   at   present,
the benami character is re­ cognised.
6.27A. We are also of the view that it is not necessary
to   enact   a   prohibition   attracting   criminal   penalties­­­­
which   is   the   course   suggested   in   the   first   alternative.
Such a prohibition will have to be ac­ companied by a
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, the Constitution was
undergoing   a   slow   churning   qua   the   right   to   property.   The
above   propositions,   laid   down   by   Federal   Courts   and   Privy
Council are to be understood in a context where there was a
general common law right to property, which later made its
forays   into   the   Constitution   of   India   under   Articles   19(1)(f)
and   31.   In   1978,   the   Indian   Parliament   took   a   drastic
measure   and   did   away   with   this   fundamental   right   to
property   and   relegated   the   same   to   a   constitutional   right
under Article 300A.
13.12 Further,   it   was   an   era   during   which   India   pursued
‘socialism’,   which  was  also   included  in   the   Preamble  of   the
Constitution   through   the   42 nd
  (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
24

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   130 th
  Report.
Although   the   Law   Commission   characterized   the   130 th
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,
debentures,   bonds,   bank   accounts,
deposit   receipts   and   negotiable
instruments,   is   capable   of   being   held
benami. Therefore, it is equally legitimate
to   have   an   extensive   coverage   of   the
proposed   legislation   by   encompassing
property of every denomination . …
…
3.18 Therefore,  viewed from  either  angle,
the   Law   Commission   is   of   the   firm   opinion
that   the   legislation   replacing   the   ordinance
should   also   be   retroactive   in   operation   and
that no  locus penitentia  need be given to the
persons   who   had   entered   into   benami
transactions   in   the   past.   They   had   notice   of
25

one   and   half   decades   to   set   their   house   in
order. No more indulgence is called for. …
…
4.5 Before   we   conclude   on   this   chapter,   it   is
necessary   to   point   out   that   certain   tax   laws
have   confirmed   legitimacy   on   the   benami
transactions and derived benefit in the form
of   revenue   collection   from   it.   It   was,
therefore,   said   that   if   now   all   benami
transactions   are   invalidated   and   an   all­
enveloping   prohibition   is   imposed,   the
revenue   laws   would   suffer   loss   of   revenue.
Reference   in   this   connection   was   made   to
section   27   of   the   Income­tax   Act,   1962
dealing   with   income   from   house   property.
The   various   sub­sections   of   section   27   deal
with transfer of property by husband to wife
and   vice­versa.        It   also   involves   the   case   of
impartable   estate.   The   law   commission   is
unable to  appreciate how  a  total prohibition
of   benami   transaction   and   the   holder   being
made   the   real   owner   would   defeat   revenue
laws. If one escapes, the other pays, and if it
is   suggested   that   the   other   may   not   be
within   the   dragnet   of   the   tax   laws   and   that
both   would   benefit   by   the   prohibition   and
abolition   of   benami   transactions.   In   the
immediate   future   such   effect   may   be
produced   but   the   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   the   rules   of   the   co­
operative society which has built the flats or
by   the   rules   of   authorities   like   the   Delhi
Development   Authority,   a   modus   operandi
has   come   into   existence   whereby   violating
the   law,   the   flat   is   sold   and   the   purchaser
would   pay   the   amount   and   taken   an
26

irrevocable   power   of   attorney   and   enter   into
possession.   It   was   further   said   that   the
provisions   of   the   Income­tax   Act   have
recognized   such   transfers   and   treat   the
attorney as owner for the purpose of income­
tax 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. 
4.6 The 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. F RAMEWORK   UNDER   THE  1988 A CT   
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   benami   transactions,   were   left   out   of   the
27

definition.   Reading   the   aforesaid   definition   to   include
sham/bipartite   arrangements   within   the   ambit   would   be
against the strict reading of criminal law and would amount
to judicial overreach.
 
14.2 The above definition does not capture the essence of benami
transactions as the broad formulation includes certain types
of   legitimate   transactions   as   well.   The   transferee/property
holder’s lack of beneficial interest in the property was a vital
ingredient,   as   settled   by   years   of   judicial   pronouncements
and common parlance, and found to be completely absent in
the   definition   given   in   the   Act.   On   literal   application   of   the
aforesaid Section 2(a), the following transactions could have
been caught in the web of the Act:
(a) ‘A’   purchases   property   in   name   of   his   son’s   wife   ‘B’,   for
the  benefit  of  the  son’s  family  from   person  ‘Y’,  treats  the
consideration as a gift to the son, and pays gift tax on it.
(b) ‘A’   who   is   old   and   infirm,   purchases   a   property   in   the
name   of   ‘B’,   intending   that   ‘B’   will   hold   the   property   in
trust of the son of ‘A’, who is mentally retarded.
(c) A firm ‘X’ purchases property in the name of the working
partner   ‘B’   for   the   benefit   of   the   firm   ‘X’,   making   the
payment out of the firm’s funds.
 
28

14.3 Section 2(c) of the 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,   the   aforesaid   broad   formulation   of
property   came   about   for   the   first   time   in   the   130 th
  Law
Commission   Report;   such   definitional   broadening   was   for
the   first   time   introduced   only   in   1988   and   was   never
contemplated   during   the   57 th
  Report   (1973).   This   aspect
becomes   important,   and   will   be   addressed   later,   while
analysing the 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 sub­section (1) shall apply to the
purchase   of   property   by   any   person   in   the
name of his wife or unmarried daughter and it
shall   be   presumed,   unless   the   contrary   is
proved,   that   the   said   property   had   been
purchased   for   the   benefit   of   the   wife   of   the
unmarried daughter. 
(3)   Whoever   enters   into   any   benami
transaction   shall   be   punishable   with
29

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   non­
cognizable 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 and the property is held for
the   benefit   of   the   coparceners   in  the   family;
or
30

(b)   where   the   person   in   whose   name   the
property is held is a trustee or  other person
standing   in   a   fiduciary   capacity,   and   the
property   is   held   for   the   benefit   of   another
person   for   whom   he   is   a   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   the   removal   of   doubts,   it   is   hereby
declared   that   no   amount   shall   be   payable   for
the   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 the law effective. 6
 
14.7 Section   6   provided   that   nothing   in   the   1988   Act   will   affect
Section 53 of the Transfer of Property Act or any law relating
to   transfers   for   an   illegal   purpose.   The   object   of   Section   6
was   to   vest   ownership   rights   in   benamidars   as   opposed   to
the   real   owner.   It   was   not   the   intention   of   the   1988   Act   to
protect  such   persons  from  creditors  who  allege diversion  of
6   Standing Committee on Finance 2015-2016, 16 th
 Lok Sabha, Ministry of Finance (Deptt. of Revenue), The 
Benami Transactions Prohibition (Amendment) Bill, 2015, 28 th
 Report, Part I.
31

funds   in   a   fraudulent   manner   and   allow   them   to   escape
their   liability   to   the   creditors.   Therefore,   Section   6   limited
the application of Section 4 in such cases.
14.8 Section 7 of the 1988 Act repealed Sections 81, 82 and 94 of
the   Indian   Trusts   Act,   1882   (2   of   1882);   Section   66   of   the
Code of Civil Procedure, 1908 (5 of 1908.); and Section 281A
of   the   Income   Tax   Act,   1961   (43   of   1961).   Section   8
empowered   the   Central   Government   to   make   rules   to   give
effect   to   the   Act.   The   final   section,   Section   9,   repealed   the
earlier Ordinance.
14.9 The main thrust of the argument put forth by  the Union of
India   in   this   appeal   is   that   the   amended   2016   Act   only
clarified the 1988 Act. Law Officers appearing for the Union
of   India   trained   their   guns   on   the   point   that   the   1988   Act
had   already   created   substantial   law   for   criminalizing   the
offence and the 2016 amendments were merely clarificatory
and   procedural,   to   give   effect   to   the   1988   Act.   Such   a
submission mandates us to examine the law of the 1988 Act
in   detail   and   determine   the   scope   of   the   earlier   regime   to
32

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.   Mens   rea   by
necessary   implication   may   be   excluded   from   a   statute   only
33

where it is absolutely clear that implementation of the object
of  the   statute   would   otherwise  be  defeated.   [refer   Nathulal
v. State of Madhya Pradesh ,  AIR 1966 SC 43]
14.11 In the above light, this Court’s first endeavour is to attempt
to   interpret   the   law   to   imply   mens   rea .   However,   the
language of Section 2(a) coupled with Section 3, completely
ignores   the   aspect   of   mens   rea ,   as   it   intends   to   criminalize
the   very   act   of   one   person   paying   consideration   for
acquisition   of   property   for   another   person.   The   mens   rea
aspect   was   specifically   considered   by   the   57 th  
Law
Commission   Report,   and   the   same   was   not   integrated   into
the   unamended   1988   Act.   The   observations   made   in   the
130 th
  Law   Commission   Report   indicate   that   benami
transactions   are   abhorrent   when   it   comes   to   public   wealth
and impedes the government from achieving its social goals.
This   clearly   allows   us   to   infer   that   the   1988   law   was
envisaged on the touchstone of strict liability.
14.12 Such   strict   statutory   formulation   under   Section   2(a)   read
with   Section   3   had   left   loose   ends   in   the   1988   Act.   In   this
light,   the   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 the
judicial   precedents,   this   Court   has   had   the   occasion   to
examine   this   legislation   on   the   civil   side   and   never   on   the
criminal   side,   which   would   bear   a   higher   standards.
Conflation of the 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   the
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 the
aforesaid   provision   has   retrospective   application,   held   as
under:
“22.   As   defined   in   Section   2( a )   of   the   Act   “
‘benami transaction’ means any transaction in
which property is transferred to one person for
a   consideration   paid   or   provided   by   another
person”.   A   transaction   must,   therefore,   be
benami   irrespective   of   its   date   or   duration.
Section   3,   subject   to   the   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 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,   sub­
section   (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. In case of a qualifying or
disqualifying   statute   it   may   be   necessarily
retroactive.   For   example   when   a   Law   of
Representation   declares   that   all   who   have
attained   18   years   shall   be   eligible   to   vote,
those who attained 18 years in the past would
be as much eligible as those who attained that
age   at   the   moment   of   the   law   coming   into
force. When an Act is declaratory in nature the
presumption   against   retrospectivity   is   not
applicable.   Acts   of   this   kind   only   declare.   A
statute   in   effect   declaring   the   benami
36

transactions   to   be   unenforceable   belongs   to
this   type.   The   presumption   against   taking
away   vested   right   will   not   apply   in   this   case
inasmuch as under law it is the benamidar in
whose name the property stands, and law only
enabled the real owner to recover the property
from him which right has now been ceased by
the   Act.   In   one   sense   there   was   a   right   to
recover   or   resist  in   the   real   owner   against   the
benamidar.   Ubi   jus   ibi   remedium .   Where   there
is a right, there is a remedy. Where the remedy
is barred, the right is rendered unenforceable.
In   this   sense   it   is   a   disabling   statute.   All   the
real   owners   are   equally   affected   by   the
disability   provision   irrespective   of   the   time   of
creation   of   the   right.   A   right   is   a   legally
protected   interest.   The   real   owner's   right   was
hitherto protected and the Act has resulted in
removal of that protection.
23.   When   the   law   nullifies   the   defences
available   to   the   real   owner   in   recovering   the
benami   property   from   the   benamidar   the   law
must   apply   irrespective   of   the   time   of   the
benami transactions. The 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   the   question
whether   there   was   a   present   suit   between   the
respondent­plaintiff   and   the   defendant­
appellant   on   the   date   of   the   law   coming   into
force. We have noted the dates of filing the suit
and   judgments   of   the   courts   below.   On   the
date of Section 4 of the Act coming  into  force,
that   is,   19­5­1988   this   appeal   was   pending
and,   of   course,   is   still   pending.   Can   the   suit
itself be said to be pending?
( emphasis supplied )
37

14.14 The aforesaid interpretation  was  re­examined by  this  Court
in   R.   Rajagopal   Reddy   v.   Padmini   Chandrasekharan,
(1995)   2   SCC   630   and   while   partly   over­ruling   Mitilesh
Kumari  (supra), it was held as under:
11.   …   Thus   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
permitted to be filed or entertained or admitted
38

to   the   portals   of   any   court   for   seeking   such   a
relief after coming into force of Section 4(1). …
The   word   ‘lie’   in   connection   with   the   suit,
claim or action is not defined by the Act. If we
go   by   the   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   the   defendant   concerned   in
whose  name  the  property   is  held  on   and  from
the   date   on   which   this   prohibition   against
entertaining   of   such   suits   comes   into   force.
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.   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 the
section   would   amount   to   taking   a   view   which
would   run   counter   to   the   legislative   scheme
and   intent   projected   by   various   provisions   of
the Act to which we have referred earlier. It is,
however,   true   as   held   by   the   Division   Bench
that   on   the   express   language   of   Section   4(1)
any right inhering in the 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 the
coming   into   operation   of   Section   4(1),   and
henceafter  Section  4(1) applied  no  suit  can   lie
in   respect   to   such   a   past   benami   transaction.
To   that   extent   the   section   may   be   retroactive.
39

To   highlight   this   aspect   we   may   take   an
illustration. 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.  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
40

4(2)   on   a   pre­existing   right   of   the   defendant.
Such   a   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   a  suit   which   is
covered   by   the   sweep   of   Section   4(2)   is
concerned,   the   prohibition   of   Section   4(1)
cannot apply to it as it is not a claim or action
filed by the plaintiff to enforce right in respect
of any property held benami. On the contrary,
it   is   a   suit,   claim   or   action   flowing   from   the
sale   deed   or   title   deed   in   the   name   of   the
plaintiff.   Even   though   such   a   suit   might   have
been   filed   prior   to   19­5­1988,   if   before   the
stage   of   filing   of   defence   by   the   real   owner   is
reached,   Section   4(2)   becomes   operative   from
19­5­1988, then  such  a defence, as laid down
by   Section   4(2)   will   not   be   allowed   to   such   a
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   the   pending
litigations   in   connection   with   enforcement   of
such   rights   of   real   owners   who   are   parties   to
benami   transactions   entered   into   prior   to   the
coming  into  operation  of  the 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 a person claiming to be the
real owner of such property. That is to say no
such defence shall be allowed for the first time
after   coming   into   operation   of   Section   4(2).   If
such a defence is already allowed in a pending
suit   prior   to   the   coming   into   operation   of
Section 4(2), enabling an issue to be raised on
such   a   defence,   then   the   Court   is   bound   to
decide   the   issue   arising   from   such   an   already
allowed   defence   as   at   the   relevant   time   when
such defence was allowed Section 4(2) was out
41

of   the   picture.   Section   4(2)   nowhere   uses   the
words:   “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  to  be raised  or  continued  to   be  raised
in   any   suit.”   With   respect,   it   was   wrongly
assumed   by   the   Division   Bench   that   such   an
already   allowed   defence   in   a   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   the   respondents   in   his   written
submissions,   on   the   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 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
42

differently. 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.   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,   the   grievances   raised   in   this
connection cannot be sustained.
14.15 Returning to the discussion at hand, there is no doubt that
the   unamended   1988   Act   tried   to   create   a   strict   liability
offence and allowed separate acquisition of benami property.
This   begs   the   question   whether   such   a   criminal   provision,
which   the   State   now   intends   to   make   use   of,   in   order   to
confiscate properties after 28 years of dormancy, could have
existed   in   the   books   of   law.   Other   than   the   abuse   and
unfairness   such   exercise   intends   to   bring   about,   there   is   a
larger constitutional question about existence of such strict
provisions without adequate safeguards.
43

15. S UBSTANTIVE   DUE   PROCESS ,   M ANIFEST   ARBITRARINESS   AND   
PROVISIONS   UNDER  1988 A CT .   
15.1 The simple question addressed by the counsel appearing for
both   sides   is   whether   the   amended   2016   Act   is   retroactive
or   prospective.   Answering   the   above   question   is   inevitably
tied to an intermediate question as to whether the 1988 Act
was   constitutional   in   the   first   place.   The   arguments
addressed by the Union of India hinges on the fact that the
1988   Act   was   a   valid   substantive   law,   which   required   only
some   gap   filling   through   the   2016   Act,   to   ensure   that
sufficient   procedural   safeguards   and   mechanisms   are
present to enforce the law. According, to the Union of India,
the 2016 Act was a mere gap filling exercise.
15.2 However, upon  studying  the  provisions  of  the 1988 Act, we
find that there are questions of legality and constitutionality
which   arise   with   respect   to   Sections   3   and   5   of   1988   Act.
The answers to such questions cannot be assumed in favour
of   constitutionality,   simply   because   the   same   was   never
questioned before the Court of law. We are clarifying that we
are not speaking of the presumption of constitutionality as a
matter   of   burden   of   proof.   Rather,   we   are   indicating   the
assumption   taken   by   the   Union   as   to   the   validity   of   these
44

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. 
45

15.5 The   emphasis   on   the   aforesaid   deletion   by   the   majority   in
A.K   Gopalan   v.   State   of   Madras ,   AIR   1950   SC   27,   was
somewhat drawn back by the celebrated dissent of Fazal Ali,
J.,   wherein   the   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   a   combined
reading   of   Articles   14,   19   and   21   would   make   it   clear   that
the   judiciary,   so   to   say,   always   had   the   forensic   power   to
examine   reasonability   of   a   law,   both   procedural   as   well   as
substantive.   Later   expositions   have   only   given   colour   to
expand what was implicit under the three golden Articles of
Part III. In   Sunil Batra v. Delhi Administration , (1978) 4
SCC   494,   the   word   law   as   occurring   under   Article   21   was
interpreted   to   mean   jus   and   not   merely   lex .   It   may   be
necessary   to   quote   the   observation   of   the   majority   in   the
aforesaid case in the following manner: 
“228…The   word   “law”   in   the   expression
“procedure established by law” in Article 21
has   been   interpreted   to   mean   in   Maneka
Gandhi   case   that   the   law   must   be   right,
just   and   fair   and   not   arbitrary,   fanciful
or oppressive .”
( Emphasis supplied )
46

15.6 Without   burdening   this   judgment   with   a   series   of
precedents laid down by this Court, we may refer only to the
majority   opinion   in   K.   Puttaswamy   v.   Union   of   India ,
(2017)   10   SCC   1,   wherein   the   law   has   been   settled   by   a
Nine­Judge Bench of this Court in the following manner: 
“294.   The   Court,   in   the   exercise   of   its
power   of   judicial   review,   is   unquestionably
vested   with   the   constitutional   power   to
adjudicate upon the validity of a law. When
the   validity   of   a   law   is   questioned   on   the
ground   that   it   violates   a   guarantee
contained   in   Article   21,   the   scope   of   the
challenge   is   not   confined   only   to   whether
the   procedure   for   the   deprivation   of   life   or
personal liberty is fair, just and reasonable.
Substantive   challenges   to   the   validity   of
laws   encroaching   upon   the   right   to   life   or
personal   liberty   has   been   considered   and
dealt   with   in   varying   contexts,   such   as   the
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.   A   person   cannot   be
deprived of life or personal liberty except in
accordance   with   the   procedure   established
by   law.   Article   14,   as   a   guarantee   against
arbitrariness, infuses the  entirety  of Article
21.   The   interrelationship   between   the
guarantee   against   arbitrariness   and   the
protection   of   life   and   personal   liberty
operates   in   a   multi­faceted   plane.   First,   it
47

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
retained   as   a   vibrant   means   of   protecting
the lives and freedoms of individuals.
296.   The danger of construing this as an
exercise of “substantive due process” is that
it   results   in   the   incorporation   of   a   concept
from   the   American   Constitution   which   was
consciously   not   accepted   when   the
Constitution was framed. Moreover, even in
the   country   of   its   origin,   substantive   due
process   has   led   to   vagaries   of   judicial
interpretation. Particularly having regard to
48

the   constitutional   history   surrounding   the
deletion of that phrase in our Constitution,
it   would   be   inappropriate   to   equate   the
jurisdiction   of   a   constitutional   court   in
India   to   entertain   a   substantive   challenge
to   the   validity   of   a   law   with   the   exercise   of
substantive   due   process   under   the   US
Constitution.   Reference   to   substantive   due
process   in   some   of   the   judgments   is
essentially   a   reference   to   a   substantive
challenge   to   the   validity   of   a   law   on   the
ground   that   its   substantive   (as   distinct
from   procedural)   provisions   violate   the
Constitution.”
15.7 The   law   with   respect   to   testing   the   unconstitutionality   of   a
statutory instrument can be summarized as under:
a. Constitutional   Courts   can   test   constitutionality   of
legislative   instruments   (statute   and   delegated
legislations);
b. The   Courts   are   empowered   to   test   both   on   procedure   as
well as substantive nature of these instruments.
c. The   test   should   be   based   on   a   combined   reading   of
Articles 14, 19 and 21 of the Constitution.
15.8 One   of   the   offshoots   of   this   test   under   Part   III   of   the
Constitution   is   the   development   of   the   doctrine   of   manifest
arbitrariness.   A   doctrinal   study   of   the   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   the   development   of   jurisprudence   has   come
full   circle   from   an   overly   formalistic   test   of   classification   to
include   the   test   of   manifest   arbitrariness.   A   broad
formulation   of   the   test   was   noted   in   the   aforesaid   case   as
under:
“95.   On   a   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   an
authority   for   the   proposition   that
legislation   can   never   be   struck   down   as
being   arbitrary.   Indeed   the   Court,   after
referring   to   all   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 .
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   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 reiterated
the test as under:
“...The   test   of   manifest   arbitrariness,
therefore,   as   laid   down   in   the   aforesaid
judgments   would   apply   to   invalidate
legislation   as   well   as   subordinate
legislation   Under   Article   14.   Manifest
arbitrariness,   therefore,   must   be
something   done   by   the   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   the   view   that   arbitrariness   in
the   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

the   Arbitration   Act   on   the   ground   of   manifest   arbitrariness
as   the   Parliament   chose   to   ignore   the   judgment   of   this
Court, without removing the basis of the same or identifying
a principle for militating against the same.
15.11 Coming back to the 1988 Act, the two provisions with which
we are concerned are Sections 3 and 5 of 1988 Act. They are
required to be separately analysed herein. At the outset, we
may   notice   that   the   enactment   was   merely   a   shell,   lacking
the   substance   that   a   criminal   legislation   requires   for   being
sustained. The reasons for the same are enumerated in the
following paragraphs. 
15.12 First,   the   absence   of   mens   rea   creates   a   harsh   provision
having  strict liability. Such an approach was frowned upon
by   the   57 th
  Law   Commission   Report   as   concerns   of   tax
evasion   or   sham   transactions   in   order   to   avoid   payment   to
creditors   were   adequately   addressed   by   the   existing
provisions   of   law.   Even   the   130 th
  Law   Commission   Report
did   not   expressly   rule   out   the   inclusion   of   mens   rea .   The
legislative   move   to   ignore   earlier   Law   Commission   Reports
without   there   being   a   principle   identified   to   do   away   with
the   aspect   of   mens   rea   should   be   a   contributory   factor   in
52

analysing   the   constitutionality   of   the   aforesaid   criminal
provision under the 1988 Act.  
15.13 Further,   under   the   amended   2016   Act,   the   aspect   of   mens
rea , is brought back through Section 53. Such resurrection
clearly   indicates   that   doing   away   of   the   mens   rea   aspect,
was without any rhyme or reason, and ended up creating an
unusually harsh enactment.
15.14 Second,   ignoring   the   essential   ingredient   of   beneficial
ownership   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
53

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 the learned ASG, Mr. Vikramjit
Banerjee appearing for the Union of India, that the criminal
provision   was   never   utilized   as   there   was   a   significant
hiatus in enabling the functioning of such a provision. 
15.16 Fourth,   reading   Section   2(a)   with   Section   3(1)   would   have
created   overly   broad   laws   susceptible   to   be   challenged   on
the   grounds   of   manifest   arbitrariness.   If   this   Court   reads
criminal   provisions   of   the   Benami   Act   to   have   had   force
since   1988,   then   the   following   deleterious   consequences
would ensue:
(i.) Section   187C   of   the   Companies   Act,   1956   assured
protection   to   nominal   and   beneficial   holding   of
54

shares   if   the   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 The   criminal   provision   under   Section   3(1)   of   the   1988   Act
has   serious   lacunae   which   could   not   have   been   cured   by
judicial   forums,   even   through   some   form   of   harmonious
interpretation.   A   conclusion   contrary   to   the   above   would
make   the   aforesaid   law   suspect   to   being   overly   oppressive,
fanciful   and   manifestly   arbitrary,   thereby   violating   the
‘substantive due process’ requirement of the Constitution. 
15.18 Coming to Section 5 of the 1988 Act, it must be noted that
the   acquisition   proceedings   contemplated   under   the   earlier
Act   were   in   rem   proceedings   against   benami   property.   We
may   note   that,   jurisprudentially,   such   in   rem   proceedings
transfer   the   guilt   from   the   person   who   utilized   a   property
which is a general harm to the society, to the property itself.
 
55

15.19 When   such   proceedings   are   contemplated   under   law,   there
need   to   be   adequate   safeguards   built   into   the   provisions,
without   which   the   law   would   be   susceptible   to   challenge
under Article 14 of the Constitution. Coming to Section 5 of
the   1988   Act,   it   was   conceived   as   a   half­baked   provision
which did not provide the following and rather left the same
to be prescribed through a delegated legislation:
(i) Whether   the   proceedings   under   Section   5   were
independent or dependant on successful prosecution?
(ii) The   standard   of   proof   required   to   establish   benami
transaction in terms of Section 5.
(iii) Mechanism   for   providing   opportunity   for   a   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 the power of
tracing, which needs an express provision.
56

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 the same is that such
a   declaration   would   render   the   law   not   to   exist   in   the   law
books   since   its   inception.   It   is   only   a   limited   exception
under Constitutional law, or when substantial actions have
been   undertaken   under   such   unconstitutional   laws   that
going   back   to   the   original   position   would   be   next   to
57

impossible.   In   those   cases   alone,   would   this   Court   take
recourse to the concept of ‘prospective overruling’. 
15.22 From   the   above,   Section   3   (criminal   provision)   read   with
Section   2(a)   and   Section   5  (confiscation   proceedings)  of  the
1988   Act   are   overly   broad,   disproportionately   harsh,   and
operate   without   adequate   safeguards   in   place.   Such
provisions were still­born law and never  utilized in the first
place. In this light, this Court finds that Sections 3 and 5 of
the 1988 Act were unconstitutional from their inception.
15.23 Having   said   so,   we   make   it   abundantly   clear   that   the
aforesaid   discussion   does   not   affect   the   civil   consequences
contemplated under Section 4 of the 1988 Act, or any other
provisions.
16. 2 016 A CT   AND  I TS   ANALYSIS   
16.1 The   next   subject   of   examination   is   the   2016   Act,   which
amends   the   1988   Act,   and   expanded   the   1988   Act   to   72
sections   (from   9   sections),   divided   into   8   chapters.   At   the
outset,   we   need   to   understand   the   general   scheme   of   the
law.   The   definition   of   benami   transactions,   which   is   the
heart   of   the   entire   1988   Act,   has   undergone   a
metamorphosis and stands as under:
58

[D EFINITIONS .
Section 2(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   individual   and   the
consideration for  such property  has been
59

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   involving   the   allowing   of
possession of any property to be taken or
retained in part performance of a contract
referred to in section  53A of the  Transfer
of   Property   Act,   1882,   if,   under   any   law
for the time being in force,­
(i)   consideration   for   such   property   has
been   provided   by   the   person   to   whom
possession   of   property   has   been   allowed
but   the   person   who   has   granted
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possession   thereof   continues   to   hold
ownership of such property;
(ii)   stamp   duty   on   such   transaction   or
arrangement has been paid; and
(iii) the contract has been registered.
16.2 Major changes envisaged under the definition are as under:
(i) Expansion   of   the   definition   from   arm’s   length
transactions contemplated under the 1988 Act, to
arrangements and schemes.
(ii) Additional   ingredient   of   benefits   flowing   to   the
real   owner,   a   lacuna   pointed   in   the   earlier   part,
under   1988   Act,   is   included   in   terms   of   Section
2(9)(A)(b).
(iii) Expansion   of   the   ambit   through   Section   2(9)(C),
to   those   properties   where   benamidar   denies
knowledge of such ownership.
(iv) Expansion   of   the   ambit   through   Section   2(9)(D),
wherein the person providing the consideration is
not traceable or is fictitious.
(v) Expansion   from   recognition   of   only   tripartite
transactions   under   1988   Act,   to   also   include
bipartite transactions.
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16.3 Section   2(26)   of   the   2016   Act   defines   a   property.   This
definition   has   been   expanded   to   include   proceeds   from   the
property   as   well.   Such   expansion   allows   for   tracing   of
proceeds   and   is   a   substantial   change   as   compared   to   the
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   the   1988   Act.   Section   3   now   bifurcates
offences   into   two   separate   categories   based   on   the   time
period   of   the   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   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. This distinction
62

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.
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16.8 Section   24(1)   states   that,   if   the   initiating   Officer,   on   the
basis   of   gathered   material,   having   reason   to   believe,   that   a
particular   property   is   a   benami   property,   then   he   ought   to
issue notice 7
  to the beneficial owner (if identified) as well as
to the ostensible owner (if any) seeking an explanation as to
why the property should not be treated as Benami. 
16.9 The   2016   Act   provides   for   provisional   attachment   of   the
property where the concerned officer has genuine reason to
believe,   based   on   the   material   gathered,   that   the   person   in
possession of the property held in benami may alienate the
property.   Such   provisional   attachment   cannot   be   taken
recourse to every time. Recourse under Section 24(3) of the
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
the   authority   to   examine   the   same   on   a   prima   facie   basis.
Such adjudication must take place after providing collected
material to the accused, along with the show cause notice. A
reasoned   order   is   mandated   under   the   aforesaid   provision.
7   In terms of Section 25 of the 2016 Act.
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The   Officer   is   mandated   to   present   a   statement   of   case   to
the   adjudicating   officer,   in   terms   of   Section   24(5)   of   the
2016 Act.
16.11 Adjudication   under   Section   26   mandates   notice   and
disclosure   obligation   to   various   other   persons.   The
adjudicating  authority  can  either  pass an  order   in terms  of
Section   26(3)(c)(i)   or   (ii),   or   pass   an   order   for   further
inquiries in terms of Section 26(3)(b).
16.12 Section 27(1) relates to confiscation of property, wherein if a
property is adjudicated as a benami property under Section
26(3),   then   the   adjudicating   authority   can   give   an
opportunity to the concerned persons, and after hearing the
parties,   pass   an   order   confiscating   the   property.   The
aforesaid   confiscation   order   is   subject   to   the   order   passed
by   the   Appellate   Tribunal   under   Section   46.   Order   of
confiscation   vests   such   property   absolutely   in   the   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   the   interregnum   of   initiating
confiscation   proceedings,   any   third­party   rights   created   to
65

defeat   the   purpose   of   the   Act   shall   be   null   and   void.   Sub
clause   5   mandates   that   if   no   order   of   confiscation   is   made
and   the   same   has   attained   finality,   no   claim   can   be   made
against the Government for the process.
16.14 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   sub­
section   (1)   shall   be   punishable   with
rigorous   imprisonment   for   a   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
twenty­five   per   cent.   of   the   fair   market
value of the property.
Interestingly,   a   crime   which   attracted   strict   liability   under
the   1988   Act,   is   modified   to   include   a   mens   rea   aspect   in
terms   of   the   recommendations   of   the   57 th
  and   130 th
  Law
Commission Reports. 
16.16 It   may   be   necessary   to   note   that   no   prosecution   can   be
initiated   without   previous   sanction   of   the   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   the
previous sanction of the Board.
16.17 Perusal   of   the   remaining   provisions   is   not   required   for   the
purpose at hand.
17. W HETHER   S ECTION   3(1)   AND   C HAPTER   IV   READ   WITH   S ECTION   5   OF   
THE  2016 A CT   HAVE   RETROACTIVE   EFFECT ?   
17.1 The thrust of the arguments advanced by the Union of India
can be crystallized as under:
67

(i.) That   the   1988   Act   was   a   valid   enactment   with
procedural   gaps   that   were   filled   retrospectively   by
the 2016 amendment.
(ii.) That   the   provision   of   confiscation   (civil   forfeiture)
under the 1988 Act, being in the domain of civil law,
is  not   punitive   and   therefore,  the   prohibition  under
Article   20(1)   of   the   Constitution   is   not   attracted   in
this case.  
17.2 With   respect   to   the   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   an   unduly   harsh   law   against
settled   principles   and   Law   Commission
recommendations.
(c.) Section   5   of   1988   Act,   the   provision   relating   to   civil
forfeiture, was manifestly arbitrary.
(d.) Both   provisions   were   unworkable   and   as   a   matter   of
fact, were never implemented.
17.3 Having  arrived at  the aforesaid conclusions that Sections 3
and   5   were   unconstitutional   under   the   1988   Act,   it   would
mean   that   the   2016   amendments   were,   in   effect,   creating
68

new   provisions   and   new   offences.   Therefore,   there   was   no
question   of   retroactive   application   of   the   2016   Act.   As   for
the   offence   under   Section   3(1)   for   those   transactions   that
were   entered   into   between   05.09.1988   to   25.10.2016,   the
law   cannot   retroactively   invigorate   a   stillborn   criminal
offence, as established above.
17.4 As per the concession made by the Union of India and a fair
reading of Section 53 of the 2016 Act, the offence under the
aforesaid provision is prospective, and only applied to those
transactions   that   were   entered   into   after   the   amendment
came   into   force,   viz. ,   25.10.2016.   Any   contrary
interpretation 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:
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“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   can
be convicted by such ex post facto law nor can
the   enhanced   punishment   prescribed   by   the
amendment   be   applicable.   But   insofar   as   the
Central   Amendment   Act   reduces   the
punishment   for   an   offence   punishable   under
Section   16(1)( a )   of   the   Act,   there   is   no   reason
why the accused should not have the benefit of
such   reduced   punishment.   The   rule   of
beneficial   construction   requires   that   even   ex
post facto law of such a type should be applied
to mitigate the rigour of the law. The principle
is   based   both   on   sound   reason   and   common
sense.   This   finds   support   in   the   following
passage from   Craies on Statute Law , 7th Edn.,
at pp. 388­89:
“A   retrospective   statute   is   different   from   an
ex   post   facto   statute.   “Every   ex   post   facto
law…”   said   Chase,   J.,   in   the   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   an  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   a   good   general   rule   that   a
law should have no retrospect, but in cases in
which   the   laws   may   justly   and   for   the   benefit
of the community and also of individuals relate
70

to   a   time   antecedent   to   their   commencement:
as   statutes   of   oblivion   or   of   pardon.   They   are
certainly   retrospective,   and   literally   both
concerning   and   after   the   facts   committed.
But   I   do   not   consider   any   law   ex   post   facto
within the prohibition that mollifies the rigour of
the   criminal   law ,   but   only   those   that   create
or   aggravate   the   crime    ,       or   increase   the
punishment   or   change   the   rules   of
evidence   for   the   purpose   of
conviction... .   There   is   a   great   and   apparent
difference   between   making   an   unlawful   act
lawful   and   the   making   an   innocent   action
criminal and punishing it as a crime.”
17.6 In   the   case   at   hand,   the   2016   Act   containing   the   criminal
provisions   is   applicable   only   prospectively,   as   the   relevant
Sections   of   the   pre­amendment   1988   Act   containing   the
penal   provision,   have   been   declared   as   unconstitutional.
Therefore,   the   question   of   construction   of   the   2016   Act   as
retroactive  qua  the penal provisions under Sections 3 or 53,
does not arise. 
17.7 The   continued   presence   of   an   unconstitutional   law   on   the
statute book, or the claim that such law was not challenged
before   Constitutional   Courts,   does   not   prevent   this   Court
from  holding  that such  unconstitutional laws cannot enure
to the 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   the   Constitution   would   be
rendered nugatory.
17.8 This 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.
17.9 Although   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/retrospective   civil   legislations   under   the
Constitution.   However,   Article   20(1)   mandates   that   no   law
72

mandating   a   punitive   provision   can   be   enacted
retrospectively.   Further,   a   punitive   provision   cannot   be
couched   as   a   civil   provision   to   by­pass   the   mandate   under
Article   20(1)   of   the   Constitution   which   follows   the   settled
legal principle that “ what cannot be done directly, cannot be
done indirectly ”.
17.11 Therefore,   the   immediate   question   which   arises   for
consideration   is   whether   the   retroactive   confiscation
provided under Section 5 read with Chapter  IV of 2016 Act
is punitive or not?
17.12 At   the   outset,   we   may   note   that   Shri   S.   V.   Raju,   learned
ASG, has submitted that acquisition provided under Section
5   of   the   1988   Act   is   same   as   confiscation   provided   under
Section   5   read   with   Chapter   IV   of   the   2016   Act.   He   states
that   both   concepts   are   related   to   civil   law   and   is   not
concerned with punitive punishments as provided under the
Indian Penal Code, 1860.
17.13 Acquisition   under   the   earlier   1988   Act   as   well   as
confiscation   under   the   2016   Act   are   said   to   have   been
enacted on the reasoning that the property emanating from
the   benami   transaction   also   gets   tainted.   The   substantive
73

difference   between   the   acquisition   provision   under   the
earlier   enactment   and   the   confiscation   provision   under   the
2016 Act is that proceeds of benami transactions have been
made traceable under the 2016 Act.
17.14 Before   we   analyse   the   other   provisions,   it   is   necessary   to
give   a   brief   introduction   to   the   concept   of   civil   forfeiture   in
India,   as   the   same   was   argued   by   the   learned   ASG.   Under
Admiralty jurisdiction, the concerned Admiralty Courts had
the   jurisdiction   to   forfeit   vessels   under   its   civil   jurisdiction
in   lieu   of   any   maritime   claim.   Same   was   the   law   across
various   common   law   jurisdictions,   such   as   the   United
States of America and the 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   the   civil   side,   there   can   be   in   rem   or   in
personam  forfeitures .  Punitive forfeitures under the criminal
law are   in personam . Criminal forfeitures usually take place
at the conclusion of a trial, when the guilt of the accused is
established.   Standards   of   evidentiary   requirement   differ
greatly between civil and criminal forfeiture.
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17.16 The   historic   origin   of   in   rem   civil   forfeiture   in   common   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   well­chronicled   abuses,”   and
“These   forfeiture   operations   frequently   target
75

the poor and other groups least able to defend
their interests in forfeiture proceedings”. 8
17.17 In   the   case   at   hand,   although   expansion   of   forfeiture   laws
originates from the Parliament’s concern for decriminalizing
property   holdings,   however,   we   are   reminded   of   Justice
Oliver Wendell Holmes, who has stated as under:
“The customs beliefs or needs of a primitive
time   establish   a   rule   or   a   formula.   In   the
course   of   centuries,   the   custom,   belief,   or
necessity disappears, but the rule remains.
The  reason   which   gave   rise  to   the   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 the present state of things;
and   then   the   rule   adapts   itself   to   the   new
reasons   which   have   been   found   for   it,   and
enters   on   a   new   career.   The   old   form
receives a new content and in time even the
form   modifies   itself   to   for   the   meaning
which it has received.” 9
17.18 While   categorizing   the   forfeiture   proceedings   as   civil   or
criminal,   the   test   laid   down   by   the   European   Court   of
Human Rights  in  Engel v The 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
the Report and are as follows: 
8   Leonard v. Texas , 137 S. Ct. 847, 847-48 (2017).
9  Oliver Wendell Holmes in  The Common Law  5 (1881).
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"(i)   The   manner   in   which   the   domestic   state
classifies   the   proceedings.   This   normally
carries   comparatively   little   weight   and   is
regarded   as   a   starting   point   rather   than
determinative   ­­  see  Ozturk  v  Germany   [1984]
6 EHRR 409 at 421 and 422. 
(ii)   The   nature   of   the   conduct   in   question
classified objectively bearing in mind the object
and purpose of the Convention. 
(iii)   The   severity   of   any   possible   penalty   ­­
severe   penalties,   including   those   with
imprisonment   in   default   and   penalties
intended   to   deter   are   pointers   towards   a
criminal  classification  of  proceedings ­­ see
Schmautzer v Austria [1995] 21 EHRR 511. 
In   Lauko   v   Slovakia   [1998]   ECHR   26138/95
the   court   observed   that   these   criteria   were
alternatives   and   not   cumulative   although   a
cumulative   approach   might   be   adopted   where
a   separate   analysis   of   each   criterion   did   not
make it possible to reach a clear conclusion as
to the existence of a 'criminal charge'." 
( emphasis supplied )
The   aforesaid   proposition   has   also   been   confirmed   by   the
House of Lords in  R v. H , [2003] 1 ALL ER 497.
17.19 In   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
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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,
wherein   the   law   provided   only   for   attachment   of   the
property,   after   conviction   is   given   effect   to.   Unlike   the
present   law,   the   taint   on   the   property   is   squarely
determined   by   the   Criminal   Court   deciding   the   criminal
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conviction.   Confiscation   contemplated   under   Section   13   of
the   Criminal   Law   Amendment   Ordinance   38   of   1944   could
only be given effect to after the verdict of guilty by Criminal
Court.   In   the   light   of   such   unique   provisions,   the   Court
characterized such forfeiture laws as civil in nature. We may
note   that   such   a   law   did   not   contemplate   an   independent
confiscation proceeding as created under this law, rather, a
mechanism   was   devised   to   confiscate   a   property   after
criminal conviction.
17.21 This Court, while noting that forfeiture is no doubt punitive
under   Article   20(1)   of   the   Constitution   as   it   is   one   of   the
punishments prescribed under  Section  53 of IPC, held that
Section 13(3) of the Criminal Law Amendment Ordinance 38
of   1944   was   not   punitive   as   the   same   was   dependent   on
prior   criminal   prosecution   and   determination   of   amount
which was to be forfeited in the following manner:
“ 12.   Further   what   s.   13(3)   of   the   1944­
Ordinance   which   provides   for   forfeiture
requires   is   that   there   should   be   in   the   final
judgment  of  the  criminal court  a finding  as to
the   amount   of   money   or   value   of   property   in
pursuance of s. 12. As soon  as that finding  is
there,   the   District   Judge   would   know   the
amount he is to forfeit, and the purpose of the
finding is that if the District Judge is asked to
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make   a   forfeiture   under   s.   13(3)   he   should
know   exactly   the   amount   which   he   is   require
to   forfeit.   So   long   therefore   as   the   criminal
court trying an offender has given a finding as
to   the   amount   of   money   or   value   of   other
property   procured   by   means   of   the   offence   in
the   judgment   that   in   our   opinion   is   sufficient
compliance   with   s.   12(1)   of   the   1944­
Ordinance and the requirement therein that it
should   be   on   the   representation   of   the
prosecution   is   a   mere   formality.   Obviously,
even a determination under s. 10 of the 1943­
Ordinance as amended in 1945 of the amount
procured   by   the   offence   must   be   at   the
instance   of   the   prosecution   for   it   is   the
prosecution which will provide the material for
that   determination   which   in   turn   will   be   the
basis   on   which   the   fine   will   be   determined   by
the court under s. 10. …
…
14.   This   brings   us   to   the   contention   which
found   favour   with   Bhattacharya   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
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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   had   been
embezzled.   It   is   urged   that   the   Government
could   file   a   suit   to   recover   the   money
embezzled   and   s.   13(3)   only   provides   a
speedier   remedy   for   that   purpose   and   the
forfeiture   provided   therein   is   not   a   penalty
within the 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 the power
of   forfeiture   under   Section   44(2)(A)   of   Andhra   Pradesh
Forest   Act,   1967.   Noting   that   Section   45   of   the   Forest   Act
prior   to   the   amendment   had   a   provision   for   civil   forfeiture
only after the conviction of an accused under the Forest Act,
it was felt  that such a provision  was  insufficient  to prevent
the   growing   menace   of   ruthless   exploitation   of   government
forests and illicit smuggling of teak, red sandalwood, etc. It
was   in   this   context   that   a   separate   mechanism   was
formulated to ensure that there was no unreasonable delay
in confiscation of property.
 
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17.23 It   may   be   noted   that   this   case   did   not   involve   a
constitutional challenge under Article 20(1) to the aforesaid
rules.   In   any   case,   this   Court   has   held   that   the   new
mechanism   formulated   under   the   amended   Act   was
completely independent of criminal prosecution.
17.24 To the same extent, in   State of Madhya Pradesh v. Kallo
Bai , (2017) 14 SCC 502, this Court interpreted the   Madhya
Pradesh   Van   Upaj   (Vyapar   Viniyam)   Adhiniyam,   1969   to
have   independent   confiscation   proceedings   from   criminal
prosecution   in   view   of   the   non­obstante   clause   under
Section   15C   of   the   Adhiniyam.   It   may   also   be   noted   that
there   was   no   challenge   to   the   aforesaid   Act,   as   being
violative of Article 20(1) of the Constitution. The Court held
as under:
“14.   Sub­section   (1)   of   Section   15   empowers
forest   officers   concerned   to   conduct   search   to
secure   compliance   with   the   provisions   of   the
Adhiniyam.   On   a   plain   reading   of   sub­section
(2),   it   is   clear   that   the   officer   concerned   may
seize   vehicles,   ropes,   etc.   if   he   has   reason   to
believe   that   the   said   items   were   used   for   the
commission   of   an   offence   under   the
Adhiniyam.   Confiscation   proceedings   as
contemplated   under   Section   15   of   the
Adhiniyam  is a quasi­judicial proceedings and
not   a   criminal   proceedings.   Confiscation
proceeds   on   the   basis   of   the   “satisfaction”   of
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the   authorised   officer   with   regard   to   the
commission of forest offence. Sub­section (3) of
the   provision   lays   down   the   procedure   to   be
followed for confiscation under the Adhiniyam.
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 )   of
sub­section   (5)   is   able   to   satisfy   that   the
articles   were   used   without   his   knowledge   or
connivance or, as the case may be, without the
knowledge   or   connivance   of   his   servant   or
agent   and   that   all   reasonable   and   necessary
precautions had been taken against the use of
such objects for commission of forest offence.”
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17.25 In   Yogendra   Kumar   Jaiswal   v.   State   of   Bihar ,   (2016)   3
SCC   183,   a   Division   Bench   of   this   Court   was   concerned
with   the   constitutional   challenge   to   various   enactments
such as the Orissa Special Courts Act, 2006 and the Bihar
Special   Courts   Act,   2009.   Both   the   enactments   had
provisions   for   confiscation.   While   interpreting   the
confiscation   provisions,   this   Court   read   down   the   same   to
only mean interim attachment. In other words, confiscation
was   interpreted   as   akin   to   attachment   proceedings.   The
Court   mandated   that   any   confiscation   would   be   contingent
on   the   final   outcome   of   the   criminal   proceedings   and   the
logical   corollary   to   the   same   was   that   confiscation
proceedings were not completely independent and ultimately
had   to   be   adjudicated   along   with   the   trial   of   the   main
criminal case. 
17.26 In   Abdul Vahab v. State of Madhya Pradesh , (2022) SCC
Online   SC   262,   this   Court   was   concerned   with   the
interpretation   of   the   Madhya   Pradesh   Cow   Slaughter
(Prohibition) Act, 2004, wherein it was held that confiscation
proceedings   could   not   be   independent   of   acquittal   in   the
criminal   case.   If   a   contrary   interpretation   was   taken,   then
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the   same   would   be   violative   of   Article   300A   of   the
Constitution.   This   Court   distinguished   the   case   from   the
judgment   of   Kallo   Bai   (supra),   by   placing   reliance   on   the
absence   of   a   provision   such   as   Section   15C   of   Madhya
Pradesh Van Upaj (Vyapar Viniyam) Adhiniyam, 1969 under
the  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   the
Prevention   of   Money   Laundering   Act,   2002   (“ PMLA ”)   and
limited   the   application   of   Section   8(4)   of   PMLA   concerning
interim   possession   by   authority   before   conclusion   of   final
trial   to   exceptional   cases.   The   Court   distinguished   the
earlier   cases   in   view   of   the   unique   scheme   under   the
impugned   legislation   therein.   Having   perused   the   said
judgment,   we   are   of   the   opinion   that   the   aforesaid   ratio
requires further expounding in an appropriate case, 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
85

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   that   the
proportionality   of   separate   confiscation   procedure
prescribed under the 2016 Act, has not been argued herein.
Accordingly, we leave the aforesaid question of law open. 
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17.29 Under   the   IPC,   forfeiture   is   recommended   to   be   a   form   of
punishment   under   Section   53.   Accordingly,   the   Code   of
Criminal   Procedure,   1976   provides   for   a   mechanism   for
interim   custody   and   forfeiture   at   the   conclusion   of   trial
under   Section   451   of   the   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, the
Court may make such order as it thinks fit for
the   proper   custody   of   such   property   pending
the   conclusion   of   the   inquiry   or   trial,   and,   if
the   property   is   subject   to   speedy   and   natural
decay,   or   if   it   is   otherwise   expedient   so   to   do,
the   Court   may,   after   recording   such   evidence
as   it   thinks   necessary,   order   it   to   be   sold   or
otherwise disposed of. 
Explanation.­   For   the   purposes   of   this
section," property" includes­
(a)   property  of  any  kind  or   document  which   is
produced   before   the   Court   or   which   is   in   its
custody,
(b)   any   property   regarding   which   an   offence
appears   to   have   been   committed   or   which
appears to have been used for the commission
of any offence.
452.   Order   for   disposal   of   property   at
conclusion of trial.
(1)   When   an   inquiry   or   trial   in   any   Criminal
Court is concluded, the Court may make such
order   as   it   thinks   fit   for   the   disposal,   by
destruction,   confiscation   or   delivery   to   any
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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
the commission of any offence.
Aforesaid   provisions   under   the   Cr.P.C.   have   inbuilt
safeguards   of   in   personam   criminal   forfeiture,   wherein
confiscation   occurs   at   the   end   of   the   trial.   Under   these
provisions, confiscation is to be determined at an evidential
standard   of   ‘beyond   reasonable   doubt’   and   are   dependent
on the result of the criminal trial. 
17.30 Coming   to   the   Benami   Act   post   the   Amendment,   the
interplay   of   Sections   27(3),   (5)   and   67   of   the   2016   Act
creates   a   confiscation   procedure   which   is   distinct   from   the
procedure   contemplated   under   the   CrPC   or   any   other
enactment   till   now   in   India.   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.
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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. 10
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 Parliament to take into consideration the fact that such
transactions are often acquired from ill­gotten 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   the   title.   It   goes
further and the taint attaches to the proceeds as well. 
17.33 In view of the above discussion, it is manifest that the 2016
Act   contemplates   an   in­rem   forfeiture,   wherein   the   taint   of
entering into such a benami transaction is transposed to the
asset  itself and  the same becomes  liable to  confiscation. At
the cost of repetition, we may note that the taint of benami
transactions   is  not   restricted   to   the  person   who   is  entering
into the aforesaid transaction, rather, it attaches itself to the
property   perpetually   and   extends   itself   to   all   proceeds
arising from such a property, unless the defence of innocent
ownership   is   established   under   Section   27(2)   of   the   2016
Act.   When   such   a   taint   is   being   created   not   on   the
individual, but on the property itself, a retroactive law would
characterize   itself   as   punitive   for   condemning   the   proceeds
of sale which may also involve legitimate means of addition
of wealth.
17.34 Jurisprudentially, a law may enable forfeiture of property by
peculiar   reason   of   its   circumstances,   of   it   being   dangerous
to the 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   the   law
provides that the Government shall forfeit a property ‘A’ for,
(1) what was carried on in property ‘B’, or (2) what the owner
does   in   a   matter   not   connected   with   property   ‘A’   or   (3)   a
bare intent which does not necessarily relate to the conduct
in   property   ‘A’,   in   such   cases,   forfeiture   is   punishment
without any exception. In this case, the property may not be
inherently dangerous or denigrate any standard of morality.
It   is   just   the   condemnation   of   the   method   of   transfer   and
holding,   which   was   once   a   recognized   form   of   property
holding in India. In such a case, the   in rem   civil proceeding
utilized retroactively, would characterize itself as penal.
17.35 In   the   case   at   hand,   the   authority   that   initiates   such
confiscation,   is   granted   extensive   powers   of   discovery,
inspection, compelling attendance, compelling production of
documents.   They   are   further   empowered   to   take   the
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   a   penalty   of
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₹ 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
punishment,   in   the   absence   of   any   other   form   of
punishment.   It   is   in   this   unique   circumstance   that
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confiscation   contemplated   under   the   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,   the
logical   reason   for   accepting   such   an   action   would   be   that
the continuation of such a property or instrument, would be
dangerous for the community to be left free in circulation. In
R   (on   the   appln   of   the   Director   of   the   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   the
judgment   of   Laws   LJ,   who   gave   the   only
reasoned   judgment,   there   is   set   out   the
citation from Butler which reads, so far as
material, as follows: 
"It   is   the   applicant's   contention   that
the   forfeiture   of   his   money   in   reality
represented   a   severe   criminal
sanction,   handed   down   in   the
absence of the procedural guarantees
afforded to him under article 6 of the
Convention,   in   particular   his   right   to
be   presumed   innocence   [sic].   The
court does not accept that view. In its
opinion,   the   forfeiture   order   was   a
preventive   measure   and   cannot   be
compared   to   a   criminal   sanction,
since   it   was   designed   to   take   out   of
circulation   money   which   was
presumed   to   be   bound   up   with   the
international   trade   in   illicit   drugs.   It
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follows   that   proceedings  which   led   to
the   making   of   the   order   did   not
involve   'the   determination   ...   of   a
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 the present enactment, history points to a
different   story   wherein   benami   transactions   were   an
accepted   form   of   holding   in   our   country.   In   fact,   the   Privy
Council   had,   at   one   point   of   time,   praised   the   sui   generis
evolution   of   the   doctrine   of   trust   in   the   Indian   law.   The
response   by   the   Government   and   the   Law   Commission   to
curb   benami   transactions   was   also   not   sufficient   as   it   was
conceded   before   this   Court   that   Sections   3   and   5   of   the
1988   Act   in   reality,   dehors   the   legality,   remained   only   on
paper and were never implemented on ground. Any attempt
by   the   legislature   to   impose   such   restrictions   retroactively
would no doubt be susceptible to prohibitions under Article
20(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
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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 substantive provisions. 
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d) In   rem   forfeiture   provision   under   Section   5   of   the   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 the coming into force of
the   2016   Act,   viz. ,   25.10.2016.   As   a   consequence   of   the
above   declaration,   all   such   prosecutions   or   confiscation
proceedings shall stand quashed. 
f) As  this  Court  is  not  concerned  with   the  constitutionality
of   such   independent   forfeiture   proceedings   contemplated
under   the   2016   Amendment   Act   on   the   other   grounds,
the aforesaid questions are left open to be adjudicated in
appropriate proceedings. 
18.2 The appeal is disposed of in the above terms.
...........................CJI.
(N.V. RAMANA)
      
 ...........................J.
(KRISHNA MURARI)
...........................J.
(HIMA KOHLI)
NEW DELHI;
AUGUST 23, 2022.
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