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Supreme Court says law amended in 2016 cannot have retrospective effect on 2011 transaction

The Supreme Court has asked the Centre how can it prosecute someone under the amended Benami Act retrospectively while hearing a plea by the Union of India against the order of the Calcutta High Court which had held that the 2016 amendment had prospective effect.

On Wednesday, Chief Justice of India N.V. Ramana opined that the Benami Transactions (Prohibition) Amendment Act, (2016) cannot be applied retrospectively. The bench, which also comprised of Justices Krishna Murari and Hima Kohli, was hearing a petition filed by Union of India against M/S Ganpati Dealcom Pvt. Ltd which had approached the Calcutta High Court against the show cause notice for alleged benami property purchased by the company.

The CJI observed,

“In 2016, there was no mechanism to know what is benami or not benami. It has to be by way of rule, you cannot prosecute someone retrospectively. When vacuum is there, you have to accept it. See, 2016 onwards okay. When you are admitting that there is no procedure.”

Additional Solicitor General Vikramjeet Banerjee, appearing for the Union Ministry of Finance, replied, “I am in milordship hand.”

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CJI said, “No lordships hand, what lordships hand will do, we are all abideinigby the law.”

“You have to blame yourself. There was no law in place at that period of time,” added the CJI.

ASG Banerjee: “I must only say this, Section 4, attachment means the prohibition of transfer, conversion, disposition or movement of property, by an order issued under this act;

Section 5 of the New Act, by which Chapter II “Prohibition of Benami Transactions” is added before Section 3, of the Principal Act.

In Section 8 of the New Act, substituted the Section 5 and 6 of the principal act;

“5. Any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government.

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  1. (1) No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. (2) Where any property is re-transferred in contravention of the provisions of sub-section (1), the transaction of such property shall be deemed to be null and void. (3) The provisions of sub-sections (1) and (2) shall not apply to a transfer made in accordance with the provisions of section 190 of the Finance Act, 2016.”

The Court has adjourned its hearing till tomorrow.

The Apex Court on February 3, 2020, had issued notice and stayed the order of the Calcutta High Court insofar as it holds that 2016 amendment of the Benami Transactions Act, 1988 was prospective in nature.

The High Court had opined, “The obvious basis of the principle against retrospectivity is the principle of ‘fairness’, which must be the basis of every legal rule as was observed in L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties.

In Niharika Jain & Ors. Vs. Union of India & Ors. reported in an unreported decision of the Rajasthan High Court made on 12th July, 2019, the Court inter alia held that the 2016 amendment had prospective effect.

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By an amendment, an existing Act is supplemented by new provisions adding to or subtracting from it. It is usual that parts of the existing Act are retained. Say for example, there is a provision in the existing Act for penalty in the case of acquisition of property described as benami. If the definition of benami property, its acquisition and the penal provisions remain unaltered after the amendment, and the alleged contravention took place before the amendment, it would not affect any proceeding taken in respect of that contravention, after the amendment, because these provisions are continued by the amending Act, untouched and unaffected by it. But take the case here. The definitions of benami transaction and property are radically changed by the amending Act. So are the provisions regarding investigation of contraventions, offences etc., the consequence of it namely, confiscation, prosecution etc. The show-cause notice dated 29th August, 2017 was issued under Section 24(1) of the 1988 Act as amended. It referred to the alleged benami transaction by the appellant under Section 2(8) and 2(9)(D) thereunder. Therefore to allege contravention of the 1988 Act as amended in 2016 the contravention should have been made after the date of coming into force of the amendment. In the absence of retrospective operation of the amending Act, one cannot allege that the transaction resulting in the said contravention of the 1988 Act as amended in 2016 took place in 2011. That is exactly what the impugned show-cause notice proposed to do.

Now, it is an accepted principle of law that the statute cannot have any retrospectivity unless expressly provided therein. In Rao Shiv Bahadur Singh and Anr. Vs. State of Vindhya Pradesh reported in AIR 1953 SC 394, the Supreme Court was concerned with the interpretation and application of Article 20 of our Constitution. The court remarked that “this article in its broad import has been enacted to prohibit convictions and sentences under ex-facto laws.” It defined ex-post facto laws as those which “voided and punished what had been lawful when done.”

This case was cited to support the argument that the 2016 amendment could not be utilized to charge the appellant with contravention or convict him for an alleged offence under it but which was not so under the 1988 Act, said the High Court.

Further it stated that,

“All the above authorities were cited by Mr. Khaitan. I reject the contention of the Additional Solicitor General that the provision in Section 1(2) of the said Act automatically made the amending Act of 2016 retrospective. The 2016 amendment is a new legislation and in order to have retrospectivity it should have been specifically provided therein that it was intended to cover contraventions at an earlier point of time. That express provision is not there. Therefore this contention of the Additional Solicitor General fails.”

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The High Court relying on judgment In Canbank Financial Services Ltd vs Custodian & Others reported in (2004) 8 SCC 355 the Supreme Court specifically held in paragraph 67 that the said Act of 1988 had not been made workable as no rules under Section 8 of the said Act for acquisition of benami property had been framed. These two cases were also cited by Mr. Khaitan. Section 6(c) of the General Clauses Act, 1897 is most important. It lays down that repeal of an enactment, which necessarily includes an amendment, would not affect “any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed”, unless a different intention is expressed by the legislature. Without question, the omission on the part of the government to frame rules under Section 8 of the 1988 Act rendered it a dead letter and wholly inoperative.

Furthermore the High Court judge opined that assuming that M/S Ganpati had entered into a benami transaction in 2011, no action could be taken by the Central government, in the absence of enabling procedural rules. It is well within the right of the appellant to contend that the Central government had waived its rights. It could also contend that no criminal action could be initiated on the ground of limitation. Now, these rights which had accrued to M/S Ganpati could not, in the absence of an express provision be extinguished by the amending Act of 2016. In other words, applying the definition of benami property and benami transaction the Central government could not, on the basis of the 2016 amendment allege contravention and start the prosecution in respect of a transaction in 2011.

For the reasons given above, the main show cause notice dated 29th August, 2017 and the subsequent notice dated 9th October, 2017 issued by the respondents are a nullity, in my opinion.”

Facts of the case is that Ganpati Dealcom Pvt Ltd, was incorporated on 7th September, 2007. Its registered office is at 101, Balaram Dey Street, Kolkata – 700006. On 2nd May, 2011 it purchased the property numbered 9, Sarat Chatterjee Avenue, Kolkata. The sellers were diverse individuals. The total consideration was Rs 9,44,00,000/-. The property was large, the land area being 8 cottahs and 13 chittaks. The building standing on it was up to the third floor having a total area of 6336.5 sq. ft. of which the ground floor had 1965.5 sq. ft., the first floor 1965.5 sq. ft., the second floor 1965.65 sq. ft. and the third floor 440 sq. ft. Prior to the purchase of this property six individuals appeared to have been allotted shares in the appellant. They were Nakul, Neha, Shruti, Ritu, Rajesh and Ashok Kumar Goenka, all living in Kamdhenu Building, 4A Ray Street, Kolkata – 700020. Nakul, Neha and Shruti were allotted substantial shares, 4,881 for Nakul, 15,214 for Neha and 10,048 for Shruti. Each of the others was allotted 200 to 300 shares.

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On 29th August, 2017 the Tax authority invoked Section 24(1) of the Act after its amendment. They issued a notice to the M/S Ganpati alleging that the said property was benami under Section 2(8) of the said Act of 1988, as amended. It also alleged violation of Section 2(9)(D) thereof. It said that the consideration for this transaction was provided by “non-traceable fictitious/shell entities having no real business”, rendering the transaction benami.

Two substantial points were raised by Mr. Khaitan, learned Senior Counsel for M/S Ganpati before the high court which need to be crystallized.

The first was that the amending Act had no retrospective effect for an alleged benami transaction made in 2011. A show-cause notice could not have been issued under the 1988 Act as amended. The show-cause notice dated 29th August, 2017 was issued under Section 24(1) of the 1988 Act, as amended. It asked the M/S Ganpati to show-cause as to why the subject immovable property was not a benami property under Section 2(8) of the 1988 Act. There was no Section 2(8) in the original 1988 Act. Therefore, the reference was unmistakably to the Act as amended in 2016. Secondly, it was said that the rules were not framed under the 1988 Act making it inoperative. Or, in other words, the government had deliberately not given effect to this Act. The 2016 amendment contained a detailed machinery for the enforcement of the provisions of the 1988 Act as amended in 2016.

[Union of India Vs M/S Ganpati Dealcom Pvt. Ltd.]

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