Blurb: The author examines Union of India v. Ganpati Dealcom and its subsequent application in High Court rulings to argue how it led to the statutory exclusion and retrospective decriminalisation of pre-2016 benami transactions. Further, they contend that the recall order corrected this judicial overreach and its unintended consequences.
Introduction
On 23 August 2022, the Supreme Court of India (“Supreme Court”) in Union of India v. Ganpati Dealcom Private Limited (“Judgement”), decided an appeal against the Calcutta High Court’s judgement in Ganpati Dealcom Private Limited v. Union of India. The issue before the court was whether the Prohibition of Benami Property Transactions Act, 1988 (“the Act”) enacted post the Benami Transactions Prohibition Amendment Act, 2016 (“Amendment”) is prospective. The Supreme Court held that this issue is intertwined with the constitutionality of the Benami Transactions (Prohibition) Act 1988 (“the Unamended Act”) and the Act. Sections 3 and 5 of the Unamended Act and Section 3(2) of the Act were held unconstitutional, whereas Section 5 of the Act was held to be applied prospectively. On 18 October 2024, the Supreme Court in the Order (“Order”) recalled the Judgement. The Supreme Court held that the Judgement went beyond the issues raised in determining the constitutionality of the provisions of the Unamended and the Act.
During the hearing of the review petition, the Solicitor General highlighted the implications of the Judgement. He emphasized that numerous orders were being issued across India striking the proceedings against benami transactions. In this regard, this article will explicate the impact of the Judgment on the several rulings passed by various High Courts and make two arguments – firstly, the Judgement, subsequently applied by the various High Courts created statutory exclusion and retrospectively de-criminalised benami transactions entered before January 5, 2016 (“enforcement date”); and secondly, the Order presented an opportunity to re-address it.
1. Background – Constitutionality of Criminalising Benami Transactions and its Recall Order
Section 3 of the Unamended Act criminalised every benami transaction irrespective of its intention and Section 5 provided for the confiscation of the benami property. In 2016, the Amended Act divided criminalisation into two categories. Section 3(2) criminalised benami transactions entered before the enforcement date whereas Section 3(3) criminalised transactions committed after the enforcement date. As per the Judgement, transactions under the latter are to be read with Section 53 of the Act that incorporated the mens rea element and merely penalised the transactions that are done “in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors.” Similar to the Unamended Act, Section 5 read with Chapter IV of the Act provided for the confiscation of benami property.
Further, in the Judgement, the Supreme Court held that Section 3 of the Unamended Act was unconstitutional for overlooking the mens rea element in the criminalisation of the offence. Further, Section 5 of the Unamended Act was held as a half-baked and overbroad provision, and therefore, held unconstitutional for the lack of sufficient safeguarding. Regarding Section 3(2) of the Act, the Supreme Court observed that Article 20(1) of the Constitution of India prohibits the retrospective criminalisation of any offence. Therefore, Section 3(2) of the Act was held unconstitutional because it retrospectively criminalised the transactions. Further, Section 5 of the Act was held to be a punitive provision and cannot be couched as a civil provision. Therefore, it can be applied only prospectively.
The Judgement held that when a law is declared unconstitutional, it is considered void since its inception. An exception applies if substantial actions under the law make it difficult to revert to the original state. In such cases, the court may use “prospective overruling.” Here, the Judgement in held, “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.” Accordingly, the Court concluded that Sections 3 and 5 of the 1988 Act were unconstitutional from the very beginning.
In the review petition, the issue before the Supreme Court was whether the Judgment declaring Sections 3 and 5 of the Unamended Act and Section 3(2) of the Act unconstitutional could be recalled. In the Order, the Supreme Court observed that the constitutionality of the provisions was never raised during the original proceedings. The only issue that the bench in the judgement heard was: “Whether the Prohibition of Benami Property Transactions Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016, has a prospective effect”. Despite this limited scope, the Judgement declared that certain provisions of the Unamended Act, specifically, Sections 3 and 5, were unconstitutional. On this, the Order noted, “The challenge to the validity of a statutory provision cannot be adjudicated upon in the absence of a live lis or a contest between the parties” Accordingly, the review petition was granted, and the Order recalled the Judgment.
2. Opening the Floodgates – Retrospective Decriminalisation?
The Judgement held that the provisions of the Unamended Act were null and void from its beginning and the mirroring provisions in the Act were prospective. Therefore, it created a statutory exclusion to deal with the transactions entered into before the enforcement date. The implications of such a statutory exclusion can be witnessed in several rulings by the various High Courts.
I have found 33 High Court rulings where the Judgement was mentioned. Out of which 8 rulings relied on the Judgement and quashed the proceedings against benami transactions [here, here, and here]. A famous instance from one of 8 High Court rulings is Satendra K Jain v. Union of India. In Satendra Jain, the Delhi High Court dealt with a batch of several writ petitions challenging different show-cause, provisional, and attachment-orders. Former Aam Aadmi Party minister, Satendra Jain challenged the orders issued on 24 May 2017. Within two months of the Judgement, the Delhi High Court, on 10 October 2022, relied on the Judgement and quashed the orders.
There are other rulings where the High Courts decide different petitions challenging the same order/notice in different rulings. In Unknown v. M/S. Advance Infra Developers Pvt Ltd, the Madras High Court dealt with the challenge to an order passed by the Appellate Tribunal dated 15.12.2022 quashing the show-cause proceedings against benami transactions concerning the purchase of 17.702 acres of land. The other rulings that deal with the challenge of the same order can be accessed [here, here, and, here]
The transaction occurred between 2009 and 2010, prior to the enforcement date of the Act. The property was subsequently classified as benami on 26.04.2018. In all of them, the Madras High Court relied on the Judgement and held that transactions entered before the commencement of the enforcement date cannot be governed by the Act. Therefore, the order by the Appellate Tribunal quashing the show-cause proceedings was upheld.
Similarly, the Telangana High Court dealt with several petitions, related to benami transactions, grouped as A, B, and C and dealt with a challenge to the show cause notices, provisional orders, and attachment orders respectively [can be found here, here, and here]. In all of these, Telangana High Court held that the transactions that were classified as benami transactions took place in the financial year 2014-15 i.e., prior to the enforcement date. While quashing the show cause and provision attachment order, the Telangana High Court relied on the Judgement and reiterated that the provisions of the Act of 2016 cannot be applied retrospectively.
As apparent from the various High Courts’ rulings, not only did the Judgement exclude the unprosecuted proceedings against benami transactions but also struck down the ongoing proceedings against the transaction entered before the enforcement date. Therefore, this statutory exclusion, effectuated through the Judgement and High Courts’ rulings, retrospectively de-criminalizes any benami transaction entered before the enforcement date.
- Unwinding the Clock
The Order recalls the Judgement for moving beyond the issues framed. This nullified the unconstitutionality of the provisions of the Amended Act. This makes the Order an opportunity to address the statutory exclusion created by the Judgement and effectuated by the various High Courts for the administration of the benami transactions entered before the enforcement date.
This address is done through two ways. First, it prevents the High Courts and other adjudicatory bodies from relying on the Judgement to quash the proceedings against benami transactions; and second, restoring the status quo ante of the already quashed proceedings. For the second way, appeals must be filed against the various High Courts’ rulings to restore the status quo of the proceedings. To illustrate, on 7 December 2022 in Sri T R Chandraiah v. Initiating Officer under the PBPT Act, the Karnataka High Court quashed the show cause notice and the consequent attachment orders passed by the authorities. After the Order was delivered, on 20 December 2024, the Karnataka High Court in Initiating Officer under the PBPT Act v. Sri T R Chandraiah heard the appeal, set aside the order dated 7 December 2022 and remitted it to a fresh bench, in view of the Order. Taking a cue from this order, appeals must be filed to other High Courts as well to restore the proceedings against benami transactions.
Saif Ali is a law student at the National Law School of India University, Bengaluru. His interests include corporate law, criminal justice, and gender theory.
Ed note: This piece was reviewed by Harshitha Adari and published by Abhishek Sanjay from the Student Team.
