Supreme Court Strikes Down Criminal Provision Of 'Benami' Law

Supreme Court Rules Prohibition Of Benami Property Transactions Act

The Supreme Court ruled that the Prohibition of Benami Property Transactions Act, 1988, is unconstitutional and invalidated two of its most important clauses. It also declared invalid every prosecution brought under the Act between 1988 and 2016 (the year it was revised). The decision was reached in response to the Centre's appeal of the Calcutta High Court ruling holding that the 2016 amendment to the 1988 Act will apply with prospective effect. The 1988 Act was created to outlaw 'benami' transactions and the power to recover 'benami' property. The 1988 statute was declared "still born" and "unconstitutional" by a three-judge panel made up of Chief Justice N.V. Ramana, Justices Krishna Murari, and Hima Kohli. The 2016 law's amendments will only be effective going forward, not backward.

Changes Made in 2016 Dealing With Confiscation Proceedings                                            

The Supreme Court was considering the legality of changes made to Sections 3(2) and 5 in 2016. (Dealing with confiscation proceedings). The amendment expanded the scope of its application to include transactions including cash transfers, property sales, and share issuances. The taxman has utilised it in situations where the Income Tax Act proved ineffective. The central government contended that the changes simply amounted to clarifications and would thus apply in the past. The judges, however, pointed out that the initial legality of the 1988 act's original provisions had never been investigated and decided to start there.

Benami Transaction                                                  

The Supreme Court declared that Section 3 was "still born" from the beginning and was never put into effect. A "benami transaction" is a tripartite transaction in which property is transferred to one party in exchange for money paid or furnished by another party, according to Section 2(a). Regarding Section 5, the bench stated that this provision under the unamended statute was unfinished and left unanswered. The government's claim that the 2016 modifications to the Article were merely clarifying in nature was rejected by the top court. The bench further stated that just the criminal section of the law was being struck down and that the finding would not affect the civil proceedings anticipated under the act. Only prospectively will the confiscation proceedings remain in effect. For transactions made before the 2016 Act went into effect, authorities cannot start, continue, or pursue criminal charges or confiscation measures. The 1988 Act's Sections 3 (criminal provision) and 5 (confiscation proceedings), when read along with Section 2(a), were deemed by the court to be excessively broad, disproportionately harsh, and operating without necessary protections.

Prevention of Money Laundering Act (PMLA) 2002                                                  

The Supreme Court's ruling on July 27 upholding the provisions of the Prevention of Money Laundering Act (PMLA), 2002, served as the basis for the court's reasoning in the current judgement. A three-judge panel that included retired justice AM Khanwilkar, justices Dinesh Maheshwari, and justice CT Ravikumar resolved that matter. The PMLA provisions were challenged as being illegal since they completely ignored constitutional protections for accused persons, procedural protections under the Code of Criminal Procedure (CrPC), and the requirement of mens rea (intention to commit a crime). It was stated that additional offences without any connection to money laundering were added to the Schedule under PMLA under the offences listed as predicate offences. The provisions for getting bail were strict because a potential offender had to demonstrate his innocence without being given a copy of the complaint, case diary, or other documents incriminating him that were available with ED. Once a potential offender was called for questioning, his statement was admissible as evidence in court. 

Demonetisation 

Along with the demonetisation of high-value banknotes with this intention, the legislative revisions were one of the government's harshest measures in its fight against black money. After the 2016 amendment, the income tax department issued hundreds of letters to businesses, other organisations, and people and used the new rules' retroactive character to file criminal complaints and confiscation actions against them. The parties involved will now be relieved because these actions are no longer valid. The supreme court also advocated independent forfeiture clauses in place of criminal prosecution. While different high courts had differing opinions on whether or not the 2016 changes should be applied retroactively, the SC's decision puts the matter to rest.