Supreme Court Reverses Ruling on Benami Law Provisions

Context:

• The Supreme Court set aside its 2022 judgment, which had declared certain provisions of the Benami Transactions (Prohibition) Act, 1988, unconstitutional.
• The provisions under scrutiny were Section 3(2) and Section 5 of the Act.
• The case has been referred for fresh adjudication before a newly constituted bench.
• The decision to recall the earlier ruling came after a petition filed by the Central Government was allowed.

Background of the Case:

• Benami Transactions (Prohibition) Act, 1988 initially prohibited benami transactions without proper enforcement mechanisms.
• The Benami Transactions (Prohibition) Amendment Act, 2016 introduced stricter rules and penalties.
• The 2016 amendments were challenged for retrospective application, leading to the 2022 Supreme Court ruling.

Key Highlights of the Recent SC Judgment:

1. Constitutionality of 1988 Act:

   • The SC clarified that the constitutionality of the unamended 1988 Act was not in question in the original proceedings.

2. Scope of 2022 Judgment:

   • The only issue in the original hearing was whether the 2016 amendments should have prospective or retrospective effect.

3. Review Petition by Government:

   • The Central Government filed a review petition arguing that the 2022 verdict had disrupted long-standing legal precedents.
   • It contended that the 2022 judgment went beyond the primary issue of retrospective application and wrongly declared Sections 3(2) and 5 unconstitutional.

4. Fresh Adjudication Ordered:

   • The SC set aside the 2022 ruling, allowing for fresh arguments before a new bench.
   • The new bench will reconsider the constitutionality of the benami law provisions in the context of an active legal dispute.

Benami Transactions and Related Rules:

1. Definition:

   • Benami means "without a name." It refers to assets acquired under fictitious ownership.
   • It can involve any kind of property—movable or immovable.

2. Benami Transactions Act, 1988:

   • The original law aimed to deter illegal transactions, such as tax evasion or money laundering.
   • However, the law was ineffective due to the absence of proper procedural rules.

3. Amendment Act of 2016:

   • Provided a clearer definition of benami transactions and imposed stricter penalties.
   • Empowered authorities with wide-ranging powers for enforcement, including property confiscation and penalties.
   • Imposed a prison term of 1 to 7 years and fines up to 25% of the property value for those involved in benami transactions.

2016 Amendments and Legal Challenges:

1. Retrospective Application:

   • The 2016 amendments were applied retrospectively, which was later challenged.

2. 2019 Calcutta HC Ruling:

   • The Calcutta High Court ruled that the 2016 amendments could not be applied retrospectively.

3. 2022 Supreme Court Verdict:

   • The SC upheld the Calcutta HC ruling, declaring Sections 3(2) and 5 unconstitutional for their retrospective punishment.
   • The court raised concerns over the extensive powers granted to authorities, which lacked adequate safeguards.