Author: Sankalp Pissay
Disclaimer: This article is a result of the author’s personal reflections, and does not reflect this blog’s position on any political, legal or social issue, whether sub judice or not.
Introduction
“Retrospective laws are, no doubt, prima facie of questionable policy, and contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.” (Phillips v. Eyre [1870] L.R. 6 Q.B. 1, 23.)
The principle that laws generally look forward, not backward (lex prospicit, non respicit) is a well-established rule of statutory interpretation (see, CIT v. Vatika Township). But the Parliament can, if it so wishes, enact a legislation with retrospective effect, i.e., a law which comes into force from a date before its enactment. Additionally, amendments to laws which are merely declaratory or clarificatory, or which are procedural in nature, are presumed to have a retrospective application from the date of enactment of the principal statute. All of these well-settled principles were recently reiterated and reaffirmed by a Constitution Bench in Vatika Township. Additionally, the presumption against retrospectivity of a law which is substantive in nature is codified in Section 6 of the General Clauses Act, 1897.
The Benami Transactions (Prohibition) Act, 1988
In 1988, the Parliament enacted the Benami Transactions (Prohibition) Act, which prohibited transactions (with certain exceptions) which transferred property of any kind to one person for a consideration paid or provided by another person, and one of the adverse consequences of such a transaction would be 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 person could lie by or on behalf of a person claiming to be the real owner of such property” (See, S. 4(1) of the unamended act). Merely a year later, a division bench of the Supreme Court held that this section was retrospective in its operation (see, Mithilesh Kumari v. Prem Behari Khare).
In 1995, a three-judge bench of the Supreme Court overruled Mithilesh Kumari, and held that since the Act was not merely declaratory in nature, as it impaired the rights already vested with real owners and conferred new rights on benamidars, and created significant liabilities for the real owners, the Act had to be prospective in its operation (see, R. Rajagopal Reddy v. Padmini Chandrasekharan).
In 2015, the Parliament realized that the Act in its original form, with merely nine sections, was “inadequate” (see, Statements of Objects and Reasons), and decided to amend it. The amended Act, which came into force on 1st November, 2016, now has seventy-two sections.
The amendment, among other things, created an entire adjudicatory and appellate framework which was missing in the original enactment, and laid down detailed provisions describing penalties for holding such properties and also for the attachment and confiscation of the same. Notably, the Amendment Act failed to mention if the operation of the new provisions was to be retrospective in nature.
The Rajasthan High Court’s views
Following the enactment of the amendment, Income Tax Authorities in Rajasthan conducted a raid, and found incriminating documents which were indicative of certain benami transactions. Soon, show-cause notices were issued and orders of provisional attachment of such properties were made under the provisions of Section 24 of the Act (as it stands today). Challenging these, writ petitions were filed before the Rajasthan High Court, and the petitioner alleged that provisions of the amended Act could not be invoked against them as the transactions in question were entered into before the commencement of the amendment. (Niharika Jain v. Union of India, delivered on 12th July, 2019)
The Court considered whether the amending Act of 2016 could operate retrospectively. The Court did not accept the petitioner’s contentions that the action taken by the authorities violated Article 20 of the Indian Constitution, clause (1) of which states, “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”, on the grounds that confiscation of property cannot be considered a penalty. But the court held that the rules framed under the amended Act, which were notified on 25th October, 2016, could not be considered valid, as the power to frame those rules was conferred upon the central government by Section 68, which only came into force on 1st November, 2016.
Additionally, the court noted that a declaratory or an explanatory Act is meant to supply an obvious omission or clear doubts in a pre-existing enactment. The Amendment Act of 2016, which enhanced the penalties and even introduced new punishments, could not be considered merely curative, and was a substantial change in the law. Unless a contrary intention appeared, such Acts cannot be given retrospective effect. Additionally, the new penalties contained in the Amendment Act, which although were not imposed on the petitioner, if given retrospective effect, would act as an infraction upon the right contained in Art. 20(1) of the Constitution.
The Chhattisgarh High Court’s divergent views
In the same year, proceedings were commenced u/s. 24 of the amended Act, in Pithora, Chhattisgarh, against a couple who had engaged in benami transactions involving 200 acres of land, and such land was provisionally attached. These actions were challenged before the Chhattisgarh High Court, on the grounds that the transactions took place before 1st November, 2016. A single-judge bench of the High Court took note of the statutory scheme of the amended Act, and observed that sub-sections 2 and 3 of Section 3, post-amendment, read as follow –
“(2) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
(3) Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016 (43 of 2016) shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Chapter VII.”
The Court concluded that, “A plain reading of both these provisions makes it evident that Sub Section 2 would be applicable upon any Benami Transactions made prior to 01.11.2016 and Sub Section 3 would be applicable upon only those properties or Benami Transactions made on or after the commencement of the Amendment Act, 2016 i.e. 01.11.2016. This again leads us to draw a safe inference that the proceedings under the Act of 1988 could very well be initiated against a person who has entered into a Benami transaction irrespective of the date when the amendment act came into force.” (Tulsiram v. Assistant Commissioner of Income-tax (I), delivered on 15th November, 2019)
Additionally, it noted that Section 24 was merely a procedural provision, and could be accorded retrospective application. Thus, the court held that, “The whole Act of 1988 as it stands today inclusive of the amended provisions brought into force from 01.11.2016 onwards applies irrespective of the period of purchase of the alleged Benami property. Amended Act of 2016 does not have an existence by itself. Without the provisions of the Act of 1988, the amended provisions of 2016 has no relevance and the amended Provisions are only laying down the proceedings to be adopted in a proceeding drawn under the Act of 1988 and the penalties to be imposed in each of the cases taking into consideration the period of purchase of Benami property.”
This order was challenged before a Division Bench of the High Court, but the Bench declined to set the judgement of the Single Judge aside. In light of Section 3(3) (which makes the substantive provisions of the amending Act prospectively applicable) and the rest of the statutory scheme, the Bench held that the amending Act, which is largely procedural in nature, is retrospective in application. The Bench also noted the Finance Minister’s speeches to gather the legislative intent behind the amendments, which was to keep the old Act, and the proceedings commenced under it, intact. Interpretations adopted by the courts should further the legislative object, the Bench observed, and thus, found no issue with the Single Judge’s observations. (Tulsiram v. Assistant Commissioner of Income-tax (II), delivered on 6th February, 2020)
Conclusion
The Amendments to the 1988 Act, which came into force on 1st November, 2016, were considerable in number, and greatly increased the length of the legislation. But the substance of the principal Act remains unchanged, and Section 3(3) clearly provides that the enhanced penalties will be applicable only to transactions entered into on and after 1st November, 2016. The rest of the amendments are essentially procedural in nature.
Hence, with due respect, it is submitted that the Chhattisgarh High Court was correct, when it held that that the amended Act shall be given retrospective application. Not only will giving the amended Act a prospective application, ignore the clear command of Section 3 and the precedents on this issue, but will also render numerous benami transactions entered into before 1st November, 2016, beyond the purview of the amended Act, and essentially immune to any proceedings, as no rules were ever framed under the principal Act of 1988.
I would hence argue, that the interpretation placed upon the Act by the Chhattisgarh High Court is the legally and logically correct one, although it disadvantages the citizen and favours the government.
About The Law 