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PMLA Judgement Allowing ED to Take Possession of Property Before Trial In Exceptional Cases Leaves Scope For Arbitrariness: Supreme Court

Arundhathi ,
  25 August 2022       Share Bookmark

Court :
Supreme Court of India
Brief :

Citation :
Civil Appeal No. 5783 of 2022 & Special Leave Petition (C) No. 2784/2020

Case Title: 
Union of India & Anr. Vs M/s Ganpati Dealcom Pvt Ltd 

Date of Judgement: 
August 23, 2022

Bench: 
N.V Ramana
Krishna Murari
Hima Kohli

Parties:
Appellant- Union of India
Respondent- M/s Ganpati Dealcom Pvt Ltd

SUBJECT

The appeal in the present case was filed against the judgement of the High Court of Calcutta which held that the Benami Transactions (Prohibition) Amendment Act, 2016  does not have retrospective application. The Hon’ble Supreme Court granted leave to appeal.  Provisions under the Benami Transactions (Prohibition) Act 1988 and the 2016 Amendment Act were analysed. The different positions regarding the nature of a crime were deliberated upon by treating the Constitution as a flagpost.

IMPORTANT PROVISIONS

  • Article 20 (1)- This was regarding protection in respect of conviction of offences. It says that “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.”
  • Section 3(2) of the Benami Transactions (Prohibition) Act 1988: This section dealt with the prohibition of Benami transactions and penalties for the same.
  • Section 5 of the Benami Transactions (Prohibition) Act 1988: This section dealt with the acquisition of Benami property.

OVERVIEW

  • In the present case, the respondent-company purchased a property from various sellers for a total consideration of Rs. 9,44,00,000 which is said to have been paid from the capital of the company. Later, the company’s shareholdings were acquired by M/s PLD Properties Pvt. Ltd. And M/s Ginger Marketing Pvt. Ltd at a discounted price of Rs. 5 per share. The two directors of the respondent-company also held directorship in the purchaser company. Thus, the Deputy Commissioner of Income Tax issued a show cause notice as to why the aforesaid property was not Benami property and the respondent-company a Benamidar.
  • The respondent-company replied denying the scheduled property to be Benami property. The property was attached provisionally under Section 24 (4) (b) (i) of the Benami Transactions (Prohibition) Amendment Act, 2016. A writ petition against this was filed by the respondent-company at the Calcutta High Court. The Court disposed of the petition and also directed the income tax department to conclude the proceedings in 12 weeks.
  • On a further appeal filed against this order,the High Court quashed the show cause notice stating that 2016 Act does not have retrospective application as under the Article 20 (1) of the Constitution.
  • Union of India is in appeal against the aforesaid order, in the Supreme Court of India.

ISSUES RAISED

  • Whether the 2016 Act was retroactive or prospective and whether the Act of 1988 was constitutional in nature.

ARGUMENTS ADVANCED BY THE APPELLANT

  • In the Benami Transactions (Prohibition) Act 1988 there was no mention of the procedures to be followed against Benami transactions. It was to overcome this lack of procedure that the 2016 Amendment Act was brought in. It was not the offence of Benami transactions, rather these procedures that were sought to be implemented. It is settled law that procedural laws can be implemented retrospectively.
  • Provisions that are confiscatory in nature cannot be considered punitive, as the rights of confiscated property are attached to the Central Government, and Article 20(1) cannot be attracted. Thus the same can be implemented retrospectively.

ARGUMENTS ADVANCED BY RESPONDENT

  • The Parliament while replacing the 1988 Act, had ensured that the provisions introduced by the parent Act which are, Sections 3,5, and 8, only prospectively continued from date.  It was not stated explicitly that the 2016 Act was to be retrospectively applicable. 
  • The Section 2(9) which was introduced into the parent Act by Amendment gave a new definition to Benami transactions, substantially changing and widening the scope of it. This included many other actions as offences under this provisions, which earlier had only transfer of property within its ambit. Thus any Act that was against the rights of people cannot be held in retrospect.

JUDGEMENT ANALYSIS 

  • In order to examine the main argument put forth by the appellants, that the amended 2016 Act only clarified the 1988 Act, and to decide whether the 2016 Act was substantive or procedural in nature, the Court went in detail into the history of Benami transactions and their legal history in India, through the enactment of the Benami Transactions (Prohibition) Act of 1988, its framework, and also the nature of Benami transactions as stated in the Act. 
  • The Court analysed the sections of the 1988 Act to interpret the element of Mens Rea in it and concluded that Sections 2 (a) coupled with Section 3 completely ignores this aspect of motive that is an essential ingredient of a criminal offence. Only the act of one person paying consideration to another, for the acquisition of property was criminalised. Thus the prosecution in such cases only had to prove that such consideration was paid. This aspect of mens rea was brought back in the amended Act of 2016. It was concluded that the Act of 1988 was merely a shell, lacking the substance that criminal legislation requires.
  • Upon analysing Section 3 and 5 of the Act of 1988, the Court raised questions as to its constitutionality and legality. The importance of ‘substantive due process’ in the judicial history of India was emphasised with the help of relevant judgements. It was found that Section 3 holds serious terms that were in violation of this important principle of justice thereby making it overly oppressive and arbitrary. 
  • While analysing confiscation proceedings as punishments under Section 53 of IPC, the Court refered to the recent PMLA judgement in Vijay Madanlal Choudary & Ors v. Union of India, [SLP (Civ.) No. 4634 of 2014], which allowed the taking possession of the property before trial under exceptional circumstances. It was remarked that this leaves much scope for arbitrariness, which requires further expounding in an appropriate case.
  • It was held that the 2016 Act did not have retroactive effect. The provisions under Section 53 of the 2016 Act were prospective and can only be applied to transactions taken place after the Amendment came into force.

CONCLUSION

After making the aforementioned observations, the Court held that Section 3(2) of the 1988 Act was unconstitutional for being manifestly arbitrary. Section 5 too was held unconstitutional owing to the In rem forfeiture provision. The Court found that, the argument of the appellants that the Act of 2016 was only a procedural law, do not stand. Transactions entered into prior to the 2016 Amendment Act cannot be prosecuted and all such prosecutions were to be quashed. 

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