2019 (12) TMI 840 - HC - Benami Property

Court allows appeal, sets aside judgment, quashes show-cause notices under 1988 Act.

M/s. Ganpati Dealcom Pvt. Ltd. Versus Union of India & Anr.

The court allowed the appeal, setting aside the impugned judgment and order dated 18th December 2018. The court quashed the show-cause notices issued by ... Benami Transaction - acquired property - it is alleged that the said property was benami under Section 2(8) of the said Act of 1988, as amended - alleged violation of Section 2(9)(D) thereof - alleged that the consideration for this transaction was provided by “non-traceable fictitious/shell entities having no real business”, rendering the transaction benami - HELD THAT:- The definitions of benami transaction and property are radically changed by the amending Act. So are the provisions regarding investigation of contraventions, offences etc., the consequence of it namely, confiscation, prosecution etc. The show-cause notice dated 29th August, 2017 was issued under Section 24(1) of the 1988 Act as amended. It referred to the alleged benami transaction by the appellant under Section 2(8) and 2(9)(D) thereunder. Therefore to allege contravention of the 1988 Act as amended in 2016 the contravention should have been made after the date of coming into force of the amendment - In the absence of retrospective operation of the amending Act, one cannot allege that the transaction resulting in the said contravention of the 1988 Act as amended in 2016 took place in 2011. That is exactly what the impugned show-cause notice proposed to do. The contention of the Additional Solicitor General that the provision in Section 1(2) of the said Act automatically made the amending Act of 2016 retrospective, is rejected - The 2016 amendment is a new legislation and in order to have retrospectivity it should have been specifically provided therein that it was intended to cover contraventions at an earlier point of time. That express provision is not there. Therefore this contention of the Additional Solicitor General fails. A declaration that the property was benami could not have been made unless a procedure was prescribed by rules made under Section 8 - No rules under that section were ever made. Hence, although the Act was entered in the statute book, it was an Act on paper only and inoperative. By the addition of Chapter III to the Act by the Amendment Act of 2016, an adjudicating authority and its composition, jurisdiction and powers were provided. Exercising powers under Section 28(2) read with Section 59 of the Amendment Act the Central Government by a Notification No. SO 3290E dated 25th October, 2016 notified specified Income Tax Authorities to act as “Initiating Officer, Approving Authority and Administrator” for benami transactions. Furthermore, by another Notification No. SO 3288E dated 25th October, 2016 Adjudicating Authority was notified. The main show cause notice dated 29th August, 2017 and the subsequent notice dated 9th October, 2017 issued by the respondents are a nullity - Appeal allowed. Issues Involved:1. Retrospective application of the Benami Transactions (Prohibition) Amendment Act, 2016.2. Validity of show-cause notices issued under the amended Act for transactions prior to the amendment.3. Requirement of procedural rules under the 1988 Act for its enforceability.Issue-wise Detailed Analysis:1. Retrospective Application of the Benami Transactions (Prohibition) Amendment Act, 2016:The appellant argued that the 2016 Amendment Act had no retrospective effect for transactions made in 2011. The show-cause notice dated 29th August 2017, issued under Section 24(1) of the amended 1988 Act, could not apply to past transactions. The court agreed, citing the principle that legislation is presumed not to have retrospective operation unless expressly stated. The court referenced the Supreme Court's decision in R. Rajagopal Reddy, which held that the 1988 Act created new offences and liabilities, thus having prospective operation. Additionally, the court noted that the 2016 amendment did not explicitly state its retrospective application.2. Validity of Show-Cause Notices Issued Under the Amended Act for Transactions Prior to the Amendment:The appellant contended that the show-cause notice issued under the amended Act for a transaction in 2011 was invalid. The court found merit in this argument, stating that the 2016 amendment could not be used to allege contraventions for transactions that occurred before its enactment. The court emphasized that the amendment introduced new definitions and provisions, which could not apply retrospectively without explicit legislative intent. The court quashed the show-cause notices dated 29th August 2017 and 9th October 2017, deeming them null and void.3. Requirement of Procedural Rules Under the 1988 Act for Its Enforceability:The appellant argued that the 1988 Act was inoperative due to the absence of procedural rules under Section 8, which were necessary for declaring property as benami and initiating acquisition or criminal proceedings. The court agreed, referencing the Supreme Court's decisions in Canbank Financial Services Ltd. and P. Kasilingam, which held that the absence of rules rendered the Act unenforceable. The court concluded that the Central Government's failure to frame rules under the 1988 Act resulted in a waiver of its rights to take action against alleged benami transactions during that period. Consequently, the rights accrued to the appellant under the 1988 Act could not be extinguished by the 2016 amendment.Conclusion:The court allowed the appeal, setting aside the impugned judgment and order dated 18th December 2018. The court quashed the show-cause notices issued by the respondents, emphasizing that the 2016 amendment did not have retrospective effect and that the 1988 Act was inoperative without procedural rules. The court clarified that the respondents could take appropriate steps in accordance with the law as advised.