2024 (8) TMI 1070 - HC - Benami Property

Summoning order set aside for lack of judicial application under Benami Property Transaction Act Section 3

Keshav Lal Versus Union of India Thru. Gaurav Garg Deputy Commissioner of Income Tax And Another

Allahabad HC set aside a summoning order in a criminal complaint under Prohibition of Benami Property Transaction Act, 1988. The lower court failed to ... Summoning order passed in Criminal Complaint Case u/s 53 and 3 of the Prohibition of Benami Property Transaction Act, 1988 - Acting upon the assumption that the cash was the beneficial property of the applicant, who accumulated cash out of illegal gratification by misuse of official possession, it was attached under Section 24(4) of the PBPT Act HELD THAT:- Hon'ble Supreme Court of India in the case of Lalankumar Singh [2022 (10) TMI 1135 - SUPREME COURT] has specifically held that the order of issuance of process is not an empty formality. The Magistrate is required to apply his mind as to whether sufficient ground for proceeding exists in the case or not. Hon'ble Supreme Court of India in the case of Pepsi Foods Ltd. [1997 (11) TMI 518 - SUPREME COURT] has held that summoning of an accused in a criminal case is a serious matter and criminal law cannot be set into motion as a matter of course Ld' court below has simply summarized the contents of the complaint, fact that sanction order was passed and the court had jurisdiction to entertain the matter and thereafter without recording any reason or without examining the nature of allegation made in the complaint the evidence regarding truthfulness of the allegation or any reason whatsoever as to why the cognizance is being taken and the accused is summoned has straightaway passed the cognizance and summoning order, even prima facie satisfaction or reasons for taking cognizance or proceedings against the petitioner has not been recorded while passing the impugned order dated 27.2.2024, thus, the impugned summoning order dated 27.2.2024 is contrary to the law laid down by Hon'ble Supreme Court of India in the cases of Lalankumar Singh, Pepsi Foods Ltd. [supra] and Mehmood UL Rehman [2015 (3) TMI 1349 - SUPREME COURT] Considering the above, the application is disposed of. The impugned summoning order passed by learned IXth Additional Sessions Judge, Lucknow in Criminal Complaint Case is set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether the impugned summoning order satisfied the statutory and judicial requirement of application of mind and recorded reasons sufficient to conclude that there existed 'sufficient ground for proceeding' to issue process under the criminal procedure framework. 2. Whether proceedings under Section 53 of the Prohibition of Benami Property Transactions Act (PBPT Act) could properly be initiated against the accused on the basis of cash seized from the accused's spouse, when the same cash had been treated as the spouse's income by an income-tax authority. 3. Whether the impugned summoning order correctly addressed the nature of the allegations and evidence (including sanction and prior income-tax assessment) so as to show prima facie satisfaction that an offence under the PBPT Act had been made out. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Requirement of application of mind and recording of reasons when issuing process Legal framework: The Magistrate's/summoning court's power to issue process requires formation of opinion that there is 'sufficient ground for proceeding' after consideration of complaint, preliminary evidence and any inquiry under the criminal procedure code; such opinion must reflect due application of mind and be stated in the order, though not necessarily in elaborate detail. Precedent treatment: The Court relied on controlling Supreme Court authorities holding that (a) issuance of process is not a formal or mechanical act, (b) the court must apply judicial mind to the materials before it and state the basis for forming prima facie satisfaction, and (c) the order is open to interference if reasons are absent or ex facie incorrect. These precedents were followed and applied to the facts. Interpretation and reasoning: The lower court's summoning order merely summarized complaint contents, noted that sanction had been granted and asserted jurisdiction, but failed to articulate why, on the materials, there was prima facie ground to proceed against the accused. The impugned order did not record any reasons demonstrating application of mind or engage with the nature of allegations, documentary evidence, or truthfulness of claims. Such absence rendered the issuance of process mechanical rather than judicial. Ratio vs. Obiter: Ratio - The requirement that a court issuing process must record prima facie satisfaction and reasons based on application of mind is a binding principle applied to set aside the impugned order. Conclusions: The summoning order was legally infirm for failure to apply mind and to record reasons showing sufficient ground for proceeding; consequently the order was set aside and the matter remanded for a fresh speaking and reasoned order after hearing the parties. Issue 2 - Validity of initiating PBPT proceedings against accused when seized cash was treated as spouse's income by income-tax authority Legal framework: PBPT Act proceedings under Section 53 (prosecution) and attachment provisions operate alongside income-tax assessments; whether a particular fund constitutes 'benami property' is a substantive question of fact and law requiring examination of beneficial ownership and prerequisites for invoking PBPT provisions. Precedent treatment: The Court did not decide the substantive conflict between an income-tax authority's assessment and initiation of PBPT proceedings; prior authorities on procedural safeguards and necessity of examination of materials were applied to require the trial court to address such issues when forming prima facie satisfaction. Interpretation and reasoning: The applicant's contention - that the Interim Board of Settlement treated the seized cash as the wife's income and therefore PBPT proceedings against the husband could not properly proceed - raises a substantive issue touching beneficial ownership and whether PBPT prerequisites are met. The lower court's order did not consider or record reasons regarding this contention or the impact of the income-tax determination and sanction on the criminal complaint. Given the absence of articulated reasoning, the appellate court could not entertain or resolve the substantive question on the record before it. Ratio vs. Obiter: Obiter (procedural): While recognizing the substantive contention as relevant, the Court did not determine the merits; rather it held that such issues must be addressed in a reasoned order by the court taking cognizance. Conclusions: The question whether the PBPT proceedings were maintainable in view of the income-tax authority's assessment remains open and must be examined afresh by the trial court when passing a speaking order addressing the income-tax finding, sanction, and whether elements of a benami transaction are prima facie established. Issue 3 - Adequacy of consideration of sanction, evidence and jurisdiction before summoning Legal framework: Before summoning, the court must examine sanction (where required), documentary evidence, and the nature of allegations to determine if a prima facie offence is made out; jurisdiction alone is not sufficient to justify process. Precedent treatment: The Court applied authorities emphasizing that summoning is a serious step and that the magistrate must scrutinize material, may pose questions, and must record why the evidence suffices to proceed. Interpretation and reasoning: The impugned order recorded only that a sanction order existed and that the court had jurisdiction, without evaluating the sanction's basis, the evidence adduced at the preliminary stage, or contradictions such as the income-tax authority's contemporaneous assessment. This failure prevented any demonstration of prima facie satisfaction required to summon. Ratio vs. Obiter: Ratio - A summoning order that does not engage with sanction, evidence and the truthfulness or sufficiency of allegations fails judicial scrutiny and is liable to be set aside. Conclusions: The lower court must, on remand, examine the sanction, assess the documentary and preliminary evidence, address conflicting assessments (e.g., income-tax findings), record the basis for prima facie satisfaction and provide opportunity of hearing before issuing process. Remedial Direction (connected to Issues 1-3) The impugned summoning order is set aside. The matter is remanded to the court below with directions to pass a fresh speaking and reasoned order in accordance with law after providing opportunity of hearing to the parties, within a specified period. The remand is procedural and does not constitute a determination on the substantive merits of whether the seized cash is a benami property or whether prosecution under Section 53 of the PBPT Act is maintainable; such issues are to be addressed by the court on fresh consideration with reasons recorded.