Print Friendly, PDF & Email

Supreme Court strikes down the provision of the 1988 Benami law

GS paper 2 & 3

Syllabus: Structure, organization and functioning of the judiciary, Benami laws in India etc


Source: The Hindu

Direction: Know the crux of the issue, why the Benami act was amended and why SC has now struck down the amendments.


Context:  A three-judge Bench led by Chief Justice declared Sections 3(2) and section 5 introduced through the Benami Transactions (Prohibition) Amendment Act of 2016, as unconstitutional

      • The act defines a ‘Benami’ transaction as any transaction in which property is transferred to one person for a consideration paid by another person.



The 2016 law amended the original Benami Act of 1988, expanding it to 72 Sections from a mere nine. Amendments were opposed in SC and SC had to decide on three main issues:

      • Whether there is legislative intent to give retrospective effect to the 2016 Act
      • Whether the 2016 Act imposes a harsher penalty than the earlier Act insofar as it provides for “confiscation of Benami property rather than its acquisition”, thereby violating Article 20(1)
      • Whether the 2016 Act is constitutionally valid.


Key Highlights of the judgement:

      • Section 3(2): It mandates three years of imprisonment for those who had entered into Benami transactions between September 5, 1988, and October 25, 2016.
          • A person can be sent behind bars for a Benami transaction entered into 28 years before the Section even came into existence, thus it is a harsher punishment.
      • Section 5 of the 2016 Amendment Act: It said that “any property, which is the subject matter of Benami transaction, shall be liable to be confiscated by the Central Government”.
          • The court held that this provision cannot be applied retrospectively.
      • Government’s version of forfeiture and acquisition: The CJI dismissed the government’s version that forfeiture, acquisition and confiscation of property under the 2016 Act as it was not in the nature of prosecution and cannot be restricted under Article 20.
      • New class of fictitious and sham transactions: The court observed that the 2016 Act condemned not only transactions that were traditionally denominated as Benami but rather a “new class of fictitious and sham transactions”.
      • Prosecutions or confiscation proceedings quashed: Authorities concerned cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., October 25, 2016.
          • As a consequence, all such prosecutions or confiscation proceedings shall stand quashed,” the Supreme Court directed.


Extensive powers:

      • Extensive powers: The court also noted that the Act also granted extensive powers of discovery, inspection, compelling attendance, and compelling production of documents to officials.
      • Assistance of Police officers: It also empowered authorities to take the assistance of police officers, customs officers, income tax officers etc., for furnishing information.
      • Person supplying false information: A person who supplies false information before any authority, is subjected to rigorous imprisonment of up to five years under Section 54 of the 2016 Act.


Benami property:

      • It is the one whose legal owner is different from the actual owner.
      • Benami property includes:
            • Immovable assets such as land, flats or house.
            • Movable assets such as gold, stocks, mutual fund holdings, bank deposits etc.
      • If the property is sold, then the proceeds from the sale are also included under Benami property.


Insta Links:

Benami Transactions (Prohibition) Amendment Act of 2016


Mains Links:

Q. Discuss how emerging technologies and globalization contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (UPSC 2021)


Prelims links:

Do remember the basic provisions of the act (section number is not important)

      1. With reference to the ‘Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)’, consider the following statements:
      2. A property transaction is not treated as a Benami transaction if the owner of the property is not aware of the transaction.
      3. Properties held under Benami are liable for confiscation by the Government.

Which of the statements given above is/are correct?

a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 nor 2

Ans: (b)


      • A property transaction is treated as a Benami transaction even if the owner of the property is not aware of the transaction as the basic principle in the Indian legal framework.
      • Properties held by Benami are liable for confiscation by the Government and also liable for confiscation by the Government without the payment of compensation.