Benami Transactions Act 1988 – Partly Prospective, Partly Retrospective
Although the Benami Transactions Act 1988 (hereinafter called as an ‘Act’) is a very brief Act, consisting of only 9 sections, but this Act has had one of the most far reaching consequences for all times to come
Before we embark upon the present controversy it is essential to go through briefly and especially in simple words the difference between the retrospective law and prospective law. In simple words the word ‘Retrospective’ is usually applied to those acts of the legislature, which are made to operate upon some subject, contract etc. which existed before the passage of the acts, and they are therefore called retrospective laws. Thus, a retrospective law is one that is to take effect, in point of time, before it was passed. Similarly, a Prospective Law is the one which provides for, and regulates the future acts of men, and does not interfere in any way with what has past.
Although the Benami Transactions Act 1988 (hereinafter called as an ‘Act’) is a very brief Act, consisting of only 9 sections, but this Act has had one of the most far reaching consequences for all times to come. Sections 3, 5 and 8 of the Act came into force on 5th September, 1988 when the Act received the President’s assent and the remaining Sections were deemed to have come into force on 19th May, 1988. On the perusal of the Act it can be noticed that the scope of the suits based on Benami Transactions can be divided broadly into 4 types of categories:
1. Suits based on Benami Transactions filed by the real owner or some-one else (as plaintiff), but which were filed before the said Act came into force.
2. Suits based on Benami Transactions filed by the real owner or some-one else (as plaintiff), but which were (or can be) filed after the said Act came into force.
3. Suits based on Benami Transactions which have been filed by the benami/ostensible owner or some-one else and the real owner or some-one else is the defendant who has filed the written statement before the Act came into force.
4. Suits based on benami transactions which have been filed by the benami/ostensible owner or some-one else and the real owner or some-one else is the defendant who has as yet not filed the written statement before the Act came into force.
A detailed explanation and discussion herein-below will answer all the above 4 questions.
Benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person. It is pertinent to mention herein that before this Act came into force, Benami Transactions were legal and a person (real owner) was entitled to take back his properties (by following the due process of law) from the ostensible/benamidar in whose name the property was earlier transferred. The real owner, besides other things, most importantly had to prove that the consideration for the suit property had passed through him and that the property (though in the name of the ostensible owner) was actually bought for the benefit of the real owner.
The very first problem created by the coming into force of this Act was whether it has/had a retrospective or prospective effect. This problem was first discussed and decided by the Hon’ble Supreme Court in the case titled as ‘Mithilesh Kumari & Anr. v. Prem Behari Khare’. In this case the Division Bench of the Supreme Court had laid down that Section 4 (1) of the Act had retrospective operation and it will apply to all the pending cases, whether such cases are pending in the trial court or the appellate court or the revision court. Thus, as per this judgement, all the suits pending in the cases all over India were barred after coming into force of this Act. Section 4 of the Act has been reproduced herein-below for your ready perusal:
4. Prohibition of the right to recover property held benami- (1) 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 shall lie by or on behalf of a person claiming to be the real owner of such property.
(2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.
(3) Nothing in this section shall apply,–
(a) where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family; or
(b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity.
Correctness of this view given by the Division Bench in the above-said case came up for hearing before another Division Bench which then referred the matter to the Three Judge Bench of the Hon’ble Supreme Court in the case titled as ‘R.RAJAGOPAL REDDY Vs. PADMINI CHANDRASEKHARAN. It was submitted before the Three Judge Bench of the Hon’ble Supreme Court that the Act cannot have retrospective operation to the pending cases because when those cases were filed, there was a substantive right in the plaintiff under the existing laws which had sanction of more than a century, under which consistently such benami transactions were recognized and could be enforced by courts of law. So, unless there is expressly anything to suggest that Section 4(1) of the Act is retrospective in operation, it could not be treated to be retrospective at all. The Hon’ble Bench also took notice of the Section 82 of the Indian Trusts Act 1882 (which has been deleted by the Act), as it stood before its deletion, an important extract of which has been reproduced herein below:
Section 82: “Transfer to one for consideration paid by another where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person paying or providing the consideration.”
So, the Hon’ble Supreme Court took notice of the fact that under various legal provisions holding the field prior to the coming into operation of this Act, benami transactions were a recognized specie of legal transactions pertaining to immovable properties. Therefore, it was a legal right of the plaintiff to contend in those days that even though the transfer of the property had been effected in the name of defendant benamidar, for the plaintiff from whom the consideration had moved the plaintiff was the real owner and, therefore, the defendant was bound to restore such property to the real owner. If the benamidar took up a defiant attitude then the law provided a substantive right to the plaintiff to come to the Court for getting appropriate declaration and relief of possession on that ground.
However, it is equally pertinent to mention herein that this Act has originated on the recommendations of Two Law reports namely India Law Commission’s 57th Report on benami transactions and Indian Law Commission’s 130th Report and both these law reports categorically suggested retrospective operation to the Act. But when the legislature enacted this Act, nowhere by its wordings the legislature indicated, expressly or impliedly, that the Act had in-fact retrospective operation. Further Section 3 (1) of the Act is also very important to be reproduced herein:
3. Prohibition of benami transactions–
(1) No person shall enter into any benami transaction.
(2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife of the unmarried daughter.
(3) 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.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence under this section shall be non-cognizable and bailable.
A mere look at the above provisions shows that the prohibition under Section 3 (1) is against persons who are to enter into benami transactions and it has been laid down that no person shall enter into any benami transaction, which obviously means from the date on which this prohibition comes into operation i.e. with effect from September 5, 1988. Again sub-section (3) of Section 3 also throws light on this aspect. As seen above, it states that 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. Therefore, the provision creates a new offence of entering into such benami transactions. It is obvious that when a statutory provision creates new liability and new offence it would naturally have prospective operation and would cover only those offences which take place after, section 3 (1) comes into operation.
It is all the more important to mention herein that the preamble of the Act itself states that it is an act to prohibit benami transactions and the right to recover property held benami, for matters connected therewith or incidental thereto. Thus it was enacted to wipe out the then existing rights of the real owners of properties held by others as benami. Such an act was not given any retrospective effect by the legislature. Even when we come to Section 4, it is easy to visualize that sub section (1) of Section 4 states 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 shall lie by or on behalf of a person claiming to be real owner of such property. As per Section 4 (1) no such suit shall henceforth lie to recover the possession of the property held benami by the defendant. Plaintiff’s right to that effect has been sought to be taken away and any suit to enforce such a right after coming into operation of Section 4(1) that is 19th May, 1988, shall not lie.
Now one thing is even more important to mention here. That is, had the intention of the legislature been otherwise i.e. had the legislature intended to give retrospective operation to the Act, then the legislature could have easily mentioned/added in Section 4(1) that no such suit, claim or action pending on the date when Section 4 came into force shall be proceeded with and shall stand abated. On the contrary, from the words “no such claim, suit or action shall lie” clear legislative intention can be seen to mean thereby that no such suit, claim or action shall be permitted to be filed or entertained or admitted to the portals of any Court for seeking such a relief after coming into force of Section 4(1), which clearly establishes the prospective effect of the Act. It has to be visualized that the legislature in its wisdom has not expressly made Section 4 retrospective. Then to imply by necessary implication that Section 4 would have retrospective effect and would cover pending litigations filed prior to coming into force of the this Section would amount to taking a view which would run counter to the legislative scheme and intent projected by various provisions of the Act to which we have referred earlier.
Thus, so far as the first two questions mentioned in the beginning are concerned it can be said the suit pertaining to the first question is maintainable but the suit pertaining to the second question, in view of the above discussion, is not maintainable.
Section 4(2) is partly retrospective:
Section 4(2) implies a situation wherein a suit is filed by the ostensible/benami owner of the property for declaration that he is the owner of the property and that the property stands in his name, on the basis of some document of title in his name/favour. Then the defendant in such a suit being the real owner takes the defence that the plaintiff is the Benami owner or benamidar of the suit property and that the defendant is the real owner because the consideration for the suit property had passed through him, then in such a case after the passing of this Act, Section 4(2) of the Act comes into operation and bars the real owner (defendant) to take such a defence. Thus, so far as Section 4 (2) is concerned, all that is provided is that if a suit is filed by a plaintiff who claims to be the owner of the property on the basis of some document in his favour (be it sale deed, gift deed etc.) and that he holds the property in his name, once Section 4(2) applies, no defence will be permitted or allowed in any such suit, claim or action by or on behalf of a person claiming to be the real owner of such property held Benami. The disallowing of such a defence which earlier was available, itself suggests that a new liability or restriction is imposed by Section 4 (2) on a pre existing right of the defendant. Such a provision also cannot be said to be retrospective by necessary implication.
However, there is one very thin but important exception to it. A very close perusal of Section 4(2) reveals that it enjoins that ‘no such defence shall be allowed’ in any claim, suit or action by or on behalf of a person claiming to be the real owner of such property. That is to say no such defence shall be allowed for the first time after coming into operation of Section 4(2). If such a defence is already allowed in a pending suit prior to the coming into operation of Section 4(2), enabling an issue to be raised on such a defence, then the Court is bound to decide the issue arising from such an already allowed defence as at the relevant time when such defence was allowed Section 4(2) was out of picture. Section 4 (2) nowhere uses the words “No defence based on any right in respect of any property held Benami whether against the person in whose name the property is held or against any other person, shall be allowed to be raised or continued to be raised in any suit.” Thus, even though such a suit might have been filed prior to 19.5.1988, if before the stage of filling of defence by the real owner is reached, Section 4(2) becomes operative (from 19th May, 1988), then such a defence, as laid down by Section 4(2) will not be allowed to such a defendant. But if the defence/written statement has already been filed pleading Benami therein, before the coming into force of Section 4(2), then such a suit will continue with the defence of Benami, as if the said Section of the Act is not applicable to such a suit.
Thus, so far as the last two questions mentioned above are involved, it is safe to conclude that the suit pertaining to the third question can continue, however, the suit pertaining to the fourth question, in view of the discussion above, is barred by the Act.
ALL THE SUITS FILED AFTER COMING INTO FORCE OF THIS ACT WHICH ARE BASED ON BENAMI TRANSACTIONS ENTERED INTO PRIOR TO THE COMING INTO FORCE OF THIS ACT ARE NOW BARRED.
To explain it more, it is emphasized herein that that on the express language of Section 4 (1) any right inhering in the real owner in respect of any property held Benami would get effaced once Section 4 (1) operated, even if such a transaction had been entered into prior to the coming into operation of Section 4(1), and hence-after Section 4(1) applied no suit can lie in respect to such a past Benami transaction. To that extent the Section is retrospective. To highlight this aspect we may take an illustration. If a Benami transaction has taken place in 1980 and a suit is filed in June 1988 by the plaintiff claiming that he is the real owner of the property and defendant is merely a benamidar and the consideration has flown from him then such a suit would not lie on account of the provisions of Section 4(1).