The Supreme Court of India strikes down provision of 1988 Benami law

The Supreme Court invalidated a section of the Benami Transactions (Prohibition) Act of 1988, which imposed a maximum three-year prison sentence, a fine, or both, as penalty for engaging in “benami” transactions.
The provision was deemed “unconstitutional” by the top court on the grounds that it was “manifestly arbitrary.”
The bench comprising Chief Justice N.V. Ramana and Justices C.T. Ravikumar and Hima Kohli said, “We hold section 3(2) of the Benami Transactions (Prohibition) Act, 1988 as unconstitutional,”
Section 3 of the statute deals with the issue of “Prohibition of benami transactions” and its impugned sub-section (2) says: ”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.”

The 2016 amendment, which came into force with effect from November 1, 2016, expanded the scope of “benami transactions” to add other transactions which qualify as benami, such as property transactions where:
(i) the transaction is made in a fictitious name,
(ii) the owner is not aware of denies knowledge of the ownership of the property, or
(iii) the person providing the consideration for the property is not traceable.
The amendment also enhanced the punishment for benami transactions from rigorous imprisonment upto three years to seven years, and a fine which may extend to 25% of the fair market value of the benami property.
A provision for confiscating property acquired through a benami transaction was also added by the said amendment.
The decision was reached in response to the Centre’s appeal of the Calcutta High Court ruling holding that the 2016 amendment to the 1988 Act will apply with prospective effect.

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