Case Title: Union of India v. Ganpati Dealcom Pvt. Ltd
The Supreme Court while dealing with the constitutionality of certain provisions of the Benami Transactions Prohibition Act, observed that the ratio of the PMLA judgment in relation to Section 8(4) requires "further expounding in an appropriate case, without which, much scope is left for arbitrary application."
The short legal question that arose for the Court’s consideration is whether the Prohibition of Benami Property Transactions for short ‘the 1988 Act’], as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 [for short the ‘2016 Act’] has a prospective effect?
To answer the aforementioned question, the Court found it necessary to trace the history of benami transactions in India. The term ‘benami transaction’ generally implies that one purchases the property in the name of somebody else, i.e., a name lender, and the purchaser does not hold beneficial interest in the property. Literally, ‘benami’ means ‘without a name’. The simplest of example is if person 'A’ (real owner) purchases a property from ‘B’ in the name of ‘C’ (benamidar/ostensible owner), wherein ‘A’ exercise rights/interest over the property.
Conceptually, there are two views which arise from the Doctrine of Benami. The first view is that the benamidar does not hold title over the property, and the second view is that although the title passes to the benamidar, he holds it in trust.
The Court further noted that, “Numerous reasons, some desirable and some undesirable, were contributory factors for the proliferation of such a practice in India. Some of them are as follows:
(i) Secret provisions for families within Hindu Joint family system;
(ii) Mitigation of political and social risk;
(iii)Defrauding creditors;
(iv)Evasion of taxes”
The Court further concluded by saying, “When we come to the present enactment, history points to a different story wherein benami transactions were an accepted form of holding in our country. In fact, the Privy Council had, at one point of time, praised the sui generis evolution of the doctrine of trust in the Indian law. The response by the Government and the Law Commission to curb benami transactions was also not sufficient as it was conceded before this Court that Sections 3 and 5 of the 1988 Act in reality, dehors the legality, remained only on paper and were never implemented on ground. Any attempt by the legislature to impose such restrictions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of the Constitution."