2019 (2) TMI 1334 - HC - Benami Property

Offence under Prohibition of Benami Property Transactions Act, 1988 - Concerned authority jurisdiction or power to issue a show cause notice under amended Act in relation to the 2011 transaction? - whether a shareholder and a company are separate legal entities and that a shareholder cannot be treated as a beneficial owner within the meaning of the amendment Act of 1988 in respect of a property owned by a company incorporated under the provisions of the Companies Act, 1956 needs to be gone into - HELD THAT - The authority in our opinion cannot decide its own jurisdiction in such a case. It has to be decided by us. Only after such a decision only those matters which can be decided by the said authority may be remanded to them. In view of the above reasons, we stay the operation of the impugned judgment and order. The appeal is formally admitted. We feel that it should be heard out on an expeditious manner. As the respondents are represented formal issue and service of the notice of appeal are dispensed with. Learned Advocate-on-Record for the appellant is directed to file informal paper books by 8th February, 2019, serving two copies thereof upon the advocate-on-record for the respondent not later than seven days before the date of hearing of the appeal. List this appeal for hearing on 27th February, 2019 at the top. The reference referred to in Section 24(5) shall not be treated as final and shall only be treated as provisional during the whole period the writ application and the appeal are pending before this Court. Subject to its result, the reference will be treated as final. Thereafter, time to pass the adjudication order under Section 26(7) of the said Act will start to run. Hence, it follows that the respondent authorities will not take any further steps in the matter till the disposal of the appeal.

Summary

Issues:
1. Jurisdiction of the authority to issue a show-cause notice under the Prohibition of Benami Property Transactions Act, 1988 as amended in 2016.
2. Validity of the show-cause notice issued in relation to a 2011 transaction.
3. Interpretation of Section 26(7) of the Benami Transaction Act.
4. Applicability of the amended Act to a transaction from 2011.
5. Decision on jurisdiction to be made by the Court.

Analysis:
1. The appeal raised a crucial question regarding the jurisdiction of the authority under the Prohibition of Benami Property Transactions Act, 1988 as amended in 2016. The appellant argued that the authority had no power to issue a show-cause notice under the amended Act for a transaction dating back to 2011. On the contrary, the Learned Additional Solicitor General contended that the Act was operational since 1988, with amendments in 2016 not affecting accrued rights. The Court acknowledged the significant changes brought by the 2016 amendments, treating them almost as a new enactment, and deemed the issue as jurisdictional.

2. The challenge in the writ primarily focused on the validity of the show-cause notice issued under the amended Act in relation to the 2011 transaction. The appellant claimed the initiation of proceedings was void ab initio, rendering the show-cause notice a nullity. Conversely, the Additional Solicitor General argued for the validity of the notice, highlighting the limitation under Section 26(7) of the Act regarding the timeline for passing orders on show-cause notices.

3. Section 26(7) of the Benami Transaction Act was a point of contention, emphasizing that no order could be passed under Section 24(5) after a specific timeframe from the receipt of the reference. The interpretation of this provision was crucial in determining the authority's power to adjudicate on the show-cause notice issued under the amended Act.

4. The Court recognized the need to delve into whether the amended Act of 2016 could encompass a transaction from 2011. The judges noted the substantial changes introduced by the amendments and the necessity to determine the applicability of the new provisions to transactions predating the amendments.

5. The Court asserted its authority to decide on the jurisdictional matters, emphasizing that the authority could not determine its own jurisdiction in such cases. It was deemed essential for the Court to make a decision on jurisdiction before remanding any matters to the authority for adjudication. Consequently, the operation of the impugned judgment and order was stayed, and the appeal was formally admitted for expeditious hearing. The appellants were directed not to deal with the subject property until the appeal's disposal, and the respondents were restrained from taking further steps in the matter until the appeal's resolution.