2022 (5) TMI 262 - HC - Benami Property

Benami transaction - Beneficial owner of property - Provisional attachment order - scope of Amendment Act of 2016 - transaction in question was arranged and executed in a planned manner by M/s.Nexus Feeds Limited, the petitioner, which has been treated as the beneficial owner so that its funds out of unknown sources get parked in the name of the benamidar in the form of shares - HELD THAT - It is apparent that Section 2 (9) (A) and Section 2 (9) (C) are substantive provisions creating the offence of benami transaction. These two provisions are significantly and substantially wider than the definition of benami transaction under Section 2 (a) of the unamended 1988 Act. Therefore, Section 2 (9) (A) and Section 2 (9) (C) can only have effect prospectively. Central Government has notified the date of coming into force of the Amendment Act of 2016 as 01.11.2016. Therefore, these two provisions cannot be applied to a transaction which took place prior to 01.11.2016. Admittedly, in the present case, the transaction in question is dated 14.12.2011. That being the position, we have no hesitation to hold that the show cause notice dated 30.12.2019, provisional attachment order dated 31.12.2019 and the impugned order dated 30.03.2021 are null and void being without jurisdiction. Consequently, the impugned order is set aside and quashed.

Issues Involved:
1. Legality and validity of the order dated 30.03.2021.
2. Retrospective applicability of the Benami Transactions (Prohibition) Amendment Act, 2016.
3. Procedural and substantive distinctions in the application of the law.
4. Jurisdiction of the authorities in issuing the show-cause notice and provisional attachment order.

Detailed Analysis:

1. Legality and Validity of the Order Dated 30.03.2021:
The petitioners challenged the legality and validity of the order dated 30.03.2021 passed by the first respondent under Section 24 (4) (a) (i) of the Prohibition of Benami Property Transactions Act, 1988. The order concluded that the transaction in question was arranged and executed by the petitioner, M/s. Nexus Feeds Limited, treating it as the beneficial owner. The funds were parked in the name of the benamidar in the form of shares, thus falling under Section 2 (9) (A) of the Act. Consequently, the provisional attachment of the properties was continued until the adjudicating authority passed an order under Section 26 (3) of the Act.

2. Retrospective Applicability of the Benami Transactions (Prohibition) Amendment Act, 2016:
The primary contention was whether the Amendment Act of 2016 could be applied retrospectively to transactions that took place in 2011. The petitioners argued that the Amendment Act of 2016, effective from 01.11.2016, could not be applied retrospectively, making the impugned order ex facie bad in law and without jurisdiction. The respondents contended that the Amendment Act introduced machinery provisions to plug loopholes in the 1988 Act and should be harmonized with the original Act. They cited the Supreme Court's stay on the Calcutta High Court's judgment, which held the Amendment Act to be prospective.

3. Procedural and Substantive Distinctions in the Application of the Law:
The court analyzed the substantive and procedural aspects of the 1988 Act and the Amendment Act of 2016. It noted that the definition of 'benami transaction' under the Amendment Act was significantly broader than under the unamended Act. The court held that Sections 2 (9) (A) and 2 (9) (C) of the Amendment Act were substantive provisions creating offences and thus could not be applied retrospectively. Procedural provisions like Section 24 could have retrospective effect, but substantive provisions defining offences could not.

4. Jurisdiction of the Authorities in Issuing the Show-Cause Notice and Provisional Attachment Order:
The court examined whether the authorities had jurisdiction to issue the show-cause notice and the provisional attachment order based on the retrospective application of the Amendment Act. It held that the transaction in question, dated 14.12.2011, could not be considered a benami transaction under the definitions introduced by the Amendment Act of 2016. Therefore, the show-cause notice dated 30.12.2019, the provisional attachment order dated 31.12.2019, and the impugned order dated 30.03.2021 were null and void, being without jurisdiction.

Conclusion:
The court concluded that the Amendment Act of 2016 could not be applied retrospectively to transactions that took place before its commencement on 01.11.2016. Consequently, the orders issued based on the retrospective application of the Amendment Act were set aside and quashed. The writ petitions were allowed, and the miscellaneous petitions, if any, were closed.

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