On Friday, the Apex Court recalled its August 2022 judgment that struck down crucial provisions of the Prohibition of 1998 Benami Property Transactions Act & invalidated all prosecutions carried out under the Act before its amendment in 2016. The Supreme Court noted that the 2022 decision was made without addressing any direct constitutional challenge to the Act’s provisions.

The bench, headed by Chief Justice of India (CJI) DY Chandrachud & comprising justices PS Nrasimha & Manoj Misra, clarified that the judgment was not made in response to a live dispute where the constitutionality of the provisions was raised or debated by the parties. “The issue of constitutional validity was not squarely raised,” the court observed, underscoring that such a decision must only be reached when constitutional challenges are properly argued in court.

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“We can’t hold a provision to be unconstitutional when there is no challenge. It has to be raised, has to be argued, & assessed on suitable grounds,” said the bench, adding that the batch of matters will be adjudicated afresh before a new bench that would be set up by the CJI on the administrative side.

It noted that the only legal question recorded by the August 2022 judgment disclosed that the issue before the court was whether the Prohibition of Benami Property Transactions Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016, has a prospective effect.

The Supreme Court’s decision to recall its 2022 judgment holds considerable legal significance. By overturning a ruling that invalidated key provisions of the 1988 Act, the court has reinstated the application of those provisions in cases predating the 2016 amendments. This means that prosecutions & confiscations for benami transactions prior to 2016 may now proceed, provided that they comply with the legal framework. The decision is also likely to have an impact on any legal scrutiny of related laws, such as the Prevention of Money Laundering Act (PMLA) which allows the Enforcement Directorate (ED) to take interim possession of properties.

This reversal followed the Centre’s review petition, which argued that the court’s earlier judgment had dismantled 40 years of jurisprudence on the issue. Solicitor general (SG) Tushar Mehta, representing the Centre, emphasised that the unamended Section 3(2) of the Act — deemed unconstitutional in 2022 — was struck down despite no direct challenge to its validity, & argued that the requirement of “mens rea” (criminal intent) need not be expressly stated in penal statutes.

The 2022 ruling had created waves in legal circles as it struck down Sections 3 & 5 of the unamended 1988 Act, which criminalised benami transactions & allowed for the confiscation of benami properties. The three-judge bench led by then Chief Justice NV Ramana held these provisions to be “unconstitutional” & “manifestly arbitrary”, describing the Act as “stillborn” due to its broad & disproportionately harsh nature. The bench concluded that prosecutions or confiscations under the pre-2016 version of the Act could not be pursued.

At the core of that decision was the court’s interpretation that these provisions operated without adequate safeguards & failed to include “mens rea”, a necessary element in penal statutes. The court further ruled that the 2016 amendments to the Act — which significantly altered its provisions — would apply only prospectively, meaning any actions taken between 1988 & 2016 under the old law were null & void.

The August 2022 verdict also raised the potential for challenges to related laws, such as PMLA. In particular, the court flagged the lack of safeguards in provisions that allowed ED to take interim possession of properties under PMLA. The court had expressed concerns about the “arbitrary application” of certain PMLA provisions, raising hopes for a reconsideration of that judgment.

However, Friday’s recall order removes a potential precedent that could be cited to argue against the Supreme Court’s July 2022 judgment upholding the vast powers of ED under PMLA. With the reversal of the August 2022 decision, the challenge to the PMLA provisions, which is currently pending before the Supreme Court, will have to be distinctly contended.

The recall of the August 2022 judgment further ensures that the government retains the authority to enforce the pre-2016 provisions, while also affirming the prospective application of the 2016 law.

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