On Tuesday, the Supreme Court ruled that Section 3(2) of the Benami Transactions (Prohibition) Act of 1988 is unconstitutional on the ground of being manifestly arbitrary. Also, the Benami Transactions (Prohibition) Amendment Act 2016 can be applied only prospectively and not retrospectively.

A bench comprising Chief Justice NV Ramana, Justice Hima Kohli and Justice Krishna Murari delivered the judgment in an appeal filed by the central government against a Calcutta High Court judgment holding that the 2016 amendment Act was prospective.
.

Accordingly, the apex court also found Section 3(2) of the 2016 Act unconstitutional as it violates Article 20(1) of the Constitution. As per Section 3(2) of the Act, whoever enters into any benami transaction shall be punished with imprisonment for up to three years or with a fine or both. The bench further noted that the 2016 amendment could not be held as merely procedural.

Benami Transactions (Prohibition) Act, 1988 is an act of the Parliament of India which prohibits certain types of financial transactions. The act defines a ‘benami’ transaction as any transaction in which property is transferred to one person for a consideration paid by another. In other words, Benami transactions refer to transactions in which the real beneficiary of the transaction and the person in whose name the transaction is made are different. In 2016, the government amended the act by establishing adjudicating authorities and appellate tribunal, providing immunity in certain cases, defined penal provisions etc.