Report No. 130
The Coverage of the Statute
3.1. As the question of benami transactions has been examined way back in 1973 by the Law Commission, the present effort is not to re-examine and re-write everything concerning benami. In fact this report may be treated as a further continuation of the recommendations made in the earlier report.
3.2. The first question that must engage our attention at once is the width and coverage of the proposed legislation. In order to encompass benami transactions concerning various types of property, the legislation should cover both movable, immovable, tangible and intangible property. Unfortunately every type of property, such as land, houses, shares, debentures, bonds, bank accounts, deposit receipts and negotiable instruments, is capable of being held benami. Therefore, it is equally legitimate to have an extensive coverage of the proposed legislation by encompassing property of every denomination.
3.3. The ruck lies in a constitutional conundrum whether land, both agricultural and urban, can be the subject-matter of a legislation by Parliament in view of entry 18 in the State List. This constitutional conundrum should not detain us in view of the tact that the proposed legislation in pith and substance would be covered by entry 6 in the Concurrent List. That is to say the legislation in pith and substance would be dealing with transactions of property or the transactional aspect of property. Therefore, indisputably Parliament would have power to legislate on the topic or Benami Transactions, whatever be the nature of the property covered by such transactions.
3.4. Should the legislation be only prospective or retroactive is the next important aspect to which we must address ourselves. The earlier report of the Law Commission clearly intended the legislation to be only prospective. It was so specifically indicated in the report. The Law Commission was of the opinion that 'the proposed legislation should not apply to past transactions because those transactions would have been entered into after keeping in mind the legal position as understood at present, namely, that the real owner can always enforce his rights against the benamidar'.1 When the Ordinance was issued, the past transactions were not excluded from its operation. In ether words, it was retroactive in operation.
1. LCI, 57th Report, para. 6.29.
3.5. In the available time, the Law Commission held dialogues with retired Chief Justice of India, a sitting Judge of the Supreme Court, an eminent jurist, a former Minister of Law and Justice and a journalist who had contributed analytical articles on the topic covered by the ordinance. One of the views expressed during this debate by one of the participants was that in the past benami transactions were entered into, when benami was a part of the Indian law. Benami transactions came to acquire the legal affirmance by Judge-made law.
3.6. Two inter-connected questions arise in this behali. (1) is there any provision in the Constitution which would put a fetter on the plenary power of the Parliament to enact law with retroactive operation; and (2) would such a retroactive legislation be invalid for any reason?
3.7. Articles 245 and 246 of the Constitution confer plenary power on the Parliament and State Legislatures to legislate on topics reserved for them in the Constitution. The power of the Parliament to legislate is traceable to Articles 245 and 246 and the only constraint on the power is the one mentioned therein. There is no constraint either in Article 245 or Article 246 on the plenary power of the Parliament to legislate retroactively in respect of the topics reserved for it under the Seventh Schedule.
This plenary power is subject to the provisions of the Constitution. The Constitution is the conclusive instrument by which powers are affirmatively created or negatively restricted. 'The only relevant test for the validity of a statute made under Article 245 is whether the legislation is within the scope of the affirmative grant of power or is forbidden by some provision of the Constitution'.1
1. Indira Nehru Gandhi v. Raj Narain, (1976) 2 SCR 436.
3.8. Therefore, what falls for consideration is whether there is anything in the Constitution which puts a letter on the power of the Parliament on its capacity to legislate even retroactively. Democratic culture abhors ex post facto legislation. To some extent it has been referred to in Article 20(1). It provides that 'no person shall be convicted of any offence except for violation of law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence'. Article 20(1) prescribes a prohibition against ex post facto legislation in the field of criminal law.
Without further dilating on this topic, it can be concluded at once that ex post facto legislation may be violative of Article 20, clause (1), but that article would not come in the way of Parliament to legislate retroactively in areas not covered by Article 20(1). Shorn of embellishment, the plenary power of the Parliament to legislate conferred by Articles 245 and 246 does not suffer a constraint against it legislating retroactively in field other than criminal law. Undoubtedly, any legislation to be valid must meet the test of Part III of the Constitution. That is not the problem at present. The only question that is being debated is: is there anything anywhere in the Constitution which would either put a fetter or a constraint on the power of the Parliament to pass a legislation making it retroactive in operation?
3.9. Could such a retroactive legislation be challenged on the ground that it invalidates transactions which were valid at the time of the entry into transactions? The constitutional validity of a statute depends entirely on the existence of legislative power and the express provision in Article 13. Apart from that limitation, the Legislature is not subject to any other prohibition.1 And it is judicially accepted that the power of the Legislature to pass a law includes a power to pass it retrospectively.2
A Legislature has the power, except in a matter for which there is prohibition like the one contained in Article 20(1) of the Constitution, to make laws which are prospective in operation as well as laws which have a retrospective operation. There is no limitation on the power of the Legislature in this respect. Essentially it is a matter relating to the capacity and competence of the Legislature. Although most of the laws made by Legislature have a prospective operation, occasions arise quite often when necessity is felt of giving retrospective effect to the law.3
1. Id., p. 437.
2. Indira Nehru Gandhi v. Raj Narain, (1976) 2 SCR 436 (438.)
3. Id., p. 481.
3.10. Retrospective operation of law in the field of election has been upheld. One Kanta Kathuria, holding the office of Special Government Pleader to represent the State of Rajasthan, contested an election to the State Legislative Assembly and was declared elected. His election was challenged, inter alia on the ground that he held an office of profit within the meaning of Article 191(1) of the Constitution. The High Court set aside his election.
During the pendency of his appeal in the Supreme Court, the State of Rajasthan amended the relevant provisions of the law declaring that the holder of the office of Special Government Pleader was not disqualified from being chosen as, or for being, a number of the State Legislative Assembly. The Act was made retroactive and removed the appellant's disqualification retrospectively. Though there was a division of opinion amongst five-Judge Bench hearing the appeal,. all the Judges were, however, unanimous on the point that the Amendment Act had removed the disqualification of the appellant retrospectively. hidayatullah, C.J., observed that it is well recognized that Parliament and Legislature of the States can make the laws operate retrospectively.
He went so far as to say that any law that can be made prospectively can be made with retrospective operation except that certain kinds of laws cannot operate. retrospectively. Election law is not one such case.1 It is indisputable that the law removing benami transactions from Indian law can be prospectively made. For the same reason, it can as well be made retrospectively.
1. Kanta Kathuria v. Manak Chand Surana, 1972 SCR 830.