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Retrospective effect of Statutes

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Published on: February 2, 2008

The paramount object of law is the welfare of the society. The law that misses its aim cannot permanently justify its existence. The statutes may be prospective or retrospective in their operation. However, there is a constitutional prohibition against criminal legislations applied retrospectively under Article 20 (1) of Constitution of India. It is only retrospective criminal legislation that is prohibited and not the imposition of civil liability retrospectively. If the statute fixes criminal liability for contravention of the prohibition or command which is made applicable to transactions which have taken place before the date of its enactment, the provisions of Article 20 (1) will be attracted.[1] The right secured by Article 20 (1) corresponds to the provisions against ex-post facto laws of the American Constitution which declares that no ex-post facto laws shall be passed. This is obvious because the laws which retrospectively create offences and punish them are bad as being highly inequitable and unjust.[2]

            Civil laws can be made applicable retrospectively if it is provided in the statute itself. But what happens when a statute is silent about its operation or makes its commencement effective from a particular date but the language of the statute reflects otherwise?

            Benami Transactions (Prohibition) Act, 1988 received the assent of the President of India on 5th Sept. 1988 and the provisions of Sections 3, 5 and 8 came into force at once but the remaining provisions of the Act shall be deemed to have come into force on 19th May 1988.[3] The central idea of this project is to analyze whether this Act is prospective or retrospective in its operation. In other words, whether the prohibition contained in the Act applies to benami transactions undertaken before commencement of this Act?

            The dictionary meaning of the word ‘prospective’ with reference to statutes shows that it is concerned with or applying the laws in future or atleast from the date of commencement of the statute. Whereas the word ‘retrospective’ when used with reference to an enactment may mean –

a)      affecting an existing contract, or

b)      re-opening up of the past, closed and completed transactions, or

c)      affecting accrued rights and remedies, or

d)     affecting procedure.[4] 

The retrospective operation of an enactment may mean one thing and its affecting the rights of parties another. Normally, an enactment is prospective in nature. It does not affect that which has gone, or completed and closed up already. Ordinarily, the presumption with respect to an enactment is that, unless there is something in it to show that it means otherwise, it deals with future contingencies, and does not annul or affect existing rights and liabilities or vested rights, or obligations already acquired under some provision of law although its effect is that it does not affect an existing right as well. If an enactment expressly provides that it should be deemed to have come into effect from a past date, it is retrospective in nature. It then operates to affect existing rights and obligations, and is construed to take away, impair or curtail, a vested right which had been acquired under some existing law.

            If an enactment is intended to be retrospective in operation, and also in effect, the legislature must expressly, and in clear and unequivocal language, say so, in the enactment itself. A retrospective operation is not given to a statute, so as to impair an existing right or obligation, otherwise than as regards matters of procedure unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in a language which is capable of either interpretation, it ought to be construed prospectively. This view is in consonance with Lord Athumney in Re Wilson exparte.[5]

            In Young v. Adams[6] it was observed that retrospective operation ought not to be given to a statute, unless an intention to that effect is expressed in plain and unambiguous language. However, it does not seem probable that the legislature should intent to extinguish by means of a retrospective enactment, rights and interests which might already have vested. The retrospective operation should not be favoured, unless the legislature clearly and distinctly authorizes the doing of something which is physically inconsistent with the existence of an existing right and a statute is not construed to have a greater retrospective operation than what its language renders it necessary, because it may be that the retrospective operation may be partial and not full at some places in the enactment.[7]

            In this paper, the author has analyzed the provisions of the Benami Transactions (Prohibition) Act, 1988 and it is to be seen whether the Act is prospective or retrospective in its operation. For this purpose the author has confined her study in this paper to the decision in the following case: –

 

MITHILESH KUMARI v. PREM BEHARI KHARE[8]: –

            This is an important decision wherein the provisions of the Benami Transactions (Prohibition) Act, 1988 are interpreted. The facts of the case in short are that the plaintiff Prem Behari Khare filed a suit for declaration that he is the real owner of the disputed house and the transaction in the name of his kept Mithilesh Kumari was benami. The suit was decreed by the trial court and the decree was affirmed by first appellate court as well as by the High Court at Allahabad. The Act came into force during the pendency of appeal before the apex court.

 

Issues before the Court: –

Issue No.1 - Whether or not to interfere with the concurrent finding of the fact of the court below that the transaction was benami. The Supreme Court did not interfere in the concurrent findings of the courts below and held that the findings of the courts below are correct and are based on reasonable appreciation of evidence on record. 

Issue No.2 – Whether despite the decree in favour of plaintiff-respondent his suit will be affected by the subsequent legislation, namely, the Benami Transaction (Prohibition) Act, 1988 and its predecessor ordinance. In other words, whether the effectuation of the decree has been barred?

              In order to appreciate issue no.2, it will be relevant to take note of the relevant events as indicated that the impugned High Court judgment was dated 27-3-1978. The Ist Appellate Court’s judgment was dated 23-12-1974, the trial court’s judgment was dated 13-3-1974 and the suit was filed in 1971. The special leave to appeal was granted by apex court on 15-11-1978. The Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988 was promulgated on 19-5-1988 which came into force at once. The Benami Transaction (Prohibition) Act, 1988 received the assent of the President of India on 5-9-1988 and the provisions of Sections 3, 5 and 8 of the Act came into force at once on 5-9-1988 and the remaining provisions were to be deemed to have come into force on 19-5-1988. It is important to note that it is an Act to prohibit benami transactions and the right to recover property held benami and matters connected therewith or incidental thereto.

 

Contentions of Counsel for Appellant: –

            Counsel for appellant submitted before the apex court that the provisions of the Act cover past benami transactions also and it would be permissible for this court to refer to 57th Report of Law Commission of India wherein it was suggested that the legislation should not be applied to past transactions. But the Parliament did not accept that suggestion, and made the law applicable to past transactions also.

 

Contentions of Counsel for Respondents: –

            Counsel for respondent submitted before the court that the provisions of the Act are prospective and not retrospective, and as such would not affect the respondent’s established right to the benami property.

            To appreciate the controversy between the parties, the relevant definitions of the Act may have to be seen, i.e., “Benami Transaction”[9] and “Property”.[10] Now, if these definitions are applied to the facts of the present case, there can be no doubt that the transaction by which the disputed house was transferred to the defendant appellant for Rs.8,000/- paid by plaintiff respondent would be a benami transaction if the Act is applicable to it. There is also no doubt that the disputed house being a tangible immovable property would be included within the definition of word ‘property’. Even Section 3 of the Act prohibits benami transactions.[11]

            Appellant Mithilesh Kumari was married to her husband Ram Swarup with whom her relations were then estranged and that the relation between the plaintiff and the defendant came to be such that she bore two children to him. A decree of judicial separation was passed between Mithilesh Kumari and Ram Swarup in 1958. The plaintiff had full confidence in and affection towards the defendant and in the court he could give no reason as to why he purchased the disputed house in the name of the defendant. Thus, the appellant having not been wife or unmarried daughter of the respondent, the exception in Section 3 (2) would not be applicable.

            Thus, the Act not only prohibits the benami transactions but makes the same as an offence. Section 4 prohibits the right to recover property held benami.[12] As is clear from the three decisions of the courts below that the disputed house has been held benami by Prem Behari Khare in the name of his kept Mithilesh Kumari, the important question is whether to this transaction the Act shall be applicable? The plain reading of the Act shows that the Act has not been made retrospective by any specific provision. In such circumstances, is it permissible to refer to the Law Commission’s Report, as an external aid to ascertain the legislative intent behind the Act. It was held by the Supreme Court that where a particular enactment or amendment is the result of recommendation of Law Commission of India, it may be permissible to refer to the relevant report.[13]      

            The Government of India considered it necessary to request the Law Commission of India to examine the problem of benami held property with a view to determining whether benami transactions should be prohibited. The Law Commission accordingly submitted its 57th report on benami transactions on 7-8-1973 after studying benami system as operating in India and England.[14]

            On the basis of recommendations of 57th Report of the Law Commission of India, the President of India on 19-5-1988 promulgated the ordinance to prohibit the right to recover property held benami. With the promulgation of this ordinance the judicial acceptance of benami transactions was being removed with a view to help people to keep property they were holding for others. In other words, the ordinance remedied the age old doctrine of benami transaction and made a benamidar or ostensible owner as the real owner in law of course with few exceptions.

            This ordinance was again referred by Government on 22-7-1988 to the Law Commission of India for taking up the question of benami transactions for detailed examination and to give its considered opinion so that a bill to replace the ordinance could be drafted on the basis of its recommendations and got passed by the Parliament. The Law Commission of India submitted its report to Government of India on 14-8-1988.[15]

            The Law Commission of India devoted several pages to justify retrospective legislation and its view was that legislation replacing the ordinance should be retrospective in operation and no right need be given to the persons who had entered in the benami transactions in the past in the following words:

“Therefore, viewed from either angle, Law Commission is of the firm opinion that the legislation replacing the ordinance should be retrospective in operation and that no locus penitentia need be given to the persons who had entered into benami transactions in the past. They had notice of one and a half decades to set their house in order. No more indulgence is called for.”[16]

           

            The law of interpretation requires that the courts are supposed to interpret the language used in the Act, and when the language is clear and unambiguous it must be given effect to.[17] Law Commission’s report may be referred to as external aid to construction of the provisions. A careful reading of the Act shows that the Act is a piece of prohibitory legislation and it prohibits benami transactions subject to stated exceptions[18] and makes such transactions punishable[19] and also prohibits the right to file a suit or raise defenses against recovery of benami transaction.[20] Not only this all properties held benami are liable to acquisition by the prescribed authorities under the Act and no amount shall be payable for the acquisition of any property held benami.[21]

            According to Prof. Vepa P. Sarathi, declaratory Acts, i.e., Acts for the removal of doubts, curative and validating Acts are generally retrospective.[22] The Parliament has jurisdiction to pass a declaratory legislation and Parliament in its wisdom enacted the said Act and as a result of the provisions of the Act all properties held benami at the moment of the Act coming into force may be affected irrespective of their beginning, duration and origin.

            However, the reading of the Act shows that the Act contains no specific provisions making its operation retrospective. It is a fundamental rule of English law that no statute be construed to have retrospective operation unless such a construction appears very clearly from the text of the Act or arises by necessary and distinct implication.[23] A retrospective operation is, therefore, not to be given to a statute so as to impair existing right or obligation, otherwise than as regards matter of procedure unless that effect cannot be avoided without doing violence to the language of the enactment.[24] Before applying a statute retrospectively the court has to be satisfied that the statute is in fact retrospective. The presumption against retrospective operation is strong in cases in which the statute, if operated retrospectively, would prejudicially affect vested rights or the illegality of the past transactions, or impair contracts, or impose new duty or attach new disability in respect of past transactions. However, a statute is not properly called a retrospective statute because a part of the requisites for its actions is drawn from a time antecedent to its passing. Before interpreting any legislation as retrospective one must look at the general scope and purview of the statute and at the remedy sought to be applied and consider what the former state of law was and what the legislation contemplated. It is well known that every law that takes away or impairs rights vested agreeably to existing laws is retrospective, and is generally unjust and may be oppressive. But laws made justly and for the benefit of individuals and a community as a whole, as in Mithilesh Kumari’s case, may relate to a time antecedent to their commencement. The presumption against retrospectivity may in such cases be rebutted by necessary implications from the language employed in the statute. It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed.

            If we apply this principle to the case in hand the question is whether on a proper construction, the legislature may be said to have so expressed its intention. According to Craies, the general rule of law is that statutes are not operated retrospectively but this rule may be departed from by express enactment or by necessary implication from the language employed.[25]

            If we interpret the provisions of the Act and to apply the same to the facts of the given case, benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by any other person. A transaction must, therefore, be benami irrespective of its date or duration. Section 3 of the Act obviously cannot have retrospective operation as it states that no person shall enter into any benami transaction. But Section 4 clearly provides that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie, by or on behalf of a person claiming to be the real owner of such property. This naturally relates to past transactions as well because expression “any property held benami” is not limited to any particular time, date or duration. Once the property is found to have been held benami, no suit, claim or action to enforce any right in respect of benami property shall lie. Similarly, Section 4 (2) of the Act nullifies the defences based on any right in respect of any property held benami.

            Aforesaid discussion shows that once a property is found to have been benami, the real owner is deprived of any defence against the person in whose name the property is held. In other words, in its sweep Section 4 envisages past benami transactions also within its retroactivity. The presumption against retrospectivity will not apply in this case in as much as under the law it is the benamidar in whose name the property stands and law only enabled the real owner to recover the property from him and this right has now been ceased by the Act.

            Before passing of the Act, there was a right to recover or resist in the real owner against the benamidar. According to maxim ubi jus ibi remedium, where there is a right, there is a remedy.[26] But where the remedy is barred, the right is rendered unenforceable. In this sense, the present Act is disabling statute. This interpretation reflects that all the real owners are equally affected by the disability provisions irrespective of the time of creation of the right. A right is a legally protected interest.[27] The real owner’s right to recover property was hitherto protected and the Act has resulted in removal of that protection. When the law nullifies the defences available to the real owner in recovering the benami property from the benamidar, the law must apply irrespective of the time of benami transaction.

            It is obvious that when the law nullifies the defences available to the real owner in recovering the benami property from the benamidar, the law must apply irrespective of the time of the benami transactions. The expression “shall lie” under Section 4 (1) and the expression “shall be allowed” under Section 4 (2) are prospective and shall apply to present suits including its future stages and the future suits, claims or actions only. When the Act came into force on 19-5-1988, the appeal before the Supreme Court was pending.

            Now another question which arises is can the suit itself be said to be pending. In Lachmeshwar v. Keshwar Lal,[28] it was held that the hearing of appeal under procedural law of India is in the nature of re-hearing and, therefore, in molding the relief to be granted in a case on appeal, the appellate court is entitled to take into account even facts and events which have come into existence after the decree. Consequently, it was also held that the appellate court is competent to take into account the legislative changes since the decision under appeal was given and its powers are not confined only to see whether the lower court’s decision was correct according to law as it stood at the time when its decision was given. Once the decree of the High Court has been appealed against, the matter became subjudice again and thereafter the appellate has seisin of the whole case.

            The ratio of Lachmeshwar v. Keshwar Lal,[29] was followed in Shyabuddinsab v. Gadag Betgeri Municipal Borough,[30] wherein after the judgment of the High Court and after grant of special leave by the apex court, the legislation was passed and the same was applied. Further in Dayawati v. Inderjit[31] it has been held that word ‘suit’ includes an appeal from the judgment in the suit. Similarly, in Mohan Lal Jain v. HHM Sh. Man Singh,[32] it was observed that a person is “sued” not only when the plaint is filed against him, but is “sued” also when the suit remained pending against him. The word “sued” covers the entire proceedings of an action. In Amarjit Kaur v. Pritam Singh,[33] it has been held that an appeal is a re-hearing and in moulding relief to be granted in a case on appeal, the appellate court is entitled to take into account even facts and events which have come into existence after passing of the decree appealed against.

The equation: –

Original suit – Ist Appeal – IInd Appeal – Appeal before Apex Court = One set of proceedings or suit.

            It was concluded by the apex court that since the Act is applicable to the past benami transactions and appeal in nothing but continuation of the suit, the consequence is that the plaintiff-respondent’s suit or action cannot be decreed under the law. Hence, the decree passed by the lower courts was annihilated and suit was dismissed. Resultantly, appeal of Mithilesh Kumari was allowed by the apex court.

 

CONCLUSION

 

            To conclude, it is submitted that the benami transaction in this case in favour of Mithilesh Kumari was completed on 9-11-1962 whereas the Act was enforced on 19-5-1988. Although there is no express provision in the Act making the Act retrospective in operation but the language used in Section 3 & 4 shows that the Act is retrospective in operation impliedly. External aid, i.e., the report of Law Commission of India also goes to show that the legislature intended the Act to be retrospective in nature. In the opinion of the researcher, if we apply Heydon’s case[34] then the true intention of the legislature must be found in the words used by the legislature itself. While enacting the Act the intention of the legislature was to prohibit the benami transactions and if any transfer of property has taken place which is held benami, then the real owner has no right to claim the property back but the property in whose name it is been granted would be treated as the real owner of the property and the Act would be applicable retrospectively as was done in this case by the Honourable Supreme Court of India.



[1] Hathi Singh Mfg. Co. v. UOI, AIR 1960 SC 923. 

[2] Rao Shiva Bahadur Singh v. State of VP, AIR 1953 SC 394 at 398.

[3] See Section 1 of the Benami Transactions (Prohibition) Act, 1988.

[4] Aiyar, K.J., “Judicial Dictionary”, 11 ed. 1995, Law Book Company Pvt. Ltd., Allahabad.

[5] (1898) 2 QB 547.

[6] 1898 AC 469.

[7] Ibid.

[8] AIR 1989 SC 1247.

[9] Section 2 (a) of the Benami Transaction (Prohibition) Act, 1988; “Benami Transaction” means any transaction in which property is transferred to one person for a consideration paid or provided by another person.

[10] Section 2 (c) of the Benami Transaction (Prohibition) Act, 1988; “Property” means property of any kind, whether movable or immovable, tangible or intangible and includes any right or interest in such property.

[11] Section 3: – Prohibition of benami transactions: – (1) no person shall enter into any benami transaction.

(2) nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved that the said property had been purchased for the benefit of the wife or the unmarried daughter.

(3) whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to 3 years or with fine or with both.

[12] Section 4: – Prohibition of the right to recover property held benami: – (1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property.

(2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.

[13] Supra n. 8 at 1252.

[14] See Law Commission of India, 57th report.

[15] See Law Commission of India, 130th report.

[16] See Law Commission of India, 130th report, para 3.18.

[17] Sarathi, V.P., “Interpretation of Statutes”, 4th ed. 2003 (rep. 2005), pp. 156-163.

[18] See Section 3 (1) & (2) of the Benami Transactions (Prohibition) Act, 1988.

[19] See Section 3 (3) of the Benami Transactions (Prohibition) Act, 1988.

[20] See Section 4 (1) & (2) of the Benami Transactions (Prohibition) Act, 1988.

[21] See Section 5 of the Benami Transactions (Prohibition) Act, 1988.

[22] Supra n. 17 at 466.

[23] Maxwell, “Interpretation of Statutes”, 12th ed.

[24] Supra n. 17 at 467.

[25] Craies on Statute Law, 7th ed.

[26] Ratan Lal and Dhiraj Lal, “Law of Torts”.

[27] Fitzgerald, P.J., “Salmond on Jurisprudence”, 12th ed. 1966 (Indian Economy Reprint, 2002).

[28] AIR 1941 FC 5.

[29] AIR 1941 FC 5.

[30] AIR 1955 SC 314.

[31] AIR 1966 SC 1423.

[32] AIR 1962 SC 73.

[33] AIR 1974 SC 2068.

[34] (1584) 76 ER 637.

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