Report No. 130

3.11. In the debate, a position emerged that at any rate a reasonable approach necessitates that all those who had entered into benami transactions in the past knowing them to be permissible under the law should be given locus penitontia ranging from three to six months, giving time to the real owner or owners holding beneficial interest in the property held benami to reclaim the property and thereafter impose a total bar against entering into benami transactions in future.

3.12. When the Law Commission dealt with benami transactions in 1973, 'right to property' was Fundamental as set out in Articles 31 and 19(1)(f). Validity of any legislation entrenching upon the right to acquire, hold and dispose of property was likely to be tested on the fundamental right enshrined in Article 19(1)(f) and could be sustained on the only ground that the law imposes reasonable restrictions in the interests of the general public or for the protection of the interests of any Scheduled Tribe.

It is not necessary to speculate on the possible outcome of the challenge but one can say confidently that the law prohibiting benami transactions could have been sustained in the interest of general public. That apart, Articles 19(1)(f) and 31 both are deleted and, therefore, the constraint on the power of the Legislature in dealing with property subject to Article 300A has disappeared.

3.13. Thus, even though the proposed legislation is not likely to violate any fundamental right, it was suggested that even to meet the test of Article 14, a rational approach demands that some time must be given to those who entered into benami transactions at the time when they were valid according to law in force. The Law Commission sees no justification for further extension of any time in this behalf. In fact, the Law Commission is in favour of making the Act retroactive to the same extent as the Ordinance today stands. Undoubtedly, benami became part of Indian law by Judge-made law. Legislature can always step into nullify such Judge-made law.

And the Legislature has power to pass such legislation with retroactive operation to nullify the effect of the judgment. To illustrate what is being asserted here, it may be pointed out that one K.L. Gupta challenged the election of the returned candidate Shri A.N. Chawla on diverse grounds, inter alia, contending that the returned candidate incurred an unauthorised expenditure in excess of the prescribed limit of Rs. 10,000 in contravention of section 77 and thereby committed the 'corrupt practice' defined in section 123(6) of the Representation of the People Act, 1951.

In an appeal against the dismissal of the petition by the Delhi High Court, the Supreme Court held that: 'in the first place, a political party is free to incur any expenditure it likes on its general party propaganda though, of course, in this area also some !imitative ceiling is eminently desirable coupled with filing of return of expenses and an independent machinery to investigate and take action.

It is only where the expenditure is incurred which can be identified with the election of a given candidate that it would be liable to be added to the expenditure of that candidate as being impliedly authorised by him,1 The ratio decidendi of the judgment was that if a political party incurs expenditure for a particular candidate so as to benefit him, the expenditure so incurred by the political party is liable to be included in the expenditure incurred by him on the ground that it is authorised by him.

1. Kanwar Lal Gupta v. Amar Nath Chawla, (1975) 2 SCR 259.

3.14. Quick upon the heals of the aforementioned decision, the Representation of the People Act, 1951, was amended by the Amendment Act of 1974 by which an Explanation was added to section 77 of the Act to the effect that notwithstanding any judgment, order or decision of any court to the contrary, any expenditure incurred or authorised in connection with the election of a candidate by a political party or any other association or body of persons or by individual (other than the candidate or his election agent) shall not be deemed to be, and shall not ever be deemed to have been, expenditure in connection with the election incurred or authorised by the candidate or by his election agent for the purposes of the sub-section (underlining is ours).

The language of the Explanation leaves no room for doubt that it would be retroactive in operation and if it is so, the effect of the decision in K.L. Gupta's case would be nullified. This retroactive operation of the expression was challenged even though the Amendment Act of 1974 was inserted in the Ninth Schedule. The Court in Indira Gandhi's case (1976) 2 SCR 436 unanimously upheld the validity of retroactive operation of the explanation added to section 77.

There are a number of other decisions supporting this view. Rule 5 of the Central Civil Services (Temporary Service) Rules, 1965 provided that the services of temporary Government servant who is not in quasi-permanent service shall be liable to termination at any time by a notice in writing given either by the Government servant to the appointing authority or by the appointing authority to the Government servant. The period of notice shall be one month. It was settled by a catena of decisions that payment in lieu of notice must be forthwith i.e. simultaneous.

In other words, order of termination of service must be accompanied, in the absence of notice, with a pay packet for one month. If there is dichotomy between the two i.e. both the acts were not simultaneous, the order would be unsustainable. Subsequently, a proviso was added to rule 5 and brought into operation retrospectively with effect from May 1, 1965 and the retrospective operation of the rule was held valid.1

1. Raj Kumar v. Union of India, (1975) 4 SCC 13.

3.15. Therefore, it is unquestionable that save the inhibition prescribed in Article 20(1) of the Constitution, there is no constraint or fetter on the plenary power of the Parliament to enact a legislation making it retroactive in operation. If it is permissible, the Law Commission sees no justification for not making it so, nor for giving any locus penitentia to those who had entered into the transaction in the past.

3.16. Having given adequate reasons supported by the decisions of the highest court that the plenary power of the Parliament to legislate is not subject to inhibition that Parliament cannot retroactively legislate, it must further be spelt out clearly that any such inhibition, if read, would hinder the effectiveness of the Parliament to transform the society by rule of law. The Executive and the Legislature are under a constitutional mandate to take steps, consistent with its financial capacity and other resource position, to translate into reality the Directive Principles set out in Part IV of the Constitution.

Each such legislation, to specifically abrogate the rights of vested interests, to bring succour and cheer to the downtrodden and underdog would necessitate legislation impinging upon things done in the past, Zamindars acquired large Zamindaries by devious methods and obtained the protection of foreign rulers by having a stamp of legality on such acquisitions.

If Legislature could not legislate to abolish Zamindari save on the pain of paying compensation because of the right to property being fundamental then, agrarian reform measures could never have been passed. No one can, therefore, be heard to say that when in the past they did certain things, entered into contracts, concluded transactions consistent with the legal position then obtaining, they could not be divested by de-recognising the transactions for the purpose of social reconstruction.

3.17. An alternative approach that emerged in the debate was that even conceding the plenary power of the Parliament to enact law with retroactive operation except in the area excluded by Article 20(1), the retroactive operation is likely to violate Article 14 as recently interpreted in number of important judgment.1 Briefly stated, this new dimension of Article 14 is that in its width and coverage, it is not limited to cases of discriminatory classification but it has activist magnitude and it embodies a guarantee against arbitrariness. No attempt, it was said, should be countenanced "to truncate its all-embracing scope and meaning for, to do so would be to violate its activist magnitude.

Equality is a dynamic concept with many aspects and dimensions and it cannot be 'cribbed, cabined and confined' within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact, equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch2 It was said that what has been lawful for over three quarters of a Century, if invalidated today, could certainly be styled as arbitrary and would violate Article 14.

If the new dimension of Article 14, namely, anything arbitrary is volatile of Article 14 is invoked, that approach by itself without anything more make it regressive and would perpetuate vested interest which certainly was never intended. If in the field of property which has the inbuilt tendency to create a vested interest, the doctrine of arbitrariness could be invoked to perpetuate concentration of property, the very new dimension of Article 14 would effectively deprive Legislature of any power.

And let it not be forgotten that concentration of property has always to be effectively dealt with by law. Therefore any interpretation of Article 14 in the light of its new dimension were to deny power to the Legislature to deal with concentration of property, the very doctrine of arbitrariness would perpetuate arbitrariness. Therefore, while attempting to disburse property for more equitable distribution in the society, Article 14 with its new dimension cannot and would not stand in the way.

1. E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3 (38); Raman Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489; Maneka Gandhi v. Union of India, AIR 1978 SC 597; Ajay Hasia v. Khalid Mujib Sehrawardi, (1981) 1 SCC 722.

2. Ajay Hasia v. Khalid Mujib Sehrawardi, (1981) 1 SCC 722.

3.18. Therefore, viewed from either angle, the Law Commission is of the firm opinion that the legislation replacing the Ordinance should also be retroactive 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 decades1 to set their house in order. No more indulgence is called for.

1. LCI, 57th Report-Put them on notice in 1973. It is a published document recommending abrogation of benami transactions.

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