Provisions under the Prohibition of Benami Property Transactions Act declared unconstitutional, leading to quashing of notices.

1. The petitioner, a private Limited Company engaged in jewellery business, has filed this writ petition seeking to quash Exts.P6 series notices issued by the first respondent. The short facts are as under;
The petitioner receives old gold brought for exchange by its customers as part of its business. In order to assess the value of the old gold, it has to be melted and purified. For this purpose, the petitioner had entered into job work agreements with goldsmiths. Payments for the above activity were made through banking channels, after deducting the tax at source. While so, on 10.01.2018, a search and seizure under S.132 of the Income Tax Act was conducted at various premises of the petitioner. Consequently, proceedings under the Prohibition of Benami Property Transactions Act, 1988 ('the Act') was initiated alleging that eight goldsmiths engaged by the petitioner were actually functioning as benami entities of the petitioner. On initiation of the proceedings, the second respondent passed a provisional attachment order under S.24(4)(b)(i) of the Act, on the premise that the capital balance in the account of the goldsmiths was benami property. Accordingly, the goldsmiths were arrayed as benamidars and the petitioner as the beneficial owner under S.2(12) of the Act. Thereafter, notices were issued under S.26(1) of the Act, requiring the petitioner to produce documents / evidences to prove that the property is not benami property coming within the meaning of S.2(9)(A) of the Act. Although petitioner filed the statements and documents, as directed, the second respondent confirmed the provisional attachment order as per S.26(3) of the Act. Thereupon, the petitioner preferred appeals under S.46 of the Act. Pending the appeals, the petitioner was issued with notices requiring to show cause as to why sanction should not be accorded for prosecuting the petitioner for offence under S.3(2) of the Act. The petitioner responded to the notices by submitting detailed explanations. Not being satisfied with the explanations, the first respondent issued Ext.P6 series of notices, calling upon the petitioner to submit detailed explanation.
While admitting the appeal on 22.12.2021, this Court granted an interim stay of further proceedings pursuant to Ext.P6.

2. Learned Counsel for the petitioner submitted that Ext.P6 notices and the proceedings proposed under S.3 of the Act are liable to be quashed in the light of the recent judgment of the Apex Court in Union of India and another v. M/s. Ganapati Dealcom Pvt. Ltd. [2022 SCC OnLine SC 1064]. Having gone through the judgment, I find the submission to be well founded.

3. In M/s. Ganapati Dealcom Pvt. Ltd. the legal question considered was whether the Prohibition of the Benami Property Transaction Act, 1988, as amended by Benami Transactions (Prohibition) Amendment Act, 2016 has prospective effect. After elaborate consideration, it was held that S.3 r/w S.2(a) and S.5 of the 1988 Act are overly broad, disproportionately harsh and operate without adequate safeguards and are hence, unconstitutional from the inception. Based on that finding, the Apex Court declared S.3(2) of the Amendment Act as unconstitutional. As rightly contended by the Counsel for the petitioner, S.3(2) of the Act having been declared unconstitutional, Ext.P6 series of notices and further proceedings thereon are liable to be quashed.
In the result, the writ petition is allowed and Ext.P6 series of notices are quashed.