A State of hopelessness: why India has failed to reform colonial era laws

The case of benami transactions

A benami transaction is defined as one where, with some exceptions:

1. A property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

2. The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.

The legality of benami transactions was recognised by the courts in colonial times, and continued to be so recognised in independent India, with some legislation enacted to control misuse of such transactions, especially for tax evasion.

However, continuing and growing concern about the possibility of such misuse led to a reference being made by the government to the Law Commission of India in December 1972 to examine the matter and make recommendations.

The Law Commission reviewed the matter in detail and recommended, in its report of August 1973, that '...the law should refuse to recognise the benami character of transactions, without making them an offence... where property is transferred benami, the benamidar will become the real owner... To put the matter in broad terms, the doctrine of benami will, under the proposed amendment, cease to be part of the Indian law.'

The Law Commission felt that its recommendation would serve the needs of governance, including reducing wasteful litigation.

The government 'examined' the report for about 15 years and promulgated an ordinance, the Benami Transactions (Prohibition of the right to recover property) Ordinance No.2 of 1988, implementing the recommendation of the commission, with the exception that the ordinance was made with retroactive effect. The government again referred the matter to the Law Commission for detailed examination.

The commission, in its report submitted in August 1988, emphasised the socialist nature of the Indian State, and the need to '...set up a welfare state by subordinating the social interests in individual liberty or property to the larger social interests in the rights of the community'.

The commission was of the view that the motivations for entering into a benami transaction were primarily illegitimate, and that legislation to replace the ordinance should prohibit benami transactions in all types of property, and that entering into such a transaction should be an offence that should be punishable. The commission also emphasised the need for an enforcement machinery for civil laws.

Following the commission's report, the Benami Transactions (Prohibition) Act 1988 was passed, but could not be operationalised, as the relevant rules to do so were not formulated until 2011, when the Benami Transactions (Prohibition) Act 2011 was passed. This Act was further amended in 2016.

It took the Indian state about 38 years to pass and operationalise laws to tackle the problem.

The Indian Stamp Act

Another illustrative example is the Indian Stamp Act 1899, whose first avatar in India was Regulation VI of 1797.

The Law Commission of India took up the need for reform of this particular Act suo motu, and submitted a report to the government in August 2009.

The words of the commission are worth quoting in the original:

“The Indian Stamp Act 1899 and the Court-fees Act 1870 are statutes of the British era, which provide for payment of stamp duty on instruments and court-fee on documents to be filed in courts only in the form of adhesive stamps or stamped papers, which are printed by the Central government in bulk involving huge costs. In the recent past, there have been scandals..."

“Our country is carrying the unbearable load under the said Acts, which again is a British legacy. The main reason for stamped paper scams is that they are printed in bulk. Another reason is that the government is not alive to the fact that these Acts are anachronistic pieces of legislation. Ridiculously small amount of court-fee, like 50 naya paisa, is still required to be paid on some types of documents. Then there are complicated provisions for cancelling those court-fee stamps."

“...Considerable amount of man-hours is wasted in this useless process... These ridiculous provisions continue to remain on the statute-book even fifty-nine years after the Constitution of India came into force. Added to all these problems is the artificial shortage of stamps and stamped papers, occasionally created by agents, leading to their sale in black market."

“ ...In view of more modern and convenient methods of charging duty on instruments and court-fees on documents to be filed in courts being available in our country, the mode of their payment requires to be drastically overhauled... These alternative modes of payment... would not only save the government huge costs of printing them and commission to stamp-vendors, but also prevent fraud and avoidable hassles to the public.”

The government’s response is to be found in the annual report of the Ministry of Finance 2015-16:

“A comprehensive Review of Indian Stamp Act, 1899, has been undertaken. Consultation with state governments and Central ministries is complete. The department is in the process of seeking approval of the competent authority to send the final draft of the Bill for vetting to the Ministry of Law & Justice.”

The Annual Report for 2014-15 said virtually the same thing, and in the Annual Report 2013-14, the following was stated:

“A comprehensive Review of Indian Stamp Act, 1899, has been undertaken. Consultation with state governments and Central ministries is in process.”

Conclusion

When dysfunctional laws meet a lethargic and dysfunctional State, what hope remains for developmental reforms in any reasonable time frame?

When the wheels of state grind so slowly, hope is an inevitable casualty.