Many wealthy Indians and members of prominent business families, ensnared by the stringent black money law, are celebrating a significant legal victory.

For the first time, the court has invoked Article 20 of the Constitution to nullify the retrospective application of this law, which was enacted in 2015 to target offshore bank accounts, properties, and companies held by resident Indians.

Article 20 held that "no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offense.".

In essence, this means one cannot be punished under a law that did not exist when the alleged offence was committed. The Karnataka High Court has consequently quashed the criminal proceedings initiated by the income-tax department against individuals connected to overseas bank accounts and firms that were closed well before the Black Money Act came into effect.

The court has ruled that the prosecution initiated against these petitioners did not and cannot pass constitutional muster under Article 20 of the Constitution of India.

This ruling sets a significant precedent for numerous court cases, as many Indians, anticipating the introduction of such a law, had closed their bank accounts and companies before 2015.

However, under Section 72 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act—commonly known as the black money law—overseas assets acquired years ago can also come under scrutiny. The year the tax office obtains the information is considered the year in which the foreign bank account was opened.

Justice M Nagaprasanna, in his ruling, pointed out that Section 72 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act violates Article 20 of the Constitution. He emphasized, "The Special enactment is a statute. Article 20 comes under Chapter III of the Constitution of India, a fundamental right. The Constitution of India is not a statute. It is the fountainhead of all statutes, including the special statute," as per the court ruling.