BASICS OF BENAMI LAW IN INDIA

The Benami Transactions (Prohibition) Act, 1988 came into force on 19.05.1988 (hereinafter “the Act”) in India. There are plenty of judgments wherein the Hon’ble Supreme Court and various Hon’ble High Courts of India have dealt with the concept of benami transactions, and benami transactions have been an integral part of the Indian psyche even prior to the advent of the Act.

The Hon’ble Supreme Court in 1980 in the matter of Thakur Bhim Singh v. Thakur Kan Singh (1980) 3 SCC 72 for the first time had elaborated the concepts of “benami transactions” and included primarily two types of transactions. First where a person buys a property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called benami. The second case which is loosely termed as a benami transaction is a case where the person who is the owner of the property executes a conveyance in favor of another without the intention of transferring the title to the property thereunder.

Before the enforcement of the Act, benami transactions were not illegal in India and there was no punishment prescribed by the statute. The only thing which was not permitted under the law was recovery of the benami property by the real owner from the benamidar (in whose name the property was held), if the benami transaction was entered to evade a statute or to commit a fraud and the parties succeeded in such evasion or fraud.

ENACTMENT OF BENAMI ACT

As there was no law to curb the increasing benami transactions and punish the offenders, the Benami Transactions (Prohibition) Act, 1988 was enacted with the aim to prohibit the benami transactions. The Act of 1988 defined the benami transaction as the transaction in which property is transferred to one person for consideration paid or provided by another person, prohibited them and provided punishment for entering into any benami transaction with imprisonment for a term which may extend to three years or with fine or with both. However, the Act failed to provide any mechanism or process of confiscation and/or acquisition of the benami property and hence, no such effective action for confiscation of benami property could be taken. That due to the failure of the Act to provide for proper mechanism to curb the issues, the Act was amended in the year 2016 on the recommendations of the 28th report of the Standing Committee on Finance. It can be seen that the main aim behind amending the Act instead of repealing was to include all the benami transactions under its ambit on which no action was taken under the 1988 Act, so that consequential could follow. The Ministry of Law was of the opinion that in case, 1988 Act gets repealed by new act then no action would be possible on any such transaction which occurred between 1988 and the date of repealing the 1988 Act, as the benami transactions during the intervening period of twenty six years, would have in fact resulted in immunity since no action could be initiated in the absence of a specific provision in the Repeals and Savings clause.

ENACTMENT OF BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016

The Benami Transactions (Prohibition) Amendment Act, 2016 which is also called the Prohibition of Benami Property Transactions Act, 1988 (hereinafter “2016 Act”) finally came into force with effect from 01.11.2016.

The Act of 1988 has been substantially amended by the 2016 Act, and various provisions and authorities have been established to curb benami transactions and confiscate benami properties. Under the 2016 Act, the scope of benami transaction has been widened, and the punishment and penalties have been made more stringent.

Concept of Benami Property and Transaction under the Amended Act of 2016

Under the 2016 Act, the term “Benami Property” under Section 1(8) has been defined as the property which is the subject matter of a benami transaction and also includes proceeds from such property. From the definition it is very much clear that the proceeds received from a property which is a part of benami transaction will be covered under the definition of benami property.

Under Section 1(9) of the 2016 Act, the term “Benami Transaction” has been defined as a transaction or an arrangement where 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 the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration except when the property is held by –

  1. a Karta , or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu Undivided Family;
  2. a person standing in the fiduciary capacity for the benefit of person towards whom he stand in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;
  3. Any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
  4. Any person in the name of his brother or sister or lineal ascendant or descendant, where the names of the brother or sister or lineal ascendant or descendant and the individual appear as joint owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual.

Further, a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; or a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious also falls under the benami transaction.

Authorities under the Act

The 2016 Act provides for the setting up of 4 Authorities, namely;

  • The Initiating officer;
  • The Approving Authority;
  • The Administrator;
  • The Adjudicating Authority.

For the purpose of the 2016 Act, the above authorities have been vested with the same powers as those of the Civil Courts under Civil Procedure Code, 1908.

Process of Attachment

Section 24 of the 2016 Act, provides that the Initiating Officer, if has reason to believe that any person is benamidar, will issue notice to Benamidar and the Beneficial Owner (if the identity is known). The Initiating Officer with the approval of Approving Authority can attach the property for a period not exceeding 90 days, if in his opinion, the person to whom notice has been issued may alienate the property during notice period. The Initiating Officer shall after making inquiries and considering evidence and all other relevant material, with the approval of Approving Authority and within a period of 90 days from the date of issuance of notice:

  • If there is a provisional attachment:

Pass an order continuing the provisional attachment of the property till the adjudication order by the Adjudicating Authority or Revoke the provisional attachment order.

  • If there is no provisional attachment:

Pass an order for attaching the property till the adjudication order by the Adjudicating Authority or Decide not to attach the property.

If there is any order for attachment of the property or continuation of the provisional attachment, the Initiating Officer shall draw up a statement of the case and refer it to Adjudicating Authority within 15 days from the date of such attachment.

Confiscation of Benami Property

If the Adjudicating Authority has held any property as benami property, the Adjudicating Authority under Section 27 of the 2016 Act, shall after giving an opportunity of hearing to the concerned person, pass an order to confiscate the attached property.

If an appeal has been preferred against the order of attachment passed by Adjudicating Authority, the property shall be confiscated after the order of the Appellate Tribunal.

If any property is held or acquired by any person from the benamidar for adequate consideration prior to the issuance of the Notice by Initiating Officer, that property won’t get confiscated. Any right of any third person created in such property with a view to defeat the purposes of this Act shall be null and void. Pursuant to the order of confiscation, all the rights and title in such property shall vest absolutely with the central government free of all encumbrance and no compensation shall be payable. The Administrator will administer the confiscated property.

CONCLUSION

From comparison of the Act with the 2016 Act, it becomes clear that Act didn’t have any mechanism or process of confiscation/ acquisition of the benami property and therefore, no benami property could be acquired by the government. On the other hand, the 2016 Act is a comprehensive law which not only provides for the mechanism and process for attachment and confiscation of the benami property, but has also enacted the administrative structure for proper implementation of such provisions. The 2016 Act has not only widened the ambit of benami Transaction, but the same also mandates for more stringent punishment. By the 2016 Act, the Government of India has made its intentions abundantly clear that the benami transactions occurred during the intervening period of 1988 to 2016 are not going to be spared. There is no doubt that 2016 Act has been enacted to bolster the efforts of the Government to curb the parallel economy and eradicate the black money, and this enactment has some teeth to deal with the menace of benami transactions.

Please feel free to reach out to us if you need any clarification or answer to any query in this regard.

VKJ Law Offices of Vinay K. Jain, Advocates & Solicitors

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