This article is written by Sanmathi Dayanand, pursuing a Certificate Course in Real Estate Laws from LawSikho.

Benami Transaction

One of the most preferred ways to deploy one’s tainted money has been buying huge plots of land in different nooks and corners of state/ several states. And in order to avoid coming under radar, the prestigious land owners devised a method of buying the pieces of land in names of distant relatives and other contacts. The government, having discerned this practice, named it as a benami transaction of property.

In simple terms a benami transaction means a transaction in which property (movable or immovable, tangible or intangible) is transferred to one person (“Benamidar”) for a consideration paid or provided by another person (“Beneficial Owner”) and the said property is held by the Benamidar for the benefit (immediate or future, direct or indirect) of the Beneficial Owner. A benami transaction has been defined in detail along with exceptions under Section 2(9)¹ of the Prohibition Of Benami Property Transactions Act, 1988.

The article will cover the following topics: statutory act and subsequent amendment, attachment of benami property, procedure for attachment of benami property, the take of judiciary on benami property and conclusion.

Statutory Act and Subsequent Amendment

Benami Transactions (Prohibition) Act, 1988 (“Old Benami Law”) was the principal governing Benami law from 1988 to 2016 comprising of just 9 sections.  The Old Benami Law was amended by way of an Amendment Act which was brought into force from 1 November 2016 (“Effective Date”) and changed its name to Prohibition of Benami Property Transactions Act, 1988 (“Amended Benami Law”) comprising of 72 sections.

There was a need for the amendment of the Old Benami Law as the provisions of the old law allowed the government to acquire benami properties without paying compensation for any such acquisition. Also, rules and regulations with respect to such government acquisitions were not laid down. Hence, the Amended Benami Law introduced the concept of confiscation of benami property instead of acquisition as per old law. The Amended Benami Law also extended the imprisonment sentence to 7 years (which was 3 years in the old law). It is to be noted that the Amended Benami Law is prospective in nature and cannot have retrospective effect.²

The Prohibition of Benami Property Transactions Rules, 2016 and Prohibition of Benami Property Transactions (1st Amendment), Rules, 2019 are the existing rules with respect to benami transactions and Central Government may, by notification, make rules³ for carrying out the provisions of the Amended Benami Law which also includes the manner of provisional attachment of property under sub-section (3) of Section 24.

Attachment of Benami Property

Section 24, 25 and 26 of the Amended Benami Law provides for attachment of benami property.

• Section 24:

Section 24 sub-section 3 of the Amended Benami Law provides for interim provisional attachment of the property by the concerned Initiating Officer at the initial stage of inquiry by such Initiating Officer.

Section 24 sub-section 4 of the Amended Benami Law provides for final provisional attachment of the property by the concerned Initiating Officer at the end of the inquiry by such Initiating Officer.

• Section 25 of the Amended Benami Law provides for the manner of service of notice either post or like summons issued by a Court.
• Section 26 of the Amended Benami Law states that after the Initiating Officer draws up a statement of the case in hand and refers it to the Adjudicating Authority, the Adjudicating Authority will issue notice seeking for documents and evidence.

Initiating Officer means an Assistant Commissioner(“AC”) or Deputy Commissioner (“DC”) as defined under clauses (9A) and (19A) respectively of section 2 of the Income-tax Act, 1961.⁴ The Initiating Officer have to follow the due process of law under Section 24 and can act only with the previous approval of the Approving Authority.

Procedure for attachment of Benami Property

When a Benami property is recognised, the following procedure follows for attachment of the said property:

• The Initiating Officer will issue a notice to the Benamidar and Beneficial Owner (if they know his identity) if the Initiating Officer has reason to believe such person is a Benamidar.
• The property is attached for a maximum period of 90 days by the Initiating Officer upon obtaining the Approving Authority’s approval. This is when there are chances that during the notice period, the person to whom notice is issued may sell/alienate the alleged Benami property. 
• Further within 90 days of issuance of the notice, the Initiating Officer will make inquiries and look into the evidence and all relevant materials available, and with Approving Authority’s prior approval:

1. Order is passed for continuance of the provisional attachment of such alleged benami property until the Adjudicating Authority passes the adjudication order; or
2. The provisional attachment order is revoked.

• In the event provisional attachment as per Point No. 2 (hereinabove) is not made then the Initiating Officer can:

1. Pass an order for the attachment of the property until the Adjudicating Authority passes the adjudication order; or
2. Make a decision as to not attaching the property.

• If there is an order for attachment of the property as per Point No. 2 or 4(a) (hereinabove) or order for continuation of the provisional attachment as per Point No. 3(a), then the Initiating Officer has to draw a statement of the case and further he shall refer it to the Adjudicating Authority within fifteen days from such attachment.
• Thereafter, the proceedings will take place as per Section 26 of the Amended Benami Law before the Adjudicating Authority who will within thirty days of reference from Initiating Officer shall issue a notice to the Benamidar, Beneficial Owner and joint owners (if the identity is known), interested parties, any person having made a claim with respect to the benami property. The notice is issued in order to furnish documents and evidence. The time given under the notice is 30 days.
• After the reply for notice, the Adjudicating Officer looks into all the evidence, documents, relevant materials and grants an opportunity to be heard to all the parties including the Initiating Officer. Considering everything the Adjudication Authority will pass an order:

1. Holding the property as not a benami property and will revoke the attachment order; or
2. Holding the property as a benami property and hence, confirming the order for attachment of property; or

• The Adjudicating Authority should pass an order before the expiry of 1 year from the end of the month in which the reference was made.
• Further if the property is held as benami property then the Adjudicating Authority under Section 27 of the 2016 Act can pass an order for confiscation⁵ of such attached benami property.
• The order of the Adjudicating Authority is subject to appeal, if filed by the parties, before the Appellate Tribunal⁶ within forty five days of order and before the High Court⁷ within sixty days.

Take of Judiciary on Benami Property

The courts have given a strict interpretation of the provisions of implementing the process to be followed by the authorities under the Amended Benami Law. In many cases, the courts have mandated the authorities to follow the procedure for the attachment of a property and if such provisions are contravened, it cannot be held as a valid provisional attachment of property. For instance in the case of Ace Infracity Developers (P) Ltd vs. Initiating Officer⁸, the Initiating Officer, Mumbai issued a notice as per section 24(1) to a Company registered in Ghaziabad, Uttar Pradesh. Whereas, the Initiating Officer, Kanpur had jurisdiction over the Company. Hence, the court held that the impugned notice was invalid. Similarly, in Smt Sunita Gupta vs. Union of India⁹, the court held that in cases where the order of the Initiating Officer is set aside for technical reasons (for example: procedural defects or for violation of principles of natural justice) then the Initiating Officer can re-initiate the proceedings by curing his defects.

After having briefly understood the stance of courts with respect to attachment of property under benami act, let us now understand it with the help of a case analysis.

Case Analysis: M/s. Kavita Infrastructure Pvt. Ltd. vs. The Initiating Officer, Circle, Mumbai¹⁰

FACTS OF THE CASE: M/s. Kavita Infrastructure Pvt. Ltd. had purchased and owned the property bearing Gat. No.1051 and 1052 at village Wake Budruk, Pune. The Initiating Officer, Mumbai passed a Provisional Attachment Order u/s 24(4) of the Amended Benami Law on 28.12.2017, without conducting proper enquiry and without ascertaining the facts of the person in actual possession and holder of present title of the alleged benami property. Further, the Adjudicating Authority did not implead M/s. Kavita Infrastructure Pvt. Ltd. as a party to the proceedings even after application was made before it. Further, the Adjudicating Authority passed an order dated 28.03.2019 passed in Reference No. 749/2018. The present appeal has been filed by M/s. Kavita Infrastructure Pvt. Ltd. (“the Appellant”) impugning the order of the Adjudicating Authority dated 28.03.2019.

ISSUES: Whether due process was followed by Initiating Officer and Adjudicating Authority for the attachment of property under the Amended Benami Law?

APPLICABLE PROVISIONS: Section 24 of the Prohibition of Benami Property Transactions Act, 1988

JUDGEMENT: The process of serving notice, conducting enquiry and investigation, ascertaining facts of the person in possession, etc must be followed by the authorities as per section 24 of the Act. The burden of proof at the initial stage to establish with proper evidence that the purchase by of alleged property is on the Initiating Officer. Order of the Adjudicating Authority was set aside.

ANALYSIS: Hence, it can be concluded that the Initiating Officer has to call all the interested parties to the case¹¹ to show cause why benami proceedings should not be conducted before conducting inquiry.  There are certain mandatory prerequisites that the Initiating Officer must follow and fulfil before the attachment of a property¹² like:

1. He must know who is in possession of the benami property;
2. Such person should know that he is holding the said person is holding the property as a benami;
3. Such person is most likely to alienate the Property within the 90 days’ notice period¹³;

Thus, provisional attachment which is made without due and correct inquiry required to be done under Section 24 of the Act, and/or made without complying with the procedure provided will not be valid provisional attachment of property and will definitely not succeed to stand the test of the time.

Thus, provisional attachment of the alleged benami properties made in contravention to the mandatory prerequisites of Section 24 of the Amended Benami Law will not be a valid attachment and therefore fail to stand the test of time. Hence, it is important for the procedure laid down by law under The Prohibition of Benami Property Transactions Act, 1988 be followed by the officers.

Conclusion

On comparison of the two acts i.e., Old Benami Act with the Amended Benami Act, it becomes clear that the Amended Benami Act is a comprehensive, wide and elaborate law which provides for the confiscation of property, attachment process and the administrative structure for the implementation of such provisions. By implementing the amended act, it is possible to scrutinise any Benami transactions occurring from 1988 to 2016 period.

Various steps can be taken to implement the Act and to reduce Benami transactions by way of confiscation, issuing show-cause notices, transparency in the economy, announcing rewards to informants and keeping the informants identity anonymous. These steps will help in more effective implementation of the Amended Benami Law and in turn reduce/ eradicate the benami transactions in the country.

References

1. Ins. by Act 43 of 2016, s. 2 (w.e.f. 1-11-2016)
2. Civil Writ Petition No. 2915/2019 and others, Rajasthan High Court
3. Section 68 of the Prohibition of Benami Property Transactions Act, 1988
4. Section 2(19) of the Prohibition of Benami Property Transactions Act, 1988
5. Section 27 of the Prohibition of Benami Property Transactions Act, 1988
6. Section 46 of the Prohibition of Benami Property Transactions Act, 1988
7. Section 49 of the Prohibition of Benami Property Transactions Act, 1988
8. FPA-PBPT-464/MUM/2019
9. W.P.(C) 8522/2018
10. FPA-PBPT-820/MUM/2019
11. Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988
12. Section 24(3) of the Prohibition of Benami Property Transactions Act, 1988
13. Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988

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