In this blog post, Rishabh, a student of Guru Gobind Singh Indraprastha University, New Delhi and pursuing the Company Secretary Course by ICSI, analyses the concept of Benami Properties. The author discusses recent legal developments concerning benami properties. 

Introduction

Benami property in its literal sense means a property that does not have any name. It is a property that is held by some other person than the one who pays the consideration for such property. The transactions relating to benami property are known as benami transactions.

India has witnessed benami transactions since a long time. In fact, the Federal Court in the case of Panjab Province v. Daulat Singh^[1] has said: “The practice has long been common in this country for intending alienees of this land to take document of transfer in the name of their friends or relatives, sometimes in view to defeat the claim of creditors, sometimes in view of defeating other members of their family and sometimes to escape restrictions imposed upon them by Government’s Conduct Rules etc.”

Identifying Benami Transactions

Benami properties are not easy to identify as they are usually entered into between relatives, friends, people having a fiduciary relationship, between landlord and tenant, employer and employee or other relationships where there exists an obligation to protect or a fear of some loss. This limits the scope of litigation regarding benami transactions.^[2] However, the Supreme of Court of India in the year 1974 laid out some non-exhaustive circumstances to be considered while identifying whether a transaction is benami or not^[3]. These are:

1. the sources where the money to pay the consideration came from,
2. the nature of possession of the property after the purchase is complete,
3. if there exist any motive to give the transaction a ‘benami colour’, such motive,
4. the relationship between the claimant and the alleged benamidar and the position of the parties,
5. the custody of the title-deeds after the sale and
6. the conduct of the parties concerned in dealing with the property after the sale.

Need for Prohibition of Benami Transactions

The need to prohibit benami transaction arose due to its misuse for various purposes such as:

1. Money Laundering: When a person tries to conceal the original source of his illegal money, it is known as money laundering. Benami transactions, since enabling the payer who is the real owner of the property to be hidden while the benamidar, who is the ostensible owner has the property in his name, has become a popular method amongst the corrupt to invest their black money.

2. Tax Evasion: Since the property is not in the name of the real owner, the property is excluded from the total net property held by him. This enables the person to pay taxes in the lower cap than he actually would be liable to pay if he owned the property legally in his name.

3. Concentration of Land: Benami transactions lead to concentration of land against the efforts of the state to limit the amount of land to be owned by an individual in order to promote the equal distribution of land.

The Benami Transactions (Prohibition) Act, 1988

To curb the increasing trend of ‘benami transactions’ and misuse consequential to it, the government of India in the year 1988 enforced The Benami Transaction (Prohibition) Act, 1988(hereinafter The 1988 Act).

Vide this act, all the benami transactions are prohibited and made an offence against the state. However, the act was criticised owing to the several loopholes it had. In fact, the act, as noted by the Second Administrative Reforms Commission in the year 2007, was never notified in the official gazette.

Some of the loopholes the act suffered are:

• Lack of proper implementation mechanism;
• Lack of appellate authority;
• No provision for the centre to vest the confiscated benami property etc.

The Benami Transactions (Prohibition) Bill, 2011

The government realised the loopholes in The 1988 Act and the need for a new legislation to overcome them. The government led by the then Prime Minister Manmohan Singh introduced The Benami Transactions (Prohibition) Bill in the year 2011 before the parliament to repeal The 1988 Act, however, the bill was not passed by the parliament due to lack of support by the members of parliament.

The Benami Transactions (Prohibition) Amendment Act, 2016

The Benami Transaction (Prohibition) Amendment Bill, 2015 was introduced before the parliament by the NDA government in July 2016. After getting passed in both the houses of the parliament, the bill got converted into an Act on 11^th August 2016 and was enforced on 1^st November 2016.

• What is a Benami Transaction?

Defined under Section 4(9), a benami transaction means any transaction which is transferred to or held by one person, but the consideration for it is paid by another. The person who pays the consideration must have some benefit to gain from such transaction, whether immediately or in future. However, it is not a benami transaction, given that the sources of the money used to pay for the consideration is known, if the property is held by:

(i) Karta or a member of a Hindu Undivided Family (HUF) for the benefit of the HUF;

(ii) A person having fiduciary relationship with another, for the benefit of whom he holds the property;

(iii) Any person in the name of his spouse or his child;

(iv) Any person in the name his brother or sister or lineal ascendant or descendant, given that the name of the person in whose name the property has been held appears as the joint owner of the property in papers.

Any transaction wherein the owner or the person who pays the consideration is fictitious, or wherein the owner is not aware of or denies the ownership of the property shall also be considered as a benami transaction.

• What is a Benami Property?

Any property whether movable, immovable, tangible, intangible, or pertains to any right or asset or legal document which has been a subject matter of a benami transaction is known as a benami property.

• What are the Punishments for offenders under the Act?

Any person who contravenes the provisions of this act shall be punished with an imprisonment which may extend up to seven years and a fine which may extend up to 25% of the fair market value of the benami property.

• Provision for authorities under this Act: Initiating Officer, Approving Authority and Administrator^[4]

The act provides for an initiating officer who shall start the proceedings against the benami transactions. He shall take prior permission of the Approving Authority regarding such proceedings. After the grant of permission, the initiating officer shall have the power to conduct or cause to be conducted any inquiry or investigation in respect of any person, place, property, books of account documents, assets, or other documents, in respect of any other relevant matters under the amended Benami Act^[5]. The Administrator has the power to receive and manage the property that is confiscated by the central government as a benami property. ^[6]

• Provision for authorities under this Act: Adjudicating Authority^[7]

Adjudicating authority is provided for by this Act to hear the cases referred to it by the initiating officer and decide such cases within a period of one year. It shall consist of a chairperson and not less than two other members^[8] who must have been a member of Indian Revenue Service or Indian Legal Service.^[9]

Note: All the authorities established under this Act shall have same powers as are vested in a civil court for the purpose of^[10]:

1. discovery and inspection;
2. enforcing the attendance of any person;
3. compelling the production of books of account and other documents;
4. issuing commissions;
5. receiving evidence on affidavits; and
6. any other matter which may be prescribed.

• Provision for establishing Appellate Authority^[11]

Any person aggrieved by the judgment of the Adjudicating Authority may file an appeal with the Appellate Authority. The Adjudicating Authority shall consist of a chairperson and at least two other members, one of whom shall be a Judicial member and the other an Administrative member and the bench shall sit in the National Capital Territory of Delhi.^[12]

The chairperson must be a sitting or retired judge of a High Court who has completed at least five years of service. The Judicial Member must have been a Member of the Indian Legal Service and must have held the post of Additional Secretary or equivalent post in that Service, and an Administrative Member must have been a Member of the Indian Revenue Service and must have held the post of Chief Commissioner of Income-tax or equivalent post in that Service.

It shall have the powers of a civil court while trying matters with respect to^[13]:

1. summoning and enforcing the attendance of any person and examining him on oath;
2. requiring the discovery and production of documents;
3. receiving evidence on affidavits;
4. subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or copy of such record or document from any office;
5. issuing commissions for the examination of witnesses or documents;
6. reviewing its decisions;
7. dismissing a representation for default or deciding it ex parte;
8. setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and
9. any other matter which may be prescribed by the Central Government.

Note: Neither the Adjudicating Authority^[14] nor the Appellate Authority^[15] shall be bound by the Code of Civil Procedure, 1908. They shall follow the principles of natural justice and shall have the power to regulate their own procedures.

• Provision to confiscate the benami properties

Any property that is a subject matter to benami transaction shall be liable to be confiscated by the Central government. These are then received, managed and disposed of by the administrators appointed under this act.

Conclusion

The aim of the Benami Transactions (Prohibition) Act, 1988 was to prohibit benami transactions and punish those who participated in such transactions as they had become a method by the corrupt for tax evasion, land concentration and money laundering. Due to various loopholes and no proper notification, it was a failed legislation and therefore new bill to repeal and replace The 1988 act was proposed before the parliament. However, the bill failed to pass. An effort was made again in the year 2016 to pass The Benami Transactions (Prohibition) Amendment Bill, 2015 which was successfully passed in both the houses and therefore, the Benami Transactions (Prohibition) Amendment Act, 2016 was enforced on 1^st November 2016. The act is clearer and has stringent punishments for offenders. It also tries to plug in the loopholes of the previous act.

References:

^[1] A.I.R. 1942 F.C. 38

^[2] 130th Report of Law Commission of India, Benami Transaction (1988).

^[3] Jayadayal Peddar v. Bibi Hazra, AIR (1974) S.C.171

^[4] Section 8(1) of the Benami Transaction (Prohibition) Amendment Act, 2016

^[5] Section 23 of the Benami Transaction (Prohibition) Amendment Act, 2016

^[6] Section 28(2) of the Benami Transaction (Prohibition) Amendment Act, 2016

^[7] Supra note 4

^[8] Section 8 of the Benami Transaction (Prohibition) Amendment Act, 2016

^[9] Section 9(1) of the Benami Transaction (Prohibition) Amendment Act, 2016

^[10] Section 19(1) of the Benami Transaction (Prohibition) Amendment Act, 2016

^[11] Section 30 of the Benami Transaction (Prohibition) Amendment Act, 2016

^[12] Section 31(1) of the Benami Transaction (Prohibition) Amendment Act, 2016

^[13] Section 40(2) of the Benami Transaction (Prohibition) Amendment Act, 2016

^[14] Section 11 of the Benami Transaction (Prohibition) Amendment Act, 2016

^[15] Section 40(1) of the Benami Transaction (Prohibition) Amendment Act, 2016