This article is written by Ashpreet Kaur, IInd year student, B.B.A. LL.B, Symbiosis Law School, NOIDA. In this article, the author discusses Section 423 of Indian Penal Code and benami transactions.

Introduction

Under the British, the Indian codification project began to gain momentum around 1830, with Lord Macaulay’s Penal Code (i.e., the Indian Penal Code) being eventually enacted in 1860. While the common law of contracts was codified in 1872, the law of property was pushed to the end of the list of subjects for codification.

Nevertheless, offences related to the property are not fully ignored, scrutinizing our Indian penal Code we can easily behold that property offence engulfs 1/5th of our Indian Penal code. Ownership of property has been critical in determining the power and political evolution of society from ancient times. With an increasing number of people owning property, land and other assets, but as we all know anything in excess makes it waste, consequently over the course of time there had been a subsequent increase in offences related to property.

To curb these criminal offences we have referred IPC for punishment. Generally, IPC consists of more than 100 sections related to property but the article focuses specifically on fraudulent deeds and disposition of property, Section 423 of IPC. Which talks about fraudulent execution of the deed of transfer containing a false statement of consideration. I am going to critically analyse this Section in the next part of the paper.

In every society, the transaction of property was prevalent from the immemorial past. With the evolution of time, the forms of transfer of different properties has also been taken different shape according to needs of the people. Property of immovable nature transferred on someone else’s name  got shaped with due to the continuance practice of the community. In India, Hindus and Muslims engulfs more than 70% of the population, so any common practice followed by them becomes a kind of custom generally followed by people and law also reflect the custom and usage of the society. Considering the right of property for women, under traditional Hindu law it was much limited and to some extent, it can be said that this was not a right at all. In this situation, a father or a husband can buy property in the name of his daughter or wife taking the question of security in an unwanted situation.

This legal issue may give rise to the practice of offences among the Hindu community. The law of Muslim inheritance, regarding a child  whose father died during the lifetime of his grandfather, is the origin of this kind of custom. In this situation, where father dies during the lifetime of a grandfather, the child is excluded from the property of that grandfather. Here, the grandfather could buy property to his grandson’s name. This may be a cause for emerging this practice among the Muslims.

But as the society has evolved people were trying to misuse this custom by buying the property under the name of another person and taking the defence on the grounds that he does not belong to the property as it is not under his/her name or many people, with a view to by passing this ceiling law, buy property in the name of others due to which properties get concentrated within some individuals, this does not end here they also try to use this as a trick for defrauding the creditors by making the property hide in the name of another person to hide, black money they used to enter false consideration amount in deed of transfer. In this approach, the modern transaction of people and other financial firms may lose a huge amount of money, if not prohibited. Modern legislation has imposed restrictions on the prevalent practice of the society in some of the situations which we are going to have in depth discussion.

In criminal law appearance of term fraud or defraud, generally indicates two things namely: firstly deceit or deceiving someone and secondly injury caused to that person because of that deceit.

Jurisprudential Aspect

Section 423 of IPC is basically talks about property offences and for a right to be offended there must be a right related to property. So it is very crucial to understand the jurisprudential aspect of property rights. Foundation of property rights was mainly laid down by Jeremy Bentham’s two statements: “The idea of property consists in an established expectation; in the persuasion of being able to draw such or such an advantage from the thing possessed, according to the nature of the case”. And “Now this expectation, this persuasion, can only be the work of law”. But the property have evolved in such a way that now only his first assertion can be held true and applicable in today’s time. The second statement has to be rejected simply because property rights, in the sense of Bentham’s “established expectations,” emerged thousands of years before the existence of any “law”.

Originally property rights were de facto i.e. by right, not de mure i.e. reserved, because of the unique feature that the owner can willfully choose to exclude others from that property and others would respect that decision. But there will be some situations where there are more than one owner, they all shared the possession of property, in such case co-owners can only exclude the non-owner of the property but cannot do the same to co-owners. On the contrary public places or open access commons where all can use the resource and no one can exclude anyone.

Meaning

Section 423 talks about punishment given to any person who fraudulently or dishonestly signs a deed of transfer, which have false statement relating to consideration and name of person. The basic element lays down the ground rules for mens rea and actus reus. The first few words of the Section itself defines mens rea, there should be dishonest or fraudulent intention and lack it cannot make any person liable. This is the first and foremost element which needs to be proved. Secondly, to establish actus reus merely the fact that accused have signed the deed or became a party is enough to state that he/she has intention to do so.

The basic element one needs to prove for prosecuting a person under this Section are as follows:

1- The accused did the act dishonestly or fraudulently.

This Section requires dishonesty and fraud as a necessary ingredient. In IPC definition of the term Fraud is not mentioned explicitly but we came across many situations in our day to day lives where we use this term. Now the main question arises, what is a fraud? How is it different from cheating?

Basically, a fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. Term fraudulently as defined by Section 25 of IPC states that the person committing fraud should have an intention to defraud and if there is no mens rea the act can not be considered as fraudulent.

The words “fraud,” “fraudulently” and “to defraud” connotes deprivation of property, and the deception of the person so deprived. We are unable to confine the words in question to this restricted meaning. We are not of the opinion that deprivation of property, actual or intended, is an essential ingredient in fraud, or the intention to defraud, and we are further of opinion that it is not essential that the person deceived or to be deceived and the person injured or intended to be injured should be one and the game.

2- It purported to effect a transfer or create a charge on any property.

For the operation of this Section, it is necessary that the deed or the instrument must be one purporting to transferor subjecting to a charge any property or interest therein. Thus, where the accused executed the registered document, purporting to be a Kabuliyat at, in favour of the complainant, in the respect of certain land, which contain the recital designedly false, and according to the accused, this kabuliyat was accepted by the complainant it was held that it was not an offence under this Section because it does not involve any transfer or charge of property therein.

3- The accused signed, executed or became a party to such deed or instrument.

Not only the actual executants of a deed, but also those, who became a party to any fraudulent or dishonest deed, fall within the operation of this Section. Eventually, even an attesting witness, who may be acting dishonestly or fraudulently, comes within the scope of this Section. Similarly, transfers covered by the Section, would include not only sale, mortgage or charge, but also leases creating such interest.

Apart from this, the term person or persons in this Section specifically means purchaser not the vendor. As the Section says, the false statement must relate to the person or persons for whose use or benefit the transfer is really intended to operate. The “person or persons” must mean the purchaser or purchasers, as the case may be.

4- It contained a false statement as to the consideration for such transfer or charge or as to the beneficiary.

This Section refers to some deed or instrument which involves a transfer or creation of any charge or interest in some property. Fraudulent deeds, which are covered by this Section, depends on two essentials, namely, consideration and person. Any false statement, related to consideration for charge/transfer or the person/persons for whose use/benefit it is really intended to operate, can be considered as fraudulent aspect of deed and is punishable under this Section. The ingredient of false recital as to consideration and false recital as to name of beneficiary must be present in the complaint petition and in the statement made on oath by the complainant and his witnesses. False statement should specifically be related to consideration, or else it would not fall under this Section.

5- There should be a deed or instrument of transfer of immovable property.

A deed of transfer is a legal document that indicates the transfer of a property from one person to another. It also indicates the chain of owners. It serves as proof of ownership of the property. The document may also include the following: deed of sale, wills, bonds etc. The deed of transfer will then set out the various conditions of title that regulate the use of the property. These conditions usually place restrictions on how the land may be utilised. Usually there are other conditions of title that may differ from property to property.

If all the above mentioned essentials are fulfilled, the person can be prosecuted under this Section because he/she have sufficient mens rea and actus reus. Procedurally speaking the offence under Section 423 is non-cognizable, but warrant should, ordinarily, issue in the first instance. It is bailable and is compoundable with the permission of the Court. It is triable by any Magistrate. Judge was of the opinion that cognizance having been taken beyond the period of limitation, the consequent trial leading to the conviction is without jurisdiction and non Est in the eye of law. The conviction of the petitioner under Section 423, IPC is therefore not sustainable in law. So complaint has it be filled between 3 years of limitation period.

This Section technically states that whoever either dishonestly or fraudulently signs, executes or becomes a party to any deed or instrument which talks about transferring any property or regarding any charge on any property or any interest in the property, and if it contains any false statement relating to the consideration for such transfer or charge, or relating to the person or persons for whose use or benefit it is really intended to operate, shall be punished with simple or rigorous imprisonment for a term extending up to two years, or with fine, or with both.

This Section is wide enough to cover the benami deed. The word ‘Benam is originated from Persia. Here, “Be” means without and “Nami” means name. The term Benami, thus, means without a name. Without a name in the sense that the person under whose name the property is transferred is neither the real owner nor the money provider mainly. In layman’s term, whenever a property is bought by an individual under someone else’s name it is known as benami property. It includes every property held under the name of the third person and the payment for that property is done from any known source of income. Moreover, the transaction of property purchased by wife, children, brother, sister or any other relative from a known source of income is considered as benami property.

This is mainly done in order to avoid the payment of hefty taxes apart from the price which the buyer has to pay to the government. This transaction involves the use of fake identities and names, so, it is hard to find the true owner. The person on whose name the property is bought is called ‘benamdar’. The benami transactions include buying any kind of assets- movable, immovable, tangible, intangible, any right or interest, or legal documents. The Hon’ble Supreme Court elaborated the concept of Benami Transaction in the leading case law Thakur Bhim Singh v. Thakur Kan Singh. This case covers two types of benami transactions. First, when a property is purchased by a person with own money but under someone else’s name with any intention to benefit him. Second, when the owner of the property executes in favour of another without any intention of transferring the title to the property thereunder and transferor continues to be the real owner.

For the next Section of my research I would like to narrow down my Section to benami transaction which Section 423 of IPC basically covers. I am narrowing my topic so that I can focus on a particular part, that is, majorly affecting our economy so that we can find some solution, as benami deeds are reportedly a major source of generating black money in real estate sector in India and it is spreading like a disease, to cure this disease our government need to destroy this virus from its genesis.

Need for a new amendment

During the process of formulating the rules for implementing certain provisions of the Act, it was found that the provisions of the aforesaid Act were inadequate to deal with the benami transactions as the Act, inter alia,-

(i) did not contain any specific provision for vesting of confiscated property with the Central Government;

(ii) did not have any provision for an appellate mechanism against an action taken by the authorities under the Act, while barring the jurisdiction of a Civil Court;

(iii) did not confer the powers of the Civil Court upon the authorities for its implementation. To remove these infirmities, several consultations were held with the Ministry of Law and Justice.   

Later on it was comprehended that in order to deal with all these issues we need a whole new legislation rather than making amendments to remove infirmities. Further, it is important to look upon the intricacies like procedure of administration, service of notice and orders, power of competent authority related to evidence etc. Therefore, there is a need for comprehensive legislation to replace Benami Transaction Act, 1988 so that holding a benami property should be prohibited and there should be a restriction on right to recover or transfer any benami property and proper procedure of confiscating any benami property.

The reasons for introducing an Amendment Bill to the 1988 Act instead of preparing a new bill are that by way of a clause in the new law for repeals and savings, Benami transactions on which no action was taken under the 1988 Act, would be recognized as a Benami transaction under the new Act, and consequential action could have been followed. The provision would be unconstitutional in view of Article 20 of the Constitution, and therefore, could not be included in the repeals and savings. Therefore no action would be possible on any such transaction which occurred between 1988 and the date of repeal of the 1988 Act.

As a consequence, the Benami transactions during the period of twenty six years, would be in fact granted immunity since no action could be initiated in the absence of a specific provision in the Repeals and Savings clause. It was therefore suggested by the Ministry of Law, that it would be advisable to comprehensively amend the existing Benami Transactions (Prohibition) Act, 1988, so that the offences committed during the last twenty six years are also covered. This would enable action against Benami transactions undertaken after the commencement of the 1988 Act. Therefore the present Act is an Amendment Act and not a new Act.

Scope of the proposed amendment in Benami Transaction Act, 1988

In 2011, Indian signed up for United Nations Convention against Corruption adopted by the general assembly of the United Nations to prevent the corruption and black money. One of the major causes of black money and corruption is property to be specific benami property, as, the main purpose of purchasing the benami property is to hide black money or the source of income because that is not legal in India. In order to include UNCAC in most profitable way, we need to refer UNCAC to make various provisions according to international standard.

For effective implementation and achievement of the objective enshrined in any act the most important thing is its definitions. This is where the loophole of proposed bill comes into light, for instance, the important terms such as “transaction”, “arrangement”, “consideration”, “trustee”, “partner”, “agent”, “director of the company” have not been defined or add by way of explanation in the bill. This is done because according to the committee specifically defining these will remove ambiguity and leave no scope for misinterpretation and obviate delegated legislation. The Government should thus review the definition clauses of the Bill, so as to include proper definitions for every relevant term in the Bill itself.

Clause 2(p) of the proposed bill does not clearly defines “property”, which will lead to subjective misinterpretations. For instance, if benami property or its proceeds have been transformed into another form will that be treated as property under this clause. So there is a need to rephrase the term property for achieving convergence with UNCAC.

One of the major issues missing in this act is that the proposed act has not allotted a separate chapter that deals with allotment of officers or authority of government or local authorities for providing assistance for the purpose stated in clause (9) sub-clause (1), specifically registration and maintenance of books of accounts and furnishing information under clause (10). Apart from this, the term “record/document” has not been defined anywhere.

The punishment for benami transaction has been decreased from three years to two years in proposed bill as compared to existing benami act. There is no merit in the reasons advanced by the Ministry for reduction of period of imprisonment. But there is a need to increase maximum punishment from two years to three years, so that it would work as a deterrent for others and the provision of speed trial should not be misused and misinterpreted.

Treating close relative as non-prohibitive in case of benami transactions is ministery’s assessment, where considering a transaction as an entry of non-prohibitive list will aid the culprit in getting property out of legal net. The argument regarding deterrence advanced by the Ministry does is not satisfied. Because the list of exempted and non-prohibitive transactions will defeat the real objective of the proposed law in order to curb the hazards of benami transaction. Therefore, the government should try to review and reduce the ambit of exempt and non- prohibitive category so that no unscrupulous element could circumvent the provisions of the law.

Conclusion

In the last, it can be said that the prohibition of Benami transaction has a significant role of financial benefit of the state, since the people in most of the cases, used it as an effective instrument of tax evasion. In a larger extent, this practice was prevalent for getting property exceeding the limit of ceiling imposed by law. But this restriction may not be imposed in some cases for the benefit of the society and of the people.

For the healthy growth and development of the country it is quintessential that benami transaction should be prohibited and punished. Hence, it is required that no one should do an act indirectly which he cannot do directly; in other words ,people taking disadvantage of the legal system as a means to destabilize the administration of government should be punished. In the lieu of curbing the benami transaction following measures can be adopted:-

i) There is need for amending Income Tax act 1961 in order to control the stashing uaccounted investment under benami names apart from already mentioned Sections of undisclosed wealth and tax evasion.

ii) The amendment in Transfer of Property Act, 1882 and the Registration Act, 1908, for digitization of land records registration of property of immovable property along with proper identity proof.

iii) The application of the Act must be extended to all properties located abroad.

iv) Real beneficiary of property can be discovered through aadhar card and benami transaction. To speed up the process the had promised to provide with some cash to the informers of secret information, but the expectations from this is very low because of the harsh reality check that if some employee from the agency leaked any details related to informer then it will create some serious problem for the informer. So the another safe alternative that can be adopted is linking their aadhar card with the property through this tax authorities will get all relevant information they needed for finding out real owner of the property because when the real owner of the property will be cross question about that particular purchase he has to show his source of income which will be difficult for a servant or any other man who is dominated by the real owner.

Bibliography

1. “A Study Of The Benami Transactions (Prohibition) Amendment Act 2016.” feb 13.
2. A.SUBHASINI, M.YOKESH. 2018. “BENAMI TRANSACTION ACT IN REAL ESTATE ON BLACK MONEY .” International Journal of Pure and Applied Mathematics .
3. agarwal, puneet. 2018. “Benami Transactions: Tracing the evolution of Benami law in India.” april.
4. Criminal manual. universal.
5. dutta, madhumitra. n.d. “Evolution of Property Rights in India.”
6. Gaur, K D. 2016. “indian penal code.” lexis nexis.
7. kirer, james. 2009. “Evolutionary Theory and the Origin of Property Rights.” University of Michigan Law School.
8. nelson, r a. 2016. “indian penal code .” 3670-3673. lexis nexis.
9. Pillai, P S A. 2015. criminal law. lexis nexis.
10. shah, nishi. n.d. “BENAMI TRANSACTION: .” International Journal of Law and Legal Jurisprudence Studies .
11. steelman, aaron. n.d. The Evolution of Property Rights. research spotlight.