Home Benami Act Offences and penalties under the Benami Transactions Act

Offences and penalties under the Benami Transactions Act

September 24, 2024

This article has been written by Bhavisha Manish Ramrakhyani pursuing the Diploma in International Contract Negotiation, Drafting, and Enforcement Course from LawSikho, and edited by Shashwat Kaushik. In this article, we will take note of offences and penalties under the Benami Transactions Act but before that, we must understand what Benami Transactions are and learn some key points of Benami Transactions (prohibition) Amendment Act, 2016.

What are benami transactions

Benami transactions are those that are done by a person on behalf of another person, who is the real beneficiary. These types of transactions are mostly seen in property cases.

Let’s understand this with a simple example.

Suppose Mr. A wants to buy a building but he does not want to have it registered under his name. He asks Mr. B to be the purchaser and provides the money for the same and Mr. B follows through. Now Mr. B registers the building in his name by purchasing it legally. However, despite Mr. B being the legal owner, the actual control and benefit of property lie with Mr. A.

This type of transaction, where the real beneficiary tries to conceal his identity in the name of someone else, is called a Benami transaction. You must be wondering why you are going through this hassle when Mr. A could have purchased the building by himself. The motive behind this transaction can be tax evasion, hiding black money, bypassing property laws or hiding the identity of the real owner.

Why was the Benami Transactions (Prohibition) Amendment Act, 2016 enacted?

The parliament passed the Benami Transactions (Prohibition) Amendment Act, 2016 which aimed at regulating black money, in August 2016 and came into effect in November , 2016 in the same year. The above law is an amendment to the Benami Transactions Act, 1988 and therefore its name has changed to the Prohibition of Benami Property Transactions (PBPT) Act, 1988. The revised act strengthens the original legislation by improving legal and administrative mechanisms. The main aim of this Act is to bring back illegal money into the mainstream economy.

Offences under the Benami Transactions (Prohibition) Amendment Act, 2016

Here is the list of offences as defined under this act:

Benami transactions

Definition and context

A benami transaction is a form of financial arrangement where an individual purchases a property and it is held in another person’s name. Consequently, the benamidar is said to hold the legal title even as the beneficial owner actually pays for the property. Hiding actual ownership is a major feature of a Benami transaction.

Offence

Entering into a Benami transaction: Any person who enters into or does any other act that satisfies the definition of a Benami transaction as given under Section 2(9) commits an offence under this Act. This includes both the person who finances the transaction (the beneficial owner) and the person in whose name the property is held (the benamidar).

Objective

Tax evasion, hiding black money, or concealing assets from creditors, authorities or legal scrutiny are some of the primary objectives behind Benami transactions.

Example:

To avoid tax liability or hiding ownership, Person A buys a piece of land but registers it in Person B’s name, such as that of a friend or relative. In this case, Person A is recognised as being the beneficial owner, while Person B acts as the benamidar.

False information

Definition and context

False allegations consist of deliberately giving wrong or misleading data to government officials with the intent of avoiding compliance with the Act.

Offence

False statements: Untrue information about ownership, source of funds or any other material particularly relating to Benami property.

Fake documents: Falsifying or modifying papers that misrepresent the real nature of the deal on a property.

Any other form of false information: This could involve actions like hiding papers, tendering false testimony, or any other means of deception to authorities.

Objective

Usually, providing false information is an attempt to distract officers from discovering benami transactions so that legal consequences are not meted out to them.

Example:

Person A’s claim as the rightful owner of a property through fake documents, when in reality person B was the one who gave money for buying it, entails falsifying evidence.

Abetment of benami transactions

Definition and context

Abetment in view of benami transactions indicates the act of conniving, aiding or instigating another individual to enter into a benami transaction. This can be advice, facilitation, or active participation during the transaction process.

Offence

Encouragement or inducement: This refers to encouraging a person to indulge in a benami transaction by explaining to them the benefits that can be counterfeited, such as tax evasion and asset concealment.
Aiding: This is giving support while entering into any benami transaction. It can be financial; it can involve legal advice among others.
Active participation: Creating fake documents for executing the benami transaction, giving a false witness or acting as an agent

Example:

If Person C advises Person A to buy property on behalf of Person B so that they do not have to pay taxes and helps him with all necessary documents and financial transactions needed by Person A then Person C will be liable for abetting the said Benami Transaction.

I hope you now have a clear idea about the offences under this Act.

What are the penalties under the Benami Transactions Act

The Amendment Act of 2016 regarding Benami Transactions serves as a significant piece of legislation that seeks to address the issue of benami transactions. It aims to deter individuals from engaging in such activities by establishing severe penalties for those found guilty of benami offences.

One of the key consequences outlined in the Act is imprisonment. Individuals convicted of benami transactions can face rigorous imprisonment for a term that may extend up to a period of seven years. This strict punishment aims to emphasize the seriousness of the offense and deter potential offenders from partaking in such activities.

Additionally, the Act imposes financial penalties on individuals involved in benami transactions. Offenders may be liable to pay fines that can be as high as 25% of the fair market value of the property involved in the transaction. These substantial fines are intended to serve as a financial disincentive and to discourage individuals from engaging in benami transactions for monetary gain.

Furthermore, the Amendment Act of 2016 also includes provisions for the confiscation of properties acquired through benami transactions. If an individual is found guilty, the court may order the confiscation of the property involved in the transaction. This strict measure is designed to prevent offenders from benefiting from their ill-gotten gains and to ensure the recovery of properties that have been illegally acquired.

In the case of benami transactions involving public servants, the Act imposes even more stringent penalties. Public servants found guilty of engaging in benami transactions are subject to both imprisonment and disqualification from holding public office. This additional punishment aims to uphold the integrity and transparency of public institutions and deter public officials from abusing their power for personal gain.

The Amendment Act of 2016 regarding Benami Transactions plays a crucial role in promoting transparency and responsibility in financial dealings. By establishing severe penalties for benami offenses, the Act discourages individuals from engaging in such illicit activities and helps to maintain the integrity of the nation’s financial system.

Involvement in benami transactions

Prison sentence: Any individual convicted of partaking in a benami transaction could face a sentence of imprisonment ranging from one year to a maximum of seven years.
Fine: Apart from going to jail, the person who commits the crime may also have to pay a fine that could be 25% of the property’s fair market value.
Here’s why: The phrase ” imprisonment” suggests a type of jail time that includes difficult work. The fine, which can amount to 25% of the property’s market value, serves as a discouragement for benami deals.

Providing false information

Imprisonment: If you lie by saying things that are not true, or give false papers, or deceive to get around the rules of the law, you can go to jail for at least six months, and up to five years.
Monetary: You may also have to pay a big fine, which could be up to 10% of the value of the thing you gave misinformation about.
Here’s why: This rule is for those who try to trick the people in charge by giving them wrong details. This is not okay and so the law wants to stop it by making the punishment very serious.

For abetment of Benami transactions

Penalty: If you help or make someone do a secret deal, you face the same punishment as those in the deal. This means you could go to jail for at least a year and up to seven years and pay a fine up to 25% of the property’s value.
Here’s why: Helping includes advising, making it easy, or pushing someone to do a secret deal. By making the penalties for helping the same as those for direct involvement, the law makes sure that those who make it happen are just as responsible.

Additional provisions and penalties

Confiscation of the property

The rule gives officers the power to hold and take away suspected properties. Once confirmed, such properties are given to the government without paying any kind of compensation to the real owner. This acts as a direct method to eliminate property held illegally, thereby serving as a punitive measure.

No right to reclaim

The real owner can’t get the property back from the government once it has been taken away under the rule. This rule stops the real owner from trying to get control over the property through legal means, making the confiscation process stronger.

The rule also stops civil courts from dealing with any case related to anything that the officers or Court of Appeal can decide. By stopping civil courts, the rule makes sure that problems related to suspected deals are only handled by the chosen officers, making the decision process simpler.

Landmark case laws on the Benami Transactions Act in India

Shri. Mudapallur Varieth Gangadharan vs. the Deputy Commissioner of Income Tax (2022)

In the case of Shri. Mudapallur Varieth Gangadharan vs. the Deputy Commissioner of Income Tax (2022), the court examined a crucial legal question concerning the potential conflict between the Insolvency and Bankruptcy Code (IBC) and the Benami Transactions Act. The court’s objective was to determine whether these two acts could coexist harmoniously, or if there was a need to resolve any contradictions.

The Insolvency and Bankruptcy Code (IBC) is a comprehensive legislation enacted in 2016 to streamline and regulate insolvency proceedings in India. It aims to provide a time-bound and efficient framework for resolving corporate insolvencies. On the other hand, the Benami Transactions (Prohibition) Act, 1988, is a law that seeks to address the problem of benami transactions, where properties are held in the name of one person (the benamidar) while the real owner (the beneficial owner) remains hidden.

The court’s analysis focused on determining whether the objectives and provisions of these two acts were fundamentally incompatible or complementary. The court noted that both the IBC and the Benami Transactions Act are special acts, meaning they are designed to deal with specific and distinct issues. The IBC primarily governs insolvency proceedings, while the Benami Transactions Act targets the prohibition of benami transactions.

The court emphasized that the two acts do not inherently conflict with each other. The IBC provides for the inclusion of assets in the liquidation process if they form part of the liquidation estate. If a property that is subject to a benami transaction is part of the liquidation estate, the liquidator has the authority to add it to the liquidation assets.

Furthermore, the court clarified that the Benami Transactions Act does not impose any restrictions on the liquidator’s ability to include such properties in the liquidation process. The liquidator’s primary responsibility is to ensure the fair and equitable distribution of the liquidation assets among the creditors.

In summary, the court concluded that there is no inherent conflict between the Insolvency and Bankruptcy Code and the Benami Transactions Act. Both acts can coexist and operate harmoniously. The liquidator, as appointed under the IBC, has the authority to include properties subject to benami transactions in the liquidation assets if they form part of the liquidation estate. This decision provides clarity and guidance for resolving potential conflicts that may arise in the context of insolvency proceedings and benami transactions.

Union of India vs. Ganpati Dealcom

In the case of Union of India v. Ganpati Dealcom (2022), the Supreme Court of India undertook a thorough examination of the retrospective application of the amended punishment prescribed under Section 3(2) of the Benami Transactions (Prohibition) Act. This case presented a crucial opportunity for the apex court to clarify the scope and constitutionality of the 2016 amendment to the Benami Transactions Act, which had introduced enhanced penalties for engaging in benami transactions.

The Benami Transactions (Prohibition) Act, enacted in 1988, aimed to combat the practice of benami transactions, wherein an individual purchases property or other assets in the name of another person to conceal the true ownership. The original Act criminalized benami transactions only if they were done with the intent to defraud creditors or evade taxes. However, the 2016 amendment significantly expanded the scope of the Act by making the mere act of paying consideration for a benami transaction without any specific intent to defraud creditors a punishable offense.

The Supreme Court was faced with the question of whether the enhanced punishment under the amended Section 3(2) of the Benami Transactions Act could be applied retrospectively to transactions that occurred before the amendment came into force. The court recognized that retrospective application of penal laws generally raises concerns about fairness and due process, as individuals may be punished for actions that were not considered criminal when they were performed.

After careful consideration of the relevant provisions of the Act and the principles of criminal jurisprudence, the Supreme Court concluded that the unamended Section 3 of the Benami Transactions Act, which criminalised the mere act of paying consideration for a benami transaction without the intention of defrauding creditors, was unconstitutional. The court held that this provision violated the fundamental principle of legality, which requires that individuals be given fair notice of what conduct is prohibited and what penalties may be imposed for such conduct.

Consequently, the court determined that the enhanced punishment under the 2016 amendment could not be applied retrospectively to transactions that occurred before the amendment came into effect. The court reasoned that since the original Act did not criminalize benami transactions in the absence of an intent to defraud creditors, individuals who engaged in such transactions before the amendment cannot be punished under the amended provision.

The Supreme Court’s decision in Union of India vs. Ganpati Dealcom has significant implications for the interpretation and application of penal laws in India. It reinforces the principle that retrospective application of penal laws is generally not permissible, particularly when it comes to expanding the scope of criminal liability. By emphasizing the importance of fair notice and due process, the court has provided guidance to ensure that individuals are not punished for conduct that was not clearly prohibited by law at the time it was performed.

Conclusion

The new law in India, the Benami Transactions (Prohibition) Amendment Act, 2016, aims to stop secret property deals. This Act is a big move to stop money tricks and make the money system in India fair and clear.

If you do secret property deals, you could go to jail for 1-7 years and pay fines up to 25% of your property’s worth. If you lie, you could go to jail for 6 months to 5 years and pay fines up to 10% of the property’s worth. If you help, you will face the same punishment.

The law states that the government can take your secret properties without paying and you can’t get them back. This aims to stop hiding cash and pay less tax through secret deals. It sets a high bar for people to be open and fair. The goal is a more clear and fair money scene in India.

Offences and penalties under the Benami Transactions Act

What are benami transactions

Offences under the Benami Transactions (Prohibition) Amendment Act, 2016