An economic offence has multiple layers to it. The commission of a criminal act for pecuniary gains is merely the tip of the proverbial iceberg. A parallel economy largely run by anti-social elements or their agents often involves a copious number of cash transactions. However, the enjoyment of such illicit money is severely curtailed. The process of converting the proceeds of crime (black money) into legitimate money (white money) that can be freely used is called money laundering. A typical money laundering operation consists of three stages namely placement, layering and integration. In a country like India where poverty and illiteracy are still rampant, ‘Benami’ transactions have historically been perceived as an effective method to both conveniently hide as well as launder illicit money. Typically ‘Benami’ transactions especially in the guise of property and real estate are not only effective in the placement and layering process of money laundering but due to reduced rates of taxation on capital gains (subject to the provisions of Sections 45 to 55 of the Income-tax Act) and the tax exempt nature of sale of agricultural land (subject to the provisions of Sec. 2(14)(iii)of the Income-tax Act) have also been seen as the most ‘Tax effective’ means of integrating the laundered money back into the economy. Many scholars and studies show that mere punishment is not a sufficient deterrent for the commission of crime. The underlying principle behind control of crime in modern day jurisprudence is not to merely put in place an effective machinery to curb and punish crime, but to minimise or eliminate the underlying profit objective.
The Indian Legislature has often been criticised for its laidback approach towards that archaic and antiquated laws that in today’s age and date rapidly get obsolete. In the innovative and highly imaginative world of money laundering and tax evasion, perpetrators always come up with increasingly complex transactions in order to dispose of their ill-gotten gains. Merely plugging the loopholes as they are discovered then, ensures that the authorities remain two steps behind these perpetrators. In an effort to curb profits from criminal activities as well as to plug leaks in collection of taxes, the Legislature has undertaken many comprehensive steps in the recent past to impose strong deterrents upon and to aid effective action upon economic offenses. Various laws such as the PMLA (Prevention of Money Laundering Act), the Companies Act, the Information Technology Act and the Benami Property (Prohibition) Act, 1998 have seen comprehensive enactments/amendments to better address challenges thrown up by technology, globalisation & to provide strong teeth to the Law enforcement machinery. The Benami Transactions (Prohibition) Amendment Act, 2016 has introduced a raft of changes to the Benami Property (Prohibition) Act, 1988.
The Original Benami Transactions (Prohibition) Act, 1998 (hereinafter referred to as the ‘principal act’) was woefully inadequate to address the menace of rampant Benami transactions in a country with widespread poverty and illiteracy. ‘Benami Transaction’ as defined by the original enactment meant “any transaction in which property is transferred to one person for a consideration paid or provided by another person” with exceptions provided for coparceners in a Hindu Undivided Family & a person holding property in a fiduciary capacity subject to the conditions laid down by Sec. 4(3)(a). This definition was not only generic but it also lent itself to ambiguities in interpretation. With merely 9 Sections, it relied heavily on secondary legislation in the form of rule making powers conferred by Sec. 8 for enforcement of the provisions of the Act. Though the Act provided for acquisition of Benami properties, via Sec. 5, neither did it explicitly make holding Benami properties a criminal offence under the Act itself nor did it set up a comprehensive mechanism for administration of the Act, preferring to rely therefore on secondary legislation and other existing laws.
The Statement of Objects & Reasons to the Benami Transactions (Prohibition) Amendment Bill, 2015 states that it was found that the provisions of the Benami Transactions (Prohibition) Act, 1988 were inadequate to deal with Benami transactions as the Act did not contain any specific provision for vesting of confiscated property with the Central Government, 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, confer the powers of the civil court upon the authorities for its implementation or provide for adequate rule making powers. Further, the Bill also sought the implementation of the said Act by the existing institutional structure of the Income Tax Department.
The provisions of Sec. 4 the Benami Property (Prohibition) Act, 1988 (hereinafter referred to as the amending Act) substantially expanded on the definitions provided by the principal Act. Besides introducing new definitions, it has also comprehensively overhauled the definitions provided by the principal Act.
• Section 4 of the amending Act defines ‘Benami Transactions’. A “Benami transaction" means 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 OR 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. However, Sec. 2(9)(A) also provides for the exceptions in the case of a Karta or member of a HUF, family members and lineal descendants or a fiduciary as long as they satisfy the conditions set out in sub-sections (i-iv).
• Section 4 of the amending Act defines ‘Property’. The principal Act had defined property to mean property of any kind, whether movable or immovable, tangible or intangible, and included any right or interest in such property. The amending Act expands the definition of ‘Property’ to further include within its ambit assets that can be corporeal or incorporeal, any rights or interest or legal documents or instruments evidencing title to or interest in the property and if the property is capable of conversion then the property in the converted form. Importantly, it also includes within the definition of property any of the proceeds from the property.
The principal Act, being enacted in 1988 also suffered from limitations imposed by developing technology as well as legal jurisprudence. Though the Financial Memorandum of the 2015 Bill also sought the implementation of the said Act by the existing institutional structure of the Income Tax Department, the legislature in its wisdom has seen it fit to comprehensively set out Authorities for the implementation of the Act, the composition of the said authorities, the Jurisdiction exercised by the said authorities and the powers thereof (Chapter III Amending Act). The Authorities set out for the purposes of this Act are [Sec. 18(1)]
• The Initiating Officer
• Approving Authority
• Administrative Authority
• Adjudicating Authority
It has specifically been provided by Sec. 19(1) that the authorities shall have all the powers as vested with a civil court under CPC (Code of Civil Procedure) while trying a suit with respect to discovery and inspection, enforcing the attendance of any person for examination under oath, compelling production of books of account and other documents, issuing commissions, receiving evidences on affidavits and for any other prescribed matters.
The Act also provides that the following officers shall assist the authorities in the enforcement of this Act subject to Sec. 20 of the Amending Act:-
• Income Tax Authorities
• Customs and Central Excise Department Officers
• Narcotics Drugs and Psychotropic Substances Act Officers
• Officers of a recognised stock exchange
• Officers of Reserve Bank of India
• Officers of Enforcement under Foreign Exchange Management Act
• Officers of Securities and Exchange Board of India
• Officers of any ‘body corporate’ constituted or established under State of Central Act
• Officers of the Central Government, State Government, local authorities or banking companies notified by Central Government for the purpose of this Act.
The powers listed out in Chapter III are comprehensive and a far cry from merely providing for framing of Rules as set out by the ‘Principal Act”. Besides vesting substantial powers in the hands of the Authorities under this Act, it also explicitly provides for active assistance by officers of every major Government body which automatically shall enable the authorities to have access to a vast database of information and resources provided for by virtually all the major regulatory/investigating bodies. This shall enable the authorities to carry out in-depth investigations and provide water tight cases for attachment and prosecution.
The Principal Act enabled the Central Government by notification in the Official Gazette to make rules to make necessary rules to carry out the purposes of this Act by providing an authority competent to acquire properties [Sec. 8(2)(a)], prescribing the manner in which and procedure to be followed for acquisition of properties [Sec. 8(2)(a)] and other providing for other matter which is required to be or may be prescribed for carrying out the purposes of the Act. However, Chapter IV of the Amending Act puts in place specific provisions with regards to Attachment, Adjudication and Confiscation.
Sec. 24 of the Amending Act empowers the Initiating Officer to issue a show cause notice to a Benamidar based on material in his possession after recording his reasons in writing with a copy to be sent to the beneficial owner if traceable. It further empowers him, if he is under the opinion that the Benami may alienate the said property, to attach the said property with previous approval of the Approving Authority for a period not exceeding ninety days. After making inquiries and calling for reports and evidence within a period of ninety days of issuing the show cause notice the Initiating Officer has the power to provisionally attach the Benami property if not already done and if provisional attachment is already done, the Initiating Officer has the power to pass an order continuing the attachment until the Adjudicating Authority passes the order in the matter. However, if the said provisional attachment is done or continued by the Initiating officer as per Sec. 24(4), he shall have to draw up a statement of the case and refer it to the Adjudicating Authority within 15 days.
Chapter V provides for the setting up of the Appellate Tribunal that shall ordinarily sit in Delhi or at any other place the Central Government will decide in consultation with the Chairperson of the Appellate Authority. The Tribunal shall not be bound by procedure laid down by the Code of Civil Procedure but shall have powers to regulate its own procedure. It shall also have the powers vested in a Civil Court under Code of Civil Procedure in respect of matters enumerated by Sec. 40(2) of the Amending Act. The orders of the Appellate Tribunal are appealable before the High Court within a period of 60 days only on questions of law.
However, secondary legislation and rules have inherent limitations and suffer from a multitude of legal challenges. Measures put in place for preventing money laundering and tax evasion or other criminal or anti-social activities via ‘Benami Transactions’ needed to fulfil a dual purpose, of preventing the beneficial owners of the ‘Benami’ properties from actually benefiting from the transaction as well as by prosecution. An obvious shortcoming of the ‘Principal Act’ was that it did not explicitly make entering into a ‘Benami’ Transaction a crime by itself. In order to rectify this shortcoming, Chapter VII of the Amending Act states that any person entering into a Benami Transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, as the beneficial owner or as the Benamidar and any other person who abets or induces any person to enter into a Benami transaction shall be guilty of the offence of ‘Benami Transaction’ [Sec 53(1)]. Whoever is found guilty of committing the said offence shall be punishable with a minimum of one year rigorous imprisonment but which may extend to up to seven years along with a fine which may extend to 25% of the fair market value of the property [Sec. 53(2)]. In addition, if any person required to furnish information under this act knowingly gives false information or provides a false document, the person shall be punishable with a minimum of six months rigorous imprisonment but which may extend up to five years along with a fine which may extend to 10% of the fair market value of the property [Sec 54]. However, Sec. 55 of the amending Act also provides that no prosecution shall be instituted against any person in respect of any offense u/s 3, 53 or 54 without prior sanction of the board. The Provisions of 53(2) and 54 clearly seek to bring out the fact that indulging in, abetting or assisting a Benami Transaction is taken as a serious offense by the Government of India and the punishment is now commensurate with the crime.
Chapter VI of the Amending Act provides for Special Courts to be set up for trial of offences under the Act. Such Courts shall be constituted by the Central Government in consultation with the Chief Justice of the High Court by notification and the Special Court so constituted shall take cognizance of an offence punishable under the Act only upon a written complaint made by the Adjudicating Authority or an officer authorized by the State or Central Government. Though the Appellate Tribunal is not bound by the Code of Civil Procedure, the Code of Criminal Procedure shall apply to prosecution proceedings before the Special Court. If the accused is charged of other offenses under Code of Criminal Procedure at the same trial, the Special Court will have the jurisdiction to try him for all such other offences.
The Amending Act has 71 Sections as opposed to 9 Sections that constituted the Principal Act. This amendment is not only comprehensive, but also critical in an era where technology and other advancements demand a strong institutional framework in fighting the menace of black money and the murky parallel economies that characterize countries that have laws that are typically ineffective and law administrations that are inefficient. The amendment has comprehensively set out a mechanism not only for fast detection and investigations but also for effective and speedy dispute resolution and prosecution. The constitution of the Tribunals shall greatly enhance the speed of dispute resolutions as opposed to overburdened civil courts bound by the rules of the Civil Procedure Code where a suit typically take a number of years to reach its logical conclusion. On the prosecution side, by setting up Special Courts that shall exclusively look after matters under this Act, the speed of disposal of criminal trials shall also be enhanced. The effectiveness of the amended Act shall be gauged by its performance over time, however it is a giant stride in the right direction.