I. P. Pandey, Advocate

1. An Overview

According to Advanced Law Lexicon, Benami means Nameless, fictitious, fraudulent,(a sale or purchase made in the name of someone other than the actual vendor or purchaser. Understanding the Benami in its simplest term consider a property brought and registered in the name of Mr.X but it is actually being paid by Mr.Y. In this case Mr.X is holding the property in the name of Mr.Y and the latter is only the beneficial owner of the property. This would called a ‘Benami property’ and the such transaction such transaction of sale and purchase will be called as ‘Benami Transaction’.

However this is not be confused with a situation where an individual buys property in the name of his spouse, or a family member, or jointly owns property with a sibling or another relative.

Initially when this law came into existence in the Year 1988 it had just 8 sections. The said ordinance was subject to criticism from the press and public on the ground that it was not an effective mechanism to curb Benami Transaction.

BENAMI TRANSACTION AMENDMENT BILL 2016

Since in recent years there have been various instances in which people use their unaccounted money to purchase property in the name of a fictitious or non-existent person therefore the need for a strong mechanism to combat such activities has become inevitiable.

The object and purpose of the ‘Benami Transactions (Prohibition) Amendment Bill,2016, was not only to efficaciously prohibit Benami transaction but also to prevent evasion of tax by illegal practice.

The most significant aspect of the Amendment Bill was that all the benami properties shall be confiscated after following due process of law.

However the law extends immunity under the Income Declaration scheme to those who made declaration in respect of their’ Benami Properties’.

On 13th May 2015 the Benami Transactions (prohibition) amendment Bill 2015 was introduced in the Lok Sabha.

The Rules and all the provisions of the benami Transactions (Prohibition) Act, came into force on November 1,2016.

2. Definition of ‘Benami Transaction’ Section 2(9) of the Benami Transactions (Prohibition) Amendment Act, 2016 defines: “Benami Transaction” to mean:-

1. A transaction or an *arrangement-

   1. 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

   2. The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration OR

2. A Transaction or an arrangement, in respect of the property is carried out or made in a fictitious name; or

3. A Transaction or an arrangement, in respect of the property where the owner of such property is unaware of or denies having knowledge of such ownership;

4. A Transaction or an arrangement, where the person providing consideration is not traceable or is fictitious.

3. Judicial interpretation of benami Transaction

In the case of Om Prakash Sharma v. Rajendra

Prasad Shewda & others Civil Appeal No.8609- 8610 of 2009 decided on 9th October 2015, the Hon’ble Apex Court made reference to a landmark precedent known as Jaydayal Poddar (deceseased) through LRs & Anr v. Mst. Bibi Hazra & others AIR 1974 SC 171 and laid down certain important factors stated below:

1. the source from which the purchase money came;

2. the nature and possession of the property, after the purchase;

3. motive if any, for giving the transaction a benamicolour;

4. the position of the parties and the relationship, if any, between the claimant and the alleged benamidar;

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.”

The Apex Court also cautioned that no straight jacket formula can be laid down in this context and the aforesaid mentioned factors are not exhaustive therefore the facts and circumstances of each case become excessively relevant.

In another landmark judgment of the Calcutta High Court in the case of Smt. Usha Bhar v. Sanat Kumar Bhar ([2004] several guidelines have been laid down.

The High Court held that in a suit claiming a property as benami, there should be cogent and sufficient evidence to conclude that the apparent is not the real. In order to ascertain whether a particular sale is benami and the apparent purchaser is not the real owner, the burden lies on the person asserting to prove so. Such burden has to be strictly discharged based on legal evidence of a definite nature. Such evidence directly proves the fact of benami or establishes circumstances unerringly and reasonably.

Although the Act tightens grip over malicious practices but also has provisional relief to honest citizens by allowing few transactions to be considered lawful in nature. The Act excludes those who buy property through known source of income in the names of their spouse or children. Brother and sisters or lineal ascendant or descendant where their names appear as joint owners in the document; a karta of the Hindu undivided family; and a person standing in fiduciary capacity for the benefit of another person, such as a trustee, executor, partner or director of a company, are excluded from the scope of the Act.

4. Provisions introduced in the new law

According to section 5 of the Act, “(5) “attachment” means the prohibition of transfer, conversion, disposition or movement of property, by an order issued under this Act;”

The definition of ‘property’ under new law is not limited to immovable properties. Assets underlying tangible or intangible, corporeal or incorporeal includes any right or interest or legal documents or instruments evidencing title to, or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form is included as well as even securities, shares and intellectual property can be considered ‘Benami Property’.

Under section 2(10) of the new Act, Benamidar includes a person who may be real/unreal and his/her name used for transfer of property which may have interest in future to the person providing consideration for the cost of property. The person who has future interest in the property is termed as the beneficial owner under section 2 (12).

5. Penalties Under the Act

The law invites criminal prosecution and rigorous imprisonment up to seven years to the accused along with a penalty which may extend upto 25% of market value of the property. The seizure of property leads to acquisition of property by the government in case the accused is convicted of crime and proved guilty under court of law.

In addition to the penalty, Benami Property may be attached and confiscated by the Government” and that it will be in addition to prosecution under the Income Tax Act of 1961 for tax evasion charges. The penalty for providing false information will be rigorous imprisonment of at least six months and up to five years, and a fine which may extend to 10 percent of the fair market value of the Benami property.

6. Composition of Authority

1. Introduction of ‘Adjudicating Authority’ for cases registered under this law

   Section (8) of the Act holds that the composition of authority shall consist of a chairperson and at least two other members. Power of adjudicating authority to regulate its procedure is defined under section 11 that he shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and subject to the other provisions of this act the authorities shall have powers to regulate its own procedure.

   Four tier systems have been adopted under the new law for proceeding under the act, which includes-

   1. Initiating officer

   2. Approving officer

   3. Administrative officer

   4. Adjudicating officer

   The Initiating officer may initiate the procedural investigation after he confirms the reason to believe as described in section 24(3) of PBPT Act, that a transaction carried out by parties is infected. The bare reading of 24(3) is as under:

   “24(3): Where the Initiating Officer is of the opinion that the person in possession of the property held benami may alienate the property during the period specified in the notice, he may, with the previous approval of the Approving Authority, by order in writing, attach provisionally the property in the manner as may be prescribed, for a period not ninety days from the date of issuance of notice under sub section (1).”

   In a very recent case of M/s. Kavita Infrastructure Pvt. Ltd. v. The Initiating Officer, Circle, Mumbai- FPA-PBPT-820/MUM/2019

   Hon’ble APPELLATE TRIBUNAL FOR PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, AT NEW DELHI vide his Order dated 03.09.2019 has set 4 acid test to initiate the proceeding under Act is :

   1. The IO must know that who is the person currently holding the property in possession

   2. The said person is holding the property as benami is if no, further steps are meaningless.

   3. The said person is likely to alienate the subject property in due course by disposing of.

   4. The alienation is likely to happen within the period specified in the notice issued u/s 24(1)

   It requires-

   1. Ownership of property transferred to a person and consideration for the property has been provided by another person who is not related to the person in fiduciary capacity including spouse, child or otherwise mentioned as exception under section.

   2. The person in whose name property is transferred is not aware or the person is fictitious.

   3. The person who made the transaction is not traceable.

   Only one of the above mentioned points can raise question over legality of transaction or property under this law. After confirming the proper reason to believe, the approving authority approves for the procedural investigation and confiscation.

7. Factors to be considered

However, there are some factors which weigh a great deal with the Courts in such an enquiry:

1. The source from which the purchase money came;

2. The nature and possession of the property,

3. The motive, if any,

4. The position of the parties and the relationship, if any between the claimant and the alleged benamidar;

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.

7. Proceedings under a case involving Benami Transaction

This is how the process plays out:

1. Proceedings before the Initiating Officer: An Initiating Officer under the Benami Act initiates the process.

   The process begins when some material, for instance, documents or other evidence, come into the possession of the Initiating Officer giving her a reason to believe (sufficient cause, as opposed to a mere guess or conjecture) that any person is a Benamidar in respect of a property. In such a situation, the Initiating Officer may after recording her/his reasons in writing, issue a notice to the person to show cause within a stipulated time as to why the property should not be treated as benami property. A copy of the notice must also be issued to the beneficial owner if her/his identity is known.

   However, issuance of prior notice is not a condition precedent to attachment always. in order to alienation/dissipation of property, and since time is of the essence in some of these cases, Act also provides for a ‘provisional attachment’ of property, suspected to be Benami,

   Provided, the initiating officer has a reason to believe that the person holding such Benami property may alienate the property, and render the proceedings infructuous. In such cases, the property can be provisionally attached for a period not more than 90 days, purely as a protective/interim measure. This attachment cannot be for a period of more than ninety days from the date of issuance of notice.

   Within that period, the Initiating Officer, after giving a reasonable opportunity to the Benamidar as well as the beneficial owner to put forth their side of the case, may either confirm or vacate the provisional attachment.

   Since a provisional attachment is carried out on the basis of a ‘reason to believe’ the approval of a higher official (‘’Approving Authority”) is made a condition precedent for a provisional attachment. Needless to state, the Initiating Officer as well as Approving Authority have to form an opinion that provisional attachment is absolutely imperative, on the basis of tangible and cogent material and not on the basis of conjecture.

   In case of confirmation of attachment, the matter is then referred to the Adjudicating Authority (‘’AA”) under the Act for its decision (on merits) and the attachment continues till a final disposal of the case.

   If it is a case of mere issuance of notice (without a provisional attachment), the Initiating Officer may, after a hearing, go on to attach the property till a decision of the Adjudicating Authority. In cases where the attachment is made/continued, the Initiating Officer is required to draw up a statement of the case and refer the same to the Adjudicating Authority under the Act. This statement of case brings the matter to the seisin of the Adjudicating Authority, who conducts an enquiry in the following terms:

Hearing by the Adjudicating Authority

Representation of Parties by Other Individuals

The Benamidar or any other person who claims to be the owner of the property may either appear in person, or take the assistance of an authorised representative of his choice to present his case.

Reply Filed by Parties

A reply can be filed to the notice issued by the Adjudicating Authority so as to appraise the Authority as to the correct facts and one’s answer/defence on the merits of the case.

Hearing

The Adjudicating Authority is required to consider the reply (if any), and conduct any such further inquiries, and/or call for such other reports or evidence as it deems fit and take into account all relevant materials, in the decision making process.

The person specified as a Benamidar, the Initiating Officer, and any other person who claims to be the owner of the property is also required to be heard by the Adjudicating Authority before taking a decision.

Other properties surfacing during the proceedings, suspected to be ‘Benami’.

Where in the course of proceedings before it, the Adjudicating Authority has reason to believe that a property, other than a property referred to it by the Initiating Officer is Benami Property, it may extend the scope of the reference and provisionally attach that property as well.

Decision of the Adjudicating Authority Lastly, the Adjudicating Authority, upon due consideration, may pass any of the following two orders:

1. holding the property not to be a Benami Property and revoking the attachment order and setting the property and property owners free; or

2. holding the property to be a benami property and confirming the attachment order, in all other cases.

Time-limit for passing the Order

There is an outer limit of one year for the conclusion of these proceedings.

Situation where a part of the property is found to be Benami

This is a peculiar situation where the Adjudicating Authority is satisfied that some part of the properties in respect of which reference has been made to him is Benami Property, but it is not able to specifically identify such part; in such a case, the Adjudicating Authority will record a finding to the best of his judgment as to which part of the properties is held Benami.

In cases of an adverse decision by the Adjudicating Authority, the property is liable to be confiscated, and this is how the process of confiscation is carried out:

9. Confiscation of the Property Where an order is passed by the Adjudicating Authority in respect of any property holding such property to be a Benami Property, the Adjudicating Authority will, after giving an opportunity of being heard to the person concerned, make an order confiscating the property held to be a benami property. Having said that, in case an appeal against the decision of Adjudicating Authority is filed, confiscation will be subject to the result of appeal proceedings.

Fraudulent Transfers during the process In case, after the issuance of the initial notice by the Initiating Officer, the property in question is transferred to a third party clandestinely, in that case, the said transaction would be null and void and confiscation would take effect, notwithstanding such a transfer.

However, in case the property is held or acquired by a person from the Benamidar for:

• adequate consideration;

• prior to the issuance of show-cause notice

  by the Initiating Officer; and

• without his having knowledge of the benami transaction; in such a case the transfer may be valid.

• Effect of confiscation:

Where an order of confiscation has been made, all the rights and title in such property will vest absolutely in the Central Government, free of all encumbrances and no compensation will be payable in respect of such confiscation.

10. What are the remedies against wrongful attachment if one is aggrieved by such an order?

1. Appeal before the Appellate Tribunal

   Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal to the Appellate Tribunal against the order passed by the Adjudicating Authority property to be Benami or not, within a period of forty-five days from the date of the order. (The Appellate Tribunal may, however, entertain any appeal after the said period of forty-five days, ifit is satisfied that the appellant was prevented, by sufficient cause, from filing the appeal in time.)

   The Appellate Tribunal, as far as possible, may hear and finally decide the appeal within a period of one year from the last date of the month in which the appeal is filed.

   Any party aggrieved by any decision or order of the Appellate Tribunal can file an appeal to the High Court within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order. (The High Court may entertain any appeal after the said period of sixty days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the period specified)

2. Writ Proceedings in the High Court

   In certain exceptional cases, a writ petition may be filed against the orders of the Initiating Officer or the Adjudicating Authority, before the High Court directly. This option can be explored in cases where the orders of the Initiating Officer/ Adjudicating Authority are patently arbitrary or perverse or when there is a clear violation of principles of natural justice and/or fundamental rights. Jurisdiction of the High Court can also be sought in cases of a clear violation of the procedure established under the Act by the Initiating Officer/ Adjudicating Authority, or where the Act’s validity itself is suspect, or where there is no adequate remedy provided by/is capable of being availed under the Act.

11. Provisions of the Act held prospective in nature:

Recently Hon’ble Supreme Court has held that ‘Benami Transactions(Prohibition) Amendment Act 2016, does not have retrospective application and the Authorities can not initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the Legislation.

A bench headed by Chief Justice N.V Ramana said

“in view of the fact that this Court has already held that the criminal provisions under the 1988 Act were arbitrary and incapable of application, the law through the 2016 amendment could not retroactively apply tor confiscation of those transactions entered into between September 5 1988 to October 25 2016,as the same would tantamount to punitive punishment in absence of any other form of punishment”.

Conclusion

Hence the enactment of the amended Prohibition of Benami Transactions is a major step by the Government to curb the flow of black money, however it is also equally important to protect all the genuine commercial transaction from the ambit of the Amended Benami Act.

(Source : Article published in Souvenir released at National Tax Conference held at Lucknow on 18th & 19th March, 2023)