As we all know, in recent years there has been introduction of new enactments and also there has been reinforcement of old enactments to deal with economic offences done by the offenders for cleaning up and streamlining economy of our country. It was indeed a global milestone in terms of advancement in enactment of the legislations especially when certain laws like new Benami Law and Black Money Law were implemented and PMLA, 2002 (an Anti- Money Laundering Law) was strengthened. India can now claim on the global platform to be a pioneer in introduction of such laws.
However, the irony is that because of improper implementation on the part of enforcement/ executing agencies and because of certain provisions of these laws being very stringent or vaguely drafted, it happens at times that a third person (i.e. a person who may not be directly connected with the commission of an economic offence) may unfortunately be held ‘liable’ as an offender merely for the reason that he has done any dealing/transaction with a person who is accused of commission of an offence under any of the laws dealing with economic offences such as the Prevention of the Money Laundering Act, 2002, the Prohibition of Benami Property Transaction Act, 1988 (amended Benami Law), the Banning of Unregulated Deposits Schemes Act, 2019, Narcotic Drugs and Psychotropic substances Act, 1985, Foreign Exchange and Management Act or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and so forth and so on.
Just to give a striking and live example, suppose an entity say M/s D Ltd. had borrowed a large sum of loan from a bank and after some time said D Ltd. unfortunately became defaulter in repayment of its liability(loan) to the bank. The bank filed a complaint with the CBI alleging that the loan was availed by the Company by fraudulent means and using forged documents and funds were not utilised as per terms of the loan agreement and that there was siphoning of funds by the management of the company whereby funds borrowed from the bank were diverted for the personal benefit of the key managerial personnel of the company. In pursuance of the same, proceedings were initiated after some time under sections 3 & 4 read with section 45 of the Prevention of the Money Laundering Act, 2002 against the said company on the ground that the amount of loan was obtained by way of cheating, fraud or forgery done by the company with the banker (which is a scheduled offence under the Prevention of the Money Laundering Act, 2002). Under these circumstances, the amount of loan taken by the company from its bank may be treated as ‘Proceeds of Crime’ in the hands of the said defaulter company under section 2(1)(u) of the Prevention of the Money Laundering Act, 2002 by the Directorate of Enforcement.
Under aforesaid facts and circumstances, if any other person say Mr. A had bought a property from said M/s D Ltd and the said property was acquired by M/s D Ltd utilising the aforesaid loan amount OR in an another case, if any amount of the aforesaid loan amount has been paid by the said M/s D Ltd to another company say M/s C Ltd. in pursuance to any transaction, then the said property as well as the recipient (M/s C Ltd here) may also be roped into the proceedings launched by the Enforcement Directorate under sections 3, 4, 5, 17, 18 and 50 of the Prevention of the Money Laundering Act, 2002 and their assets maybe attached being alleged proceeds of crime and they (Mr A and M/s C Ltd) may also be held accountable as a person in possession of proceeds of the crime and party to the offence of the money laundering under section 3 of the Prevention of the Money Laundering Act, 2002 unless they are able to demonstrate and establish the bona fides of their transactions with the said defaulter company as per satisfaction of the Enforcement Directorate or the appellate authorities, as the case maybe.
Thus, implications upon the persons who have done any financial transactions with M/s D Ltd. would also be quite serious. Thus, in view of the current scenario as is prevailing in the country at the moment for enforcement of the laws dealing with economic offences, it is essential to know and understand the stringent provisions pertaining to penalties, fines and prosecutions etc. prescribed in these laws for not only the main accused persons but also the other persons who might be implicated for being directly or indirectly connected through the transactions done with the main accused person.
I. The Prevention of the Money Laundering Act, 2002 (Anti- money laundering law)
In 1989, the Financial Action Task Force (FATF)
was established at a summit of seven major industrial nations in Paris, to examine the problem of money laundering which was considered to be posing a serious threat not only to financial system of the countries but also to their integrity and sovereignty. In pursuance to the recommendations made by the FATF, numerous measures were taken by the various countries to combat the menace of money laundering. India also took some measures as soon as an urgent need was felt for enactment of a comprehensive legislation for preventing money laundering and connected activities, attachment and confiscation of proceeds of crime and setting up agencies and mechanisms for coordinating measures for combating money laundering.
That is how, going further in this direction, Prevention of the Money Laundering Act, 2002 was promulgated in pursuance to the Political Declaration adopted by the Special Session of the United Nations General Assembly held on 8th to 10th June, 1998 which called upon the Member States to adopt national money laundering legislation and programme.
The main object of the legislation (i.e. PMLA) is to prohibit the proceeds of crime and to prosecute, punish and penalise the persons involved in the offence of the money laundering.
i) The Directorate of Enforcement (commonly known as ‘ED’)
The original powers and duties under the Prevention of the Money Laundering Act, 2002 to enforce the law have been granted to the Directorate of Enforcement (popularly known as ‘Enforcement Directorate’) which has its office in few major cities of the country.
The Enforcement Directorate has been granted various powers to enforce the law such as-
- Attachment of properties involved in money laundering under section 5 of the Prevention of the Money Laundering Act, 2002
- Power of survey, search and seizure under sections 16, 17 and 18 of the Prevention of the Money Laundering Act, 2002
- Power of arrest under section 19 of the Prevention of the Money Laundering Act, 2002
- Power of retention of property and records seized or frozen during survey or search under sections 20 and 21 of the Prevention of the Money Laundering Act, 2002
- Powers of summons, production of documents equivalent to the powers as are vested in the civil court under the Code of Civil Procedure, 1908 as prescribed under section 50 of the Prevention of the Money Laundering Act, 2002
ii) The Adjudicating Authority
The Adjudicating Authority is located at New Delhi (having pan-India jurisdiction) and it decides on the sustainability of actions taken by the Enforcement Directorate with regards to the attachment of property or retention of records/ properties which are alleged by t h e Enforcement Directorate to be involved in the money-laundering.
iii) The Appellate Tribunal
The orders passed by the Adjudicating Authority are appealable to the Appellate Tribunal located at New Delhi (having pan-India jurisdiction). Section 25 of the Prevention of the Money Laundering Act, 2002 provides that “The Appellate Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (13 of 1976) shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating Authority and the other authorities under this Act.”
iv) Special Courts
The trial for the prosecution of the accused(s) for the offence of money laundering punishable under section 4 of the Prevention of the Money Laundering Act, 2002 is done before the Special Court which is usually Court of Sessions of the District which is designated as Special Court by the Central Government as per Section 43 of the Prevention of the Money Laundering Act, 2002.
It has also been prescribed under section 43 that while trying an offence of money laundering under the Prevention of the Money Laundering Act, 2002, a Special Court shall also try a scheduled offence with which the accused is charged under Code of Criminal Procedure, 1973.
Objective, Scope and Operation of the Prevention of the Money Laundering Act, 2002
As stated above the main objective of the legislation is to prohibit the proceeds of crime and punish and penalise the offenders. Section 3 of the Prevention of the Money Laundering Act, 2002 defines the Offence of Money Laundering as “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.”
The Proceeds of Crime has been defined under section 2(1) (u) as “any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country [or abroad.”
It may be noted from the above discussion that the offence of money laundering shall necessarily involve following three stages:
- Commission of a Scheduled Offence,
- Generation of Proceeds of Crime &
- Projecting /claiming the Proceeds of Crime as untainted property.
For the commission of offence of money laundering, it is essential that all of the three acts should have been conjunctively done by the accused. If, even any one of them is missing, thought it may be held that the accused has committed a scheduled offence but that alone would not ipso facto be enough to hold that offence of money laundering under the Prevention of the Money Laundering Act, 2002 has been done by the said accused.
(Scheduled Offence here means any of the offences described under Part A, B, C of the Schedule to the Prevention of the Money Laundering Act, 2002 such as offences under the Indian Penal Code, 1860, the Narcotic Drugs And Psychotropic Substances Act, 1985, the Wild Life (Protection) Act, 1972, the Prevention Of Corruption Act, 1988, the Securities And Exchange Board of India Act, 1992, the Copyright Act, 1957, the Trade Marks Act, 1999, the Information Technology Act, 2000 etc.
Thus from the above, it is evident that the offence under PMLA does not have its independent standing or existence. The offence under the Prevention of the Money Laundering Act, 2002 is piggy backing on a scheduled offence. In case there is no scheduled offence or no proceeds have been generated from the commission of such scheduled offence, then no offence of money laundering can be said to have been committed.
Though an amendment has been made by adding an ‘explanation’ in section 3 and also in section 44 of PMLA by the Finance Act, 2019
w.e.f. 1-08-2019, however, in my considered view the fundamental concept of offence of money laundering remains unaltered, and I am of strong belief that the courts would read and explain the law of PMLA including its recent amendments in that spirit only.
Punishment/Penalties under the Prevention of the Money Laundering Act, 2002
i) Section 4 provides for punishment for money laundering and states that “Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine :
Provided that where the proceeds of crime involved in money laundering relate to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted.”
As stated earlier, the trial for prosecution of an accused shall be done at the Special Courts along with the trial for the prosecution of scheduled offence in terms of relevant provisions of Code of Criminal Procedure, 1973.
ii) Attachment of a Property
As per Section 5 of PMLA, 2002, in case an authorised officer of the Enforcement Directorate has reasons to believe that any person is in possession of the Proceeds of Crime which are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings related to confiscation of such Proceeds of Crime, then he may make provisional attachment of such property till the decision of the Special Court is rendered as per the provisions of the PMLA. The provisional attachment made by the Directorate of Enforcement is subject to its confirmation by the Adjudicating Authority and the Appellate Tribunal (under PMLA).
iii) Confiscation by the Special Court
Section 8 of the PMLA inter alia provides that
(5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government.
(6)Where on conclusion of a trial under this Act, the Special Court finds that the offence of money- laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive
iv) Imposition of Fine
As per Section 13 of the Prevention of the Money Laundering Act, 2002 the Director of the Enforcement has been authorised to ensure that information stipulated under the law is provided by a ‘Reporting Entity’ or by its Director or an employee, or through any other mode, if he finds that some person has failed to comply with obligations cast upon them under the Prevention of the Money Laundering Act, 2002, the Director may either suo-motu, or through an application made by any reporting entity, may impose fine as well.
As per section 2(1)(wa) ‘reporting entity’ means “a banking company, financial institution, intermediary or a person carrying on a designated business or profession.”
The obligations upon the reporting entities has been provided under sections 11 to 15 of the PMLA which talks about maintenance and provision of various records by these entities to the government authorities as has been prescribed.
v) Punishment for false information or failure to give information, etc.
Section 63 of the Act provides that“(1) Any person wilfully and maliciously giving false information and so causing an arrest or a search to be made under this Act shall on conviction be liable for imprisonment for a term which may extend to two years or with fine which may extend to fifty thousand rupees or both.
(2) If any person,-
- being legally bound to state the truth of any matter relating to an offence under section 3, refuses to answer any question put to him by an authority in the exercise of its powers under this Act; or
- refuses to sign any statement made by him in the course of any proceedings under this Act, which an authority may legally require to sign; or
- to whom a summon is issued under section 50 either to attend to give evidence or produce books of account or other documents at a certain place and time, omits to attend or produce books of account or documents at the place or time,
he shall pay, by way of penalty, a sum which shall not be less than five hundred rupees but which may extend to ten thousand rupees for each such default or failure.
Controversies Arising Due To Difference in the ‘Law as per Books’ and ‘Law as per Practice’:
Though the objective of the law (of PMLA) is emphatic and clear, but due to improper implementation coupled with some vagueness left in the drafting of the law which is further aggravated by lack of evolution of the law due to absence of clear judgments coming from the higher judiciary, many controversies have arisen which has led to enormous litigation in the entire country, which indeed could have been avoided.
Firstly, there is a huge controversy on the understanding of precise definition of ‘Proceeds of Crime’. The contention of the Enforcement Directorate in this regard is that it covers not only the assets which are involved in the offence of money laundering but also other assets, especially if the assets involved in money laundering are not available. On the other hand, the persons adversely affected by this law would strongly contend that under the law only those properties are covered under ‘Proceeds of Crime’ which are derived or obtained out of the proceeds generated from the commission of the scheduled offence and also any other asset whose origin can be traced back to the proceeds derived or obtained from commission of a scheduled offence. But, it would in no circumstance, include any asset / property whose origin cannot be traced back to the proceeds generated from the commission of the scheduled offence.
The above controversy has led to enormous litigation causing avoidable hardship to various persons who are facing actions under the PMLA as a result of attachment / confiscation of their records and properties which are wholly unconnected with generation of proceeds from the commission of scheduled offence. Few persons are also facing hardship and harassment on account of their involvement in prosecution before the Special Court along with the main accused.
To my mind, the law in this regard become candid clear if we study the bare provisions of the law along with scheme of the Act (of PMLA) and thus unnecessary controversies on these issues could have been avoided. The whole objective of the Prevention of the Money Laundering Act, 2002 is to prohibit the proceeds of crime and to punish the offender. The objective is not to recover any dues or taxes form the accused, as if there was any loss to the exchequer, as would also be clear from the holistic reading of the law.
It is worth noting that Section 8(6) provides that “Where on conclusion of a trial under this Act, the Special Court finds that the offence of money- laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.”
Thus when the law itself provides that even in a situation where the offence of money laundering is found to have taken place, but if it is found by the court that the property attached by the ED is not involved in money laundering, such property attached by the ED, shall be released.
Thus, under these circumstances and clear position of statute, there is no rationale to attach those properties, even at first instance, which are apparently not involved in money laundering.
It would be relevant to mention here that Hon’ble Punjab and Haryana High Court had well clarified the controversy through its detailed and well-reasoned judgment passed in the case of Mrs. Seema Garg and Others vide order dated 6th March, 2020 and clearly held that only that property can be attached as part of proceeds of crime which has been derived from value’ or ‘value thereof’ basis. The said judgment has also been affirmed by Hon’ble Supreme Court by dismissing the SLP filed by the ED.
It is expected that the Government would bring out some clarifications via notification or suitable amendment in law OR there would be a clear judgment from the Hon’ble Supreme Court to put the unnecessary controversy to rest saving many people from avoidable hardships.
i) Burden of Proof
It is generally perceived that the law contained in PMLA envisages reverse burden of proof viz. the burden is upon the accused to prove that he is innocent. This perception seems to have developed because of the peculiar drafting of Section 24 of the Act in this manner which provides that:
“In any proceeding relating to proceeds of crime under this Act,-
- in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and
- in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.”
A careful perusal of this provision would reveal that only that part of burden has been shifted wherein the ‘proceeds of crime’ are presumed to be involved in money laundering. However, as discussed above, three stages are involved to reach the stage of money laundering, as narrated hereunder for convenience:
- Commission of a Scheduled Offence,
- Generation of Proceeds of Crime &
- Projecting/claiming the ‘Proceeds of Crime’ as untainted property.
It may be noted from the perusal of Section 24, supra that the ‘burden’ which has been shifted is only about the stage placed at number three only, i.e. projecting the proceeds as ‘untainted’.
WHEREAS the burden to prove the foundational allegation that the scheduled offence has been committed and certain amount of proceeds have been generated therefrom has not been shifted. It goes without saying that the fundamental principle of criminal jurisprudence derived from the Constitution of India and followed by the courts all over the country since ages is that a that person is innocent unless proved guilty and that the burden to prove that a person is guilty upon the person who is alleging it so.
Thus, in my considered opinion, the burden to prove that there is no commission of offence under stages one and two, has not been shifted upon the accused, and thus it still rests on the shoulder of the enforcement authorities / prosecution.
The root cause of the litigations under this law is solely due to lack of clarity in the aforesaid provisions and few other similar provisions of law wherein urgent intervention of our Government or the Courts is needed as soon as possible.
II. The Prohibition of Benami Property Transactions Act, 1988 (newly Amended Benami Law)w.e.f. 1.11.2016:
The Benami transactions were earlier allowed in our country during pre and post- independence period. Ready reference can be made to erstwhile sections 81, 82 and 94 of the Indian Trust Act, 1882 and also to erstwhile section 281A of the Income Tax Act, 1961. All of these sections were repealed in 1988 when the Benami law was introduced for the first time in the country which was then called as The Benami Transactions (Prohibition) Act, 1988 which came into effect repealed sections would reveal that doing the benami transactions was expressly allowed by the then governments through these provisions and few other similar provisions in other Acts.
Though original Act was promulgated in 1988 but it remained in an inactive mode for want of establishment of enforcement agencies. However, in the year 2016 the original law was overhauled and radical amendments were made to enforce the new introduced law with altogether new dimensions.
The new law on benami transaction/property is now proving to be quite stringent and harsh in various situations.
New definition of a benami transaction/ property has now been provided under section 2(9) of the Prohibition of Benami Property Transactions Act, 1988 in a sweeping and widest possible manner.
As we all understand, the main objective of the law contained in PBPT Act is to remove the layer of masking created in the transactions or any kind of impersonation in the title of ownership of the property / assets. It aims to check tax evasion or avoidance of payment of various other statutory dues such as stamp duty etc. and more importantly, it also aims to prevent the people from violating various other laws by prohibiting them from doing the transactions in the name of other persons which could not have been done in their own names such as:
- Land reforms legislations adopted by States of our country post-independence to redistribute holding of the land amongst the citizens of the country in an even and equitable manner,
- Corporate laws especially Securities and Exchange Board of India Act, 1992 to maintain legal sanctity of corporate structures,
- Law prohibiting non-residents to acquire agricultural and other lands in India, transactions done to avoid Insolvency and Banking Code,
- Local laws of the states to prohibit the non-residents of the state to acquire and old land in the State etc.
And so forth and so on.
(i) Authorities/Enforcement Agencies
The original powers of enforcement is enjoyed by the Benami Prohibition Unit (BPU) which is set up by the Central Board of Direct Taxes and is carved out from the existing cadres of the officers of the Investigation Wing of the Income Tax Department. So far, around 26 BPUs have been set up in the country. Each of said BPUs comprises of an Initiating Officer (who is of the rank of Assistant Commissioner or a Deputy Commissioner) and Approving Authority (who is of the rank of Additional Commissioner or a Joint Commissioner) as action taking officers.
The original action of inquiry/investigation and determination of transaction/property being benami is done by the Initiating Officer after the approval of Approving Authority as per section 19 to and 23 and section 24 read with various other provisions of the Prohibition of Benami Property Transactions Act, 1988.
After the Initiating Officer is sure of his decision based on his investigation and inquiry, he continues his order of provisional attachment till the passing the order by the Adjudicating Authority.
(ii) Adjudicating Authority
The Adjudicating Authority (of PMLA) located at New Delhi was earlier given the charge with Pan-India jurisdiction. However now the charge has been given to the Competent Authority dealing with matters under SAFEMA and NDPS etc. It decides whether the action of the Initiating Officer with regard to the attachment of the properties (which are alleged by the Initiating Officer to be benami) is maintainable or not. If yes, the Provisional Attachment Order passed u/s 24(4) of the Act is confirmed by the said authority. If not, the said order and the reference sent u/s 24(5) of the Act is rejected by the said Authority.
(iii) The Appellate Tribunal
The orders passed by the Adjudicating Authority are appealable to the Appellate Tribunal located at New Delhi (with pan-India jurisdiction). Section 30 of the Prohibition of Benami Property Transactions Act, 1988 provides that “The Central Government shall, by notification, establish an Appellate Tribunal to hear appeals against the orders of [any Authority] under this Act.”
Further section 71 provides that for the time being the Appellate Tribunal set up under section 25 of the PMLA, 2002 shall discharge the functions under PBPT Act also till independent Tribunal is set up under section 30 of PBPT Act.
Thus, the Appellate Tribunal (of PMLA and SAFEMA) is also having jurisdiction to decide appeals against the orders passed by the Adjudicating Authority under Benami Law. However, the said Tribunal is having no coram since last more than two years and thus all the appeals being filed are lying pending for fixation of hearing since long.
But, unfortunately, the BPUs have starting launching prosecution u/s 53 and 54 of the PBPT Act, merely on passing of confirmation order by the Adjudicating Authority even while the Tribunal is not functional and thus judicious application of mind has not yet taken place on the order passed by the Initiating Officer.
Section 2(2) of the Act an administrator is “an Income-tax Officer as defined in clause (25) of section 2 of the Income-tax Act, 1961.
An administrator is in charge of two crucial acts as stated below:
- To take possession of property under section 29 of the Prohibition of Benami Property Transactions Act, 1988 according to which, Where an order of confiscation in respect of a property under sub-section (1) of section 27, has been made, the Administrator shall proceed to take the possession of the
- Management of properties confiscated under section 28 of the Prohibition of Benami Property Transactions Act, 1988, wherein the Administrator shall have the power to receive and manage the property, in relation to which an order of confiscation under subsection (1) of section 27 has been made.
- The Administrator is also empowered to take such measures, as the Central Government may direct, to dispose of the property which is vested in the Central Government under sub-section (3) of section 27, in such manner and subject to such conditions as may be prescribed.
(v) Special Courts
The Central Government has issued notification to set up a Special Court under Section 50 of the PBPT Act for trial of an offence which shall be punishable under this Act by designating Court of Session as Special Court.
It is also provided that while trying an offence under this Act, a Special Court shall also try an accused of an offence under the Code of Criminal Procedure, 1973 other than an offence punishable under the Prohibition of Benami Property Transactions Act, 1988.
It has been provided that the Special Courts shall conduct every trial expeditiously and conclude the trial within six months from the date of filing of the complaint by the Authorised Officer.
Few Startling Facts About Benami Law There are few peculiar features of this new piece of legislation which make it uniquely stinging and harsh, such as:
- Retrospective Operation: It attempts to cover old transactions done even prior to 1.11.2016 (date of notification of new law). The issue currently is pending for an order before Hon’ble Supreme Court.
- No Future Time Limit: No future time limit has been prescribed in the statute for taking action under the new law for transaction being done Thus, it is essential for a buyer to ensure that property being purchased by him is NOT a benami property, else any time in future he may be faced with the action under this law leading to the attachment of the property purchased, if found to be benami.
- Any Property Covered: It covers not only immovable properties like land & building but also movable andother assets g. shares, FDRS, bank accounts etc.
- Any Class: It may hit not only rich but financially poor also, as it has no threshold limit. It is affecting not only urban people but rural also, as it extends to whole of India.
- Any Profile: Provisions of this Act are brought out for setting right not only errant politicians, but also officers in the public service, businessmen, self- employment, employees of PSUs as well as private sectors, Agriculturist, Artists and everyone else who may own or possess wealth in the form of properties which are not found to be registered in their names.
- Any Structure: It is roping in corporate (listed or unlisted) as well as non- corporate entities and individuals as
- Any Intention: Whether there was malafide intention of the offender or not, if Benami transaction has been one, then property transferred/held as benami may be acquired/confiscated under this law.
- Any Motive: Intention or motive may be relevant for prosecution u/s 53, but not for acquisition/confiscation of the
- Inadequate Protection for Bona fide Purchasers: Though protection has been provided to the purchasers of bona fide properties, but it is neither absolute nor is free from ifs and buts. Further, the provisions contained in Section 27(2) in this regard are vague and needs urgent clarification/ suitable amendments.
- Makes no distinction between black money and tax paid money: Any property held benami shall be treated as Benami Property under the law and all consequences of its confiscation and prosecution of offenders shall follow irrespective of fact whether BLACK MONEY was used or tax paid money was used to acquire such property.
- No U-Turn allowed: Once benami transactions is done and benami property is acquired, its re-transfer is not allowed under the law. Thus, its correction or reversal is NOT envisaged under the old or new law. There is no scope under the law for relief by way of any confession or surrender or settlement or compounding etc. Thus, legal consequences of entering into the benami transaction are imminent viz. confiscation of benami property and prosecution of the offender.
- Multiplier Effect: Provisions of the Benami Law are in addition to provisions contained in any other These are not designed to be mutually exclusive. Thus, in any given situation all six principal laws dealing with economic offences viz. Income Tax Law, PMLA, Companies Act, FEMA, Black Money Act as well as Benami Law can be invoked simultaneously if violation has taken place or offence has been committed in the respective laws.
- No compensation for any damage: There is no provision under the law for payment of any compensation to the person whose property is confiscated under the PBPT Act, 1988. Similarly no damage can be claimed for vacation of any wrongful attachment done under this law.
a) Provisional Attachment by the InitiatingOfficer
In case it is found by the Initiating Officer that a particular transaction or property is held Benami, then he may make its Provisional Attachment under section 24(3) of the Prohibition of Benami Property Transactions Act, 1988 after giving adequate notice under section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 upto a period of 90 days from the last day of the month in which the notice under sub-section (1) is issued.
Though the law provides condition precedent for making of Provisional Attachment that when 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 ofthe Approving Authority, by order in writing, attach provisionally the property.
However, it is seen that mostly the Provisional Attachments have been done in many cases all over the country without bringing any material on record to form an opinion with respect to the fulfilment of the aforesaid condition precedent. Thus, such a harsh and invasive power which was meant to be used sparingly in specific cases only is being used routinely and thus causing avoidable hardship to many innocent owners.
Further the law provides an inbuilt protection to bona fide purchasers and owners of property. However no such care is observed to have been taken to avoid any inconvenience or damage to bona fide purchasers of alleged Benami property.
The aforesaid Provisional Attachment can be continued by the Initiating Officer under section 2(4) of the Prohibition of Benami Property Transactions Act, 1988 if at conclusion of the 90 days’ long proceedings it is found by him that the property attached is a benami property. The said attachment then continues till the date of passing of order by the Adjudicating Authority.
b) Adjudication of Provisional Attachment by Adjudicating Authority:
As per section 24(5) of the Act, once the Provisional Attachment Order (PAO) is passed by the Initiating Officer U/s 24(4), he has to prepare a Statement of the Case (also called as ‘Reference) and refer it to the Adjudicating Authority within 15 days from the date of passing of the aforesaid PAO.
After the Reference is received by the Adjudicating Authority Under section 24(5), it issues a notice to alleged benamidar and alleged beneficial owners to furnish such documents, particulars or evidence as is considered necessary on a date specified by the Authority. As per section 26(3), the Adjudicating Authority must pass its order within a period of one year from the end of the month in which the reference under sub-section (5) of section 24 was received.
The Adjudicating Authority decides whether the Provisional Attachment Order so passed by the Initiating Officer under section 24(4) is confirmed or rejected, thereby deciding a property or transaction to be benami or not to be benami.
c) Decision of the Appellate Tribunal, New Delhi on the order of the Adjudicating Authority.
An Appeal is filed before the Appellate Tribunal within a period of 45 days, wherein either of the aggrieved party can come to challenge the order passed by the Adjudicating Authority. The role of Appellate Tribunal is to ponder, adjudicate and decide over the order passed by the Adjudicating Authority either by confirming it or denying it.
ii) Prosecution and imposition of fine Section 3(2) provides that “Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both” and sub-section (3) provides that “Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016, shall, notwithstanding anything contained in subsection (2), be punishable in accordance with the provisions contained in Chapter VII”
Thus from the above it is clear that transactions done on or after 1st November, 2016 are punishable as per Section 53 and Section 54 of the Prohibition of Benami Property Transactions Act, 1988.
a) Punishment and Fine for doing Benami Transaction
Section 53 provides that in following three circumstances in which a person shall be guilty of the offence of benami transaction i.e. if the benami transaction has been done to:
- defeat the provisions of any law or
- avoid payment of statutory dues or
- avoid payment to
It further provides that following person shall be guilty of an offence of Benami transaction:
- the beneficial owner,
- benamidar and
- any other person who abets or induces any person to enter into the Benami transaction, shall be guilty of the offence of Benami transaction.
It also provides that a person found guilty of offence of Benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years.
It also provides that a person found guilty shall also be liable to fine which may extend to twenty-five per cent of the fair market value of the property.
b) Punishment and Fine for false information
Section 54 provides that “Any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to five years and shall also be liable to fine which may extend to ten per cent of the fair market value of the property.”
c) Penalty for failure to comply with notices or furnish information
Section 54A is a recent addition in the PBPT Act, 1988 via the Budget of 2019. It says that
“(1) Any person who fails to,–
- comply with summons issued undersub-section (1) of section 19; or
- furnish information as required under section 21,
shall be liable to pay penalty of twenty-five thousandrupees for each such failure.
From the above discussion, it may be noted that the consequences of doing Benami transaction are very harsh and quite disproportionate beyond any reasonable limits. The quantum of fine may be well beyond the financial capacities of the persons who may be held guilty for the offence of benami transaction. The provisions regarding punishment of other persons who allegedly abets or induces any person to involve in benami transaction or who gives false information/document to any authority under the Prohibition of Benami Property Transactions Act, 1988 are quite harsh and may tend to hit unfairly to even those who may be connected to the main accused person in professional or personal capacity.
Controversy arising under the Prohibition of Benami Property Transactions Act, 1988 Though, undoubtedly our country really needed such a crisp and expedient law to deal with the menace of accumulation of wealth in hidden or pseudo names and to merge the parallel economy with the main economy, however due to lack of clarity in drafting and/or unguided implementation/enforcement of law, the Prohibition of Benami Property Transactions Act, 1988 has become like an unguided missile, causing huge collateral damage (which may not be visible immediately) as would be evident from the following:
- It would be witnessed from the practical experience that impromptu attachment of the properties has led to chaos and fear in society and business community.
- Retrospectivity: As discussed above, the benami transactions were legally allowed till 1988 since ancient times. Therefore retrospective operation of this law is like a bolt from the blue and proving to be very harsh. Though, it may be quite shocking to know, but the truth is that not only for past transactions, but no future time limits has been provided even for the current transactions. It is piercing the fundamental principle followed in the Constitution of India viz. Sanctity of Finality of Litigation. The sword of litigation is kept hanging on the heads of the citizens of the country, under this law.
- The law gives no clear cut protection to bona fide purchasers and the PBPT Act is acting as an unguided missile for want of clarity in law with regards to the bona fide purchaser as its provisions are hitting them unfairly and causing avoidable
- There is an Urgent Need for Adequate Training and appropriate guidance to the Benami Law Officers who are in the charge of enforcement of the law, as limited knowledge and self-perceived perceptions on their part is causing huge chaos and ordeals to innocent owners of the property.
- There is an urgent need for adequate training and appropriate guidance to the Benami Law Officers who are in the charge of enforcement of the law, as limited knowledge and self-perceived perceptions on their part is causing huge chaos and ordeals to innocent owners of the property.
- The concept of Burden of Proof is yet again a hot topic for controversy as though it is well settled legal position that the burden rests on the shoulders of the Initiating Officer to prove that what he alleges is true, but recently the Initiating Officers have been trying to shift this burden completely on the noticee(s) thereby being misadventures and harsh in enforcing the provisions of law.
- The Appellate Tribunal situated at New Delhi is a combined Tribunal under the Prevention of Money laundering Act, 2002, the Smugglers and Foreign Exchange Manipulators Act, 1976 and the Prohibition of Benami Property Transactions Act, At present it is not having any coram, because of vacancies arising on the retirements have not been filled up, which is leading and creating huge back log of cases to be decided.
Thus, if the intent of our Government is to implement the law in most fair manner, then the least it must do is:
- Bring out suitable amendments/ clarifications wherever vagueness or gaps are left in the hasty making of the Statute.
- Train the implementation agencies and enforcement officers and instil appropriate guidance for fair implementation.
- Set up immediately adequate infrastructure and robust mechanism for the remedial measures by way of fair process of adjudications and appeal.
- Ensure checks and balances for avoidance of misuse of law by setting up appropriate
In case the Government is not able to take all requisite steps as discussed above due to the reasons of ‘non-priority’ or other constraints etc., then in my considered opinion, it should postpone the unplanned implementation of this law till then to avoid huge collateral damage, as has also been opined recently by Hon’ble Supreme Court.
(Source: This article is published in souvenir of National Tax Conference which was held on 6th & 7th August, 2022 at New Delhi)