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Benami Transaction and its Legality in India

Introduction:

Benami transaction:-

Section 2(9) of the Abenaki Transactions (Prohibiton) Act of 1988 as amended by 2016 to be called the Prohibition of Benami Property Transactions Act, Benami transaction means a transaction or arrangement where one person buys a property in the name of another person which is termed as illegal under when the consideration for such property is provided for or paid by another. However, there are exceptions to such rule when the transaction is by a Karta or member of a Hindu Undivided Family (HUF) or if the person makes such transaction for a spouse or in the name of a child, or in the name of a brother or sister, or if it is made in a fiduciary capacity for the benefit of another. Here, the owner has an immediate or future benefit in the property.

Results of entering into a Benami transaction:-

1. There are no rights to recover asset or property held by Benami.

2. There are no suits, claims  or consequences of entering into a Benami Transaction.

3. No defence shall be given in any suit for Benami Transaction.

 Benami Property:-

In simple words, Benami Property is the property whose legal owner is different from the actual owner. The amendment of 2016 includes Benami Property such as immovable assets and movable assets and so on.

The Act of 2016 amended the act of 1988 of Benami Transaction. This act of 2016 has provided extraordinary powers to keep limit on the transaction. The Benami Transaction (Prohibition) Amendment Act,2016 came into force on 1 November 2016.

Two different types of Benami Transactions which are normally recognized in India

In this case, the transferor continues to be the real owner.  The first case is that when one person buys an asset or property with his own money but in the name of another person without intent to benefit the other person, the transaction here is called Benami. Here, the real owner is the person who contributes the purchase amount of the property.

The second case says about Benami Transaction where the owner of the property executes a conveyance in favour of another person without having any intention to transfer the title.

Why Benami Transactions are considered Illegal?

Since many years Benami Transaction has been part of India and there are many cases regarding Benami Transaction in the customs of the country which are observed by the court. It must be recognized because it gives a legal structure and such custom was one of the sources of law back then. It was also seen that the Benami Transaction was used for different dishonest intentions. Special courts have been set up for the trial of offences under the act.

Name of the authorities which deal with Benami Transactions and Property:-

1.         The Initiating Officer

2.         The Approving Authority

3.         The Administrator

4.         The Adjudicating Authority

Some powers of the authorities:-

Powers of the authorities are the same as in a civil court under the CPC,1908, such as follows:-

  1. Inspection and discovery
  2. power of compelling the production of books of accounts and other documents.
  3. issuing commissions;
  4. power to receive evidence on affidavits.
  5. Other related matters which may be prescribed

Case Analysis:

In M/S Fair Communciation vs Surender Kardile on 20 January, 2020, the Supreme Court of India under the bench of Justice R.F. Nariman and Justice S. Ravindra Bhatt held that Benami transactions are forbidden by reason of Section 3; no action lies, nor can any defense in a suit be taken, based on any benami transaction: in terms of Section 4 of the Act.

In M/S. Ganpati Dealcom Pvt. Ltd vs Union Of India & Anr on 12 December, 2019, the Calcutta High Court held that:

“The Benami Transactions (Prohibition) Amendment Act, 2016 came into force on 1st November, 2016. In the amending Act certain key changes were made. Benami property was defined in Section 2(8). Benami transaction was redefined in Section 2(9)(A). Section 3 was amended to insert a provision that anybody entering into any benami transaction on and after the date of commencement of the amending Act would be punishable under Chapter VII which dealt with offences and prosecution. Sections 5 and 6 of the 1988 Act were altered by enacting that any property which was the result of a benami transaction was liable to be confiscated by the Central government. The use of the words “acquisition” and the explanation thereto that benami property acquired would not be compensated for by the government, in the 1988 Act, were deleted.”

Under the amended Act of 2016, ‘benami property’ means any property which is the subject matter of a benami transaction and describes a ‘benami transaction’ as meaning 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.

The Hon’ble Supreme Court in M/S Fair Communciation vs Surender Kardile on 20 January, 2020 held that: Sections 3 and 4 of the Benami Act, read as follows:

“Prohibition of benami transactions.

  1. (1) No person shall enter into any benami transaction. (2)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.
    (3) 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 sub-section (2), be punishable in accordance with the provisions contained in Chapter VII.] (4) [***] Prohibition of the right to recover property held benami.
  2. (1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property…”

The burden of proof with benami transactions was discussed in Valliammal (D.) by L.Rs v Subramaniam & Ors. (2004) 7 SCC 233, wherein it was held that the onus of establishing that a transaction is benami is upon one who asserts it:

“13. This Court in a number of judgments has held that it is well established that burden of proving that a particular sale is benami lies on the person who alleges the transaction to be a benami. The essence of a benami transaction is the intention of the party or parties concerned and often, such intention is shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him, nor justify the acceptance of mere conjectures or surmises, as a substitute for proof.”

Accordingly, it has been established that the following six circumstances which can be taken as a guide to determine the nature of the benami transaction:

(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 benami colour ;

(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. (Jaydayal Poddar v. Bibi Hazra1, SCC p 7, para 6).

However, the above six circumstances are not exhaustive in nature and their efficacy varies according to the facts of each case. Nevertheless, the Supreme Court in M/S Fair Communciation vs Surender Kardile on 20 January, 2020, held that:

“the source from where the purchase money came and the motive why the property was purchased benami are by far the most important tests for determining whether the sale standing in the name of one person, is in reality for the benefit of another.”

Conclusion:

It is clear from the comparison of the 1988 Act and the 2016 Act that the 1988 Act didn’t have any method or process or mechanism of acquisition or confiscation of the Benami Property. So, Benami property could not be acquired by the government. The 2016 Act not only gives the method or process or mechanism of acquisition or confiscation but also provides administrative structure to implement the provisions of the Act. Further details about Benami transactions will be discussed in a later post.

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