Benami Transactions

Introduction:

Over the past few years, India has witnessed various major steps to curb the black money businesses namely Income Declaration Scheme (2016), Demonetisation Drive (2016), etc. A part of these major steps was the Amendment of the Prohibition of Benami Property Transaction Act, 1988 in the year 2016, which had proved to be very effective in recuperating the black money and penalizing the corrupts. It was stated by the Income Tax Department in a public advertisement in January 2019 that while acting under the Anti-Benami Transactions law, it has confiscated assets worth Rs. 6900 crore until now (Jan. 2019).[1]

The word Benami according its Urdu origin means “no-name” or “without name” and as per Webster’s Dictionary the term Benami means “made, held, done or transacted under the name of (another person).” Therefore in layman terms, a Transaction can be termed as Benami when a seller (A) sells the property to the purchaser (B) but the sale consideration for the same is being paid by the (C). To illustrate more, in this case (C) would be “Beneficial Owner” meaning enjoying all the benefits arising out of the purchase of the property (B) would be “Benamidar”, a person who would possess the title of the said property under his name. In such cases, Benamidar just acts as a face mask or name lender who holds such property for the Beneficial Owner who might or not disclose his identity to the public but has the right to claim every benefit arising out of the property.

The following are the few reasons which may play as a motivating factor to a person to deal in such transactions:

• To adjust black money gained from some other corrupt practice.
• To play fraud on the creditors/banks, etc.
• To escape the obligations of paying taxes.
• To avoid any risk of political in nature.

These also stand to be the reasons due to which the Government is forced to form rigid laws and prohibit the practice of Benami dealings in order to prevent corruption, money laundering, etc. at mass level and to safeguard the overall Nation’s economy.

Development of the Anti-Benami Laws in India

The trend of Benami Transaction since its inception was not considered to be illegal, which means no such bar or penalization or property confiscation was there by the Authorities upon entering into a Benami agreement. However, in such circumstances, the dispute of Recover of Property was the lone matter before the courts. For instance, in Smt. Surasaibalini Debi v. Phanindra Mohan Majumdar[2] the court had explained the concept of Recovery of Property in detail. The Court opined that there exists a distinction while deciding upon such issue, first being the “cases where only an attempt to evade a statute or to commit a fraud has taken place” and second the “cases where such evasion or fraud has succeeded and the illegal motive is achieved.” The Court upheld and followed the judgment given in the case of Petherpermal Chetty v. Muniandi Servai by the Privy Council.[3] The Council had noted the following points regarding the issue involving property recovery:

• When the final declaration of the nature of the transaction is proved to be of Benami nature, the title of the Benamidar is evidently withdrawn as his name was “simply an alias” for the person “beneficially interested.”
• Probably no sensible reason can be given for (A) to use (B)’s name to cheat (X), and the same shall be allowed or assisted to (B) with regard to (A).
• But if (A) seeks aid from a court of law for the possession and title of the in question property, then it would become necessary to adjudicate upon the material facts that “whether (A) has in reality defrauded (X) or not?”
• If the question is answered in the affirmative then it is not suitable or justifiable for the justice deliverers to assist such a transaction and allowing the person individuality with regard to the property, who had done the same before on the charge of defrauding others.
• But in case no such case is made out and the circumstances proved otherwise then there lies no reason to punish the mere intention of (A) by granting his title of the property to a person “whose roguery involves more complications i.e. B.”
• Lastly, the Court had said that, “people were permitted to redeem the property they had assigned in a way to deliver the intentions of creating an image to defraud creditors, who would have never been injured in factual scenarios. The Maxim ‘In pari delicto potior est conditio possidentis’. Which typically in laymen terms means that the Court of Law intends to help no party and will let the estate property in question placed where it currently falls and this maxim is applied when colorable grant affects the motivations and intentions of the fraud.”

The need for a dedicated legislation to prohibit Benami Transactions was recognized by the Union Government as the practice was not in favor of the taxing authorities and assistance for the same was sought from the Law Commission of India on 20^th Dec. 1972. In its 57^th Report titled as “Benami Transaction” on 7^th Aug. 1973, the Commission recommended the formation of a Separate law wherein no right shall be provided for the administration of any suit related to any Benami property while the cases involving Hindu Undivided Family (HUF) or Trustees/Fiduciary relationships shall be kept out of such scope.[4] The Indian Judiciary in plenty of Judgements earlier to the formation of a separate act has tried to elaborate on the theory of Benami Transaction.

For instance, in the case of Thakur Bhim Singh v. Thakur Kan Singh,[5] the SC broadly categorized Benami Transactions to be of 2 types. First, wherein estate is purchased in another’s name but with no such intention to provide benefit to such another and second, in case where the possessor of the estate with no such intention to transfer the title effects a transaction favoring another. The only variation between the varied categories is the Operative transfer which isn’t the part in question in the second scenario, but the “real title” was separated from the “ostensible title” in both the cases. Furthermore discussing the important factors of a Transaction termed as Benami, the Court noted following should be considered:

• Onus is laid on the claimant,
• Source of the purchase whether is different from the person owning the name,
• Intentions of the contributor of the money to ascertain the true motive and motivations of the transaction,
• For Intention, the base should be surrounding circumstances such as the relationship between the parties, motives, and subsequent conduct.

On 19^th May, 1988 the President of India promulgated the Benami Transactions (Prohibition of Right to recover Property) Ordinance, 1988 following the Law Commission’s 57^th Report to put a stop to growing concerns of misuse of Benami property for illegal purposes. This was the reason behind the 130^th Report of Law Commission, in which comprehensive machinery was recommended for the replacement of the ordinance but nowhere did it oppose it.[6]

Considering the Ordinance and recommendations of the Law Commission, the Benami Transactions (Prohibition) Act, 1988 was enforced on 5^th Sep. 1988 with the objective to prohibit such transactions. The Act prescribed a punishment of imprisonment for a term extendable to three years or fine or both for being a part of a Benami transaction. The Act also kicked out the scope for recovery of any Benami estate. The Act even though had the capability but due to the infirmities in the Act, the rules required were never framed to make the provisions effective.[7] The Act remained dead and muted until 2016.

The Finance Standing Committee in its 28^th Report while commenting upon the Benami Transactions Prohibition (Amendment) Bill, 2015 said that it was quite necessary to amend the 1988 Act to take action against the transactions which have occurred in the period between 1988 and 2016 possible because otherwise, they would be under blanket immunity if in case the 1988 Act is repealed. Therefore, the Ministry of Law comprehensively amended the 1988 Act through Benami Transactions (Prohibitions) Amendment Act, 2016 which came in force on 1^st Nov. 2016.[8]

Benami Transactions (Prohibitions) Amendment Act, 2016

The Amendment Act was further supported by the Prohibition of Benami Property Transaction Rules, 2016 which ensured the accurate implementation of the Act’s provisions. The New Act not only amplified the cover area of the term Benami Transaction but also made the punishments rigid, and also provided for confiscating property, it also introduced Taxing Authorities as the implementation machinery.

In terms of the Amendment Act, a Benami Transaction would mean, “a conveyance or arrangement[9], where an estate is shifted or transferred to, and/or is possessed by an individual (benamidar[10]) and the consideration in question for the estate is provided for by another person (beneficial owner[11]).”[12] And also where such property is held for “the immediate or future benefit, may it be direct or indirect” of the beneficial owner.[13] It further expanded the scope by including the characteristics of property held in a fictitious name,[14] unawareness/disagreement of the owner towards any such property,[15] untraceable/fictitious payer of the consideration.[16] All such transactions were counted in the umbrella of Benami Transactions. But certain exceptions were also jotted down in the Act as follows:

• Consideration paid out of known sources of the Beneficial Owner
• Karta/any member transferring for his own/family’s benefit, any property within the Hindu Undivided Family.[17]
• Property is held in the name of Spouse or the Child of the beneficial owner.[18]
• In cases where a Brother, Sister, or Lineal Ascendant or Descendant appears as Joint Owners in any document.[19]
• Persons acting in fiduciary capacity – trustee, executor, partner, director of a company, a depository, or an agent of depository.[20]

With the Amendment Act, the scope of Benami Property has also been expanded to include properties which are not only movable, immovable, tangible, intangible but also corporeal, incorporeal, property in converted forms, any legal documents, rights, and interests, instruments which evidence towards the title or any interest in the property, also including the proceeds from such property.[21]

Provisions for the Penalisation/Prosecution of the offenders are arranged under the Chapter VII of the Act which states that if any person himself or abets any other to be a party to the transaction of the fraudulent nature with the mere purpose the purpose of which is to defeat any law or avoid taxation, or avoid payment to creditors shall be said to have committed the offense of Benami Transaction.[22] Every such guilty person is prescribed punishment with imprisonment for a minimum of 1 year paired with rigour which may be extended up to 7 years with a fine extending to a maximum of 25% of the factual and just value of the property in the market.[23] Giving false information or document to the authorities is also termed as a punishable offense where imprisonment for a minimum for 6 months which may be extended to 5 years with a fine maximum of 10% of the property’s value in the market.[24]

As per Section 24 and 25 of the said act any property which in compliance with the provisions of the act and sufficient evidence could be safely concluded as Benami property can be confiscated at the discretion of the Central Government and the action would be taken by an appointed Initiating Officer (IO). Further, the burden lies upon the Adjudicating Authority to call upon the parties, giving them an equal chance to furnish relevant documents and other proofs, hearing both the sides, and finding the status of the property in question as per procedure prescribed in Section 26. If and so the property in question is found to be of Benami nature, and appeal to the Appellate Tribunal under Section 46 has been made for the same, confiscation of property is pushed further upon the decision of the Tribunal. If the decision is not reversed then the Central Government without any hindrances shall have all the rights and title of the property.[25]         

Retrospective Application of the Amendment Act

In the words of Shri Arun Jaitely, the then Finance Minister, “As under Article 20[26] of the Constitution of India, penal laws can’t be retrospectively applied. The simple answer to the question why we did not bring a new law is that a new law would have meant giving immunity to everybody from the penal provisions during the period 1988 to 2016 and giving a 28 years immunity would not have been in the larger public interest, particularly if large amounts of unaccounted and black money have been used to transact those transactions.”[27]

These were the reasons that the earlier Act was not repealed but amended instead. The Government was against the idea of providing immunity to the offenders of the period of 28 years. Since the Amendment Act was retrospective in nature it raised various issues regarding its applicability given the wide-scoped definitions, stricter punishments & confiscation, modification of previous concepts, etc. The Indian Government targeted to recover huge amounts of buried black money from the enforcement of the Amendment Act. However, the India Judiciary had contrary views regarding the issue of the retrospective effect of the Amendment Act.

In the case of Joseph Isharat v. Rozy Nishikant Gaikwad,[28] the Bombay High Court was of the opinion that it is important to ascertain the nature or effects of the amendments, whether it is a procedural law or a matter of substantial rights between the parties and while observing upon the mentioned aspect the court observed that, “the amendments introduced by the Legislature affects the substantive rights of the parties and must be applied prospectively.” Also in M/s Ganapati Delcom Private Limited v. Union of India,[29] the Calcutta High Court opined that Government prosecuting engagements in conveyances carried out before the year 2016 based on present-day definitions of Benami property and Transactions is not a good practice to be followed.

In another case of Niharika Jain v. Union of India,[30] the Rajasthan High Court cleared that the court is going into examination any facts or merits of the application but is only examining the question of retrospective ability of the Amendment Act of 2016 and recommended that it shall have a prospective effect and not retrospective. Further, it was made clear that such choice shall depend upon the analysis of the circumstances of each case separately.

However, the Chhattisgarh High Court had a totally opposite view in Tulsiram & Manki Bai v. ACIT.[31] The Court held that, “The whole Act of 1988 as it stands today inclusive of the amended provisions brought into force from 01.11.2016 onwards applies irrespective of the period of purchase of the alleged Benami property. Amended Act of 2016 does not have an existence by itself. Without the provisions of the Act of 1988, the amended provisions of 2016 have no relevance and the amended Provisions are only laying down the proceedings to be adopted in a proceeding drawn under the Act of 1988 and the penalties to be imposed in each of the cases taking into consideration the period of purchase of Benami property.” Hence the court favored the retrospective applicability of the Amendment.

There are still conflicting views on the issue of the applicability of the Amendment Act of 2016. The cases are being adjudicated upon their facts and circumstances and no specific regulation is followed. The question of whether it is a good practice of law still remains unanswered.

Conclusion

Intentions of the Parliament to not let off all the transactions meeting the definition of Benami between the years 1988 and 2016 was pretty precise and clear but on the contrary, no amendment in terms of the Section 1(3)[32] leaves questions of ambiguity in furtherance questioning the scope of application of the act. Without hesitation, it can be affirmed that the undertaken amendment by the parliament in 2016 was a bold step towards curbing the black economy and exterminate all threats place in relation to transactions that meet definitions of being called Benami.

Even during the times of demonetization, there were many instances which came to light where persons were using their workers’& employees’ bank accounts to deposit their own old notes and later withdrawing them which resulted in the white wash of the money tainted black but these transactions were also covered by the wide scope in the coverage area of the term Benami Transactions & Property provided by the Amendment Act. The Government at present should focus more on clearing the confusions & inexactness left out within the said provisions of the given act which aims at completely eradicating any scope safeguarding Benami Transactions.

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References:

[1] Anonymous, Confiscated Benami Assets worth Rs. 6900-cr: I-T department, The Economic Times (Jan. 29, 2019, 11:00 AM), https://economictimes.indiatimes.com/news/economy/finance/confiscated-benami-assets-worth-rs-6900-cr-i-t-dept/articleshow/67734838.cms

[2] Smt. Surasaibalini Debi v. Phanindra Mohan Majumdar, AIR 1965 SC 1364

[3] Petherpermal Chetty v. Muniandi Servai, [1908] L.R. IndAp 98

[4] Law Commission of India, 57^th Report on ‘Benami Transactions’ (Aug. 1973), http://lawcommissionofindia.nic.in/51-100/Report57.pdf

[5] Thakur Bhim Singh v. Thakur Kan Singh, (1980) 3 SCC 72

[6] Law Commission of India, 130^th Report on ‘Benami Transactions – A Continuum’ (1988), http://lawcommissionofindia.nic.in/101-169/Report130.pdf

[7] Vijay Pal Dalmia, Benami Transactions in India and Analysis of the provisions relating to attachment and confiscation of property under the Benami Transactions (Prohibition) Amendment Act, 2016, Mondaq (Jan. 05, 2018), https://www.mondaq.com/india/white-collar-crime-anti-corruption-fraud/661234/benami-transactions-in-india-and-analysis-of-the-provisions-relating-to-attachment-and-confiscation-of-property-under-the-benami-transactions-prohibition-amendment-act-2016

[8] Id.

[9] Benami Trans. (Prohibition). Amend. Act § 2(9)(A) [2016]

[10] Benami Trans. (Prohibition). Amend. Act § 2(10) [2016]

[11] Benami Trans. (Prohibition). Amend. Act § 2(12) [2016]

[12] Benami Trans. (Prohibition). Amend. Act § 2(9)(A)(a) [2016]

[13] Benami Trans. (Prohibition). Amend. Act § 2(9)(A)(b) [2016]

[14] Benami Trans. (Prohibition). Amend. Act § 2(9)(B) [2016]

[15] Benami Trans. (Prohibition). Amend. Act § 2(9)(C) [2016]

[16] Benami Trans. (Prohibition). Amend. Act § 2(9)(D) [2016]

[17] Benami Trans. (Prohibition). Amend. Act § 2(9)(A)(i) [2016]

[18] Benami Trans. (Prohibition). Amend. Act § 2(9)(A)(iii) [2016]

[19] Benami Trans. (Prohibition). Amend. Act § 2(9)(A)(iv) [2016]

[20] Benami Trans. (Prohibition). Amend. Act § 2(9)(A)(ii) [2016]

[21] Benami Trans. (Prohibition). Amend. Act § 2(26) [2016]

[22] Benami Trans. (Prohibition). Amend. Act § 53(1) [2016]

[23] Benami Trans. (Prohibition). Amend. Act § 53(2) [2016]

[24] Benami Trans. (Prohibition). Amend. Act § 54 [2016]

[25] Benami Trans. (Prohibition). Amend. Act § 27 [2016]

[26] IND. Const. art. 20, Cl. 1. – “No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the Act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.”  

[27] CA Madangopal Agrawal, Analysis of Issues Involved in Retrospective Applicability of Benami Law, Tax Guru (Aug. 29, 2020), https://taxguru.in/income-tax/analysis-issues-involved-retrospective-applicability-benami-law.html

[28] Joseph Isharat v. Rozy Nishikant Gaikwad, Second Appeal No. 749/2015 [dt. 01.03.2017]

[29] M/s Ganapati Delcom Private Limited v. Union of India, APO No. 8 of 2019 with Writ Petition No. 687 of 2017 [dt. 12.12. 2019]

[30] Niharika Jain v. Union of India, 2019 SCC OnLine Raj 1640

[31] Tulsiram & Manki Bai v. ACIT, Writ Petition No. 3819 of 2019 [dt. 15.11.2019]

[32] Benami Trans. (Prohibition). Amend. Act § 1(3) [2016] – “The provisions of sections 3, 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19^th day of May, 1988.”