Anubhav Jain

BACKGROUND

The Benami Transactions (Prohibition) Amendment Act, 2016 (‘PBPT Act’) which came into effect from 01st November 2016, after amending the 28-year-old law which was also called the Prohibition of Benami Property Transactions Act, 1988.

The 1988 Act has been substantially amended by the 2016 Act, and various provisions and authorities have been established to curb benami transactions and confiscate benami properties. Under the 2016 Act, the scope of benami transaction has been widened, and the punishment and penalties have been made more stringent.

The PBPT Act received the assent of the President of India on 10th August, 2016 and has been published in the Gazette of India dated 11th August, 2016. This has come into force from 1st November 2016.

‘Benami’ is a Hindi word meaning “without name” or “nameless”. This Act uses the word ‘benami’ to define a transaction in which the actual beneficiary is not the one in whose name the property is purchased – who is basically an identity cloak – the “benamidar”.

The actual beneficiary is the person financing the deal. In most such deals, who usually keeps the property papers and also retains the power of attorney to sell the asset.

The New Act

The old Bill that was inadequate with just nine sections. It was passed by the Parliament in the year 1988. After the Narender Modi government coming to power, Finance Minister Mr. Jaitley introduced the amended bill which has 71 sections in the Lok Sabha on 13th May 2015.

The amendments sought to block escape routes for all benami transactions since 1988.

The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine.

The PBPT Act prohibits recovery of the property held as benami from benamidar by the real owner. Properties held benami are liable for confiscation by the Government without payment of compensation.

OBJECTIVE

The primary objective to bring out the PBPT Act, 2016 is as under:

1. To amend the definition of benami transactions

2. To establish adjudicating authorities and provide for authorities to deal with benami transactions;

3. To specify the penalty for entering into benami transactions;

BENAMI – Literal Interpretation

The word ‘benami’ means not in own name. Benami is a Persian word made up of two words namely ‘be’, which means without and ‘nami’, which denotes name. It literally means without a name and is commonly used to denote a transaction, which is done by a person without using his own name but in the name of another. The benamidar has no beneficial interest in the property or business that stands in his name, he represents in fact, the real owner and so far as their relative legal position is concerned, he is a mere trustee of the real owner.

The word ‘benami’ is used to denote two classes of transactions, which differ from each other in their legal character and incidents. In one sense, it signifies a transaction, which is real, as for example, when A sells properties to B but the sale deed mentions X as the purchaser. Here, the sale itself is genuine but the real purchaser is B, X, being his benamidar. This is the class of transactions, which is usually termed as benami.

The word ‘benami’ is also occasionally used, perhaps not quite accurately, to refer to a sham transaction. For example, when A purports to sell his property to B without intending that his title should cease or pass to B. There is a fundamental difference between these two classes of transactions. In the former, there is an operative transfer resulting in the vesting of title in the transferee. In the latter, there is none. The transferor continues to retain the title notwithstanding the execution of the transfer deed.

It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the later class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not as to who paid the consideration but whether any consideration at all was paid.

The question whether a particular deal is benami or not is essentially a question of fact. The courts in deciding the issue are usually guided by the circumstances as to (i) the source from which the investment came; (ii) the nature and possession of the property after acquisition; (iii) motive, if any,(v) the custody of the title deeds; and (vi) the conduct of the parties in dealing with the property. These are illustrative instances – not exhaustive. The burden of showing that a transfer is benami is upon the person, who alleges benami, i.e., if the Government wants to say that a transaction is benami, it will have to prove it.

A Brief Frame Work of the Act

A small piece of legislation divided into 8 chapters. The operative part of the law is contained in a few sections. The remaining part of the law comprises of machinery sections to aid and assist the main provisions relating to benami properties. A brief regarding the sections has been provided as under:

> Section 2 of the Act provides for the definitions.

Section 2(9) provides for the most important definition and determines the scope of the Benami Act i.e. Benami Transaction.

Approach : As to how the Law works

A brief as to how the Act will get implemented:

1. A detailed procedure has been prescribed in the Act, which states that if an Initiating Officer (IA) believes that a particular person is a benamidar, he may issue a notice to the said person in that regard. The IA has been authorized to hold the property for 90 days from the date of issue of the notice, subject to permission from the Approving Authority. After the expiry of that period, the IA may pass an order to continue the holding of the property and hold the said property.

2. If the IA decides that an order under the Benami Act needs to be passed in the proceedings initiated by him, holding the person as benamidar, he will refer the case to the Adjudicating Authority, who will examine all documents and evidences relating to the matter and then pass an order on whether or not to hold the property as benami.

3. In view of the IA's order, if the benami property to which it relates is to be confiscated, the Administrator will take charge of the property and manage it in the manner prescribed.

Offences Under the Act

If a person enters into benami transactions in order to defeat the provisions of the law (i) to avoid payment of statutory dues or(ii) to avoid payments to creditors, 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 and shall be punishable with rigorous imprisonment for a term, which shall not be less than one year, but which may extend to7 years and shall also be liable to fine, which may extend to 25% of the fair market value of the property.

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 6 months but which may extend to 5 years and shall also be liable to fine, which may extend to 10% of the fair market value of the property.

Conclusion

Through the introduction of the Benami Law, it is quite evident that the intention of the present Government is to stop/ reduce the circulation of unauthorized currency and purchase of unaccounted property in India.

(The author can be reached at abj_16@yahoo.com)

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