Lending a name to the Transaction: ‘Benami’

The Central Govt. as a pre-thought measure to their historical decision of demonetisation introduced ‘THE BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016’ (referred as Benami Law herein after) which became active from 1^st November, 2016 and is an amendment to the pre-existing THE BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988. Certainly, it has devastated the sleep of many people sleeping on their soft mattresses of unbridled money and land. In this article we will try and forge out in simple terms, the nuances and provisions of the Benami Law.

The Structure of the Benami Law:

The Benami Law consists of 72 Sections divided into 2 general Sections and eight Chapters of 70 sections as under:

Chapter No.	No of Sections	Heading of the Chapter
I	3	Preliminary
II	4	Prohibition of Benami Transactions
III	14	Authorities
IV	6	Attachment, Adjudication and Confiscation
V	20	Appellate Tribunal
VI	3	Special Courts
VII	3	Offences and Prosecution
VIII	17	Miscellaneous

Understanding the provisions:

The provisions of the Benami Law need to be understood in simple terms and figuring out its consequences. We will try and break the Benami Law into different important provisions and the basic rationale behind it.

 ‘Benami Transaction’ will cover the following situations:

(A) a transaction or an arrangement—

(a) 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

For eg: A transaction in which a businessmen X has booked the property in the name of his worker employee Y and the whole consideration has been paid off by X.

(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration,

For eg: A transaction in which the property is booked in the name of X to earn rent income on the property which is then passed on to person Y (who has paid the whole consideration), who is actually the beneficial owner of the property. Mr. X has just given his name for the property to be registered and has no interest in earning of rental income.

(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

For eg: A plot of land is purchased in the name of Mr. X who is an artificial and fictitious person, by Mr. Y (natural person) who is actually paying the whole consideration.

(C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

For eg: A plot of land is purchased in name of Mr. X who is unaware of it and does not know the whereabouts of how he has been bestowed the ownership of land which he is unaware of.

(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

For eg: A plot of land is purchased in the name of Mr. X and the consideration is paid by Mr. Y who is untraceable or is not a natural living person.

However, it may be mentioned that benami transaction has the following exceptions when the property is held by—

(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

(ii) a person standing in a fiduciary capacity for the person viz. a trustee, executor, partner, director of a company.

(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration has been provided or paid out of the known sources of the individual;

(iv) any person in the name of his brother/sister/lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual;

Important Terms

“benami property” means any property which is the subject matter of a benami transaction (referred above) and also includes the proceeds from such property.

“benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who merely lends his name

 “property” means

(a) movable property

(b) immovable property

(c) tangible property

(d) intangible property

(e) corporeal or incorporeal property and includes any right or interest evidencing title to or interest in the property

“transfer” includes sale, purchase or any other form of transfer of right, title, possession or lien;

Prohibition of Benami Transactions

The persons entering into Benami Transactions on or after the commencement of the Act i.e. 1^st November, 2016 shall be punishable as in accordance with the Section 53 of the Act.

Property which is a subject matter of a benami transaction:

(a) is liable to be confiscated by the government

(b) is not allowed to be re-transferred by the benamidar back to the beneficial owner paying the consideration: such transaction undertaken would be deemed to be null and void

Offences and Prosecution

As per Chapter VII of the Act, a person who enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors,

(a) the beneficial owner,

(b) benamidar and

(c) any other person, who induces other person to enter into benami transaction

shall be guilty of the offence of benami transaction; and shall be punishable with rigorous imprisonment which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to twenty-five per cent. of the fair market value of the property.

Also, when any person who is required to furnish information under this Act knowingly gives false information or furnishes any false document in any proceeding, shall be punishable with 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

Prohibition of the right to recover property held benami

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 to the person claiming to be the real owner of such property.

Rationale behind introducing this Act

With the rapid introduction of fiscal policies, the Govt. wanted to be equipped with a death strike on immovable property transactions after unearthing black money through its demonetisation announcement, which is something we can gather of what has happened for the past two months. This Act has been enacted specifically to curb the practices of particularly those land mafias who have been holding the properties in the names of other persons. Such land will be held to be benami if the real beneficial owner has taken the illegal route to hold the land by not registering the property in his name. (The benami property includes other types of properties as well apart from immovable properties.)

This Act was needed which is what has been reiterated by our Hon’ble Prime Minister in his recent public events that he is now going to target for the benami transactions. This Act has gained much significance after the demonetisation activity especially when the news of the people depositing money in the Jandhan accounts of the poor people has come to the attention. Since, movable property transactions are also covered under the Benami Act, it will be important to see what is going to happen in the near future. We will need to wait and see how this Act possesses and puts forth the much needed power of prohibiting Benami Transactions, one of the biggest sectors of the black economy.

(The author is a practising Chartered Accountant based in Delhi and can be reached at guptaakarsh92@gmail.com)

Disclaimer: The contents of this document are solely for informational purpose. While due care has been taken in preparing the above article, possibility of any errors and omissions cannot be ruled out. Moreover, the views expressed herein above are solely author’s personal views. No part of it should be copied or reproduced without written or express permission of the Author.