The word ‘Benami’ is of Persian origin which literally means ‘without a name’. The word is used under Hindu Law to designate a property that has been held under a fictitious name or held by a third party as a superficial owner for the beneficial owner. The system of Benami transactions has some traces in Hindu as well as the Mohammedan law where they are known as ‘farzee’. The origin of this practice is somewhat considered as superstitious. It was believed that on the basis of the birthdate of a person some people were considered more auspicious than the other. This property was bought in their names. Apart from that, it was also a very convenient way of hiding the family affairs from the public. In a technical sense, Benami means holding property in the name of another person, the beneficial ownership vests with the real owner.
Section 2(a) of the states that ‘Benami transaction’ means any transaction in which property is transferred to one person for a consideration paid or provided by another person.
The concept of benami existed in ancient times. It was a common concept and has customary importance. Over the years as society developed, the courts observed and studied the system where acquiring/holding off a property in the name of another person other than the real owner was common and legitimate. The court approved the law of benami system as long as it did not defeat any statute. The benamidar only represented the real owner and hold the property as long as there were trust and no beneficial interest. So in general, the benamidar would fully represent himself as the owner when dealing with the third party. But, if an adverse situation arises, then the court would regard the reality allowing the real owner to assert his ownership, and this came to be the doctrine of benami enunciated by the judge of the law.
Reasons Behind Benami Transactions:
There are a few reasons which have prompted the ascent of Benami exchanges in India. In any case, a large portion of them is illicit in nature. A portion of the explanations for Benami exchanges are all things considered:
- The benami exchanges are made so as to discover a route with the land laws making way for a proprietor to possess more land properties than allowed by the Indian laws.
- Tax evasion. Benami transactions are one of the best ways to conceal black money obtained through corrupt practices.
- The Joint Hindu Family obtaining secret profit.
- Fraud on creditors
The Act talks about deals which can be made in the name of wife or unmarried daughter.
a. Punishment under the Act:
Section 3 of the Act penalizes the person who has proved to be guilty under which the imprisonments of a term which may extend up to three years or fine or both. The section prohibits the benami transaction.
b. The burden of proof:
Benami Transactions (Prohibition) Act, 1988 states that the burden of proof lies on the person who is claiming and/or asserting that the transaction is the kind of aforesaid transaction i.e. benami transaction. While initially the person aerating the same has established his contentions in the Court of Law the burden of proof shifts on the person on whom it has alleged that he has been part of benami transactions. The most important factor this system carries is the Trust Act. Under Section 82 of the Trust Act states that if someone purchases a property in the name of other, and the consideration is paid by someone else then there is a resulting trust in favor of the person who paid the consideration. Hence the burden of proof lies on the person who is asserting the case to be it.
Deficiencies in the aforementioned Act:
The main objective of the Benami Act, 1988 was to ban the transfer and recover such benami properties. However, the act failed to do so. The reason for such failure was, ‘not having a clear definition for benami property and the lack of strict procedures for the implementation of the fact. Such faults provided discretionary powers to the authorities to bluntly violate the laws. Therefore, there was a need for more stringent law to bring in strictness.
“Section 5: Property held benami liable to acquisition:
- All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure, as may be prescribed.
- For the removal of doubts, it is hereby declared that no amount be payable for the acquisition of any property under sub-section.”
Recently, after the introduction of the Real Estate Act, 2016 and the Goods and Service Tax Act, the real estate sector has evolved tremendously. Adding steam to the platter, a new act Benami Transactions (Prohibition) Amendment Act, 2016 (“Benami Amendment Act, 2016”) was added. The main inquiry that strikes our psyche is the reason as to why is there a great amount of buzz about the Benami Amendment Act, 2016, when we already had the Benami Transactions (Prohibition) Act, 1988 (Benami Act, 1988) in power. Below is a quick glance at the new amendments:
The Benami Transactions (Prohibition) Bill, 2011 introduced on August 18, 2011, in LokSabha, replacing the existing Benami Transactions (Prohibition) Act, 1988. The Bill defines benami transaction as an arrangement where (a) property is held by a person (other than in fiduciary capacity) on behalf of another person who has paid for it; or (b) the transaction is made for a property in a fictitious name; or (c) the owner of the property is not aware of or denies knowledge of such ownership. A benamidar is a person or fictitious person in whose name the property is held or transferred. Further, the act lays down the punishment of imprisonment up to six months to two years, and fine of up to 25 percent of the fair market value of the property held in benami if any person who enters into benami transactions, or abets or induces another person to enter into such transactions. In addition to this, if any person who wilfully gives false information shall be liable to an imprisonment of three months to two years and a fine of up to 10 percent of the market value of the property.
THE BENAMI TRANSACTION AMENDMENT BILL, 2015 was introduced in Lok Sabha on May 13, 2015, by the Minister of Finance Mr. Arun Jaitley. The Bill seeks to amend the Benami Transactions Act, 1988. The Act prohibits Benami transactions and provides for confiscating benami properties. The Bill seeks to: (i) amend the definition of benami transactions, (ii) establish adjudicating authorities and an Appellate Tribunal to deal with benami transactions, and (iii) specify the penalty for entering into benami transactions. The Bill also specifies certain cases will be exempt from the definition of a benami transaction. These include cases when a property is held by (i) a member of a Hindu undivided family, and is being held for his or another family member’s benefit, and has been provided for or paid off from sources of income of that family; (ii) a person in a fiduciary capacity; (iii) a person in the name of his spouse or child, and the property has been paid for from the person’s income
THE BENAMI TRANSACTION AMENDMENT Act, 2016 is the latest addition converging strict consequences on persons who evade the law by holding property by illegitimate means. The amendment was brought out to give at a clear-cut definition to benami property. The act further covers the proceeds from such property. The benami property is a property whose title deed is held in the name of other person known as benamidar were as the real owner as a beneficial owner. For example, if A wants to buy a property form C he will pay the consideration and take possession of the property but the sale deed will show that the buyer’s name as B who is either a fictitious entity or a person having no connection with the property. However, not all properties are benami properties if bought under someone else name. The exceptions are:(i) representing benefit by one person of another like a partner of a firm or a trustee of a trust or any person as such (ii) a person buying property under joint ownership ( in his name and his lineal ascendents or brother’s or sister’s) but paying the consideration from his own income; (iii) Karta of Hindu Undivided Family buying a property but the consideration is paid by the HUF. Under this act of 2016, the punishment has been extended up to 7 years and the liability to fine has been increased 25% of the market value of the property. The characteristic in a task of the Act is seen with an interplay between larger public interest (eradication of unlawful methods and assets) v. Justice and equity (prohibition of certified exchanges).
In most of the cases, the benami property is bought for illegal purposes and not for the benefit of the person on whose name the property is bought. Benami transactions in its entirety are difficult to eliminate from the society, because of the very nature of the relationship between parties who enter into such kind of transaction. Rather Benami transactions are refining themselves by not being restricted only to the transaction between real owner and benamdar, it has modified itself to many other forms like money laundering. As stated earlier, Benami transaction is a quintessential part of a transfer of property, mere passage of radical legislation like Prevention of Money Laundering Act, 2002 is not sufficient but its impact on Transfer of Property needs to be studied, analyzed and understood.