Benami Transactions

Benami transactions

Benami transactions are prohibited financial transactions. They are considered to be illegal transactions and the Government has the power to seize the property held as benami without any compensation. The term benami transactions have been derived from an Urdu term which means ‘without a name’ or ‘nameless’. The legislature enacted the Prohibition of Benami Property Transactions Act 1988 which was brought into force on 5th September 1988. This Act aimed at banning all benami transactions and imposing a punishment on the same. [i]

Meaning of Benami Transactions

A benami transaction is a transaction which a property is transferred by one person under the name of another person who holds the property he is called as the benamidar and the person who transfers the property and pays the consideration for the transfer is called as the beneficial owner. The property is transferred for the beneficial owner’s benefit or interest.

A benami property is a movable or immovable or tangible or intangible property which is transferred by the benamidar under the name of the beneficial owner. Hence it is the subject matter of the transaction which has taken place and for which consideration is paid.[ii]

Essentials of benami transaction

There are two main essentials to constitute a benami transaction

  1. Firstly, the transfer of property in the nature of sale, purchase or transfer of the right or title in any form involve a consideration
  2. Secondly, the consideration is provided by a third person and not the transferee.

Illustration

For example when a property is purchased and transferred in the name of X. However Y pays the consideration for such transfer. Under this transaction X merely agrees to hold the property under his name for securing the interest or for the benefit of Y. Y is known as the beneficial owner and X is known as the benamidar.

Any transaction involving a transfer of property under a fictitious name or where the owner of the property denies having any ownership rights or knowledge of anyone having ownership rights in a property or where the person paying the consideration for the transfer is not known or traceable, fall within the ambit of benami transactions.[iii]

Thakur Bhim Singh v. Thakur Kan Singh [iv], The Hon’ble Supreme Court held that a benami transaction includes two types of transactions. In the first case, a person purchases a property by paying the consideration but in the name of another person with no intention to benefit the other person. In the second case, a person executes a conveyance in favour of another person without the intention to transfer the title of the property. In both the cases, the real title of the property is separated from the ostensible title and it is vested in a different person. Thus to check whether a transaction is a benami transaction the following principles need to be complied with :

  • The burden of proof lies on the person who asserts that the transaction is benami
  • If the consideration is paid by the person other than the transferee it is assumed that the property is purchased for the benefit of the person who pays the consideration unless the contrary is proved.
  • To determine the intention of the person who pays the consideration is a material requirement
  • The intention of the person is determined by surrounding circumstances, the relationship existing between the parties, the subsequent conduct of the parties and the motives behind their actions.

Bhim Singh v. KanSingh[v] The Supreme Court highlighted the meaning of benami transactions. When a person transfers a property by the paying a consideration for such a transfer but under the name of another person or a fictitious name without an intention of benefitting such other person, it is called as a benami transaction. Hence the transferee holds the property for the benefit of the real owner.  

The following transactions will be exempted from the scope of Benami transactions:

  1. When a member of a Hindu undivided family holds a property in his name for another member’s benefit, he has also been paid to provide such services from the known sources of the income of the family.
  2. When a person in fiduciary capacity holds a property for another. For example, trustee, director, partner etc.
  3. When a person purchases a property in the name of his or her spouse or child and the consideration of the is paid from the person’s known sources of income.
  4. When a person purchases a property in the name of his brother or sister or lineal ascendants or descendents and the consideration is paid from the person’s known sources of income.[vi]

Punishment for Benami transactions

  • Any property involved in the transaction of benami transfers will be liable to be confiscated after providing an opportunity to be heard.
  • Any person such as anyone who defeats the provisions of law or defaults in payment of statutory dues or fails to make payment to their creditors is known to be guilty of the offence of benami transactions.
  • A person if guilty of benami transaction is liable to pay a fine of value 25% of fair market value and imprisonment up to one to seven years and a person who provides false information relating to a benami transaction is liable to pay a fine of value 10% of fair market value and a minimum imprisonment of six months which may extend up to five years.

This Act specifically aims at prohibiting the generation of black money and utilizing of the proceeds generated from it. Hence all transactions should be in the name of the actual owner who pays the consideration from valid accounted sources. This process or curbing the menance of black money is to bring transparency in the economy, reducing risks and protecting the interests of the genuine buyers.[vii]

Hence benami transactions are prohibited and punishable under the Prohibition of Benami Transaction Act 1988. They provide for the recovery of the property involved in such a transaction. They are illegal and weaken the real estate sector of the Indian economy.

“The views of the authors are personal

Reference

[i] Prohibition of Benami Property Transactions Act 1988 https://en.wikipedia.org/wiki/Benami_Transactions_(Prohibition)_Act,_1988

[ii]https://cleartax.in/s/benami-property-act

[iii] Ibid.

[iv]AIR 1980 (3) SCC 72

[v]AIR 1980 SC 727

[vi] Ibid.

[vii]DikshantBhansali, Concise Overview Of The Prohibition Of Benami Transactions Act, 1988, 12 January 2017

https://www.mondaq.com/india/Real-Estate-and-Construction/559548/Concise-Overview-Of-The-Prohibition-Of-Benami-Transactions-Act-1988

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I am Dhruvi Dharia from University of Mumbai Law Academy (UMLA), pursuing B.B.A.-LL.B.(Hons.) I have a penchant for studying Corporate laws like Companies Act, Securities Law, Insolvency and Bankruptcy Code, mergers and acquisitions etc. and strong inclination towards numbers. I am also a budding Company Secretary and one level away from becoming one. I aspire to become a Corporate Lawyer in the future. I have always enjoyed reading and working on various legal matters whenever given a chance to. I constantly try to better myself by reading various Acts, articles, interviews of eminent lawyers and professionals and researching on various topics. I like reading on various contemporary legal issues and articles and I sometimes attempt writing on the same. Apart from academics in my free time I like drawing, painting and travelling to new destinations.