Office Location

Delhi:

E-5, 2nd Floor, Defence Colony
New Delhi - 110024
Tel : 011-24336744

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Mumbai:

Office No. 1410, 14th Floor, Maker Chamber V, Nariman Point, Mumbai
Tel : +91 22-22873499

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Gurgaon:

Level 18, One Horizon Center, Golf Course Road, DLF Phase 5, Sector 43, Gurgaon 122002, India
Tel : +91 124 668 8146 / +91 124 668 8147

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Mumbai (Entertainment and Media Practice)

Office No. 213, 2nd Floor, A-wing, Crystal Plaza, Andheri Link Road, Andheri (W), Mumbai.
Tel : 022-62360762

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Mumbai (Corporate and Transactional Practice)

909/A, Capital Building, Bandra Kurla Complex, East Mumbai- 400098

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Bangalore:

21/2, 1st Main Road,
Opp Indian overseas Bank,
Gandhinagar,
Bengaluru - 560009

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Kanpur:

77A, Cantt., Kanpur - 208004

THE BENAMI ACT

Benami is a Persian word that means "without name" or "no name". In the Benami Act, the word “Benami” is used to define a transaction and/or a property in which the real beneficiary is not the one in whose name the property is purchased. Thus, the person in whose name the property is purchased is just a mask of the real beneficiary. 

The old law of 1988 was recently amended in 2016, rather overhauled, with a view to curb the menace of black money in the country.  The seriousness of this amendment can be analysed from the fact that it required 22 pages of the Amendment Act to modify the 2 pages of the Old Act.  The amended provisions have already come into force with effect from 1st November, 2016.  Following the amendment, the old law [Benami Transactions (Prohibition) Act, 1988] is now known by a new name namely, “Prohibition of Benami Property Transactions Act” (the PBPT Act).

The amended law has defined a “Benamidar” as a person or a fictitious person in whose name the Benami Property is transferred or held and includes the person who lends his name.   In contrast, a “Beneficial Owner” is defined as a person, whether his identity is known or unknown, for whose benefit the Benami Property is held by a Benamidar.

The amended Act further seeks to re-define and clarify the term “Benami Transaction” as -

  1. A transaction or an arrangement where a property is transferred to or is held by a person, and the consideration for such property is provided for by another person AND the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration;
  2. A transaction or an arrangement in respect of a property that is made in a fictitious name;
  3. A transaction or an arrangement in respect of a property where the owner of the property is not aware of or where he denies knowledge and/or the ownership;
  4. A transaction or an arrangement in respect of a property where the person providing consideration is not traceable or is fictitious;

While the term “Benami Property” has particularly not been defined by these amendments, however the term “Property” has specifically been defined to include assets of any kind – moveable or immoveable, tangible or intangible, corporeal or incorporeal. Thus, any asset - whether movable, immovable, documents, financial, etc., including a Bank Locker, Bank Account, etc., which does not have valid documents naming the person who paid for the same, is now considered as Benami.  Government has got powers to acquire all such Benami properties/assets.

As per the amended Act, the Enforcement of this Benami law shall be carried out through officials of Income Tax, Customs, Central Excise, RBI, Police, SEBI, officials appointed under NDPS Act, officials of Stock Exchange who are recognised under Securities Contract (Regulations) Act, and various other officers who are so notified.

When extended to the matter of Demonetisation, the Income Tax Officer of Central Government can confiscate and prosecute both the depositor and the person whose illegal (black) money he has in his account. The person who deposits the old demonetised currency shall be treated as the Beneficiary, while the person in whose Bank Account it has been so deposited shall be treated as the Benamidar. The Central Government has however clarified that the Benami property that has been declared as part of the Income Disclosure Scheme of 2016 will however, not be acted against.

The Act as amended has further ensured that any such Benami Property, which is subject matter of a Benami Transaction, shall be confiscated by the Central Government and that no Benamidar shall re-transfer the Benami Property held by him to the beneficial owner.  In fact, the law declares that any such re-transfer by the Beneficial Owner back to the Benamidar shall be deemed to be null and void.  

Further, the provisions of Sections 4 (1) and 4(2) of the Old Act have been retained to ensure that no Suit or Claim can be filed by a Benamidar (claiming as the owner of the property) to enforce his rights over a property held Benami against the documented owner of the said property (Beneficial Owner).   

Exceptions to Benami Transactions
There are 5 exceptions where the new Act allows a person OTHER THAN THE OWNER to pay for the property, and the same are as under:

  1. Where the property is held by a Karta or a Member of HUF, while the property is held for the benefit of other members, and the consideration has been provided from the known sources of income of the said HUF;
  2. Where the property is held by a person in fiduciary capacity, for the benefit of another person towards whom he stands in such a fiduciary capacity [ Trustee / Executor / Partner / Director / Depository / any other person as notified];
  3. Where the property is held by an Individual for the benefit of his spouse or child, and consideration whereof is paid from the known sources of that individual;
  4. Where the property is held by a person in the name of his brother / sister / lineal ascendant / lineal descendant and where the property is in joint ownership of the said person and his for the brother / sister / lineal ascendant / lineal descendant and where consideration has been provided from the known sources of income of that individual;
  5. Where the possession of the property is taken, or retained in part performance of a contract under section 53A of the Transfer of Property Act and where the Contract is registered upon payment of adequate stamp duty and where the person in possession has paid the consideration, while the person who has granted possession continues to be the owner (title) in respect of the property.

It is further clarified that the amended Benami Act prohibits recovery of the property held Benami from the Benamidar by the real owner thereof.  Further, the properties held Benami are now liable to be confiscated by the Government without payment of compensation.  The new law further provides that any violation of the PBPT Act shall be punishable with rigourous imprisonment of 7 years (as against 3 years in the Old Act) AND fine which may extend to 25% of the fair market value of the Benami property.

A person could also face rigorous imprisonment for up to five years for knowingly giving false information and pay fine of up to 10 per cent of the market value of the property.

Who can take action?

An Initiating Officer (Assistant Commissioner or the Deputy Commissioner of Income Tax), after getting a go ahead from the Approving Authority (Additional Commissioner or Joint Commissioner of Income Tax) can investigate the alleged Benami Transactions. A notice shall have to be issued both to the Benamidar and to the actual owner, if his identity is known. Procedures for investigation and inquiry are laid down in the Act.

The Initiating Officer can also attach the property being investigated for a maximum of ninety days. If it needs to be attached for a longer period, the matter should be referred to a three-member Adjudicating Authority. The Adjudicating Authority shall then decide on whether the property is Benami, after giving a hearing to those accused of a Benami Transaction. When the Adjudicating Authority declares the property to be Benami, the property will pass into the custody of the Administrator so appointed under the Benami Act.

Appeals against the order of the Adjudicating Authority can be made to a three-member Appellate Tribunal within 45 days. The Appellate Tribunal shall have to deliver its order within one year.  Appeal from the Orders of Appellate Tribunal, only on the questions of law, would lie before the High Court.   The amended Act has also made a provision for commencement of Special Courts for trial of offences punishable under the Act.  In case any other existing law is found to be inconsistent with the provisions of this amended Benami Act, the provisions of this Act shall have an over-riding effect on all other laws that are for time being in force.

This new (amended) law is certainly going to eliminate a lot of black money from the system and also the assets relating thereto.