Prohibition of Benami Property Transactions Act: An Overview
Introduction
The Prohibition of Benami Property Transactions Act, originally enacted in 1988 and substantially amended in 2016, aims to curb the practice of holding property in fictitious names. "Benami" refers to property transactions where the real beneficiary is not the person in whose name the property is purchased. The Act is crucial for addressing such properties being bought in fictitious names. These amendments, introduced through the Benami Transactions (Prohibition) Amendment Act, 2016, came into effect on November 1, 2016.
Key Provisions of the Act
1. Definition of Benami Transaction [Section 2(9)]
o Primary Definition [Section 2(9)(A)]: Section 2(9)(A) of the PBPT Act lays down two essential ingredients for a Benami Transaction:
Property Transfer and Consideration: The property is transferred to or held by a person, but the consideration is provided or paid by another person.
Benefit: The property is held for the immediate or future benefit of the person who has provided the consideration.
Example:
§ 'A' purchases a piece of land but registers it in the name of his friend, 'B'.
§ The money for the purchase is provided entirely by 'A'.
§ 'B' holds the property, but it is understood that 'A' will be the one who benefits from it, whether immediately or in the future.
o Exceptions to Benami Transactions in Section 2(9)(A):
Hindu Undivided Family (HUF) [Section 2(9)(A)(i)]: When the property is held by a Karta (head) or member of an HUF for the benefit of the family members, and the consideration is from the known sources of the HUF.
Fiduciary Capacity [Section 2(9)(A)(ii)]: When a person holds the property in a fiduciary capacity for another, such as trustees, executors, partners, directors, or depository agents, including any other notified person by the Central Government.
Spouse or Children [Section 2(9)(A)(iii)]: When the property is held by an individual in the name of their spouse or children, with the consideration from the known sources of the individual.
Close Relatives [Section 2(9)(A)(iv)]: When the property is held in the name of a brother, sister, lineal ascendant (e.g., parents), or descendant (e.g., children), and both names appear as joint owners in any document, with the consideration from the individual's known sources.
o Expanded Scope [2016 Amendment]:
Fictitious Name [Section 2(9)(B)]: Transactions where the property is carried out or made in a fictitious name.
Unaware Owner [Section 2(9)(C)]: Transactions where the owner is unaware of the property or denies knowledge of its ownership.
Untraceable Consideration Provider [Section 2(9)(D)]: Transactions where the person providing the consideration is not traceable or is fictitious.
o Exclusion from Benami Transactions:
The explanation to this definition excludes certain transactions involving possession of property under part performance of a contract referred to in Section 53-A of the Transfer of Property Act, 1882, provided:
Consideration by Possessor: The consideration has been provided by the person to whom possession is given, but the original owner retains ownership.
Stamp Duty Paid: The stamp duty on the transaction has been duly paid.
Registered Contract: The contract has been registered as per the law.
2. Prohibition of Benami Transactions [Section 3(1)]:
The act explicitly prohibits benami transactions [Section 3(1)] and makes them punishable with imprisonment and fines [Section 3(2)].
The prohibition extends to the right to recover benami properties, implying that no legal proceedings can be initiated to enforce any rights in respect of benami properties [Section 4].
3. Confiscation [Section 5]:
Any property involved in a Benami Transaction shall be liable to confiscation by the Central Government.
4. Benamidar and Beneficial Owner:
Benamidar [Section 2(10)]: The person in whose name the property is held.
Beneficial Owner [Section 2(12)]: The person who provides the consideration for the benami property and ultimately benefits from it.
5. Adjudicating Authorities and Appellate Tribunal:
The act establishes adjudicating authorities to determine whether a property is benami [Section 7]. As per this section, the competent authority, as authorized under subsection (1) of Section 5 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (13 of 1976), shall serve as the Adjudicating Authority to exercise the jurisdiction, powers, and authority granted by or under this Act.
It also sets up an Appellate Tribunal to hear appeals against the orders of the adjudicating authorities [Section 31]. Although the Act provides for the establishment of an appellate forum, such an appellate body has not been established yet. Currently, the appellate functions are carried out by the PMLA (Prevention of Money Laundering Act) appellate forum in view of a notification issued Section 71 of the PBPT Act.
6. Penalties:
Any person found guilty of entering into benami transactions faces rigorous imprisonment for a term which may extend from one to seven years [Section 53(1)] and a fine which may extend to 25% of the fair market value of the property [Section 53(2)]
7. Authorities under the Act
The act designates the following authorities for the purposes of this act [Section 18(1)]
(a) the Initiating Officer;
(b) the Approving Authority;
(c) the Administrator; and
(d) the Adjudicating Authority.
8. Procedure: Section 24. Notice and Attachment of Property Involved in Benami Transaction:
Issuance of Notice [Section 24(1)]:
If the Initiating Officer, based on material in his possession has reason to believe that the a person holds property as a benamidar, they must document the reasons in writing and issue a notice to that person. The notice will specify a time within which the person must explain why the property should not be considered benami property.
Provisional Attachment [Section 24(3)]:
If the Initiating Officer believes the person in possession of the benami property might dispose of it during the notice period, they can provisionally attach the property. This requires prior approval from the Approving Authority and must be done in writing. The attachment can last up to ninety days from the last day of the month when the notice was issued.
Further Actions Within Ninety Days [Section 24(4)]:
After conducting inquiries and gathering relevant evidence, the Initiating Officer must, within ninety days from the last day of the month in which the notice was issued:
(a) If the property has been provisionally attached:
(i) Continue the provisional attachment with prior approval from the Approving Authority until the Adjudicating Authority issues an order under Section 26(3); or
(ii) Revoke the provisional attachment with prior approval from the Approving Authority.
(b) If the property has not been provisionally attached:
(i) Provisionally attach the property with prior approval from the Approving Authority until the Adjudicating Authority issues an order under Section 26(3); or
(ii) Decide not to attach the property as specified in the notice, with prior approval from the Approving Authority.
Referral to Adjudicating Authority [Section 24(5)]:
If the Initiating Officer continues or starts a provisional attachment, they must prepare a case statement and refer it to the Adjudicating Authority within fifteen days from the date of attachment.
9. Section 26. Adjudication of Benami Property:
Issuance of Notice [Section 26(1)]:
Upon receiving a reference under Section 24(5), the Adjudicating Authority must issue a notice to the following persons, asking them to provide necessary documents, particulars, or evidence by a specified date:
(a) The person named as a benamidar.
(b) The person identified as the beneficial owner, if known.
(c) Any interested party, including a banking company.
(d) Any person who has claimed the property.
The notice must be issued within thirty days of receiving the reference and must provide at least thirty days for the recipient to furnish the requested information.
Consideration and Inquiry [Section 26(3)]:
The Adjudicating Authority shall:
(a) Consider any replies to the notice.
(b) Conduct inquiries and gather reports or evidence as deemed necessary.
(c) Take into account all relevant materials.
An opportunity for a hearing will be given to the benamidar, the Initiating Officer, and any other claimant. Thereafter, the Authority will pass an order to either:
(i) Declare the property as not benami and revoke the attachment [Section 26(3)(i)]; or
(ii) Confirm the property as benami and uphold the attachment [Section 26(3)(ii)].
Partial Identification [Section 26(4)]:
If the Adjudicating Authority determines that only part of the properties in question are benami, but cannot identify which specific part, they will make a judgment to the best of their ability on which part is held benami.
Provisional Attachment of New Properties [Section 26(5)]:
During the proceedings, if the Adjudicating Authority suspects that another property (not referred by the Initiating Officer) is benami, they can provisionally attach this property. It will then be treated as if referred on the same date the initial reference was received under Section 24(5).
Joining or Removing Parties [Section 26(6)]:
At any stage, the Adjudicating Authority may, either on application or suo motu, remove or add the name of any party if it is necessary to adjudicate and settle all questions involved.
Time Limit for Orders [Section 26(7)]:
No order can be passed after one year from the end of the month in which the reference under Section 24(5) was received. In computing this period, any time during which proceedings are stayed by a court order is excluded. If less than sixty days remain after excluding such periods, the time limit is extended to sixty days.
Additionally, for orders expiring between July 1, 2021, and September 29, 2021, the deadline is extended to September 30, 2021.
10. Burden of Proof:
o In Thakur Bhim Singh v. Thakur Kan Singh [1980] 3 SCC 72, the Supreme Court of India laid down principles governing the determination of whether a transfer is a benami transaction:
(1) The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction.
(2) If it is proven that the purchase money came from a person other than the person in whose favor the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary.
(3) The true character of the transaction is governed by the intention of the person who has contributed the purchase money.
(4) The question as to what his intention was has to be decided based on the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction, and their subsequent conduct.
Conclusion
The Prohibition of Benami Property Transactions Act is a significant legislative effort to combat black money and ensure transparency in property ownership. By defining and prohibiting benami transactions, establishing authorities for enforcement, and prescribing strict penalties for violators, the Act aims to deter the practice of holding properties in fictitious names and promote legal and transparent financial transactions in the country.
