Benami Property & its Legality

THE BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016 - As per the act "Benami transaction" means, —

A transaction or an arrangement 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. The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. However, there are exceptions to this rule as to when the property is held by -

1. 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;
2. a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;
3. any person being an individual in the name of his spouse or the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
4. any person in the name of his brother or sister or 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; or
5. a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
6. 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;
7. a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

Test for Determining Benami

The first and the foremost requirement is that a property should have been transferred in the name of a person for a consideration paid or provided by another person. In other words, the consideration for the transaction should not have flown from a person in whose name the property is purchased. If the person in whose name the property is purchased also has contributed consideration for the purchase of the property in his name along with others whose name is not reflected in the sale deed, it would not amount to a Benami transaction as defined under the Act. Secondly, the object of such purchase, namely, whether the property is purchased in the name of a person to evade public revenue and whether there is any dishonesty in not mentioning the names of the real contributors of the fund for the purchase of the property is to be looked into. If the intention to purchase the property is to avoid payment of any tax or to conceal any unaccounted income, then before applying the provisions of the Act, careful consideration of the nature of the transaction has to be looked into.

Though the question of whether a particular sale is benami or not, is largely one of the facts, and for determining this question, no absolute formulae or acid test, uniformly applicable in all situations, can be laid down, yet in weighing the probabilities and for gathering the relevant indicia, the Court is usually guided by these circumstances:

1. the source from which the purchase money came;
2. the nature and possession of the property, after the purchase;
3. motive, if any, for giving the transaction a Benami colour;
4. the position of the parties and the relationship, if any, between the claimant and the alleged benamidar;
5. the custody of the title deeds after the sale; and
6. the conduct of the parties concerned in dealing with the property after the sale:

After the introduction of the Benami Transactions (Prohibition) Act, 1988, even though the husband can purchase properties in the name of his wife or unmarried daughter, there is a presumption that it is for the benefit of the wife or unmarried daughter unless the contrary is proved:

Legal Action against Benami Property

By way of the amended Act, an Adjudicating Authority shall preside over matters of Benami property and in case it is found that the property is a Benami property, an order of confiscation shall be made and all the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation.

Whoever is found guilty of the offence of Benami transaction referred shall be punishable with rigorous imprisonment for a term 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.

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

An order passed by the Adjudicating Authority can be challenged before the Appellate Authority is set up under the Act. The High Court can be approached to challenge orders passed by the Appellant Authority.