Intricacies of Benami Transactions | A Journey through Indian Legislation

Table of Contents

1. Introduction
2. The Law on Benami Transactions
3. The Insurmountable Challenge of Proving a Benami Transaction
4. The Need for a Balanced and Lawful Approach
5. Conclusion

1. Introduction

The word ‘benami’ was a stray visitor to the world of legislation for a long time in India. The concept was more familiar in the sphere of judicial law-making. Acquiring property in benami names was an accepted social norm for many years for variety of reasons. This practice was not frowned upon in all cases. Apparently, this practice was in conformity with social ethos and norms. However, life today is driven by an instinct of survival in things great or small. It is quite natural that ingenious and ambitious persons would try to discover ways and means to hide the real nature of a transaction to defeat law for enriching them at the cost of the society.

2. The Law on Benami Transactions

Violation of law cannot be attributed to compulsion alone but also to satisfy a person’s greed. To restrict this practice of undue enrichment at the cost of the societal needs, the Government set up Law Commission to examine various aspects of benami transaction. The first report which was given in the year 1973 did not transform into law till the year 1988. The report submitted to the Government hibernated for a long period of 18 years. The next attempt was made in the year 1988 and work was again assigned to Law Commission to recommend effective measures for enactment of a comprehensive law. On the basis of the 130th report of the Law Commission, law relating to benami transaction was enacted. This enactment only contained nine sections without providing machinery provisions for enforcement of the law. No Rule was framed. For all purposes, the Principal Act, 1988 was an insipid piece of legislation and a non-starter. It was only in the year 2016, that a comprehensive law was put in place by the Parliament by way of amendments to the Principal Act, 1988 to tackle the pernicious practice of benami transaction. Despite this, the controversy regarding the operation of Amended Law, 2016 still persists. This acts as an impediment to enforce benami law effectively. The issue of retrospective operation of Principal Act, 1988 was settled by the Supreme Court in its recent decision in the case of UOI v. Ganpati Dealcom Pvt. Ltd. [2022] 141 taxmann.com 389 (SC) holding that PBPT Act, 1988 [Amended Act 2016] is prospective in its operation and criminal prosecution cannot be launched under sections 3 and 5 of Parent Act. The department has filed a review petition against this order. The issue of operation of law on Benami transactions is again back to the square one.

3. The Insurmountable Challenge of Proving a Benami Transaction

A benami transaction relates to a question of fact. It is inscrutable because of the very nature of the transaction. The essence of a benami is the intention of the parties to the transaction, more particularly the person who provides funds to acquire the property in the name of another person but enjoys the benefit arising out of such property. Such intention is shrouded in a thick veil which cannot be easily fathomed unless direct factual evidence is found in course of search, survey and inspection by various authorities. Then only oral and circumstantial evidences will effectively supplement direct evidence. It makes the job of the administrator difficult, if not insurmountable. All depends on the quality of investigation and presentation of evidence. However, much focus on statistic as usual in our administrative system has not only reduced the efficacy of legislation but also has sometimes become a handy tool for arbitrary exercise of power.

4. The Need for a Balanced and Lawful Approach

A great degree of caution is needed to implement law on benami transaction which is drastic in nature. It may be pointed out here that the Ministry of Finance has clarified before Parliamentary Standing Committee that adequate safeguards have been provided to ensure that the provisions of Benami law do not result in arbitrary exercise of power. One should appreciate that it is the wisdom and fairness that make law but not the authority which administers it. The authorities should, therefore, take a balanced and lawful approach instead of hurriedly initiating proceedings.

5. Conclusion

This reminds one of the inscription on the wall of the Harvard Law School Library -“The percepts of law are these: To live honorably, not to injure another, to render each his due”. The officers of the department should be well versed with the provisions of law governing benami transaction. So also the young professionals. Both sides possess abundant talent to effectively reduce the scope of litigation.