Monday, May 29, 2017


NOTE ON Benami Transactions Prohibition Act:
  • Object of the Act: The Benami Transactions (Prohibition) Amendment Act, 2016 (The Act) prescribes administrative and legal procedure to curb domestic black money.  The Act prohibits benami transactions and provides for attachment and confiscation of benami properties besides prescribing prosecution of persons involved in benami transactions leading to imprisonment up to seven years.
  • The Amendment Act :  The Amendment Act  (i)  amends the definition of benami transactions with exceptions (ii) Establishes adjudicating authorities and Appellate Tribunal to deal with benami transactions  and (iii) Prescribes penalty for entering into benami transactions
  • Binami Transaction : means (i) a transaction or an arrangement where a property is transferred to or held by a person and the consideration for such property has been provided or paid by another person  and the property held for the benefit of the person who provided consideration either  immediate or future,   directly or indirectly[1]. (ii)   a transaction or an arrangement where in respect of a property carried out or made in a fictitious name[2]. (iii) 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[3].
  • Exemptions: The following are exempted from the binami transactions[4] :
(i)           Purchase of property in the name of Karta of Hindu Undivided Family from the funds of HUF
(ii)          Purchase of property by a Person standing in a fiduciary capacity for the benefit of another person includes trustees, executor, partner, director of a company, a depository or participant as an agent under Depositories Act, 1996
(iii)        Purchase of property in the joint name with brother, sister or lineal descendant or ascendant and the consideration for such purchase is from known source of Joint Owner.
  • Authorities[5]:  The Amendment Act provides four authorities to conduct inquiries or investigations regarding benami transactions. (I) Initiating Officer (ii) Approving Authority (iii) Administrator (iv) Adjudicating Authority.  Initiating Officer (Under Section 24)  on the basis of material in his possession, has a reason believe a person as a benamidar, may issue a show cause notice why the property should not be treated as benami property to benamidar and beneficial owner.  Within ninety days from the date of issuance of show cause notice shall conclude inquiries and pass order for provisional attachment or remove provisional attachment of property with prior approval of Approving Authority and within fifteen days from the date of provisional attachment order, Initiating Officer shall refer the matter to Adjudicating Authority.  Adjudicating Authority shall issue a notice to all concern persons including banking company if any, and after hearing parties Adjudicating Authority will hold either the property is benami property and confirm the attachment order or the property is not benami property and revoke the attachment order.  When Adjudicating Authority once concludes that the property is benami property and it will conduct proceedings for confiscation of benami property.  After confiscation the benami property vests with central government and the same shall be handed over to the administrator for its sale. 
  • Order of Adjudicating Authority may appealed to Appellate Tribunal established under section 30 of the Act and the order of Appellate Tribunal is appealable order before High Court. 
  • As per section 71 of the Act, Adjudicating Authority and Appellate Tribunal established under Money Laundering Act made to act as Adjudicating Authority and Appellate Tribunals under this Act as transitional set up.
  • Chapter VI and VII deals with prosecution of persons involved in benami transactions by a special court and punishments on convictions.
  • Exception to Confiscation of Benami Property: Act prescribes exception for Confiscation of the property, if the property held or acquired by any person from the benamidar for adequate consideration prior to issue of notice under sub-section (1) of section 24 of the Act by the Initiating Officer without having knowledge of binami transaction[6].  But the action of Initiating Officer, Adjudicating Authority has not been exempted i.e provisional attachment by Initiating Officer and attachment made by the Adjudicating Authority.    . 
  • All subsequent transfers null and void : Act declares all transfers after issuance of a notice under section 24 of the Act issued by Initiating Officer shall be ignored and if the said property confiscated then such transfers are deemed to be null and void[7]. Therefore accepting a property as security for which Initiating Officer has already issued a notice under section 24 may deemed to be void, if the said property was confiscated.

[1] Sub-section 9(A)(a)&(b) of Section 2 of the Act
[2] Sub-section 9(B) of Section 2 of the Act
[3] Sub-section 9(C) of Section 2 of the Act
[4] Sub-section 9(A)(b) of Section 2 of the Act
[5]  Section 24 to 28 of the Act
[6] Sub-section(2) of Section 27 of the Act
[7] Section 57 of the Act.

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