Benami Transactions

A benami transaction is one where one buys property in the name of another or gratuitously transfers his property to another, without indicating an intention to benefit the other. In benami transactions, the benamidar has no beneficial interest in the property or business that stands in his name. As a matter of fact, he represents the real owner and, as far as their relative legal position is concerned, benamidar is a mere trustee for him.

One of the leading issues in Indian economy is the effort made by the government to tackle the problem of black money and related illegal economic activities. Several efforts were made by the government to fight black money, money laundering etc. One such serious and sound step is the enactment of the Benami Transactions (Prohibition) Amendment Act 2016. The Act amends the existing Benami Transactions (Prohibition) Act, 1988, and came into effect on November 1, 2016. The modified new legislation will be known as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).

As compared to the previous legislation, the Amended Act is more clear and stern in terms of its treatment of transactions related to benami property. The Prohibition of Benami Property Transactions Act, 1988, defines benami transactions, prohibits them and further provides that violation of the Act is punishable with imprisonment and fine. The Amended Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are also liable for confiscation by the government without payment of compensation.

Benami transactions in India were generally recognized by the Courts. But the same had not been given effect to in the following cases—

1. when the transaction violated the provisions of any law; orwhen the transaction defeated the rights of innocent transferees for value from the benamidar without notice; or
2. when the object of the benami transaction was to defraud the creditors of the real owner and that object has been accomplished; or
3. when the transaction was against public policy¹⁾.

Benami transactions, however, used to be effected for various purposes – to avoid taxes, to avoid ceiling laws etc.

Blank transfers of shares had also posed serious problems as dividends are paid to the registered shareholders and not to the real shareholders as in the case of benami holdings of shares, but despite the same the transactions have not been declared to be invalid in law by any statute including the Benami Transactions Act.

Benami essentially means ‘property without a name’. In this kind of transaction, the person who pays for the property does not buys it under his own name. The person, in whose name the property has been purchased, is called the benamidar and the property so purchased is called the benami property. As a matter of fact, the person who finances the deal is the real owner. Where property is acquired in the name of one person, but the purchase price is paid by another, a presumption arises that the transaction was one for the benefit of the person providing the money. Such cases are common in India where benami transactions are recognized²⁾.

According to the Benami Transactions (Prohibition) Amendment Act 2016, “Benami property means any property which is the subject matter of a benami transaction and also includes the proceeds from such property.”

Thus, the Amended Act gives a comprehensive definition of benami property. As per the amendment, benami property includes immovable assets such as land, flat or house, movable assets such as gold, stocks, mutual fund holdings, bank deposits etc. If the property is sold, then the proceeds from the sale are also included under benami property.

When a person acquires an interest in property with his funds in the name of another for his own benefit, the latter is called a benamidar. A benamidar is not a trustee in the strict sense of the term. He has the ostensible title to the property standing in his name, but the property does not vest in him, but is vested in the real owner. He is only a name lender or an alias for the real owner.

In general, the benamidar fully represents the owner of the property in dealings with the third persons. In fact, that is the very object of benami transactions. The property stands in the name of the benamidar. Consequently, a third party would not be able to challenge his title so long as the real owner does not come in the picture.

Under the Amended Act, benami transaction means—

1. a transaction or an arrangement—
   1. 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; and
   2. 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 carried out or made in a fictitious name; or
3. 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; or
4. a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.

Exceptions: The property held by the following persons shall not amount to benami transaction—

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 in 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.

Explanation:For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force—

1. consideration for such property has been provided by the person to whom possession of property has been allowed, but the person who has granted possession thereof continues to hold ownership of such property;
2. stamp duty on such transaction or arrangement has been paid; and
3. the contract has been registered.

The practice of benami might have come into existence by reason of a number of factors—

1. The joint Hindu family system and a desire to make secret provisions is one factor which might have led to the practice of benami.
2. Fraud on creditors might be another such factor. Bhattacharya has observed that “since its first establishment, the British Government, in the exercise of its legislative functions, have from time to time made attempts to check the inveterate practice obtaining in India of holding property by one person in the name of another. This practice, having its origin in the dishonest motive of defrauding creditors of their just and lawful dues, has had so large and widespread prevalence here that the legislature cannot altogether put an end to it by a drastic enactment declaring the practice absolutely illegal in all cases.”
3. Desire to evade taxes may be another motive of persons entering into benami transactions. The victim here is not individual, but the State. Nevertheless, it is a species of fraud³⁾.

The word ‘benami’ is used to denote two classes of transactions, which differ from each other in their legal character and incidents—

1. In one sense, it signifies a transaction, which is real, as for example when A sells properties to B, but the sale deed mentions X as the purchaser. Here, the sale itself is genuine, but the real purchaser is B, and X being his benamidar. This is the class of transactions, which is usually termed as benami.
2. The word ‘benami’ is also occasionally used, perhaps not quite accurately, to refer to a sham transaction. As for example, when A purports to sell his property to B without intending that his title should cease or pass to B.

The fundamental difference between the above two classes of transactions is that in the former there is an operative transfer resulting in the vesting of title in the transferee; in the latter case, there is none such, the transferor continues to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration, but whether any consideration was paid. Meenakshi Mills vs Commissioner of Income Tax ⁴⁾

Two kinds of benami transactions are generally recognized in India—

1. Where a person buys a property with his own money, but in the name of another person without any intention to benefit such other person, the transaction is called benami. In that case, the transferee holds the property for the benefit of the person who has contributed the purchase money, and he is the real owner.
2. The second case, which is loosely termed as a benami transaction, is a case where a person who is the owner of the property executes a conveyance in favour of another without the intention of transferring the title to the property thereunder. In this case, the transferor continues to be the real owner.Bhim Singh vs Kan Singh⁵⁾

The principle governing the determination of the question whether a transfer is a benami transaction or not may be summed as following—

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 proved that the purchase money came from a person other than the person in whose favour 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 on the basis of the surrounding circumstances, the relationship of parties, the motive governing their action in bringing about the transaction and their subsequent conduct, etc.Bhim Singh vs Kan Singh⁶⁾

Mulla in his book on Hindu Law dealing with benami transactions has observed that ‘effect will always be given to real title and not to the nominal title’. Where a transaction is once made out to be benami, effect will be given to the real and not to the nominal title, unless the result of doing so would be—

1. to violate the provisions of a statute; or
2. to defeat the rights of innocent transferees for value from the benamidar; or
3. the object of the benami transaction was to defraud the creditors of the real owner, and that object has been accomplished; or
4. the transaction is against public policy.

It is well settled that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of a benami is the intention of the party or parties concerned; and such intention is shrouded in a thick veil which cannot be easily pierced through.

The essence of a benami is the intention of the party or parties concerned; and not unoften, such intention is shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation, and the person expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs.

Though the question, whether a particular sale is benami or not, is largely one of fact, 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 courts are 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.Jaydayal Poddar (Deceased) through LRs. vs Mst. Bibi Hazira⁷⁾

There is no presumption that when a property stands in the name of a female, the court will immediately jump to the conclusion, without any proof, that it really belongs to the husband of the female. Before such a presumption is raised or attracted, it is necessary for the person who wants to make out that the property is not the property of the female, in whose name the document stands, to establish the fact that the consideration money for the purpose had come from the husband.Official Assignee of Madras vs Natesha Gramani⁸⁾.

Adv. Sunil Sharma is a writer for about 25 years and has authored more than 40 books on various subjects including Jurisprudence, Hindu Law and Environmental Laws.