PROPOSED AMENDMENTS TO THE BENAMI TRANSACTION ACT

The Benami Transaction Prohibition Amendment Bill 2015 (Bill) has been recently passed by both houses and awaits presidential assent. The Bill makes some much needed changes to the outdated Benami Transaction (Prohibition) Act, 1988 (Benami Act). Following are the important changes brought about by the Bill: 

• Definition of Benami Property and Benami Transaction: The Bill defines Benami Property as any property which is the subject matter of a benami transaction and also includes the proceeds from such property. The Bill also widens the scope of benami transaction and defines the term as a transaction or arrangement where consideration has been paid by one person and the property is held by another or where the property is held for the benefit of another. The Bill also includes transactions which are made under fictitious names or where the owner is not aware of his ownership and where the person providing consideration is fictitious within the ambit of benami transactions.

• Exceptions to Benami Transactions: When property is held by a person for the immediate or future benefit of another person who has provided the consideration for the same, such a transaction shall ordinarily be considered a benami transaction except in the following cases: when a property is held by: (i) a member of a Hindu Undivided Family, and is being held for his or another family members benefit, and has been provided for or paid off from sources of income of that family; (ii) a person in a fiduciary capacity; (iii) a person in the name of his spouse or child, and the property has been paid for from the person`s income.

• Benamidar and Beneficial Owner: The Bill also defines the terms Benamidar and Beneficial Owner. A Benamidar is a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name. A Beneficial Owner means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.

• Prohibition on transfers of Benami Property: Any property, which is subject matter of Benami Transaction, shall be liable to be confiscated by the Central Government. No person, being a benamidar shall re-transfer the Benami Property held by him to the Beneficial Owner or any other person acting on his behalf. Where any benami property is re-transferred in contravention of the above provision, the transfer of such property shall be deemed to be null and void.

• Authorities under Amendment Act: The Bill seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: (i) Initiating Officer; (ii) Approving Authority; (iii) Administrator; and (iv) Adjudicating Authority.

• Attachment of Benami Property: Where the Initiating Officer has cause to believe that a person is a benamidar, he can issue notice to such person to show cause why the property in his possession should not be treated as benami property. If the Initiating Officer apprehends that such person may alienate the benami property, he can with the consent of the Approving Authority attach the property for a period not exceeding 90 days. If the Initiating Officer makes an order, to continue attachment of the property after 90 days, until a final order is passed, the Initiating Officer will refer the case to the Adjudicating Authority. The Adjudicating Authority will then examine all documents and evidence relating to the matter and then pass an order on whether or not to hold the property as benami.

• Powers of Adjudicating Authority: The Adjudicating Authority shall make the final decision as to whether property is benami property. And in cases when it adjudicates that the property is benami, he Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned, make an order confiscating the property held to be a benami property.

• Appellate Authority: The Bill also seeks to establish an Appellate Tribunal to hear appeals against any orders passed by the Adjudicating Authority. Appeals against orders of the Appellate Tribunal will lie to the high court. The Central Government may by notification, designate one or more Courts of Session as a Special Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the notification.

• Penalties: Whoever is found guilty of entering into benami transactions, 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 Benami Act and knowingly gives false information to any authority or furnishes any false document in any proceeding under this Benami 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 percent of the fair market value of the property.

MHCO COMMENT

The proposed amendments clearly aim to strengthen the Benami Act in terms of procedure so as to overcome the practical difficulties which arise in its implementation. 

This article was released on 18 August 2016.

AMENDMENTS | COMPANIES INCORPORATION RULES

The Ministry of Corporate Affairs (MCA) has notified the Companies Incorporation (Third Amendment) Rules, 2016 vide a notification in the official gazette on 27 July 2016. This update captures some of the important changes brought about by the amendment:

• Eligibly to Incorporate One Person Company: Earlier the rules stated that no person shall be eligible to incorporate more than a single One Person Company or become nominee in more than one such company. However, the new rules now state that 'A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a one Person Company'. Therefore an individual may now incorporate multiple One Person Companies, subject to renouncing membership of the earlier companies or cessation of the corporate existence of the earlier One Person Companies.

• DIN Verification: In case a subscriber to the memorandum possesses a valid Director Identification Number (DIN) and the particulars provided therein are up to date, on the date of application and the declaration to this effect is given in the application, the proof of identity and residence of such subscribers, need not be attached.

• Certified Resolution: Partnership firms are no longer required to submit to the Registrar the certified true copy of the resolution agreed to by all the partners specifying inter alia the authorization to subscribe to the memorandum of association of the proposed company and to make investment in the proposed company, the number of shares proposed to be subscribed in the body corporate, and the name of the partner authorized to subscribe to the Memorandum.

• Online Business: Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the home page of the said website. The Central Government may as and when required, notify the other documents on which the name of the company shall be printed.

• Shifting of registered office: A company was not allowed to shift its registered office if any inquiry, inspection or investigation had been initiated against the company or any prosecution was pending against the company under the Act. However, the amendment states that if on completion of such inquiry, inspection or investigation no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed. The same is applicable to the shifting of the registered office of a Company from one state to another.

• No Change of Name in the Event of Default: Henceforth, the change of name shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon. However, the change of name shall be allowed upon filing of the necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be.

• Unlimited Liability to Limited Liability: The Rules also prescribe the procedure for conversion of a company with unlimited liability into one with limited liability, which includes inter-alia, (a) the passing of a special resolution, (b) publication of notice in newspapers seeking objections to the conversion and (c) thereafter making an application to the ROC along with the documents prescribed by the rules, which includes, a copy of the altered memorandum and articles, declaration of solvency signed by two directors, NOC from secured creditors, Auditor's certificate, etc.

Further, this converted company shall not change its name for a period of one year from the date of such conversion. The company shall also refrain from declaring or distributing any dividend without satisfying past debts, liabilities, obligations or contracts incurred or entered into before conversion.

It is important to note that an Unlimited Liability Company shall not be eligible for conversion into a company limited by shares or guarantee in case- (a) its net worth is negative, or (b) an application is pending under the provisions of the Companies Act 1956 or the Companies Act, 2013 for striking off its name, or (c) the company is in default of any of its Annual Returns or financial statements under the provisions of the Companies Act, 1956 or the Companies 4ct,2013, or (d) a petition for winding up is pending against the company, or (e) the company has not received amount due on calls in arrears, from its directors, for a period of not less than six months from the due date; or (f) an inquiry, inspection or investigation is pending against the company. 

MHCO COMMENT

We believe this amendment to the Rules have been made with the intention to mitigate the practical difficulty faced by people in incorporating companies and with the intent of increasing transparency and accountability in corporate governance.

This article was released on 4 August 2016.