18 August 2016

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 The Bill makes some much needed changes to the outdated Benami Transaction (Prohibition) Act, 1988 (Benami Act).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.