Benami Transactions Act (Prohibition), 1988 :: Indian Bare Acts
INTRODUCTION
Benami purchases are purchases in false name
of another person, who does not pay the consideration but merely lends his
name, while the real title vests in another person who actually purchased the
property and he is the beneficial owner. Benami transactions used to take place
to evade law of perpetuity, because of parda system, to avoid annoyance,
Zamindar’s desire to avoid indignity and legal disability, mysterious desire
etc.
Benami transactions were noticed as early as
the year 1778 in Mr. Justice Hyde’s notes after the establishment of British
rule in
Such benami transactions abused and defrauded public revenues and creditors. The Parliament for the first time intervened in 1976 when it introduced section 281A in the Income-tax Act, 1961 barring the institution of suit in relation to benami properties. But this too did not stop benami transactions and its consequences, this time the Parliament totally prohibited the benami transactions and made it an offence also, prohibiting all suits, claims and actions based upon benami transaction. The Parliament also in order to stop the abuse and fraud by the benami transaction property without compensation repealed section 82 of Indian Trusts Act and section 281A of the Income tax Act along with other consequential repeal. The Law Commission was requested to examine the subject on benami transactions in all its ramifications. The Law Commission submitted its 57th Report. To implement the recommendations of the Law Commission President promulgated the Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 on 19th May, 1988 by which it barred all suits and defenses based upon benami transactions. This Ordinance was converted into an Act by introduction of a Bill in the Parliament.
STATEMENT OF OBJECTS AND REASONS
(1) To implement the recommendations of the
Fifty-seventh Report of the Law Commission in Benami Transactions, the
President promulgated the Benami Transactions (Prohibition of the Right to
Recover Property) Ordinance, 1988, on the 19th May, 1988.
(2) The Ordinance provided that no suit, claim
or action to enforce any right in respect of any property held benami shall lie
and no defense based on any right in respect of any property held benami shall
be allowed in any suit, claim or action. It however, made two exceptions
regarding property held by a coparcener in a Hindu undivided family for the
benefit of the Coparceners and property held by a trustee or other person
standing in a fiduciary capacity for the benefit of another person. It also
repealed section 82 of the Indian Trusts Act, 1882, section 66 of the Code of
Civil Procedure and section 281A of the Income-tax Act, 1961.
(3) The provisions of the Ordinance received a
mixed response from the press and the public. There had been criticism also
that the Ordinance was a half-hearted measure and had not tackled the problem
effectively and completely. It was, therefore, felt that the Bill to replace
the Ordinance may be brought out as a comprehensive law on benami transactions
touching all aspects and accordingly, the Law Commission was requested to
examine the subject in all its ramifications. The Law Commission has submitted its
130th Report titled "Benami Transactions – a Continuum"
and has made certain recommendations.
(4) The Law Commission has, inter alia,
recommended the inclusion of the following provisions in the Bill to replace
the Ordinance, namely: -
(i) benami transactions
should cover all kinds of property;
(ii) entering into a
benami transaction after the commencement of the new law should be declared as
an offence. However, an exception should be made for transactions entered into
by the husband or father for the transfer of properties in the name of the wife
or unmarried daughter for their benefit. By this, the doctrine of advancement
as obtaining in the English law will be incorporated into the Indian Statute
Book;
(iii) Voluntary
organizations should be authorized to file complaints about the entering into
of benami transaction and the District Judges should be designated as
Tribunals. Even Gram Nayalayas recommended by the Law Commission may also be
utilized for this purpose;
(iv) as both the
benamidar and the true owner are equal participants to a criminal transaction,
by prohibiting the true owner’s right to recover property held benami as
provided in the Ordinance will be provided for an undue enrichment to the
benamidar. As such, the Commission has suggested that the properties should be
acquired form him by resorting to a procedure analogous to Chapter XXA of the
Income-tax Act, 1961.It has been suggested that the same action has to be taken
when a benamidar retransfers the property back to the true owner for an
apparent or no consideration to circumvent the provisions of the Ordinance;
(v) in addition to
section 82 of the Indian Trusts Act, 1882, as provided in the Ordinance,
sections 81 and 94 of that Act should also be omitted;
(vi) appointment of an
authority, like the Charity Commissioner, for supervising private trusts should
be provided for.
(5) The recommendations of the Law commission
have been examined. It is felt that all the recommendations of the Law
Commission , except the recommendation regarding authorizing voluntary
organizations to file complaints before Tribunals and the appointment of an
authority , like the Charity Commissioner, for supervising private trusts, may
be specifically provided in the Bill, and the other two recommendations would,
it is felt, come into effect automatically as a result of the prohibition of
benami transactions and the provision for acquisition of all properties held
benami. The Bill accordingly provides for the following, among other things,
namely: --
(a) entering into
benami transactions after the commencement of the new law will be an offence,
with an exception for the transfer of properties by the husband or father for
the benefit of the wife or unmarried daughters;
(b) all the properties
held benami will be subject to acquisition by such authority, in such manner
and after following such procedure, as may be prescribed by rules under the
proposed legislation. As a result of the provisions of the Ordinance and the
prohibition of entering into benami transactions, the benamidar would be
acquiring the rights to the property by the mere lending of his name and
without investing any money for the purchase of such property. Accordingly, it
is provided that no amount shall be payable for the acquisition of any property
held benami:
(c) Sections 81 and 94
of the Indian Trusts Act, 1882, shall also be repealed.
(6) The Bill seeks to achieve the above object.
Act 45 of 1988
The Bill was passed by both the Houses of Parliament and it received the assent of the President of 5th September 1988 and became the Benami transaction (Prohibition) Act, 1988 (45 of 1988).
Preamble
[5TH September, 1988]
An Act to prohibit benami transactions and the
right to recover property held benami for matters connected therewith or
incidental thereto
BE it enacted by Parliament in the Thirty-ninth Year of the Republic of India as follows: --
1. Short title, extent and commencement. —
(1) This Act may be called the Benami Transactions
(Prohibition) Act, 1988.
(2) It extends to the whole of India except
the State of Jammu and Kashmir.
(3) The provisions of sections 3m 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May , 1988.
2. Definitions. —
In this Act, unless the context otherwise
requires, --
(a) "Benami transaction" means any
transaction in which property is transferred to one person for a consideration
paid or provided by another person:
(b) "prescribed" means prescribed by
rules made under this Act;
(c) Property means property of any kind,
whether movable or immovable, tangible or intangible, and includes any right or
interest in such property.
Comments: It may be noted that the Act is a
piece of prohibitory legislation and it prohibits benami transactions
subject to stated exceptions and makes such transactions punishable and also prohibits the right to defenses against recovery of benami transactions as defined in S. 2(a) of the Act. The Parliament has jurisdiction to pass a declaratory legislation. As a result of the provisions of the Act all properties held benami at the moment of the Act coming into force may be affected irrespective of their beginning, duration and origin. This will be so even if the legislation is not retrospective but only retroactive. Mithilesh Kumari v. Prem Behari Khare AIR 1989 SUPREME COURT 1247
3. Prohibition of benami transactions-
(1) No person shall enter into any benami
transaction.
(2) Nothing in sub-section (1) shall apply to
the purchase of property by any person in the name of his wife or unmarried
daughter and it shall be presumed, unless the contrary is proved, that the said
property had been purchased for the benefit of the wife or the unmarried
daughter.
(3) Whoever enters into any benami transaction
shall be punishable with imprisonment for a term which may extend to three
years or with fine or with both.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2of 1974), an offence under this section shall be non-cognizable and bailable.
4. Prohibition of the right to recover
property held benami. –
(1) No suit, claim or action to enforce any
right in respect of any property held benami against the person in whose name
the property is held or against any other person shall lie by or on behalf of a
person claiming to be the real owner of such property.
(2) No defense based on any right in respect
of any property held benami, whether against the person in whose name the
property is held or against any other person, shall be allowed in any suit,
claim or action by or on behalf of a person claiming to be the real owner of
such property.
(3) Nothing in this section shall apply-
(a) where the person
in whose name the property is held is a coparcener in a Hindu undivided family
and the property is held for the benefit of the coparceners in the family; or
(b) where the person
in whose name the property is held is a trustee or other person standing in a
fiduciary capacity, and the property is held for the benefit of another person
for whom he is a trustee or towards whom he stands in such capacity.
COMMENTS
(i) Sub-section (1) of section 4 has no
application to the claim made in the suit as this is not a suit filed by or on
behalf of defendant No.1 against defendant No.2 or the legal representatives of
defendant No..2, instead it is a suit filed by a third party for specific
performance of the suit contract against the real owner as well as benamidar,
Murlidhar Bapuji Valve v. Yallappa Lalu Chaugule, AIR 1994 Bom 358.
(ii) The defense raised by the contesting
respondents that the transaction of the sale under the sale deed dated 9th
October, 1957 executed in favor of the appellants was a benami transaction is
prohibited in view of section 4(2) of the Benami Transactions (Prohibition)
Act, 1988; Duvuru Mohand Reddy v. Alluru Nagi Reddy, AIR 1994 SC 1647.
(iii) The defense taken by the defendant that
the plot in fact was purchased by him in the name of his brother i.e. the plot
was purchased benami, cannot be allowed by virtue of section4(2) of the Benami
Transactions (Prohibition) Act, 1988; Om Prakash Rawal v. Justice Amrit Lal
Bahri, AIR 1994 HP 27.
(iv) Under section 88 of Indian Trusts Act, an
agent or other person bound is in a fiduciary character to protect the interest
of the principal and the former would hold the property for the benefit of the
principal or the person in whose behalf he acted as an agent. Held that a real
purchaser is the respondent, the petitioner as an agent and power of attorney
had purchased the property but ostensibly had his name entered in the sale
certificate fraudulently and without consent of the principal and the question
of benami does not arise though section 4 prohibits such a plea; P. V. Sankara
Karup v. Leelavathy Nambiar, AIR 1994 SC 2694.
(v) A coparcenery is purely a creature of law
and it cannot be created by act of parties whereas a composite family is the
result of an agreement express or implied. There are incidents to the
constitution of a composite family, but all incidents are consequences of the
agreement between the parties. Held that exception is section4(3) could not be
attracted in the present case of an alleged composite family; B. Rajagopal Reddy
v. Padmini Chandrasekharan, AIR 1990 Mad 353.
(vi) On coming into force of the Benami
Transactions (Prohibition) Act, defense raised for the proof of the fact that
the property held by a person is in the capacity of a benamidar is expressly
prohibited. Neither the court is permitted in law to consider such defense nor
to record its findings. Held that the Income-tax Deptt. would be prohibited
from raising a defense that the suit property held by the wife is benami and
the real owner is her husband; Smt. Khateeja Bai v. Union of India, AIR 1994
NOC 136 MP.
(vii) The plaintiff cannot lay any claim in
view of section 4 to the house on the ground that they stand in the name of
step mother benami for her deceased father, Baghyavathi v. Lakahmikathammal,
AIR 1993 Mad 346.
(viii) The burden of showing that a transfer
is a benami transaction lies on the person who asserts that is such a
transaction. The governing principal for determining the question whether a
transaction is benami or not is to be proved by showing that the purchase money
came from a person other than the person in whose favor the property is
transferred . The intention of the person who contributed towards the money has
to be inferred from the circumstances and the relationship of the parties and
the motive governing their action in bringing about the transaction and their
subsequent conduct; Mahinder Singh v. Pardaman Singh, AIR 1992 Del 357.
(ix) In view of section 4, there is a total
prohibition against any suit based on benami transaction and the
plaintiff-respondent is not entitled to get any decree in such suit or in
appeal, an appeal being a constitution of suit and in the present case the
appeal was pending before this court. In s suit for recovery of benami property
if any appeal is pending on the date of coming into force of section 4 the
appellant court can take into account the subsequent legislative changes; Om
Prakash v. Jai Prakah, AIR 1992 SC 885.
(x) Section 4 of the Benami Transaction
(Prohibition ) Act, must be taken to relate of section 2 of the Benami
Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988. It
is clear that in spite of the recommendation of the Law Commission of India to
bar institution of suits only, the Ordinance making authority has thought if it
to bar other proceedings also and has also provided in express words barring of
all claims and actions to enforce the right of a person alleging to be the real
owner against the benemidar. The Legislature by using the expression ‘shall
lie’ made departure from the usual expression ’shall be institute’ clearly
demonstrate its resolve to regulate all such suits, claims or actions also
which would be lying in the court on the date of its commencement; Urmila Bala
Dasi v. Probodh Chandra Ghosh, AIR Cal 283.
(xi) The expression any property held benami
is not limited to any particular time, date or duration i.e. the Benami
Transactions (Prohibition) Act, 1988 is retrospective in operation. Once the
property is found to have been held benami no suit, claim or action to enforce
any right in respect thereof shall lie. Sub-section (2) of section 4 similarly
nullifies the defenses based on any right in respect of any property held
benami. Section 4 in its sweep envisages past benami transaction also within
its retroactivity. In this sence the Act is both a penal and a disqualifying
statute. Held that as the appeal was pending in Supreme Court on commencement
of the Benami Transactions (Prohibition) Act, 1988, the matter becomes
sub-judice and thereafter the ‘Supreme Court’ had seisin of the whole case and
the decree passed by the lower courts annihilated and the suit dismissed;
Mithilesh Kumari v. Prem Behari Khare, AIR 1989 SC 1247.
(xii) The benamidar before the enactment of
Benami Transactions (Prohibition) Act, 1988 could not have any right, title and
interest in the property which the benamidar could convey. By the principle of
fictional relation back as propounded by the Supreme Court in Mithlesh Kumari,
the benamidar should be deemed to have title to the property on the date he
executed the deed or release. Held that Surendra Kumar was the benamidar and in
point of act on the date of execution of the deed of release he had no right or
interest in the property; Ratanlal Bansilal v. Kishorilal Goenka, AIR 1993 Cal
144.
(xiii) It has been held that the suit is not
hit by sections 2 and 4 of the Benami Transactions (Prohibition) Act, 1988 as
the plaintiff has not alleged that the defendant No 1 i.e. one of the partners
was or is a benamidar or that the money was paid by the plaintiff or that the
property was purchased in the name of the defendant No.1 as benamidar apart
from that the under section 14 and 15 of the Partnership Act, a partnership can
acquire asserts in the name of partners and these sections have not been
deleted by the Benami Transactions (Prohibition) Act, 1988; Md. Hasan Hashmi v.
Smt. Kaberi Roy, AIR 1993 Cal 70.
(xiv) Section 4 takes into its ambit the right
of a real owner vis-à-vis ostensible owner. The prohibition under section 4(1) and
(2) does not prohibit the right of a third party to get a declaration. The
third party has the right to raise the contention that someone was the real
transferee and the sale deed was only executed in the name of the transferee
who was a benamidar, Gopal Bariha v. Satyanarayan Das, AIR 1991 Ori 131.
(xv) Section 2 of the Benami Transactions
(Prohibition of the Right to Recover Property) Ordinance, 1988 relates to
section 4 of the Benami Transaction (Prohibition) Act, 1988 and according to
section 2 of the Benami Transactions (Prohibition of the Right to Recover
Property) Ordinance, 1988, action means a civil proceeding commenced by
"writ" or in such other manner, as may be prescribed by rules of
court but does not include a criminal proceeding, therefore the term
"action" is wide enough to take in an appeal or a second appeal;
Velayudhan Ramkrishan v. Rajeev, AIR 1989 Ker 12.
(xvi) In the context and setting of section 4
the word ‘held ‘ has to be understood as "possessed or occupied". If
the possession or occupation is not benami, section 4 can have no application
and as a sham transaction or bipartite transaction is not a benami. Section 4
does not apply to such a transaction; Ouseph Chacko v. Raman Nair, AIR 1989 Ker
317.
(xvii) Section 4 and 7 of the Benami Transactions (Prohibition) Act, 1988 relate to sections 2 and 4 of the Benami Transactions(Prohibition of the Right to Recover Property) Ordinance, 1988. Both section 7 of the Benami Act and section 4 of the Benami Ordinance repeal section 82 of the Trusts Act keeping section 81 of the Trusts Act intact. Keeping in view section 81 of Trusts Act nominal transactions are not intended to be covered and are not hit by section 4;B. Rayudu, AIR 1989 AP 290.
5. Property held benami liable to acquisition-
(1) All properties held benami shall be
subject to acquisition by such authority, in such manner and after following
such procedure, as may be prescribed.
(2) For the removal of doubts, it is hereby declared that no amount be payable for the acquisition of any property under sub-section(1)
6. Act not to apply in certain cases.-
Nothing in this Act shall affect the provisions of Section 53 of the Transfer of Property Act, 1882 (4 of 1882), or any law relating to transfer for an illegal purpose.
7. Repeal of provisions of certain Acts.-
(1) Sections 81, 82 and 94 of the Indian
Trusts Act, 1882 (2of 1882), section 66 of the Code of Civil Procedure, 1908
(5of 1908), and section 281 A of the Income-tax Act, 1961(43 of 1961). Are
hereby repealed.
(2) For the removal of doubts, it is hereby declared that nothing in sub-section (1) shall affect the continued operation of section 281 A of the Income –tax Act, 1961 (43 of 1961), in the State of Jammu and Kashmir.
8. Power to make rules.-
(1) The Central Government may, by
notification in the Official Gazette, make rules for carrying out the purposes
of this Act.
(2) In particular, and without prejudice to
the generality of the foregoing power, such rules may provide for all or any of
the following matters, namely:-
(a) the authority
competent to acquire properties under section5;
(b) the manner in
which, and the procedure to be followed for, the acquisition of properties
under section5;
(c) any other matter
which is required to be, or may be, prescribed
(3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
9. Repeal and saving. –
(1) The Benami Transactions (Prohibition of
the Right to Recover Property) Ordinance, 1988 (Ordinance 2 of 1988), is hereby
repealed.
(2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance shall be deemed to have been done or taken under the corresponding provisions of this Act.
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