Symbiosis Law School NOIDA
The definition of a Benami transaction under the Prevention of BENAMI-Transactions [Prohibition] Act 1988 is given under Section 2(a) providing that a Benami Transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person.
In a prominent case, it has been established that the definition of the benami transaction as given under section 2 is not restricted in its scope and application to Section 3 alone but also applies to Section 4 and 5 of Benami Transaction (Prohibition) Act, 1988. Parliament has conveyed its intention that the word benami transaction is not confined to one section alone and also that the definition would contain only one category tripartite of benami transaction. The parliament has chosen to confine the definition to one category only. The idea was to make the intention abundantly clear that parliament did not want to encircle the second category i.e. bipartite or sham transaction.
It can be further understood by the fact that even before the Benami Transactions (Prohibition) Act was passed, two kinds of transaction were recognized by the courts in India. The first kind of benami transaction was called the real benami transaction in which when ‘A” sells a property to ‘B’ but the sale deed mentions ’C’ as the purchaser. Here the real owner is ‘B’ and ‘C’ is only the benamidar. The second class or kind of transaction is the sham transaction in which one person purports to transfer his property to another without intending to pass the title to the transferee. This second type of transaction was ‘loosely’ called benami transaction. In the first type of transaction since there are three persons involved, it is also referred as tripartite benami transaction. The fundamental difference between the two categories of transactions is that in the former there is an operative transfer resulting in the vesting of title in the transferee, whereas in the latter there is no operative transfer and the transferor continues to retain title of the property notwithstanding execution of the documents.
In another landmark judgment, the principal governing the question whether a transfer is benami transaction or not were be summed up:
- The burden of showing that a transfer is benami transaction lies on the person who asserts that it is such a transaction;
- 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;
- The true character of the transaction is governed by the intention of the person who has contributed the purchase money, and
- The question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motive governing their action in bringing about the transaction and their subsequent conduct etc.
The word ‘Benami’ has been originated from Persian vocabulary and it literally means ‘property without a name’. By the definition of Benami in the Act, it can be construed that the word “Benami” is used to define a transaction in which the real beneficiary is not the one in whose name the property is purchased. As a result, the person in whose name the property is purchased is just a mask of the real beneficiary.
The issue of Benami transactions having a negative impact upon the taxing authorities of the country was taken up by the Law Commission of India in its Fifty Seventh Report in 1973, a time when the problem of property being held benami was causing much trouble to the taxing authorities of India. The Commission focused upon the debarring of the Benami Transactions and pointed out that the essential legal characteristic of these transactions is that there is no intention to benefit the person in whose name the transaction if being made. In other words, the benamidar is the person in whose name the transaction is being executed and he is just an alias for the person beneficially interested. The benamidar has the ostensible title to the property standing in his name but the beneficial ownership of the property doesn’t vest in him, it rests in the real owner.
The essence of a benami transaction involves various aspects and could be said to be the use of an alias in respect of the holding of property, usually, with the object of concealing the real owner’s identity.
Further, the motives behind the emergence of Benami Transactions are manifold:
- In the early eighties, the Joint Hindu Family was the business system of choice and a desire to make secret provisions and investments was one factor which could have led to the practice of benami.
- Defrauding the creditors of their just and lawful dues was present prevalently in the eighties in India which could be a motive for benami transactions in property.
- Lastly, defrauding the government or the state authorities could be achieved by way of benami by the means of evading taxes by having property in the name of relatives of the real owner or some other’s name to evade taxation as provided by the tax laws.
- Benami transactions were also used as a way to conceal black money obtained through corrupt practices.
According to the Benami Transactions (Prohibition) Act, 1988 the burden of proof lies on the person who is claiming and/or asserting that the transaction is the kind of aforesaid transaction i.e. benami transaction. While initially the person asserting the same has established his contentions in the Court of Law the burden of proof shifts on the person on whom it has alleged that he has been part of benami transactions. The rules of onus probandi apply here.
Even in several of the landmark cases set upon this point, it has been proved that the onus to prove that the transaction was benami is on the person who sets it. Mere suspicion is no evidence to hold any transaction to be a benami transaction, but should be proved by direct evidence.
The courts of the country have delivered many judgments for laying down the guidelines for proving a benami transaction to compensate for the lack of provisions in the 1988 Act itself. For the requisites of proving a benami transaction coincide with two of the requisites of proving a fraud: Deception and Dishonest Intention. The first step of proving a benami transaction would be to determine the existence of the said benami transaction that would be considered the trick / deception itself.
In a landmark judgment, it was held that the governing principle for determining the question whether a transaction is benami or not is to be proved by proving that the purchase money came from a person other than the person in whose favor the property is transferred. In fact, the purchase is prime facie to be inferred. The intention of the person who contributed towards the money has to be inferred from the circumstances and relationship of the parties and the motive governing their actions in bringing about the transaction and their subsequent conduct.
For when the Dishonest intention is to be proved on the part of the perpetrators, a judgment of the Delhi High Court would entail the approach by holding that when it was alleged that the diversion of funds by Defendant in favor of the other defendants was fraudulent and illegal, Section 6 of the Act protected such a claim from the applicability of Section 4. The intention of the Act is to vest ownership rights in benamidar as against the real owner.
Upon the conviction of a person under this Act, Section 3 of the Act penalizes the person who has been proved to be guilty for Benami transactions with the imprisonment of a term which may extend up to three years or fine or both.
The Adarsh Housing Society scam revolves around a single building named Adarsh Housing Society located in Colaba, a posh area of Mumbai, Maharashtra
It all started in 2000, when a large plot (over 6,000 sq. ft.) in the military complex in Colaba was released for residential use. The very first proposal of the Adarsh Housing Society came up before the then Shiv Sena-BJP government with Narayan Rane as the Chief Minister. A second application came up the following year, this time with the Congress Govt. in power and Vilasrao Deshmukh as Chief Minister. At this time, the allotment application was sought in the name of providing homes for war widows and veterans. Eventually, though, a majority of the flats were allotted to politicians and bureaucrats as well as some Army and Navy Commanders. On the list of beneficiaries who got flats were Ashok Chavan’s relatives, including his mother-in-law (who passed away in July this year). Now it so happened that Ashok Chavan was heading the Mumbai Metropolitan Region Development Authority (MMRDA), which is the official authority dealing with developments in he Colaba-Nariman Point area of the city. In September that year, the MMRDA had given the occupation certificate to Adarsh Housing Society.
Other than who should have and who should not have got flats in Adarsh, the tail of the scam grew longer with more irregularities related to it being discovered.
The Adarsh building was to have 7 floors. However, in 2005, when Vilasrao Deshmukh was CM, massive changes were made. Adarsh was granted additional floor space index (this governs the height of a building) of an adjacent plot that had been reserved for a bus depot. Thus, the building could increase its height with more floors, the height increasing from less than 30 mt to 104 mt.
The Adarsh building flouted environmental laws. It was important for Adarsh Housing Society to get clearance from various official environmental authorities before even a brick was laid, as the building lies in the Coastal Regulatory Zone (meaning all construction projects are regulated to prevent environmental damage). It was found that both the Union Ministry of Environment and Forests and the Maharashtra Coastal Zone Management Authority were in the dark about who exactly gave clearance to the 31-storeyed building – only 6 floors were considered legal.
Some of the more blatant transgressions included: obtaining a No Objection Certificate (NOC) from the Army towards construction of the building in a sensitive zone, getting the Mumbai Metropolitan Region Development Authority (MMRDA) development plan modified, and obtaining another NOC for residential development in a Coastal Regulation Zone, often through manipulation of records and misrepresentation of facts. Efforts by honest officers to bring this to the notice of top officials were ignored.
The issue was first raised in a newspaper report in 2003 but did not evoke any official reaction. In 2010, it was again raised by various newspapers and TV channels. Questions were raised about the manner in which apartments in the building were allocated to bureaucrats, politicians and army personnel who had nothing to do with the Kargil War and the way in which clearances were obtained for the construction of the building of the Adarsh Society. It had led to the resignation of the then Chief Minister, Ashok Chavan. Some of the allottees of the flats in the Adarsh co-operative society building offered to return their flats, denying allegations that they were allotted flats because they influenced or helped, in some manner, the construction of the society by violating the rules.
The CBI carried out the investigation and executed eight arrests including two retired Major Generals TK Kaul and AR Kumar, retired brigadier MM Wanchoo, former General Officer Commanding (GOC) of Maharashtra, Gujarat and Goa, Adarsh promoter Kanhaiyalal Gidwani and Pradeep Vyas, the then city collector and currently, finance secretary (expenditure) in the Govt. of Maharashtra. Accordingly, on 22 March 2012, the Chief Minister of Maharashtra, Prithviraj Chavan announced in the legislative assembly that the two IAS officers whose names have figured in the scam, Pradeep Vyas and Jairaj Phatak have been suspended from government service.
Government of Maharashtra also appointed a two-member judicial commission, under the Commissions of Inquiry Act, 1952, to investigate alleged irregularities and corruption. It was decided that the commission would be led by a retired Bombay High Court judge JA Patil while former State Chief Secretary P Subramanian would be the member.
The Commission’s terms of reference were to investigate all aspects, including land ownership and allotment, permissions given to Adarsh.
According to newspaper reports, many of the accused arrested by the CBI held more than one flat in the society in fictitious names and benami owners. Former Congress MLC Kanhaiyalal Gidwani was reported to have as many as ten flats, which he had bought on behalf of top politicians. Gidwani and his son had been earlier arrested in 2012, by the CBI for trying to influence CBI officials investigating their alleged involvement in the Adarsh scam. In a further twist to the case, the CBI officers arrested their own lawyers, J K Jagiasi and Mandar Goswami. Jagiasi allegedly asked an Air India official, one of the accused in the case, to pay a bribe of Rs 50 lakhs in exchange for diluting charges levelled against him. The petty cash books maintained by Jagiasi helped unearth the conspiracy. In addition, Rs 25 lakhs was allegedly paid to Goswami. He was the Special Counsel in the Ministry of Law and Justice and at present is working as Retainer Counsel for CBI. According to CBI sources, the tainted AI official approached the CBI for dilution of the case filed against him.
The CBI gave a logical end to the Adarsh Housing Scam by registering a case on 04-07-2012 against 50 accused persons under the Prevention of Corruption Act, 1988 (POCA), IPC and Prevention of BENAMI-Transactions [Prohibition] Act 1988 for the following offences in its Charge sheet (173 of Code of Criminal Procedure 1973):
Criminal Conspiracy: Conspiracy is a substantive offence. It exists in the very agreement between two or more persons to commit a criminal offence, irrespective of the further consideration whether or not the offence has actually been committed or to break the law. The essentials of a single conspiracy require that there must be a common design and a common intention of all to work in furtherance of the common design. It is generally proved by circumstantial evidence as it is the only type of evidence that is normally available to prove conspiracy.
Punishment: Six month imprisonment or fine or both
Type: Non cognizable, Bailable, Non Compoundable
Cheating: Sec 415 of IPC defines the offence of cheating which is made punishable by Sec 417 and Sec 420. Sec 420 deals with comparative certain aggravated forms of cheating. It deals with the cases of cheating whereby the deceived person is dishonestly induced (a) to deliver the property to any person or (b) to create or destroy a valuable security. It is necessary to prove that the complainant is parted with the property due to the dishonest inducement of the accused.
Punishment: Seven year imprisonment and fine
Type: Cognizable, Non bailable, Compoundable with court’s permission
Forgery to cheat: At the very basis of the offence of forgery is the making of a false document with the criminal intention to cause damage to any person. The form of forgery contemplated here necessarily has to involve the intention of committing cheating. The section will not apply when the cheating is complete and the subsequent forgery is only to cover for that offence. This section doesn’t require that the accused should commit the offence of cheating. What is material to the section is committing forgery with the intent to use the forged document for cheating.
Punishment: Seven Year imprisonment and fine
Type: Cognizable, Non Bailable, Non Compoundable
Using forged document: This section deals with the liability of the person who knowingly or having a reason to believe that the document is forged, uses such document dishonestly or fraudulently as a genuine. It does requires the accused to use the forged document as genuine even after knowing or having a reason to believe that it is forged.
Punishment: Punishment for forgery of such document
Type: Cognizable, Bailable, Non Compoundable
Criminal misconduct by Public Official: Section 13 of the Prevention of Corruption Act defines what constitutes criminal misconduct by a public servant and specifies penal provisions, which includes jail up to seven years, against such persons. Where a sentence of fine is imposed under sec. 13(2) and sec. 14, the court while fixing the amount for the same shall consider the amount or the value of the property which the accused has obtained by committing the offence or where the conviction is for an offence referred to in Sec. 13, the pecuniary resource or property for which the accused is unable to account satisfactorily.
Punishment: One – Seven Year Imprisonment and fine.
Benami Transaction: This section of the act penalizes the person who has proved to be guilty under the with the imprisonment of a term which may extend up to three years or fine or both. The section prohibits the occurrence of benami transactions. the burden of proof lies o the person who is claiming and/or asserting that the transaction is the kind of aforesaid transaction i.e. benami transaction. While initially the person asserting the same has established his contentions in the Court of Law the burden of proof shifts on the person on whom it has alleged that he has been part of benami transactions. The rules of onus probandi applies here.
Punishment: 3 Year Imprisonment or Fine or Both
Type: Non Cognizable, Bailable
The provisions pertaining to the procedure to try and prosecute the offences in the present case study are
The report pertaining to occurrence of a cognizable offence, received at the Police Station is called First Information Report. On receipt of this information police registers the report in a FIR Register and begins the investigation of the crime. The complainant is entitled to a free copy of the FIR
The recording of statements of witnesses by the Police. The statements of the witnesses are not to be signed.
If, upon an investigation under this Chapter, it appears to the officer in charge of the police station that there is sufficient evidence or reasonable ground as aforesaid, such officer shall forward the accused under custody to a Magistrate empowered to take cognizance of the offence upon a police report and to try the accused or commit him for trial.
After completion of investigation, the investigation officer shall forward a Police report (recommending prosecution) to the jurisdictional magistrate giving the result of the investigation and further action to be taken.
Any Magistrate of the first class may take cognizance of any offence.
A Magistrate taking cognizance of an offence on complaint shall examine upon oath the complainant and the witnesses present, if any, and the substance of such examination shall be reduced to writing and shall be signed by the complainant and the witnesses, and also by the Magistrate. Provided that, when the complaint is made in writing, the Magistrate need not examine the complainant and the witnesses.
The provisions regarding Evidence to admit, and try the Crime are:
- An oral admission can be proved either by the party to whom it was made or by someone who heard it being made. To this extent the evidence of an informal admission is an evidence of hearsay. The oral evidence must in all cases be direct, that is to say, the witness must have personal and direct knowledge of the fact to which he testifies. If, for example, the question is how a fire started. A person who witnessed the fire being started by an explosion can give evidence of this fact, for he has personal knowledge of the fact. If on his way home he told someone of the fact of explosion, that other cannot give evidence of the explosion for his knowledge is nothing but a hearsay.
- Law of best evidence requires the best evidence must be given in proof of the facts in issue or the other relevant facts. Primary evidence is the best evidence. The best evidence rule is to produce the original and secondary evidence is not admissible unless the original is proved to be lost, etc. Contents may be proved, i.e., in other words, there are no degrees of secondary evidence. In India the rule is the same as in England. The section means that there no other method allowed by law for providing the contents of a document except by the primary or the secondary evidence. Where admissions were made in a written statement by the plaintiff’s predecessors-in-interest which was filed in several judicial proceedings regarding the rights in the suit property, a certified copy of the written statement was held to be admissible in proof of the settled rights to the property.
Where the document carried adhesive stamps which belonged to a period prior to six months from the date of purchase, the court said that such document could not be attached in evidence. it would have been admissible if it was not creative of any rights in favor of any party and merely recorded something.An unregistered family settlement deed was held to admissible strictly for collateral purposes only.
In general, nobody is barred from being a witness as long as he is able to understand the questions that are put to him as well as is able to give rational replies to those questions. There may be several reasons because of which a person may not be able to comprehend the questions and/or is unable to reply coherently. This section does not attempt to define all such reasons but gives examples of such reasons such as young age (in case of a child), mental illness, or extreme old age. It is up to the court to determine whether a person is able to understand the questions or give rational answers. Thus, competency is a rule, while incompetency is an exception. Even a lunatic is considered a competent witness if his lunacy does not prevent him from understanding the questions and giving rational answers.
The entire episode of Adarsh Housing Scam revealed glaring examples of dereliction of duty and severe lack of probity and accountability which needs to be very seriously investigated. This case engaged the attention of national headlines. Not taking exemplary remedial and punitive action which would serve as a deterrent, would seriously erode the credibility of Government. Laxity in follow-up would encourage similar attempts in future. Audit merely strives, as it is constitutionally mandated to do so, to place documentary evidence in this Report in a sequential form before the ultimate stakeholder. It is for the Parliament and the Government to ensure that public trust is not betrayed. This incident proves the negative impacts of transactions by the use of proxies i.e. Benami Transactions.
The Benami Transactions Act 1988 is though old, but an important piece of social legislation which not only seeks to abolish the age old concept of benami and the judicial acceptance of the doctrine by putting a bar on the right to recover property held benami by a real owner, but also declares a benami transaction as illegal with penal consequences and also makes all properties held benami liable to be acquired by the Government without payment of any compensation. Thus, the provisions of the Act which is claimed to be a part of the schemes of social engineering, where avowedly the benefit of the community or public at large is the sole consideration, can be said to be a fraud on State’s power of eminent domain of his valuable right to property.
The short preamble of the Act does not convey the clear intention of the Legislature behind the present enactment which is preceded by an Ordinance promulgated by the President, nor does it convey the objectives it seeks to achieve. Therefore, on the question of validity of this Act perhaps the Court has to go into the facts and circumstances as well as the executive thoughts, deliberations and actions. Reports of the Law Commission on the Bill which became the Act in question are of obvious relevance of its meaning.
According to the Report of the law Commission the Act is envisaged at curbing illegal and nefarious uses of property. But due to ill-conceived drafting, the Act is found to suffer from the many lacunae and conflicts with other existing statute.
The traditional concept of ‘benami transaction’ underwent a radical change whereby certain transactions which were held and considered as ‘benami’ cease to be considered so. For example, any purchases of property in the name of wife or unmarried daughter now are presumed as an advancement or gift, which has, however, been made rebuttable. By making the presumption for advancement in favor of wife and unmarried daughter rebuttable by taking out such transactions from the mischief of clause (a) of section 2 of the Act by the exclusionary provision of section 3(2) of the said Act and consequential immunity from prosecution u/s 3(3), such a transaction, although intended to be a gift, may now be resorted to as a benami in order to circumvent the provision of the Gift-Tax Act and the Income-tax Act to avoid payment of gift-tax upon clubbing of the income from the transferred assets.
Further, a host of innocent transactions which were in fact never intended to be benami were now made vulnerable because of the present Act.
To initiate a change on the affirmative side, the Benami Transaction (Prohibition) Bill, 2011 was introduced by the Ministry of Finance on August 18, 2011 in the Lok Sabha in order to seek prohibition of the benami transactions. The Bill seeks to replace the existing Benami Transactions (Prohibition) Act, 1988.
The bill provides that all sorts of benami property arising out of prohibited benami transactions are liable for confiscation by the Central Government and such property shall vest absolutely in the Central Government without paying any compensation. It prohibits the right of the Benamidar to recover the property that is held benami.
It prohibits benami transactions by any person, except in the cases where they are entered into in the name of spouse, brother or sister, or any lineal ascendant or descendant. It provides that the Adjudicating Authority and the Appellate Tribunal established under the Prevention of Money-Laundering Act, 2002 shall respectively be the Adjudicating Authority and the Appellate Tribunal for the purposes of this Bill and any person aggrieved by an order of Adjudicating Authority may prefer an appeal to the Appellate Tribunal and further provides that any party aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court on any question of law.
It also provides the power to the Central Government, in consultation with the Chief Justice of the High Court, to designate one or more Courts of Session as special Court or Special Courts for the purpose of the Bill.
It also provides penalty for entering into prohibited benami transactions and for furnishing any false documents in any proceeding under the Bill
It will also make consequential amendments in the Prevention of Money Laundering Act, 2002.
This 2011 Bill, however, lapsed with the dissolution of the 15th Lok Sabha. Thus came in picture the Benami Transaction (Prohibition) amendment Bill, 2015 which was recently cleared by the Cabinet. This new Bill has been framed after the keeping in mind the recommendations of the standing Committee, and is much more comprehensive than the 2011 Bill. But, still, it is not enough to curb the benami practices. Allowing Benami Properties still to be held in name of spouse and other lineal descendent should be removed as this proposition would not help limit the Benami Transactions.
Even after taking such a long time for introducing the Benami Transactions (Prohibition) Bill, 2011 to repeal the Benami Transactions (Prohibition) Act, 1988 with a view to enacting a comprehensive legislation to deal with benami transactions, the Bill has failed to live up to the mark and provide for speedy and Effective Changes. With the advent of the new bill, which has stricter and clear norms, it is equally important that the effective implementation be brought out as well, otherwise, there will be absolutely no point in bring out newer and better legislations.
 Section 2(a) of The Benami Transactions (Prohibition) Act, 1988
 Bhargavy P. Sumanthykutty v. Janaki Sathyabhama, AIR 1995 Ker 42.
 Bhargavy P. Sumanthykutty v. Janaki Sathyabhama, AIR 1995 Ker 42.
 Raj Ballav Das v. Haripada Das, AIR 1985 Cal 2.
 “Cabinet approves new act to deal with benami transactions” – The Times of India. (2011, July 21). Retrieved February 10, 2016,
 “Fifty Seventh report of the Law Commission of India 1973”
 “Fifty Seventh report of the Law Commission of India 1973”
 West and Buhler, “Hindu Law” (4th Edition), Page no. 157
 “Benami Transaction defined and the relation between the terms benamidar and ostensible owner” (2013, May 09). Retrieved February 10, 2016
 “Benami Transaction defined and the relation between the terms benamidar and ostensible owner” (2013, May 09). Retrieved February 10, 2016
 Drigpal Singh v. Wife of Laldhari Ojha AIR 1985 Pat 110; Rahul Amin v. Chabbahan Bibi AIR 1986 Cal 366
 Mohinder Singh v. Parduman Singh, (1992) 196 ITR 786 (Delhi)
 P.N.B. Finance Ltd. v. Shital Prasad Jain, AIR 1991 Delhi 13.
 Section 161 & 162, The Code of Criminal Procedure, 1973
 Sec.60, The Indian Evidence Act, 1872
 Section 65, Indian Evidence Act, 1872
 Section 61, Indian Evidence Act, 1872
 Ramprasad v. Raghunandad Prasad, (1885) 7 ALL 138 (143)
 Tex India v. Punjab and Sind Bank, AIR 2003 Bom 444.