Benami transaction Prohibition Act and its Impact on Law Relating to Property

benami-law

Picture Courtesy: http://images.indianexpress.com/2015/05/benami-law.jpg

 This article was written by  Siddhi Kudalkar a student of NLSIU, Bangalore.

Table of Authorities:

Cases:

  • Bhim Singh v. Kam Singh, AIR 1980 SC 727 (732) (Supreme Court of India).
  • Bilas Kanwar v. Desraj Ranjit Singh, AIR 1916 P.C. 96 (Privy Council).
  • Jagdamba Pande v. Ram Khelawan Upadhya, AIR 1942 AII 344 (High Court of Allahabad).
  • Jayadayal Peddar v. Bibi Hazra, AIR (1974) S.C.171 (Supreme Court of India).
  • Kannashi Vershi v Ratnashi Nenshi, [1952] A.I.R. 85 (Kutch).
  • Mina Kumari v Bijoy Singh, (1916) ILR 44 Cal 662 (High Court of Calcutta).
  • Minerava Mills Ltd. v. Union of India, AIR 1980 SC 1789 (Supreme Court of India).
  • Mithila Kumari v. Prem Behari Khare, 1989 AIR 1247 (Supreme Court of India).
  • Mohamad Shakur v Shah Jehan, 63 IC 125 (Privy Council).
  • Panjab Province v. Daulat Singh, A.I.R. 1942 F.C. 38 (Federal Court).
  • Phoolan Devi v. Surendra Prakash,  AIR 1983 AII 440(442) (High Court of Allahabad).
  • Radheysham v. Maharaj Bahadur Singh AIR 1982 Cal (571) (High Court of Calcutta).
  • Ramcoomar Koondoo v. Macqueen, 11 B.L.R. 46 (Privy Council).
  • Sheikh Bahadur Ali v. Sheikh Dhomu, 1 Calcutta Sud. R. Diw. Rep. 250. (High Court of Calcutta).

Statutes:

  • Benami Transaction (Prohibition) Act, 1988.
  • Constitution of India, 1950.
  • Prevention of Money Laundering Act, 2002
  • Transfer of Property Act, 1882.

Reports:

  • 130th Report of Law Commission of India, Benami Transaction (1988).
  • 57thth Report of Law Commission of India, Benami Transaction (1973).

Introduction:

There are some rights, which are known as human rights or fundamental rights because they are very fundamental for the existence of human being and live and development of a human to its fullest. ‘Right to property’ was never considered one of these natural rights because it was a creation of statute.[1] However, still, after the independence, we proudly placed in the Fundamental Rights chapter of Indian Constitution, and thus providing immunity of Art. 13 of the Constitution.[2]

It is argued that making a right to property as a fundamental right is one of the constitutional blunders. Social emancipation and equal distribution of resources were one of the objectives to be achieved after independence and to that effect, Directive Principles of State Policy were evolved and placed under Part IV of the Constitution. Due to non-justiciable nature of Directive Principles, and preference of Fundamental Rights over Directive Principles[3], these directives could not succeed in achieving their objectives because they used to fail to qualify Art. 13 by contracting right to property.

Thus, the result was Constitution was failing to fulfill the promise of social emancipation and equality of distribution. It was in direct contradiction of ‘socialist’ nature of the state as envisaged by the Preamble. After realizing this right to property as a fundamental right was removed from Chapter of Fundamental Rights by deleting Art. 19(f) and Art. 31. As stated earlier right to property was a creation of statute and to achieve the goal of social equal distribution of resources, it became necessary to use the tool of law to regulate the distribution of resources, property being one of the most prominent resources. It became necessary to get rid away of ways in which property is being concentrated in few hands.

One of the important ways of the concentration of such property was a Benami transaction which would allow a person to hold real ownership rights of by transferring ownership for namesake to someone else. Thus, defeating purpose of most of the property redistribution statutes like Urban Land Ceiling Act. It had impacted Indian economy as well, by circulation of illegal money and thus affecting economic and the corollary of that social growth as well. To deal with this problem, it took years to identify the problem itself and after much deliberation Benami Transaction (Prohibition) Act, 1988 was passed to effectively tackle Benami transactions.

The reason researcher is researching in this area of property law because recently there have been much deliberation on the law to tackle Benami transactions. The aim of this project to understand and analyze provisions of Benami Transaction (Prohibition) Act, 1988 in right of Transfer of Property  Act, 1882. The researcher tries to understand how Benami Transaction (Prohibition) Act, 1988 has impacted transfer of property.

Research methodology:

Aim:

The aim of the paper is to understand position of law regarding section 41 and 53 of Transfer of Property Act, 1882, what is the difference in these sections and ‘Benami Transaction’ as envisaged by Benami Transaction (Prohibition) Act, 1988 and also deeply analyze provisions of Benami Transaction (Prohibition) Bill, 2015.

Objective:

The objective of the paper is to study and analyze the impact of the passage of Benami Transaction (Prohibition) Act, 1988 on Transfer of Property Act, 1882.

Research Questions:

  1. What are the Benami transactions? What is the test for Benami transaction?
  2. What is the difference between transactions provided in Sec? 41 and Sec. 53 of Transfer of Property Act, 1882 and ‘Benami Transaction’ as a concept and not limited only to the definition provided in Sec. 2 of Benami Transaction (Prohibition) Act, 1988.
  3. Whether Benami Transaction (Prohibition) Act, 1988 has succeeded in controlling Benami transactions. Reseasons behind its failure or success.
  4. Can money laundering be considered as a ‘benami transaction’ in a wider sense?

Scope and Limitations:

The scope of this paper is limited to understanding what is Benami transactions, impact of Benami transactions and its socio-legal and economic consequences. The researcher also deals with how Sec. 41 and 53 of Transfer of Property Act in detail. Word limit and time limit are the major limitations of this paper.

Chapterisation:

The paper has been divided into four chapters:

  1. What are the Benami Transactions:

In this chapter, researcher gives the general idea about what are the Benami transactions, what is their nature and scope. The important part is what is the test laid down in judicial decisions which set it apart from other transactions.

  1. Benami Transaction (Prohibition) Act, 1988 and its impact on Transfer of Property Act, 1882:

In this chapter researcher differentiates between transactions mentioned in Transfer of Property Act, 1882: Sec. 41 dealing with ‘ostensible owner’ and Sec. 53 ‘fraudulent transfers’. The researcher also analyzes whether a new bill, Benami Transaction (Prohibition)  Bill, 2015.

  1. Benami Transaction: Implications and Complications

In this chapter, researcher deals with why is it beneficial for people to enter into Benami transactions and its adverse impact on the economy and society at large. In complications part, researcher deals whether it is at all possible for the elimination of Benami transactions from the society; if not what are the reasons for the same. Another important part of this chapter is, that researcher reconsiders the scope of the definition of ‘benami transaction’ and understands that ‘money laundering’ is a new form of the transaction and needs to be dealt with effectively.

Sources of Data:

The researcher has relied on primary sources in the form of case laws, as well as on secondary sources such as articles, journals, and books.

Citation Format:

The NLS Guide to Uniform Legal Citation has been followed

Chapter I: What are Benami Transactions?

Word Benami is of Persian origin, which literally means ‘without a name’. Benami in its technical sense means ‘holding properties in the name of another’.[4] The system of Benami transactions is not peculiar to Hindu law and it has some traces in Mohamaden law as well, they are known as ‘farzee’. The origin of this practice is somewhat superstitious. It was considered that on the basis of the birthdate of a person some people were considered as more auspicious thus property used to buy in their names. Also, another reason is it was a very convenient way of hiding family affairs from public.[5]

The legal essence of Benami transaction revolves around the peculiar characteristic that there is no intention of benefitting that person in whose name the property is transacted. The person in whose name property is transacted is called ‘Benamdar’ which is merely an alias for a person in whose name beneficial ownership of property actually vests.[6]

There are many factors which led to the practice of Benami transactions such as:

  1. The Joint Hindu System and desire to make provisions for benefit for one factor
  2. Fraud on creditors.
  3. Tax evasion.
  4. Social and political risks of conquest or confiscation, like in a case of Mughals with the constant fear of political turmoil certain transactions were rampant.[7]

Taking into account socio-economic and political history of India it can be stated that Benami transactions are not uncommon in India. Even prior to independence in many cases the question of Benami transactions came up. In case of Panjab Province v. Daulat Singh, Federal Court state that,

“The practice has long been common in this country for intending alienees of this land to take document of transfer in the name of their friends or relatives, sometimes in view to defeat the claim of creditors, sometimes in view of defeating other members of their family and sometimes to escape restrictions imposed upon them by Government’s Conduct Rules etc.”[8]

In another Privy Council decision of Bilas Kanwar v. Desraj Ranjit Singh, Sir George Farwell observed that,

“Down to the taluqdar’s death the natural inference is that the transaction was a Benami transaction a dealing common to Hindus and Muhammadans alike, and much in use in India; it is quite unobjectionable and has curious resemblance to our doctrine of English law that the trust of a legal estate results to the man who pays purchase money, and this again follows analogy of our Common law, that where a feoffment is made without a consideration the use results to the feoffee.”[9]

In light of the socioeconomic and legal history of India irrespective of whatever factors led to the emergence and prevalence of Benami transaction in India, it is certain that Benami transaction has deep judicial roots in India and have been recognized by judiciary really long ago. One of the early instances where Benami transactions were recognized is in Calcutta case where to purchase in the name of the wife was declared ‘farzee’. It was held that ‘the property is vested with a person to whom the grant was actually made, and not necessarily to a person whose name was made use of.’[10]

Relying on Sec. 5 of Transfer of Property Act, 1882, Benami transaction is essentially a type of ‘transfer of property’ and thus it is not illegal per se. Because Sec. 5 does not necessitate the condition that, ‘transfer in favor of one person may not be in the name of another person’.[11] There is nothing inherently wrong in Benami transactions if they are within legitimate scope, which clearly excludes transactions, entered into for fraudulent and illegal purpose. Till such transactions are not violative of the law, courts are bound to give them effect.[12] Considering the nature of the transaction though these transactions are not always harmful, whenever they exceed legitimate scope they can have disastrous effects. Thus there were certain Benami transactions, which were identified, as illegal and thus punishable.[13]

Benami transaction as defined by Section 2(a) of Benami Transaction (Prohibition) Act, 1988 means, “any transaction in which property is transferred to one person for a consideration paid or provided by another person.”[14] However, this is not the only kind of Benami transaction, which takes place. The purpose behind this explicit definition is that this is the kind of Benami transaction, which is punished as per the provisions of Benami Transaction (Prohibition) Act, 1988.

This brings researcher to a question that how to decide this ‘legitimate scope’ and where to draw the line. What are the transactions, which are exempted from the purview of this Act, and what are the criteria used for the same? Research here considers transactions which are exempted from the preview of Benami Transaction (Prohibition) Act, 1988 viz. Sec. 41 dealing with property transactions by the ostensible owner with the third party and fraudulent transfer of property by transferors to the transferee to defeat or delay the creditors of the transferor.

Whether a transaction is Benami or not is a subjective question varying according to facts and circumstances of the case. However, in a case of Jayadayal Peddar v. Bibi Hazra, their Lordships of Supreme Court had laid down following tests[15]:

  • “Source of the purchase – money i.e. who paid the price?
  • Nature of possession of the property after the purchase i.e. who had the possession?
  • Motive, if any for Benami transaction i.e. why the property was purchased in the name of the other person?
  • The relationship between the parties i.e., whether the real owner and the ostensible owner 
were related to each other or were strangers or friends?
  • Conduct of the parties in dealing with the property i.e., who used to take care of and 
control over the property?
  • Custody of the title deeds after the sale.”

Thus, the dominant question is of intention and source of consideration paid for the transaction, though possession of property also matters. Though motive in itself is not determining factor, it has relative weight when it comes to burden of proof which rests on a person who claims the transaction to be Benami.[16]

Chapter II: Impact of Benami Transaction (Prohibition) Act on Transfer of Property Act:

Section 4 of Benami Transaction (Prohibition) Act, 1988 states that,

“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 became whether against the person in whose name the property is held or against another person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to he the real owner of such property.”[17]

Generally in case of Benami transaction, the named lender, that is bender is the only paper tiger and beneficial interest which vests with a real owner is never transferred to him. However considering Sec. 4 of the Act the interpretation provided is entirely different. This section eliminates the dichotomy between ‘ostensible owner’ and ‘real owner’ and ostensible owner or benamdar is considered as ‘real owner’ for all practical purposes, which might lead to the unjust enrichment of benamdar.  According to the researcher, this is the risk that beneficiary of such transaction has to bear which might act as a deterrent from engaging in Benami transaction. There is certain transaction, which is exempted from the purview of this Act due to the principles of justice, equity, and good conscience. These exceptions include as stated in Section 6 of Benami Transaction (Prohibition) Act, 1988 provides that Section 53 of Transfer of Property Act, 1882 which secures interests of creditors against defeat or delay and any law relating  to transfers for an illegal purpose which also includes Section 41 of Transfer of Property Act.

Section 41, Transfer of Property Act, 1882 and its implications:

Section 41 of Transfer of Property Act, 1882 deals with concept of ‘ostensible owner’ the section states that,

“Transfer by ostensible owner.- Where, with the consent, express or implied, of the persons interested in immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorized to make it: provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith.”[18]

The important question which researcher seeks to answer is that Sec. 41 allows a person to buy property in the name of another as an ostensible owner then why the purchase of property in the name of another person is prohibited under Benami Transaction (Prohibition) Act, 1988.

What Section aims to achieve:

The object of Sec. 41 is to protect the interest of innocent third parties who with reasonable care and in good faith enter into a transaction with the ostensible owner, where the real owner was himself failed to protect his or her interest by impliedly or explicitly authorizing the ostensible owner to transact.[19]

To avail protection of Sec 41 following are the conditions:

  1. The primary condition is that the person who is transferring the property should be an ostensible owner. There should be consent from the real owner, which can be implied or express form.
  2. The ostensible owner should get some consideration in return of the property.
  3. Reasonable care has to be taken by the transferee about the authority of transferor to the property and the transferee had acted in good faith.
  4. This section is applicable only to transfer of immovable property and not in the case of movable property.[20]

The transaction can be considered voidable at the instance of the real owner if he can prove that he never gave implied or explicit authority to transferor to transfer the property. The real owner also has to prove that transferee did not take reasonable care to check the authority of transferor and did not act in good faith. However important point to take into account is that real owner need not have authorized that particular transfer of property, mere fact that he or she has given authority to an ostensible owner to transferor is sufficient to defeat the claim of the real owner.[21]

Difference between ‘Ostensible owner’ and ‘Benamdar’ as envisaged by Benami Transaction (Prohibition) Act, 1988:

In the case of an ostensible owner as envisaged by Sec 41, there are indications of ownership in hands of transferor like title, entries in records etc. In addition to that, he or she has apparent and unconditional complete authority to deal with the property as a real owner. This authority is given by the real owner through explicit declaration or implicit through conduct. Ostensible owner represents the real owner in the transactions.[22] For instance, if real owner of a land, Mr. X, who lived in different village authorized his wife to use the land for whatever purpose she wanted. She sold the land, here because of the relationship between Mr. X and his wife and instructions are given by him she was considered as an ostensible owner who had the consent of real owner thus the transaction was given protection of Sec. 41.[23]

This is not the case with the position that Benamdar under Benami Transaction (Prohibition) Act, 1988. In the case of Benami transaction, Benamdar is merely a name lender and unconditional authority rests with a person who provides the consideration. Whereas in the case of ostensible owner actual authority rests with the ostensible owner. This difference has been explained by Supreme Court in Bhim Singh v. Kam Singh,

“Two kinds of Benami transactions are generally recognized in India. Where a person buys a property with his own money but in the name of another 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. The second case which is loosely termed as Benami transaction is a case where a person who is the owner of the property executes a conveyance in favor of another without the intention of transferring the title to the property thereunder. In this case, the transferor continues to be the real owner. The difference between two kinds of Benami transactions lies in the fact that in former case there is an operative transfer from the transferor to the transferee though the transferee holds the property for the benefit of the person who has contributed the purchase money, in the later case, there is no operative transfer at all and the title rests with the transferor notwithstanding the execution of the conveyance.”[24]

Impact of passage of Benami Transaction (Prohibition) Act, 1988 on Sec 41:

Sec. 41 is an exception to Benami transactions due to its reliance on principles of natural equity. This is explained by Judicial Committee in Ramcoomar Koondoo v. Macqueen,

It is a principle of natural equity, which must be universally applicable, that where one man allows another to hold himself out as the owner of the estate, and a third person purchases it for value from the apparent owner in the belief that he is the owner, the man who allows other to hold himself out shall not be permitted to recover upon his secret title unless he can overthrow that the purchase by showing either that he had direct notice or something which amounts to constructive notice, of the real title, or that there existed circumstances which ought to have put him upon an enquiry that if prosecuted, would have led to a discovery of it.”[25]

nemo at quod on habit” is a principle of common law, that means that a person cannot confer a better title than he himself holds. The exception being when the true owner, entrusts another person with the documents of title etc., and a third person, in bona fide deals with such property.

 After analyzing different cases and concept of ostensible ownership, the drawing conclusion is that Ostensible ownership derives its legitimacy from the ideas of equity and natural justice, in particular, the doctrine of estoppels. It is an exception to the doctrine nemo at quod nonhabit since it does, for reasons of quality, allow ostensible owners to have delivered the rights of true ownership to bone fide transferees. Benami transactions are where the real ownership lies in another who pays the consideration, while the ostensible ownership lies in the benamdar who only lends his name to the title deeds.[26]

Since the enactment of Benami Transactions (Prohibition) Act, 1988 an ostensible owner has become a real owner except in certain situations. So, clearly, after the passing of the Benami Transactions Act, the scope of application of section 41 has become very limited. Ultimately, the transferee, who purchases the property from the ostensible owner, cannot take the benefit of section 41 unless the ostensible owner is the wife or unmarried daughter of the real owner.[27]

Thus, in the conclusion of this chapter about the impact on Sec. 41, researcher would like to say that inherently Sec. 41 deals with a different kind of Benami transaction. With the passage of Benami Transaction (Prohibition) Acr, 1988 it has further limited the scope of Benami transaction envisaged by Sec 41 of Transfer of Property Act, 1988.

Section 53, Transfer of Property Act, 1882 and its implications:

This section serves dual purpose that is the protection of transferee who acts in good faith, pays due consideration and to whom property has been transferred and creditor to defeat or delay whom property has been transferred. Sec 53 states that,

  1. Fraudulent transfer:

“(1) Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration. Nothing in this sub-section shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of, all the creditors.

(2) Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee. For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.”[28]

Section 53 essentially envisages a situation where in order to delay and defeat creditor, transferor transfers the property to the transferee. So that creditors cannot claim dues arising out of that property. For instance when Mr. X owes Rs. 20,000 to Mr. Y as a debt and has kept the land as a security. If Mr. X transfers this land to Mr. A then Mr. Y can avail benefits of Sec. 53.

Difference between Sec. 53, Transfer of Property Act, 1882 and Benami Transaction as defined by Benami Transaction (Prohibition) Act, 1988:

The transaction as mentioned in Sec. 53 is that is a property transfer between transferor and transferee has to be valid transfer and it cannot be a fictitious or sham transaction. In a situation where there is no real intention of the actual transfer of property and real intention is the satisfaction of some ulterior motive beneficial to the transferor.[29] However, in the case of Benami transaction, there is no real transfer at all. This is explained by Sir Lawrence Jenkins in Mina Kumari v Bijoy Singh,

“The difference between fraudulent transaction and Benami transaction is distinct though it is often blurred. Such colourable or sham deeds do not require to be set aside, for the real title is all along with the transferor. They are outside the scope of section 53. It is relevant to note that a contention that the transaction is a sham and nominal transaction, and that the property was never conveyed at all though transferee holds it for the-the benefit of transferor, and remained the property of the original owner, may go even contrary to the contentions raised that are based upon s 53 of the TP Act. If the contention that it is a sham and nominal transaction is accepted, s 53 may not have any application. In fact, the challenge based on s 53 involves the admission that the transfer is a real one.”[30]

Benami transaction is different from the fraudulent transaction because in the case of Benami transaction there is no transaction at all, but in the case of the fraudulent transaction there is transaction but that is a result of a conspiracy between transferor and transferee.[31]

Why Sec. 53 is exempted from provisions of Benami Transaction (Prohibition) Act, 1988:

As stated earlier in the case of Benami transaction, there is the real owner who is a beneficiary and name lender. However, Benami Transaction (Prohibition) Act, 1988 eliminated this distinction by making name lender as a real owner, depriving real owner his beneficial interest. However, there are certain circumstances in which the impact of such transaction is not just limited to unjust enrichment of benamdar at the cost of benefit of beneficiary but might lead to causing harm to the third person.[32] To avoid such possibility Sec 53 is exempted where fraudulent transfer between transferor and transferee should not affect creditor. Thus  to preserve the interest of innocent third party Sec 53 is an exception carved in sec. 6 of Benami Transaction (Prohibition) Act, 1988.

Benami Transaction Prohibition Bill, 2015 and its implications:

Benami Transaction (Prohibition) Act, 1988 was enacted to deal with the problem of increased Benami transactions, the however act was hardly able to control such transactions effectively because due to the lack of initiative of government, rules to implement certain sections were not formed and thus they remained largely inoperative.[33] Thus, Benami Transaction (Prohibition) Bill, 2015 was introduced in order to establish ‘authority’ to confiscate became property. This new Bill has impacted transfer of property in following ways:

Impact on Sec 41 of Transfer of Property Act, 1882:

As stated earlier, Sec. 41 differentiates between ‘ostensible owner’ and ‘real owner, this distinction is however eliminated by Benami Transaction (Prohibition) Act, 1988 by making benamdar ‘real owner’ and limited scope of the transaction permitted under Sec. 41 to only when the transaction is an exception to Benami transaction as per the provisions of the Act that is to include the transaction in the name of wife or unmarried daughter, in fiduciary capacity to create the trust or as a coparcener in HUF property.

The scope of Sec. 41 is expanded as per the provisions of Benami Transaction (Prohibition) Bill, 2015. In addition to the above-mentioned exception, new Bill seeks to liberalize existing exceptions. As per Sec. 3(2) of Act of 1988, an exception is drawn only in favor of wife whereas[34] Sec. 2(9)(iii) of Bill uses word ‘spouse’ thus, expanding the scope of Sec. 41 even further.[35] Sec. 2(9)(iv) expands the exception to brother and sister or lineal antecedents and descendants  where names of benamdar and real owner are as ‘joint-owners’.[36] However according to the researcher by putting the condition of joint ownership it only virtually expands the scope of Sec. 41 as joint-ownership is not a Benami transaction in the first place.

Re-transfer of title to real owner is prohibited:

Prior to the passage of Benami Transaction (Prohibition) Act, 1988 judiciary was approving of Benami transactions in a sense that if a real owner goes to court to claim ownership title, after due proceedings court would award the same. However, Sec. 4 Benami Transaction(Prohibition) Act, 1988 , prohibited such an action against benamdar.[37] Still, this was not enough to completely control Benami transactions because a usual relationship between real owner and benamdar was fiduciary or was of dominance thus, it was hardly possible for benamdar to go against real owner’s wish and prevent retransfer of property. Thus, though the legal suit was prohibited retransfer of property could have been done without going to court.

Efforts are being made to change this situation. Benami Transaction (Prohibition) Bill, 2015 prohibits such re-transfer. Sec. 6 of the Bill states that,

  1. (1) No person, being a benamdar shall re-transfer the Benami property held by him to the beneficial owner or any other person acting on his behalf.

(2) Where any property is re-transferred in contravention of the provisions of sub-section (1), the transaction of such property shall be deemed to be null and void.”.[38]

Thus, this section controls Benami transactions more effectively. The question which arises how to apply this provision prospectively or retrospectively. It is a rule of retrospection that the statute is presumed to be prospective unless the contrary is provided in the statute. Because retrospection, while dealing with procedural aspect also affects substantive rights of parties. However as per the decision of Mithila Kumari v. Prem Behari Khare , Like Sec. 4 of Benami Transaction (Prohibition) Act, 1988 is declaratory in nature where presumption against retrospective nature is not applicable. This means that does not matter when was transaction has taken place, once it’s declared to be void it is void. For instance, when Law of Representation declares that completing 18 years of age is the criterion for voting, so it does not mean that those who have become 18 in past cannot vote. This case explains nature of Sec. 4 in following words,

“In one sense there was a right to recover or resist in the real owner against the Benami- dar. Ubi jus ibi remedium. Where there is a right, there is a remedy. Where the remedy is barred, the right is rendered unenforceable. In this sense, it is a disabling statute. All the real owners are equally affected by the disability provision irrespective of the time of creation of the fight. A right is a legally protected interest. The real owner’s fight was hitherto protected and the Act has resulted in the removal of that protection.”

Thus, when new legislation is passed that can apply to transactions taken place prior to the date of commencement of such legislation, if legislation is declarative like so envisaged Benami Transaction (prohibition) Bill, 2015. The expression “shall” in sec. 6(1) is prospective and shall apply to present (future stages) and future suits, claims or actions only. Thus, though transaction has taken place but the suit is pending, by virtue of it being declaratory legislation re-transfer of property should not be allowed.[39]

Thus, in reality, Sec 6 tries to implement the principle of retrospective nature as envisaged by Mithila Kumari v. Prem Behari Khare thus, strengthening the verdict given.

Chapter III: Benami Transaction: Its implications and complications

Benami transactions are one of the notorious ways to deal with black money killing accountability of economy. These transactions pump into economy back  money through circulation and investments. This is majorly an offspring of corruption prevalent in Indian society and other societies world wide.

What are the direct implications of Benami transactions:

  • Tax evasion:

Transferring property in the name of relatives, shows net total estate to be lower, thus assets on paper are lower than actual assets and thus assets are subject to lower tax caps. It also divides the assets into smaller parts and thus evading the tax. It includes not only income tax but also the wealth tax, gift tax and estate duty when it was in force.[40]

  • Black money:

Not just in Indian economy but economies around the world is facing the major problem of uncounted money. Supplying consideration for the purchase of property in someone else’s name who let you, lender, his name to safeguard interest acts one of the best ways to hide your black money generated from criminal or corrupt practices.

  • Defeating land ceiling laws:

By buying property in the name of benamdar who is just for the sake of his or her name, real owner can own much more property than permitted under land ceiling laws. After the independence, the land was concentrated in very few hand due to traditional systems like zamindari. When the constitution was commenced, zamindari and all such systems were abolished in order to defeat the concentration of land and more equitable distribution. It made tiller the owner of the land and lot of Benami transactions took place at that time where agrarian reform laws did not permit the owner to hold the land, land ownership was transferred in the name of tiller without transferring ownership rights. For instance, under Sec. 57 of Bombay Tenancy and Agricultural Land Act, from April 1st, 1957 tenant was declared to be the owner of the land. But a survey conducted a decade later in Borsad taluk of Kaire district, Gujrat revealed many concealed tenancies thus, completely defeating object of law.[41]

What are the complications associated with Benami transactions:

Benami transaction is not always a direct wrong. It is so convoluted with other factors that it why to like other wrongs, both civil and criminal it is very difficult to segregate and totally eradicate from the society. It is in its disguised form. Following are the complications associated with Benami transaction and reasons why Benami Transaction (Prohibition) could not be complete success:

Dichotomy of traditional system and legality:

As stated earlier, motivation to enter into Benami transaction might not always be illegal or dishonest. In India, there is an age-old system of buying property in names of close relatives and family members. Not necessarily these families are HUFs and they have the genuine intention of buying property in someone else’s name because of some tradition or family custom or merely as a sign of goodwill. The legislation non-discriminately brings all the transactions in its ambit.

Negative impact of eliminating duality of real owner and ostensible owner:

  It is a normal practice in Indian families, particularly Hindu families, which may not be technically HUFs, where elders contribute substantial funds out of their PF, gratuity, lifelong savings which can by no means be termed as black or tainted money or even to avoid any other liability. even if the immovable property is purchased in the name of a younger member of the family under a genuine impression they will also have a right to the property as well as a right to live in them.

After passing of the Benami Act, such bonafide contributors of funds lost all their rights in the property and even to defend a claim. In many cases, the registered owner, who is a younger member of the family, has thrown out the real owner, who is generally an elderly person or parents, from the property by invoking Section 4 of the Act as it was made effective retrospectively. In such cases, instead of targeting the transaction itself and making it irreversible, there ought to have been a provision for the enquiry into the source of funds and the purpose of the transaction and to keep it out of irreversibility if found to be genuine.

Sec. 2(9)(iv) Benami Transaction Prohibition Bill, 2015 and its inadequacy:

 The proposed amendment in the Section 2(9)(iv) of Bill provides that a property held by any person in the name of his brother or sister or lineal ascendant or descendant has been kept out of the definition of became property only if his her name also appears as joint owner in such property.[42] This definition or exception is not only confusing since such a transaction will, even otherwise, not be became due to appearance of name of the real owner as joint owner, but will also be of no help to such elderly members of the family who had contributed fully or substantially for purchase of property in the name of their son, daughter, brother and sister in the past without inclusion of their names as joint owners in the property documents. Such transactions, even though done even prior to coming into force of the 1988 Act, will still be termed as Benami and such elderly persons and blood relations will still be deprived from not only claiming or enforcing their rights in such property but also from contesting any claim in a suit or legal proceedings as sub-sections (1) & (2) of Section 4 have been retained in their original shape. This is not only self-contradictory in itself but also contrary to laws like the Senior Citizen Act, 2007.

  For instance, in G Mahalingappa v. GM Savitha, an old father from South India, who purchased a property in the name of his infant daughter because she was born under an auspicious nakshatra under a belief he would prosper by this, was dragged right up to the Supreme Court by the same daughter after she grew up and the apex court even commented upon this unfortunate part of the case.[43]

  So section 2(9)(iv) needs redrafting making the specific exception for such genuine transactions even in the case of non-HUF families and where the name of the elder member of the family who has partly or fully paid for the property, does not occur as a joint owner. Motive should be the barometer, and where the motive is genuine there is no reason as to bring elder citizens in the ambit of the act.[44]

Benami transactions are difficult to detect:

Benami transactions are hardly entered into with complete strangers. Usually, they are entered into with blood relatives or family members or some good friend with whom a person shares a fiduciary relationship. Another instance where majorly Benami transactions take place is landlord and tenant or master and his servant where the relationship is influenced by other considerations like fear of losing his or her job. Thus due to the nature of the relationship between parties, there is limited scope for litigation.[45]

Benami transaction and its relation to money laundering:

From the above discussion, it is clear that Benami transaction is carried out with the aim to hide the real source of money. Benami Transaction tried to control such transactions, however, it could not realize the object of the Act to its fullest because according to researcher it failed to take into account all forms of Benami transactions. The researcher takes liberty to view the concept of Benami transactions in light of object its tries to achieve that is hiding the illegeal source of money. Thus, if the definition of Benami transaction is broadened it can include other forms of dealing with black money as well like money laundering.

As per Sec. 3 of Prevention of Money Laundering Act, 2002,

“Offense of money-laundering.—Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offence of money-laundering.”[46]

As per the above section, the essence of money laundering lies in legitimize or assisting to legitimize source of ill-gotten money that is money obtained through criminal or corrupt activities and introducing in the economy as legitimate money. It is carried out in three stages viz. placement that is collecting money derived from illegal sources and changed into form less suspicious to enforcing agencies, layering hiding the source of money through various methods like wire transfer, monetary transfers including passing it through various transactions, jurisdiction and changes in currency to hide the illegal source of money and integration that is reintroduction of money back into economy by converting into legitimate business earnings through normal financial or commercial transaction.[47]

Thus, according to researcher money laundering is a new kind of Benami transaction and suitable provisions should me made in legislation to deal with the problem of the same.

Conclusion:

Benami transactions are essentially involves the transfer of property. Thus, Benami Transaction (Prohibition) Act, 1988 naturally has some impact on Transfer of Property Act, 1882.`Through this paper researcher majorly deals with the impact of this Act on Sec. 41 and Sec 53 of Transfer of Property Act, 1882. The researcher has come to the conclusion that, ‘benami transaction’ as defined in Benami Transaction Act is different from that mentioned in Sec 41. Former eliminates the difference between real owner and ostensible owner and thus limiting the scope of Sec. 41 which talks about two separate owners that are real and ostensible to exceptions provided to Benami transactions in Benami Transaction (Prohibition) Act, 1988. Sec. 6 of Benami Transaction (Prohibition) Act, 1988 draws exception in favour of Sec. 53, so as to save interest of creditors which would not have been saved otherwise.

The researcher is of the opinion as Sec. 6 of Benami Transaction Act carves out the exception in favor of Sec. 53 very explicitly; similarly, explicit provision stating limited scope of Sec. 41 after the passage of Benami Transaction Prohibition Act should be made so as to eliminate ambiguity.

In light of increased black money problems, it has become necessary to tackle the problem expeditiously. Benami Transaction (Prohibition) Act, 1988 envisages a remedy for that, however, unless suitable civil machinery is put into action it will not be possible. Act of 1988, failed to bring in this machinery which was later tried to be brought in by various Bills which lapsed, latest being introduced in 2015. After all how much ever effective legislation is if it lacked in effective implementation it is not going to tackle the problem very well.

In addition to this, researcher has come to the conclusion that Benami transactions in its entirety are difficult to eliminate from the society, because of the very nature of the relationship between parties who enter into such kind of transaction. Rather Benami transactions are refining themselves by not being restricted only to transaction between real owner and benamdar, it has modified itself to many other forms like money laundering. As stated earlier, Benami transaction is quintessential part of transfer of property, mere passage of radical legislations like Prevention of Money Laundering Act, 2002 is not sufficient but its impact on Transfer of Property needs to be studied, analyzed and understood.

It is a time when some flexibility needs to be brought in the age-old definition of Benami transaction. To inculcate and assimilate ability to solve problems arising out of Benami transactions in another form as well. This is not possible but with in detailed study and legislative will to establish effective machinery.

Bibliography:

Books:

  • Avtar Singh, The textbook on Transfer of Property Act, 1882, 125 (2nd, 2009).
  • Darashaw Jivaji Vakil, The Transfer of Property Act, 1882, 389 (2nd, 2004).
  • G. C. Bharuka, Mulla’s Transfer of Property Act, 1882, 274 (10th edn., 2006).
  • S. Narayana, Law of Benami, 68 (8th edn. 2009).
  • Peter Reuter, Chasing Dirty Money, 13 (November 2004).
  • Shantilal Mohanlal Shah, Principles of the law of transfer, 69 (5th, 1980).

Articles:

[1] 130th Report of Law Commission of India, Benami Transaction (1988).

[2] Art. 13, Constitution of India, 1950.

[3] Minerva Mills Ltd. v. Union of India, AIR 1980 SC 1789 (Supreme Court of India).

[4] Darshan Kadu , What are Benami Transactions in India, India Today (January 20, 2005).

[5] Id.

[6] Darashaw Jivaji Vakil, The Transfer of Property Act, 1882, 389 (2nd edn., 2004).

[7] 57th Report of Law Commission of India, Benami Transactions (1973).

[8] Panjab Province v. Daulat Singh, A.I.R. 1942 F.C. 38 (Federal Court).

[9] Bilas Kanwar v. Desraj Ranjit Singh, AIR 1916 P.C. 96 (Privy Council).

[10] Sheikh Bahadur Ali v. Sheikh Dhomu, 1 Calcutta Sud. R. Diw. Rep. 250. (High Court of Calcutta).

[11] Sec. 5, Transfer of Property Act, 1882.

[12] Bilas Kumar v. Besraj Ranjit Singh AIR 1916 P.C. 96 (Privy Council).

[13] supra note 7.

[14] Sec 2(a), Benami Transaction (Prohibition) Act, 1988.

[15] Jayadayal Peddar v. Bibi Hazra, AIR (1974) S.C.171 (Supreme Court of India).

[16] Radheysham v. Maharaj Bahadur Singh AIR 1982 Cal (571) (High Court of Calcutta).

[17] Sec. 4, Benami Transaction (Prohibition) Act, 1988.

[18] Sec. 41, Transfer of Property Act, 1882.

[19] Dr. G. C. Bharuka, Mulla’s Transfer of Property Act, 1882, 274 (10th edn., 2006).

[20]Shantilal Mohanlal Shah, Principles of the law of transfer, 69 (5th edn., 1980).

[21] supra note 6.

[22] Kannashi Vershi v Ratnashi Nenshi, [1952] A.I.R. 85 (Kutch).

[23] Mohamad Shakur v Shah Jehan, 63 IC 125 (Privy Council).

[24] Bhim Singh v. Kam Singh, AIR 1980 SC 727 (732) (Supreme Court of India).

[25] Ramcoomar Koondoo v. Macqueen, 11 B.L.R. 46 (Privy Council).

[26] P. S. Narayana, Law of Benami, 68 (8th edn. 2009).

[27]Avtar Singh, The textbook on Transfer of Property Act, 1882, 125 (2nd edn., 2009).

[28] Sec. 53, Transfer of Property Act, 1988.

[29] Phoolan Devi v. Surendra Prakash,  AIR 1983 AII 440(442) (High Court of Allahabad).

[30] Mina Kumari v Bijoy Singh, (1916) ILR 44 Cal 662 (High Court of Calcutta).

[31] Jagdamba Pande v. Ram Khelawan Upadhya, AIR 1942 AII 344 (High Court of Allahabad).

[32] Supra note 28, at 20.

[33] Naresh Mukherjee, But That’s Not Mine!, The telegraph (September 28, 2011) available at http://www.telegraphindia.com/1110928/jsp/opinion/story_14562807.jsp (Last visited on December 2, 2015).

[34] Sec. 3(2), Benami Transaction (Prohibition) Act, 1988.

[35] Sec 2(9)(iii), Benami Transaction (Prohibition) Bill, 2015.

[36] Sec. 2(9)(iv), Benami Transaction (Prohibition) Bill, 2015.

[37] Sec. 4, Benami Transaction (Prohibition) Act, 1988.

[38] Mithila Kumari v. Prem Behari Khare, 1989 AIR 1247 (Supreme Court of India).

[39] Mithila Kumari v. Prem Behari Khare, 1989 AIR 1247 (Supreme Court of India).

[40] supra note 7.

[41] supra note 1.

[42] supra note 1.

[43] Mahalingappa v. GM Savitha, 2005(6)SCC441 (Supreme Court of India).

[44] Vinay Sahni, Benami Bill Misses the Woods for the Trees, Bloomberg Tv India ( July 12, 2015) available at http://www.btvin.com/article/read/policy/1858/benami-bill-misses-the-woods-for-the-trees (Last visited one December 3, 2015).

[45] supra note 1.

[46] Sec. 3 of Prevention of Money Laundering Act, 2002

[47] Peter Reuter, Chasing Dirty Money, 13 (November 2004).

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