The original law relating to Benami transactions was laid down in Benami Transactions (Prohibition) Act, 1988. This Act consisted of only eight sections. The same was later amended by The Benami Transactions (Prohibition) Amendment Act, 2016 which contained 72sections.

What is Benami property?

Property, whether movable or immovable, tangible or intangible, which is subject matter of a Benami transaction, is a Benami property. This also include the consideration received from such property. Benami property would also include the right or such other document evidencing title or interest in such property.

In a Benami transaction, the property is transferred or held by the one person (Mr.A, the ‘Benamidar’) and the consideration for such a property is paid by another person (Mr.B, the ‘beneficial owner’) for whose benefit such a property is held.

Benami Transaction is the transaction or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.

The following transactions also fall under the definition of Benami transactions:

  • Where the property related exchange is completed under an imaginary name – The Benamidar can likewise be an fictitious individual
  • Where the proprietor of the property has no information/precludes having any learning from securing the responsibility for property
  • Where the individual giving the thought is untraceable or imaginary – the personality of the gainful proprietor may likewise be obscure.

Exceptions:

The following type of transactions will not be treated as Benami transactions:

  1. Property is held by a member of the HUF for the benefit of the HUF and the consideration is paid from the known sources of income of such HUF;
  2. A person who holds the property in a fiduciary capacity for the other person – for example, a trustee for the trust, a director for his company, a depository/depository participant for a trader (holder of shares in demat form), etc.;
  3. An individual holding property in the name of his spouse or child and where the consideration is paid from the known sources of such individual ;
  4. An individual holding property jointly with a brother, sister or lineal ascendant/descendant and where the consideration is paid from the known sources of such individual.

Instances of Benami transactions:

  • Every state has a certain limit on the amount of agricultural land that an individual or his family can hold. Thus, where such a limit is reached, people try to purchase the property in the name of another person but provide the consideration for the said property.
  • A person who has access to price sensitive information of a company as a result of being in a position of power within the company would not be allowed to trade in the shares of the company since it would amount to insider trading. Therefore, to find any way out of this, they inculcated a third unrelated party and give him the funds to trade on their behalf.
  • During demonetization, there were many instances of people depositing old notes into bank accounts that belonged to another person and then exchanging them for new notes. The definition of property under the benami act is very broad and also includes cash money. Hence such a transaction or exchange would also be termed as a benami transaction.

Provision of punishments under Benami law:

  • Confiscation of benami property
  • Where a benami exchange has been entered into to vanquish the arrangements of any law, maintain a strategic distance from installment of statutory levy or stay away from installment to banks, any individual who enters or abets/actuates someone else to go into such an exchange would be punishable with imprisonment between 1 to 7 years and fine up to 25% of the fair market value of the property.
  • Where a person who is required to provide information under this Act provides false information, he shall be punishable with imprisonment between 6 months to 5 years and fine up to 10% of the fair market value of the property

Although The Prohibition of Benami Property Transactions Act came into force in 2016, not many of investors/property buyers understand its full implications and consequences.

Some of the major changes this law has made:

Under the old Benami law the government could only acquire the benami property for which consideration had to be paid. However, under the new law once the property is declared as the ‘benami’ it will vest with the government without payment of any consideration.
Most important point is that the new law has a retrospective application as it is an amendment to the old Act. Under the old law the rules for the acquisition of the property were not being notified and therefore if the old Act were to have been repealed and a new Act were to be enacted, an immunity would have been granted to benami transactions undertaken between 1988 and 2016.

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