The Benami Act: What It Is, and the 2016 Change of Name
Chapter Thirty-One
Syllabus topic 1.6, "Benami Transaction Act, 2016"
Pages 189 to 194 of 477
In one line
A benami transaction is one where the person who pays is not the person named as owner, and the Act's exceptions are almost all about families.
What "benami" means, and what the Act is about
The word is Persian in origin and means, literally, without a name, or in another name. A benami transaction is one in which property is bought by one person and put in the name of another, so that the record shows an owner who did not pay for it.
The practice has two entirely different uses, and the Act's shape follows from that.
The legitimate family use. A father buys a house in his daughter's name. A karta buys land in the name of the joint family. A husband buys in his wife's name. Nobody is being deceived; the arrangement is ordinary Indian family practice.
The illegitimate use. A person with money he cannot account for buys property in a servant's name, or a fictitious name, so that it cannot be traced to him.
The Act prohibits the second and exempts the first, and the exemptions are found in the definition itself.
The history in three steps
Getting this right is the first mark in the answer.
Before 1988. Benami transactions were lawful, and the beneficial owner could sue to recover the property from the benamidar. The whole question was one of intention and evidence.
The Benami Transactions (Prohibition) Act 1988. A very short Act of nine sections. It prohibited benami transactions, barred any suit or claim to enforce a benami right, and provided for acquisition of benami property. It had almost no machinery, and the acquisition provisions were never brought into working effect.
The Benami Transactions (Prohibition) Amendment Act 2016, Act 43 of 2016, with effect from 1 November 2016. This is the amendment MU's syllabus is pointing at. It:
- renamed the Act the Prohibition of Benami Property Transactions Act, 1988;
- substituted a new and much fuller definition of a benami transaction, with the four family and fiduciary exceptions;
- built an entire administrative machinery, the Initiating Officer, Approving Authority, Administrator and Adjudicating Authority, in place of the empty acquisition provisions of 1988;
- created an Appellate Tribunal and Special Courts; and
- inserted new offences with real sentences.
Note the date carefully, because it explains a puzzle in the numbering. Sections 8 to 17 of the Act are omitted. They were the 1988 Act's original authorities, replaced wholesale in 2016.
Section 2(9): the definition of a benami transaction
The definition has four limbs, A to D, and the family exceptions sit inside limb A.
Limb (A): the ordinary case, and its four exceptions
A benami transaction means a transaction or arrangement:
The Benami Act: What It Is, and the 2016 Change of Name
(a) 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
(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.
Both limbs must be satisfied. Someone else paid, and the property is held for that someone's benefit. If the person who paid intended a gift, so that the property is held for the named owner's own benefit, limb (b) is not satisfied.
Except when the property is held by:
(i) a karta, or a member of a Hindu undivided family, where the property is held for his benefit or the benefit of other members of the family, and the consideration has been provided or paid out of the known sources of the Hindu undivided family;
(ii) a person standing in a fiduciary capacity for the benefit of another towards whom he stands in that capacity, including a trustee, executor, partner, director of a company, a depository or a participant as agent of a depository, and any other person notified by the Central Government;
(iii) any individual in the name of his spouse or in the name of any child of that individual, where the consideration has been provided or paid out of the known sources of the individual; or
(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of that relative and the individual appear as joint owners in any document, and the consideration has been provided or paid out of the known sources of the individual.
Reading the exceptions
Three of the four are family exceptions, and they carry the same qualification.
"Out of the known sources." Exceptions (i), (iii) and (iv) all require that the money came from known sources, of the joint family in (i) and of the individual in (iii) and (iv). That is the hinge of the whole Act. A father may buy a house in his daughter's name out of money he has accounted for; he may not do it with money he cannot explain. The Act does not disapprove of buying in a relative's name. It disapproves of using a relative's name to hide money.
Exception (iii) names only the spouse and the child. A purchase in the name of a parent is not within (iii). It may be within (iv), but only if the parent and the individual appear as joint owners in a document.
Exception (iv) requires joint ownership on the document. A purchase in the sole name of a brother is outside (iv), however innocent.
The Benami Act: What It Is, and the 2016 Change of Name
Exception (i) requires the property to be held for the benefit of the karta or of other members. A karta buying in his own name with joint family funds, for the family, is outside the Act.
Limbs (B), (C) and (D): the fictitious cases
A benami transaction also means a transaction or arrangement in respect of a property:
(B) carried out or made in a fictitious name;
(C) where the owner of the property is not aware of, or denies knowledge of, such ownership; or
(D) where the person providing the consideration is not traceable or is fictitious.
These three were added in 2016 and they are the Act's real target. They need no proof of who benefits: a fictitious name, an owner who does not know he owns it, or an untraceable payer is enough by itself.
The Explanation: part performance is not benami
For the removal of doubts, a benami transaction shall not include any transaction involving the allowing of possession of property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act 1882, if:
(i) the consideration has been provided by the person to whom possession has been allowed, but the person who granted possession continues to hold ownership; (ii) stamp duty on the transaction has been paid; and (iii) the contract has been registered.
This protects the ordinary agreement to sell under which the buyer takes possession before the sale deed is executed. Without the Explanation, such an arrangement would answer the description in limb (A): the buyer paid, the seller still holds the title, and the property is held for the buyer's benefit. The three conditions are cumulative, and the second and third are the price of the protection.
The other definitions to know
Section 2(10): benamidar means a person, or a fictitious person, in whose name the benami property is transferred or held, and includes a person who lends his name.
Section 2(12): beneficial owner means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.
Section 2(8): benami property means any property which is the subject matter of a benami transaction, and includes the proceeds from such property.
Section 2(26): property is defined widely, to mean assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal, and includes any right or interest or legal documents or instruments evidencing title to or interest in the property, and where the property is capable of conversion into some other form, the property in the converted form, and also the proceeds from the property.
The Benami Act: What It Is, and the 2016 Change of Name
The three roles are worth fixing before the next chapter: the benamidar is the name on the paper, the beneficial owner is the person who paid and benefits, and the benami property is what passes between them.
A worked example
Ravi pays for a flat and has it registered in the name of his brother-in-law, who knows nothing about it. Separately, Ravi's father, the karta of a Hindu undivided family, buys land out of family funds in his own name, held for the family. Ravi also buys a shop in his wife's name out of his salary, and another in a fictitious name.
The flat. Section 2(9)(A): a transaction where the property is transferred to or held by one person and the consideration has been provided or paid by another, and the property is held for the immediate or future benefit, direct or indirect, of the person who provided it. That is a benami transaction, and the brother-in-law's ignorance is irrelevant to this limb.
The karta's land. Exception (i) to section 2(9)(A): property held by a karta or a member of a Hindu undivided family for his benefit or that of other members, where the consideration has been provided or paid out of the known sources of the family. So it is outside the Act.
The shop in the wife's name. Exception (iii): a person standing in a fiduciary capacity is exception (ii); the purchase in the name of a spouse or any child is a separate exception, provided the consideration is from the individual's known sources. Ravi's salary is a known source, so it is outside.
And the shop in a fictitious name? Section 2(9)(B): a transaction carried out or made in a fictitious name. No question of benefit arises at all.
Suppose the owner of a property does not know he owns it. Section 2(9)(C): a transaction where the owner of the property is not aware of, or denies knowledge of, such ownership.
And where the payer cannot be found? Section 2(9)(D): where the person providing the consideration is not traceable or is fictitious.
Is this a new Act? No. There is no Act of 2016. The Benami Transactions (Prohibition) Act 1988 was renamed the Prohibition of Benami Property Transactions Act 1988 by the Amendment Act of 2016, with effect from 1 November 2016.
What it does NOT mean
There is no Benami Act of 2016. There is the Act of 1988, renamed by the Amendment Act of 2016 with effect from 1 November 2016.
A benami transaction is not always about benefit. Limbs (B), (C) and (D) catch a fictitious name, an owner unaware of his ownership, and an untraceable or fictitious payer, without any question of benefit.
The Benami Act: What It Is, and the 2016 Change of Name
The family exceptions are not unconditional. Each requires the consideration to have come from known sources.
A purchase in a wife's or child's name is not automatically outside the Act. It is outside only if the money came from the individual's known sources.
A sibling's name does not save a transaction by itself. The exception requires the property to be held in the joint names of the individual and the brother, sister or lineal ascendant or descendant.
"Benamidar" is not the beneficial owner. The benamidar is the person in whose name the property is held; the beneficial owner is the person for whose benefit it is held.
Quick revision
- The history in three steps: the Act of 1988; the Amendment Act of 2016, which renamed it the Prohibition of Benami Property Transactions Act 1988 and replaced its machinery with effect from 1 November 2016; and the Act as it now stands.
- s.2(9)(A): property transferred to or held by one person where the consideration is provided by another, held for the immediate or future benefit, direct or indirect, of the provider. Four exceptions: (i) a karta or member of a Hindu undivided family; (ii) a person in a fiduciary capacity; (iii) a purchase in the name of a spouse or child; (iv) property in the joint names of the individual and a brother, sister or lineal ascendant or descendant. Each of the family exceptions requires the money to come from known sources.
- s.2(9)(B): a transaction in a fictitious name. (C): the owner is unaware of, or denies, the ownership. (D): the person providing the consideration is not traceable or is fictitious.
- Other definitions: benamidar, the person in whose name the property is held; beneficial owner, the person for whose benefit it is held; benami property, the subject matter of a benami transaction and its proceeds.
Test yourself
1. Is there a Benami Transaction Act of 2016? No. The statute is the Benami Transactions (Prohibition) Act 1988, renamed the Prohibition of Benami Property Transactions Act 1988 by the Benami Transactions (Prohibition) Amendment Act 2016 with effect from 1 November 2016.
2. Define a benami transaction. A transaction or arrangement where a property is transferred to, or is held by, a person and the consideration for the 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; a transaction carried out or made in a fictitious name; a transaction where the owner of the property is not aware of, or denies knowledge of, such ownership; and a transaction where the person providing the consideration is not traceable or is fictitious.
The Benami Act: What It Is, and the 2016 Change of Name
3. State the exceptions. Property held by a karta or a member of a Hindu undivided family for his benefit or that of other members, the consideration coming from the known sources of the family; property held by a person standing in a fiduciary capacity; property held in the name of a spouse or any child, the consideration coming from the individual's known sources; and property held in the joint names of the individual and his brother, sister or any lineal ascendant or descendant, again from known sources.
4. Who is a benamidar, and who is the beneficial owner? The benamidar is the person or fictitious person in whose name the benami property is transferred or held, and includes a person who lends his name. The beneficial owner is the person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.