The Authorities, Notice and Adjudication

Section 23 empowers the Initiating Officer, after obtaining prior approval of the Approving Authority, to conduct or cause to be conducted any inquiry or investigation in respect of any person, place, property, assets, documents, books of account or other documents relating to a benami transaction.

Sections 19 to 23 are summarised here rather than set out clause by clause. What matters for this subject is that the investigating authorities have civil court powers, that other enforcement agencies must assist them, and that the Initiating Officer's inquiry needs prior approval.

Section 24: notice and provisional attachment

This is the section that starts a case, and its structure and its time limits are the examinable part.

Sub-section (1). Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to that person to show cause, within the time specified in the notice, why the property should not be treated as benami property.

Sub-section (2). Where the notice specifies property as being held by a benamidar, a copy shall also be issued to the beneficial owner if his identity is known.

Sub-section (2A). The benamidar, and the beneficial owner who has been given a copy, shall furnish their explanation or submissions within the period specified in the notice, or such period as the Initiating Officer extends, not exceeding three months from the end of the month in which the notice was issued.

Sub-section (3): provisional attachment. Where the Initiating Officer is of the opinion that the person in possession may alienate the property during the period specified in the notice, he may, with the previous approval of the Approving Authority, by order in writing, attach the property provisionally in the prescribed manner, for a period not exceeding four months from the last day of the month in which the notice was issued.

Sub-section (4). The Initiating Officer, after such inquiries, reports and evidence as he thinks fit and taking into account all relevant materials, shall within four months from the last day of the month in which the notice was issued:

(a) where a provisional attachment has been made, either continue it with the prior approval of the Approving Authority until the Adjudicating Authority passes its order under section 26(3), or revoke it with that approval; or

(b) where no provisional attachment has been made, either attach the property with that approval, or decide not to attach it.

Sub-section (5). Where the Initiating Officer passes an order continuing or making an attachment, he shall, within fifteen days from the date of the attachment, draw up a statement of the case and refer it to the Adjudicating Authority.

The safeguards to name

Reason to believe, and reasons recorded in writing. The section does not permit a fishing inquiry.

A show cause notice before anything happens, and a copy to the beneficial owner where he is known.

Every attachment needs the prior approval of the Approving Authority. The Initiating Officer cannot attach on his own.

Everything is time-bound: three months for the explanation, four months for the attachment and for the Initiating Officer's decision, fifteen days for the reference.

The Initiating Officer does not decide anything final. He refers the case to the Adjudicating Authority.

Section 25: service of notice

Section 25 provides for the manner of service: on the person named, or on his agent, or in the manner provided by the Code of Civil Procedure for service of summons, and where the person cannot be found, by affixing a copy at his last known place of residence or business.

Section 26: adjudication

Sub-section (1). On receipt of the reference, the Adjudicating Authority shall issue notice to furnish such documents, particulars or evidence as is considered necessary, on:

(a) the person specified as a benamidar; (b) any person referred to as the beneficial owner or identified as such; (c) any interested party, including a banking company; and (d) any person who has made a claim in respect of the property.

The first proviso requires the notice to be issued within thirty days of the receipt of the reference. The second proviso requires the notice to give the recipient not less than thirty days to furnish the information sought.

Sub-section (2). Where the property is held jointly by more than one person, the Adjudicating Authority shall make all endeavours to serve notice on all of them; but where notice is served on any one, service is not invalid merely because it was not served on all.

Sub-section (3). The Adjudicating Authority shall, after considering the reply, making such inquiries and calling for such reports or evidence as it deems fit, and taking into account all relevant materials, provide an opportunity of being heard to the person specified as benamidar, to the Initiating Officer, and to any other person claiming to be the owner, and thereafter pass an order:

(i) holding the property not to be benami property, and revoking the attachment order; or

(ii) holding the property to be benami property, and confirming the attachment order, in all other cases.

Sub-section (4). Where the Authority is satisfied that some part of the properties referred to it is benami but cannot specifically identify which part, it shall record a finding to the best of its judgment as to which part is held benami.

Sub-section (5). Where, in the course of proceedings, the Authority has reason to believe that a property other than the one referred to it is benami property, it shall provisionally attach that property, and the property shall be dealt with as if it had been referred to it.

Sub-section (7). No order under sub-section (3) shall be passed after the expiry of one year from the end of the month in which the reference was received.

The features to state

It is a judicial-style proceeding. Notice to four classes of person, thirty days to reply, an opportunity of being heard to the benamidar, to the Initiating Officer and to any claimant, and a reasoned order.

The banking company is expressly a person to be heard, because a mortgagee's security is at stake.

Sub-section (4) is unusual and worth noting: where the Authority cannot identify which part of a property is benami, it may decide to the best of its judgment rather than dismissing the reference.

Sub-section (7) is the outer time limit, one year from the end of the month of the reference.

Sections 27 to 29: confiscation and possession

Section 27 provides that where an order is passed holding the property to be benami, the Adjudicating Authority shall, after giving an opportunity of being heard, pass an order confiscating the property; and where an appeal has been filed against the order, the confiscation shall be made on the order of the Appellate Tribunal becoming final. On confiscation, the property vests absolutely in the Central Government free from all encumbrances, and no compensation is payable. There is a saving where the court or tribunal is satisfied that a transferee acquired the property in good faith and for adequate consideration without knowledge of the benami transaction.

Section 28 provides for the management of confiscated properties by the Administrator, who shall have the power to receive and manage the property in the prescribed manner, and to take such measures as the Central Government may direct to dispose of it.

Section 29 requires the Administrator to take possession of the property, by issuing a notice requiring any person in possession to surrender it within seven days, and by forcibly taking possession with the assistance of any officer if the notice is not complied with.

Sections 27 to 29 are the confiscation machinery and are taken further in the next chapter, where the offences and the Tribunal are also dealt with.

The sequence, in order

A student who can recite this sequence has the chapter.

1. The Initiating Officer has reason to believe a person is a benamidar, records his reasons, and issues a show cause notice under section 24(1), with a copy to the beneficial owner if known.
2. The benamidar and the beneficial owner reply within the time specified, extendable to three months from the end of the month of the notice.
3. If alienation is feared, the Initiating Officer provisionally attaches the property with the prior approval of the Approving Authority, for up to four months.
4. Within four months the Initiating Officer continues, revokes or makes an attachment, again with approval.
5. Within fifteen days of the attachment he draws a statement of the case and refers it to the Adjudicating Authority.
6. The Adjudicating Authority issues notice within thirty days, giving thirty days to reply, hears everyone concerned, and within one year from the end of the month of the reference holds the property benami or not.
7. If benami, the property is confiscated and vests in the Central Government free of encumbrances, and the Administrator takes possession.

A worked example

The Initiating Officer has information that a flat registered in the name of a driver was paid for by his employer. He wants to act.

Who does what? Four authorities, kept deliberately separate by section 18: the Initiating Officer investigates; the Approving Authority approves; the Adjudicating Authority decides; the Administrator receives, manages and disposes of confiscated property.

Why are sections 8 to 17 missing? They were omitted, because the 2016 amendment replaced the original scheme of authorities entirely.

How does the proceeding start? Section 24(1): where the Initiating Officer, on the basis of material in his possession, has reason to believe that a person is a benamidar, he may, after recording reasons in writing, issue a notice to him to show cause why the property should not be treated as benami. A copy goes to the beneficial owner if his identity is known.

Can the property be frozen? Section 24(3): where the Initiating Officer is of the opinion that the person may alienate the property, he may, with the previous approval of the Approving Authority, provisionally attach it for a period not exceeding ninety days from the last day of the month in which the notice is issued.

And then? Section 24(4): within ninety days from the date of the notice, after considering the reply and the material, he shall, with the previous approval of the Approving Authority, either continue the provisional attachment till the Adjudicating Authority passes an order, or revoke it. Section 24(5): where he continues it, he shall draw up a statement of the case and refer it to the Adjudicating Authority within fifteen days.

What does the Adjudicating Authority do? Section 26: on receipt of the reference it issues notice, within thirty days, to the benamidar, the beneficial owner if known, any interested party including a banking company, and any person claiming the property; hears them and considers the material; and passes an order holding the property to be benami or not. By section 26(7) no order shall be passed after the expiry of one year from the end of the month in which the reference was received.

What follows a finding that it is benami? Sections 27 to 29: the Adjudicating Authority orders confiscation; the property vests absolutely in the Central Government free of all encumbrances, and no compensation is payable; a transferee in good faith for adequate consideration without notice is protected; and the Administrator takes possession and manages it.

What it does NOT mean

The four authorities are not interchangeable. The one who investigates is not the one who approves, and neither decides.

A provisional attachment is not the Initiating Officer's alone. It needs the previous approval of the Approving Authority, both to make and to continue.

"Reason to believe" is not a hunch. It rests on material in his possession, and the reasons must be recorded in writing.

The Adjudicating Authority does not hear only the benamidar. It notices the beneficial owner, any interested party including a bank, and any claimant.

Its power is not open-ended in time. No order may be passed after one year from the end of the month in which the reference was received.

Confiscation does not compensate anybody. The property vests free of all encumbrances and no compensation is payable, save that a bona fide transferee for adequate consideration without notice is protected.

Sections 8 to 17 are not a gap in the book. They were omitted when the 2016 amendment replaced the scheme.

Quick revision

• s.18, four authorities: the Initiating Officer, the Approving Authority, the Adjudicating Authority, and the Administrator. ss.8 to 17 are omitted.
• ss.19 to 23: powers to call for information, to summon and examine on oath, to impound documents, and to conduct inquiry and investigation, with the powers of a civil court.
• s.24: a notice to show cause on recorded reasons; provisional attachment for up to ninety days with the previous approval of the Approving Authority; a decision to continue or revoke within ninety days of the notice, again with approval; and a reference to the Adjudicating Authority within fifteen days.
• s.25: service of notice. s.26: the Adjudicating Authority issues notice within thirty days to the benamidar, the beneficial owner, any interested party including a bank and any claimant, hears them, and decides; no order after one year from the end of the month of receipt of the reference.
• ss.27 to 29: confiscation; the property vests absolutely in the Central Government free of all encumbrances, with no compensation, saving a transferee in good faith for adequate consideration without notice; and the Administrator takes and manages possession.

Test yourself

1. Name the four authorities under the Act and say what each does. The Initiating Officer, who investigates and issues the show cause notice; the Approving Authority, whose previous approval is needed for a provisional attachment and for its continuance; the Adjudicating Authority, which decides whether the property is benami; and the Administrator, who receives, manages and disposes of confiscated property.

2. How does a proceeding begin? Where the Initiating Officer, on the basis of material in his possession, has reason to believe that a person is a benamidar, he may, after recording the reasons in writing, issue a notice to that person to show cause why the property should not be treated as benami property, with a copy to the beneficial owner if his identity is known.

3. What is a provisional attachment, and how long does it last? An order attaching the property where the Initiating Officer is of the opinion that the person may alienate it. It is made with the previous approval of the Approving Authority and lasts for a period not exceeding ninety days from the last day of the month in which the notice is issued; it may then be continued, with approval, until the Adjudicating Authority passes an order.

4. Within what time must the Adjudicating Authority decide? No order shall be passed after the expiry of one year from the end of the month in which the reference under section 24(5) was received by it.