The New Benami Law- A Review

It seems that Prime Minister Narendra Modi is on a mission to cleanse the realty sector. On one side he has snaffled the developers and realtors by RERA, on the other he has announced the Benami Property Act to bridle the investors. Sumes Dewan, Managing Partner, Lexfavios throws light on the new Benami law. The rules and provisions of the new Benami Transactions (Prohibition) Amendment Act, 2016 (“Amendment Act”) came into force on November, 01, 2016. And the existing Benami Transactions (Prohibition) Act, 1988 (“Old Act”) has been renamed as Prohibition of Benami Property Transactions Act, 1988 (“PBPT Act”). As per the recently enforced new Benami Amendment Act, 2016, the word is used to define a transaction in which the real beneficiary is not the one in whose name the property is purchased but, is just a mask for the real beneficiary. The word Benami comes from the Persian language word that means "without name" or "no name". ‘Benami’ transactions are one of the numerous means that have been historically used for the purpose of converting black money into white money. Benami Transactions (Prohibition) Act, 1988 The Parliament had prohibited Benami transactions under the old act but the law had several loopholes. It was inadequate to meet the needs of changing times and failed to provide an exhaustive definition of Benami property, Benami transactions, exceptions to Benami transactions and provisions related to

• appointment and powers of the authorities to confiscate or recover the property held Benami
• appellate mechanism against orders of the Authorities
• powers with the Authorities similar to that of the civil courts
• adequate rule making powers upon the Authorities
• offences and penalties to be imposed on persons engaged in these transactions

The PBPT Act defines Benami transactions, prohibits them and provides that violation of the PBPT Act is punishable with imprisonment and fine. The PBPT Act prohibits recovery of the property held Benami from Benamidar by the real owner. Properties held Benami are liable for confiscation by the Government without payment of compensation. The Amendment Act As per the Amendment Act, a Benami transaction “is a 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
• the property is held for the immediate or future benefit, direct or indirect of the person who has provided the “consideration”

The exception to this is when a property is held by a Karta or member of a Hindu Undivided Family, a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company etc., any person being an individual in the name of his spouse or in the name of any child or any of his brother/sister or lineal ascendant. Any property, which is subject matter of Benami transaction, shall be liable to be confiscated by the Central Government. Adjudicating Authority The Amendment Act authorizes the government to designate an Initiating Officer, as an initiator to start proceedings into a Benami transaction. The officer will shall refer the case to the Adjudicating Authority established under the Amendment Act, which shall decide within a period of one year, if the transaction/property or asset was Benami. The Adjudicating Authority so established shall consist of a Chairperson and at least two other members, who shall be appointed by the Central Government. They would not qualify for appointment as a chairperson or a member, unless that person has been -

• A member of the Indian Revenue Service and has held the post of Commissioner of Income-tax or equivalent post in that Service
• Or has been a member of the Indian Legal Service and has held the post of Joint Secretary or equivalent post in that Service.

The Initiating Officer or the Adjudicating Authority shall have the power to require any officer of the Central Government or State Government or a local body or any person or officer who is responsible for registering and maintaining books of account or other documents containing a record of any transaction relating to any property or any other person to furnish any information in relation to any person, point or matter as in his opinion shall be useful for or relevant for the purposes of this PBPT Act. Once an order becomes final, the Benami properties will be confiscated. Effects & Consequences The primary aim of the PBPT Act is to re-route the unaccounted money into the financial system, by seizing Benami properties and prosecute/punish those who are merchants of such transactions. Thus, the Amendment Act has provided for stringent punishment for those in breach of the PBPT Act. If any person enters into a Benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors or induces any person to enter into the Benami transaction shall be guilty of the offence of Benami transaction. Any person who is guilty of the offence shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and will also be liable to fine which may extend to twenty-five per cent of the fair market value of the property. The strict law, in the short term would lead to a dip in real estate prices and reduction in transactions. However, in the long run it will bring transparency in the market which in turn will boost the confidence of the lenders. The law will have long term impacts on the real estate industry in the country by getting unaccounted money into the system and making India an attractive investment destination.