Benami Act

The Benami Act is an act which was introduced by the Parliament of India with a view to prohibit certain
types of financial transactions. The Prohibition of Benami Property Transaction Act, 1988 have been
amended and replaced by the Benami Transactions (Prohibition) Amendment Act, 2016, which came
into force from 1st November 2016. The Benami Act was introduced to solve the problem of black
money and to bring the bring the unaccounted money of the people to light. The Act contains 72
sections which will be applied retrospectively and it extends to the whole of India except the State of
Jammu and Kashmir.

The word “Benami” is derived from the Persian language which literally means “without a name”.
Benami Property is defined under Sec 2 (8) of the amended act, which means any property which is the
subject matter of a benami transaction and it also includes the proceeds from such property. Property is
defined under Section 2 (26) of the act which means 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 to title to or interest in the property and where the property is capable of
conversion into other form, then the property in the converted form and also includes proceeds from
the property.

Benami accounts are those accounts under whose name the Benami transactions are done. Benami
Transactions are defined under Sec 2 (9) of the amended, which have extended to include the
following:-

(1.) Transaction or an arrangement where a property is transferred to, or 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, by the person who
has provided the consideration.

(2.) A transaction or an arrangement in fictitious name.

(3.) A transaction or an arrangement where the owner of the property is not aware of or
denies knowledge of such ownership.

(4.) A transaction or an arrangement where the person providing the consideration is

not traceable or is fictitious.

The Hon’ble Supreme Court held that where a person buys property with his own money but in the
name of another person without any intention to benefit such other person, the transaction is called
Benami property.
 Beneficial
Benamidar
Owner

Pays Consideration to buy the property

X Y

Buys Property Benefits of property

PROPERTY

Figure- Benami Transactions

Exceptions to Benami Transactions

The following are the exceptions to Benami Transactions:-

(1.) Benami Transaction shall not include any transaction involving the allowing of possession of
any 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, under any law for the time being in force
consideration for such property has been provided by the person to whom possession of
property has been allowed but the person who has granted possession thereof continues to
hold ownership of such property, or stamp duty on such transaction, or arrangement has
been paid and the contract has been registered.

(2.) Benami Transactions shall not include any property held by the Karta or the member of a
Hindu Undivided Family and the property is held for the their own benefits and the
consideration for such property has also been paid, or an individual in the name of his
spouse or in the name of the child of the individual and the consideration for such property
has been paid by the individual, or any individual, in the name of his brother, sister, lineal
ascendant or descendant, where such names appear as joint-owners in the legal title and
 the consideration for such property has been paid out by the individual, or a person
standing in a fiduciary capacity for the benefit of another person.

The law clearly states that entering into Benami transactions is prohibited. Section 53 and 54 of the
amended act provides penalties for entering into Benami transactions.

 According to Section 53 of the 2016 Act, any person who enters into a Benami transaction so as
to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment
to creditors, the beneficial owner, Benamidar, or any person who abets or induces another to
enter into the Benami transaction shall be guilty of the offense of Benami transaction. The
persons found guilty of the such offences shall be punished with rigorous imprisonment for a
term not less than 1year, which may extend up to 7years and he shall also be liable to fine up to
25% of the market value of the Benami property.

 According to Section 54 of the 2016 act, anybody who is required to furnish information under
this Act knowingly furnished false information or document to any authority or in any
proceeding, shall be punished with rigorous imprisonment for a term not less than 6 months,
which may extend up to 5years and he shall also be liable to fine up to 10% of the market value
of the Benani property.

Section 27 further provides that when an order is passed holding any property as Benami property, than
an order of confistication shall be made by the adjudicating authority and all rights and title shall vest
absolutely with Central Government. Any right created in the favour of the third party to defeat the
purpose of this act shall be null and void.

The provisions of the Benami Act further states that a previous sanction of the Board is mandatory for
the institution of any prosecutions against a person and the offence maybe tried by a Court of Session.
The Central Government shall also appoint one or more Adjudicating Authorities under Sec 2(18),
consisting of a Chairperson and at least two other Members, to exercise jurisdiction, powers, and
authority conferred by or under this Act.

In Mithilesh Kumari Vs. Prem Behari Khare, the Supreme Court held that Benami Transcation Act is a
piece of declaratory enactments which makes benami transactions punishable and also prohibits the
right to defences against recovery under benami transactions.