The Re­mak­ing of Be­nami Trans­ac­tion Act, 1988

Libertatem Magazine - - Content - By Shub­hen­dra Chakra

In or­der to curb the ac­cu­mu­la­tion of black money in the coun­try, Modi Gov­ern­ment has taken a his­toric step by de­mon­e­tiz­ing the higher cur­rency notes from the cir­cu­la­tion. It is not the only step which has been taken by the Gov­ern­ment in this re­gard, as Be­nami Trans­ac­tion Amend­ment Act, 2016 has also been passed with ef­fect from 1st Novem­ber in or­der to cut the flow of black money from real es­tate mar­ket. The dual move taken by the Gov­ern­ment was only to make sure that the money should be in cir­cu­la­tion and il­le­gal­ize all form of cash ac­cu­mu­la­tion. In this thought process, I am not go­ing to dis­cuss the de­mon­e­ti­za­tion is­sue, but it is ac­tu­ally the ‘Be­nami prop­erty’ which will be­come the cen­ter piece of the pa­per.

The Be­nami trans­ac­tion Act was in­tro­duced in the year 1988 by an or­di­nance which was later re­pealed through the Be­nami Trans­ac­tions (Pro­hi­bi­tion) Act, 1988. The pur­pose of bring­ing such an act was to curb the Be­nami trans­ac­tions and mat­ters re­lated thereto. The act was crit­i­cized for the half-hearted ef­fort as it did not pro­vide for the spe­cific pro­vi­sions in re­gard to the con­fis­ca­tion of prop­erty or an ap­pel­late au­thor­ity or the pro­ce­dure in re­gards to the serv­ing of no­tice etc. and all these short­com­ings made the en­tire act tooth­less and ad­junct to act against the per­pe­tra­tors. In or­der to act against the Be­nami trans­ac­tions, the gov­ern­ment had brought an amend­ment bill in the year 2011 but it was lapsed due to the dis­so­lu­tion of the house in 2012. Later, The Be­nami Trans­ac­tions (Pro­hi­bi­tion) Amend­ment Act, 2016 was passed from both the houses of the par­lia­ment and came into ef­fect from 1st Novem­ber, 2016. It is quite in­ter­est­ing to note that the par­ent act of 1988 had only 9 sec­tions whereas the amend­ment act has 71 sec­tions which is ac­tu­ally 8 times more than the pre­vi­ous act.

The new amend­ment act was passed in or­der to curb the in­fir­mi­ties in the act but the most per­ti­nent things are the ap­point­ment of Ex­e­cut­ing Au­thor­ity, def­i­ni­tion of Be­nami Prop­erty/trans­ac­tion, and the con­fis­ca­tion of the prop­erty. The 2016 act has defined ‘Be­nami prop­erty’ as any prop­erty which is the sub­ject mat­ter of a Be­nami trans­ac­tion and also in­cludes the pro­ceeds from such prop­erty. Be­nami Trans­ac­tion has been defined un­der Sec­tion 2(9) which de­fines it as “A trans­ac­tion or an ar­range­ment (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, OR a trans­ac­tion or an ar­range­ment in re­spect of a prop­erty car­ried out or made in a fic­ti­tious name; OR a trans­ac­tion or an ar­range­ment in re­spect of a prop­erty where the owner of the prop­erty is not aware of, or, de­nies knowl­edge of, such own­er­ship OR a trans­ac­tion or an ar­range­ment in re­spect of a prop­erty where the per­son pro­vid­ing the con­sid­er­a­tion is not trace­able or is fic­ti­tious.

Un­der the 1988 act, the prop­erty bought for the ben­e­fit of wife or un­mar­ried daugh­ter can­not fall un­der the purview of the act, but un­der the 2016 Amend­ment act, the ad­di­tional clauses have been made in or­der to en­large the scope of the def­i­ni­tion. The act has ex­empted the prop­er­ties which are held in fidu­ciary ca­pac­ity or by HUF or for the ben­e­fit of spouse/chil­dren or for the lin­eal as­cen­dants or de­scen­dants. The class of ex­emp­tion pro­vided un­der the act is very wide enough to in­clude al­most every­one in the def­i­ni­tion and it looks like gov­ern­ment is try­ing le­gal­ize the hoard­ing of Black Money in the mar­ket by ex­empt­ing a ma­jor­ity of pop­u­la­tion from its am­bit. The counter ar­gu­ment to this is that since the prop­erty can only be ac­quired from the known source of In­come and there­fore even if the def­i­ni­tion has been en­larged, it will not le­git­imize the hoard­ing of black money as ul­ti­mately that per­son has to jus­tify as to where he gets the liq­uid­ity to pur­chase that prop­erty.

The sec­ond part is about the reg­u­lar­ity mech­a­nism which specif­i­cally deals with the Be­nami Trans­ac­tions/prop­erty, which was clearly ab­sent in the par­ent act of 1988. Un­der the Amend­ment Act, four au­thor­i­ties have been men­tioned as Ini­ti­at­ing officer, Ap­prov­ing Au­thor­ity, Ad­min­is­tra­tor and Ad­ju­di­cat­ing Au­thor­ity so as to take proper steps against the im­pugned prop­erty. Dif­fer­ent roles have been spec­i­fied to all the au­thor­i­ties and af­ter the de­ci­sion of the ad­ju­di­cat­ing au­thor­ity, the de­ci­sion will be bind­ing and con­fis­ca­tion pro­ceed­ings will be pro­ceeded there­after.

The fol­low­ing pro­ce­dure is pro­posed for de­ter­mi­na­tion and re­lated pe­nal con­se­quences in the case of a pro­hib­ited Be­nami trans­ac­tion:­ceed­ings for en­quir­ing into an al­leged Be­nami trans­ac­tion are to be ini­ti­ated by the Ini­ti­at­ing Officer;

2.The Ini­ti­at­ing Officer will re­fer the case to the Ad­ju­di­cat­ing Au­thor­ity set up un­der the pro­posed Bill;

3.The Ad­ju­di­cat­ing Au­thor­ity, af­ter pro­vid­ing an op­por­tu­nity of be­ing heard to the al­leged Be­nami­dar, the ben­e­fi­cial owner, any in­ter­ested party in­clud­ing a bank­ing com­pany and any other per­son who makes a claim in re­spect of the prop­erty, will pass an or­der within one year, hold­ing the prop­erty to be a Be­nami prop­erty or oth­er­wise;

4.An ap­peal against the or­der of Ad­ju­di­cat­ing Au­thor­ity will lie with the Ap­pel­late Tri­bunal set up un­der the pro­posed Bill;

5.An ap­peal against the or­ders of the Ap­pel­late Tri­bunal shall lie with the ju­ris­dic­tional High Court;

6.Af­ter the or­der of ad­ju­di­cat­ing au­thor­ity be­comes fi­nal, it shall con­fis­cate the prop­er­ties held Be­nami;

7.Con­fis­cated prop­er­ties are to be man­aged and dis­posed of by of­fi­cers of the rank of In­come-tax Officer who will be des­ig­nated by the Cen­tral Gov­ern­ment as Ad­min­is­tra­tors.

Thirdly, the pro­vi­sions of S. 24 re­quire that the Ini­ti­at­ing Officer will ini­ti­ate pro­ceed­ings un­der the Act by is­su­ing a no­tice to the per­son who is be­lieved to be the be­nami­dar and serv­ing a copy thereof on the ben­e­fi­cial owner. The Ini­ti­at­ing officer can also pro­vi­sion­ally con­fis­cate the prop­erty for a pe­riod of 90 days, if the officer thinks that the be­nami­dar may try to dis­pose of the prop­erty. Af­ter the pro­ceed­ings ini­ti­ated by the ini­ti­at­ing officer, the ad­ju­di­ca­tory au­thor­ity will give the op­por­tu­nity to the con­cerned and will hear their side, if au­thor­ity is not sat­is­fied then it will pass an or­der for the con­fis­ca­tion un­der Sec­tion 27 of the Act oth­er­wise they will re­lease the prop­erty. If the be­nami­dar is ag­grieved by the or­der of the ad­ju­di­cat­ing au­thor­ity, he or she can ap­peal be­fore the ap­pel­late au­thor­ity es­tab­lished un­der the act. It is per­ti­nent to note that even the ini­ti­at­ing officer can challenge the or­der of the ad­ju­di­cat­ing au­thor­ity be­fore the ap­pel­late au­thor­ity within 45 days from the date of or­der.

All in all, the steps taken by the Gov­ern­ment are quite bold and de­ci­sive but they are not meant to tackle the hoard­ing of the Black Money in the coun­try. I am not sure about the De­mon­e­ti­za­tion move but the Amend­ment could be made much stronger. If we see the amend­ment act in a sub­jec­tive way, it has led to le­gal­ize the black money in the real es­tate sec­tor if a per­son is able to prove the ‘known source of in­come’ which can be done quite eas­ily with the help of a re­puted Char­tered Ac­coun­tant. Se­condly, giving a free hand to the ini­ti­at­ing officer with re­gard to the ini­ti­a­tion of the pro­ceed­ing with­out giving a chance to other party is quite ar­bi­trary. The Act is silent as how the ini­ti­at­ing officer will re­ceive the officer and what steps he or she has to take af­ter they re­ceive the in­for­ma­tion? Thirdly, prop­erty will be con­fis­cated by the or­der of the ad­ju­di­cat­ing au­thor­ity un­der Sec­tion 27 of the Act but is it not against the prin­ci­ple that ‘one is con­sid­ered in­no­cent un­less proven guilty’ be­cause of the fact that there are three ap­peals left to the Be­nami­dar while proven guilty by the ad­ju­di­cat­ing au­thor­ity. Fourthly, whether it would be fea­si­ble to sug­gest for a sep­a­rate ap­pel­late au­thor­ity wherein there are more than half the courts va­cant? Lastly, whether this Act would have a retrospective op­er­a­tion from the date of the par­ent act i.e. 1988 or it will ap­ply prospec­tively? Be­cause if it is go­ing to ap­ply prospec­tively, then what about the acts done be­tween 1988 to 2016 and if it ap­plies ret­ro­spec­tively, then this very amend­ment would vi­o­late the set­tled prin­ci­ples of law. I am not sure whether this act will achieve the de­sired re­sults but at least this gov­ern­ment is try­ing to do some­thing against black money in the coun­try.

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