[RSTV] Law of the Land – The Benami Transactions (Prohibition) Amendment Bill, 2015

Why You Should Know?

The topic is important from the view point of both General Studies Paper II and III. In General Studies Paper II it falls under Acts, Policies & Bodies. In General Studies Paper III it falls under Internal & External Security sub topic Money laundering and its preventions.

There is also a possibility of questions in prelims as the topic is trending.

Historical Background

The Benami Transactions Act, 1988 was approved by Parliament in 1988. It was not implemented as it lacked enabling provisions because of which rules and guidelines couldn’t be framed.

The 1988 Act doesn’t contain any provision to keep confiscated property with central government. There was also a lack of empowering authorities with powers of civil court for effective implementation. The Bill also lacked an appellate mechanism.

The Amendment Bill Objective

Government of India wants to contain and curtail the domestic black money which is available in circulation in the country.

Government is also trying to generate and collect the land pool which is registered in Benami names.

The bill seeks to strengthen the law through amendments. Government plans to incorporate empowering sections so that implementation becomes possible. The bill seeks to prohibit holding property as Benami and restrict the right to recover or transfer property held in Benami. The bill seeks to broadly do four things:

Amend the definition of Benami Transactions.
Establish Adjudicating Authority
Setup Appellate Tribunal
Specify the penalty for entering into a Benami Transaction and provisions for confiscation of Benami properties.

The Amendment Bill Key Points

Proposed Definition of Benami Transactions

It is defined as an arrangement where property is transferred to or held by one person while the money for the same is paid by another person. The property is held for direct or indirect benefit of the person providing the money.

Any transaction made against a property where the owner of the property denies the knowledge of such property or makes a transaction in a fictitious name.

All the properties involved in Benami transaction will be considered as Benami properties.

Restrictions

The person being a Benamidar is refrained from re-transferring the Benami property held by him to the beneficial owner or any other person acting on his behalf. The Bill makes all such transfers null and void.

Specifying the Punishment

Those who found guilty of the offences of Benami Transaction may face:

Rigorous imprisonment for up to 7 years.
Have to pay a fine which may extend up to 25% of market value of Benami Property.

Effective Implementation

The bill empowers central government to make rules for the implementation of the provision of the bill.

The bill has provision for central government to designate one or more special courts for the purpose of the bill in consultation with the High Court Chief Justice of concerned state.

Exemptions

The 1988 Act had minimal exemptions. It provided for exemption only in case if property is registered in the name of

Female spouse
Unmarried Daughter, and
Co Pensioner

But the current amendment bill seeks to widen the spectrum of exemptions. It has been expanded to:

Members of Hindu Undivided Family (HUF)
Corporates, Firms, Companies and Partners holding land in fiduciary capacity in the name of Directors, Trustees or other employees.
Property in the name of spouse and kids acquired from the known source of income
Lineal descendants and ascendance (cousins, relatives etc.)

Status of the Bill in Parliament

Initially, the bill was introduced by UPA government. The provision and exemption contained in the bill was objected by the head of Standing Committee on Finance Mr Yashwant Sinha.

At present time the NDA government is facing the same challenge from the congress quarters.

Implementation Process

Proceeding for Benami transaction will be initiated by initiating office who will be of the rank of Assistant Commissioner. The initiating officer will refer the case to adjudicating authority set up under the bill.

The relevant adjudicating authority will pass an order within a specified time after hearing the alleged

Benamidar
Beneficial Owner
Any other interested parties including bank companies
Any other person who makes a claim with respect to property

There is a provision to empower the adjudicating authority with powers of civil court.

There is a provision to setup an appellate tribunal to appeal against all orders of adjudicating authority.

After the final orders of adjudicating authority central government will confiscate the properties held as Benami.

Confiscated properties are to be managed and disposed of by officers designated by central government.

Critical Analysis

Unanswered Questions

How the property is going to be confiscated? What are the mechanisms which will be involved and how to check the power given to officers is not being misused?

The bill seems to be silent on this aspect.

Vagueness and Uncertainty

In case of Money Laundering Act the property is attached which is a proceed of crime. When we talk of proceed of crime we talk of such properties as derived or obtained as a result of criminal offence.

In case of Benami Transaction Act it appears that the initiating officer based on information he has can act on discretion to notify any property as Benami. This may lead to problem in implementation which can lead to excessiveness or arbitrariness.

Hence there is no certainty of action that can be taken under this bill.

Retrospective or Prospective?

As the bill is a mere amendment to Benami Transaction Act, 1988 there is a chance of it being implemented retrospectively. There is also provision in the bill which gives power to Government of India to notify it from any date it wants.

Also Benami is a sort of continuing offence and hence it is futile to discuss prospective or retrospective.

With implementation mechanism in place, initiating officer has to identify Benami property it seems it will difficult to dig cases retrospectively.

Rural Impact

The Hindu Undivided Family (HUF) has been exempted from Benami transaction act which pushes a large section of population in rural areas outside the ambit of the law.

The rest of the people are moneyed people thereby having a little impact on them.

A few poor people in rural area may be roughed up wrong side if record of ownership structure has been misplaced. This should be a very rare scenario.

Exemptions – Is it legalizing black money?

As seen earlier there has been a sweep of exemptions after which there will be hardly any Benami property left. With the inclusion of sons, relatives and cousins individual sort of got legal license to keep Benami properties.

Also the exemption being extended even to limited liability partnership in business arena gives a wrong signal. This can be misused under Corporate Social Responsibility by many corporates to have Benami properties.

There is one misconception that holding landing in fiduciary capacity by corporates, firms etc. will help in legalising black money. In fiduciary capacity money comes from known channel and is mostly for a purpose of trust. Hence, it is not Benami property. If the channels are unknown then it is not counted in fiduciary capacity.

Initiating Officer Role – Overburdened and over trusted?

Initiating officer is basically an investigating officer. He has discretionary to notify any property as Benami based on information he possess. But, where does the information comes from is a complete grey area. This has also not been addressed in bill.

Secondly, initiating officer has been given power to hold Benami property for 90 days without referring it to adjudicating authority. He doesn’t need to hear out the concerned parties also. This over trust can lead to arbitrariness and absurd results.