New Benami Property Act, its various provisions and loopholes

New Benami Property Act, its various Provisions and Loopholes

by:
Vijay Sardana
Specialising in Indian Business Laws 

Follow Twitter: @vijaysardana

The Benami Transactions (Prohibition) Amendment Bill, 2015 was introduced in Lok Sabha on May 13, 2015 by the Minister of Finance Mr. Arun Jaitley and was passed on 2nd August 2016 by Rajya Sabha.

This was introduced to amend the Benami Transactions Act, 1988.  

The Act prohibits benami transactions and provides for confiscating benami properties. 

The new Act seeks to: 

(i) amend the definition of benami transactions, 
(ii) establish adjudicating authorities and an Appellate Tribunal to deal with benami transactions, and 

(iii) specify the penalty for entering into benami transactions.

The old Act defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person.  

New Definition under Act:

The new Act amends this definition to add other transactions which qualify as benami, such as property transactions where: 

(i) the transaction is made in a fictitious name, 

(ii) the owner is not aware of denies knowledge of the ownership of the property, or 

(iii) the person providing the consideration for the property is not traceable.

The Act also specifies certain cases will be exempt from the definition of a benami transaction. 

These include cases when a property is held by: 

(i) a member of a Hindu undivided family, and is being held for his or another family member’s benefit, and has been provided for or paid off from sources of income of that family; (ii) a person in a fiduciary capacity; 

(iii) a person in the name of his spouse or child, and the property has been paid for from the person’s income; and

The New Act defines benamidar as the person in whose name the benami property is held or transferred, and a beneficial owner as the person for whose benefit the property is being held by the benamidar.

Under the old Act, an Authority to acquire benami properties was to be established by the Rules.  

The new Act seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: 

(i) Initiating Officer, 

(ii) Approving Authority, 

(iii) Administrator and 

(iv) Adjudicating Authority.
These people can be source of harassment and corruption in the new system.

If an Initiating Officer believes  that a person is a benamidar (not to believe so he may ask bribe, like other inspectors), he may issue a notice to that person.  The Initiating Officer may hold the property for 90 days from the date of issue of the notice, subject to permission from the Approving Authority.  

At the end of the notice period, the Initiating Officer may pass an order to continue the holding of the property. If an order is passed to continue holding the property, the Initiating Officer will refer the case to the Adjudicating Authority.

The Adjudicating Authority will examine all documents and evidence relating to the matter and then pass an order on whether or not to hold the property as benami. Based on an order to confiscate the benami property, the Administrator will receive and manage the property in a manner and subject to conditions as prescribed. 

The new Act also seeks to establish an Appellate Tribunal to hear appeals against any orders passed by the Adjudicating Authority.  Appeals against orders of the Appellate Tribunal will lie to the high court.

Under the old Act, the penalty for entering into benami transactions is imprisonment up to three years, or a fine, or both.  

Important: There is no whistle blowing mechanism in the system to prevent corruption. The harassment and corruption will be in high denomination. 

Government must first ensure proper documentation of all ownership and it should be on website so that all can see the property details and if anyone has any objection can raise the issue with local authorities. 

Penalty under new Act:

1. The new Act seeks to change this penalty to rigorous imprisonment of one year up to seven years, and a fine which may extend to 25% of the fair market value of the benami property. 

2. The new Act also specifies the penalty for providing false information to be rigorous imprisonment of six months up to five years, and a fine which may extend to 10% of the fair market value of the benami property.

Concern: Even to avoid Appeal people will be asked to pay bribe and to give favourable decision people will pay money.

Certain sessions courts would be designated as Special Courts for trying any offences which are punishable under the Bill. 

Suggestions:
1. After completing paper work and sending notices in advance, Every visit by Initiating Officer must be recorded by him on line from the site of visit with the help of App based online system. This will track his performance and also his visits.

2. He must record all his observations online same day so that there is no time to bargain bribe with the affected person.

3. He should also take photo of the property which he is visiting and post it with site visit report.

4. If he is not recording his visit and filing report on time should be consider as act of corruption. He should not call any person to his office, he must visit the site for investigation so that neighbours can be witness to his activities. 

5. Honest people should make recording of the conversation, as proof of officers' visit for investigation and may use them as evidence if required.

6. Housing and other real estate complexes must have CCTV cameras to record the movement of such inspectors in their premises, so that they can't file fake reports and harass residents.

This will not eliminate corruption but will provide evidence against the initiating person, if required. He should not assume he is above law and can harass people.

Important: In fact, all types of inspectors visits to factories and housing complexes must also be recorded in CCTV  or in mobile cameras and all meetings with them should be recorded as evidence.

India cannot afford another fiasco like what bankers did during demonetisation, we must learn from our mistakes.

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