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Contents at a glance Declaration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13 Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Salient Features of the Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Initiating Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Approving Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Appeal to High Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Offences by Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Offences and Prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Special Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Benami Transactions & Money Laundering . . . . . . . . . . . . . . . . . . . 133 ANNEXURES

Annexure I Annexure II Annexure III Annexure IV Annexure V Annexure VI Annexure VII

The Benami Transactions (Prohibition) Act, 1988. . . . . . . . . . . . .

The Benami Transactions (Prohibition) Amendment Act, 2016. . .

The Prohibition of Benami Property Transactions Rules, 2016. . .

The Prohibition of Benami Property Transactions Act, 1988 [as amended by Act No. 43 of 2016] . . . . . . . . . . . . . . .

Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Second Schedule of the Income-tax Act, 1961 . . . . . . . . . . . . . . . .

Prevention of Money Laundering Act, 2002 [15 of 2003]. . . . . . .

181 185 217 225 257 275 301

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Table of contents Declaration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13 Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Chapter 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Concept of Benami Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Types of Benami Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 How to decide whether a Transaction is Benami. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Development of Benami Law in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Recommendations of Second Administrative Reforms Commission. . . . . . . . 30 Economic and Social Effects of Benami Transactions – Measures to Curb the Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Chapter 2 Salient Features of the Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Salient Features. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Matters Pending as on 1.11.2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Comparison of the provisions of the Act of 1988 and the Amendment Act of 2016. . 37 Chapter 3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Benami Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Benami Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Benamidar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Chapter 4 Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Authorities under the Benami Transactions (Prohibition) Amendment Act, 2016. . . . 43 Powers of the Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Proceedings of the Authorities under this Act are Judicial Proceedings. . . . . . 58 Authorities to be Public Servants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Notification of the Authorities under the Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Chapter 5 Initiating Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 17

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Procedure to be followed by the Initiating Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Powers of Initiating Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Restrictions on Exercise of Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Rights of the person from whom Books of Account or other Documents are impounded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Points of Importance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Comparison of Powers of Initiating Officer under the Benami Transactions (Prohibition) Amendment Act and Powers of Assessing Officer under the Income-tax Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Comparison of Powers of Initiating Officer and Assessing Officer. . . . . . . . . 68 Initiating Officer – Powers and Time Limit for Exercise thereof . . . . . . . . . . . . . . . . 70 Synopsis of Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Time Limits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Chapter 6 Approving Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Powers of Approving Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Comparison of Powers of Approving Authority under the Benami Transactions (Prohibition) Amendment Act and Powers of Range head under the Income-tax Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Approving Authority – Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Synopsis of Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Chapter 7 Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Constitution of the Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Appointment of Members to the Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . 78 Tenure of Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Removal from Office of Chairperson or Member. . . . . . . . . . . . . . . . . . . . . . . 79 Validity of proceedings of the Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . 79 Vacancies in the Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Procedure to be followed by Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . . 80 Proceedings of the Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Service of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Procedure for Passing Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Persons who can act as Authorised Representatives before the Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Order to be passed by the Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . 81 Appeal against the Order passed by the Adjudicating Authority. . . . . . . . . . . . 82 Time limit for passing the Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 18

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Rectification of mistakes in the Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Powers of Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Matters pending as on 1.11.2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Comparison of Adjudicating Authority with authorities under the Income Tax Act . . 85 Adjudicating Authority – Powers and Time Limits thereof. . . . . . . . . . . . . . . . . . . . . 86 Synopsis of Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Time Limits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Chapter 8 Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Procedure to be followed by the Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Procedure to be followed in respect of Immovable Property . . . . . . . . . . . . . . 88 Procedure to be followed in respect of Movable Property . . . . . . . . . . . . . . . . 88 Confiscated Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Receipt of the Confiscated property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Management of Confiscated Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Disposal of Confiscated Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Powers of Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Comparison of Administrator and Tax Recovery Officer. . . . . . . . . . . . . . . . . . . . . . . 91 Administrator – Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Synopsis of Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Chapter 9 Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Constitution of the Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Appointment of Members to the Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Removal from office of Chairperson or Member . . . . . . . . . . . . . . . . . . . . . . . 97 Procedure for removing Chairperson or Judicial Member . . . . . . . . . . . . . . . . 97 Suspension pending Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Procedure for Removing Administrative Member . . . . . . . . . . . . . . . . . . . . . . 97 Resignation of Chairperson or Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Vacancy in the Office of the Chairperson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Validity of proceedings of the Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Procedure before Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Representation before the Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . 99 Decision of the Appellate Tribunal to be by Majority. . . . . . . . . . . . . . . . . . . 100 Tribunal is a Civil Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Time Limit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Execution of the Order of the Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 19

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Powers of the Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Matters pending as on 1.11.2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Comparison of Appellate Tribunal under the Benami Transactions (Prohibition) Amendment Act and under the Income Tax Act. . . . . . . . . . . . . . . . . . 103 Powers of the ITAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Comparison of Appellate Tribunal under Benami Transactions (Prohibition) Amendment Act and Income Tax Act . . . . . . . . . . . . . . . . . . . . 106 Appellate Tribunal under Benami Transaction (Prohibition) Act – Powers and Time Limits thereof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Synopsis of Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Time Limits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Chapter 10 Appeal to High Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Time Limit for filing Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Power to Formulate Substantial Question of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Power to hear on any other Substantial Question of Law. . . . . . . . . . . . . . . . . . . . . . 111 Decision of the High Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Supremacy of High Court Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Comparison with Proceedings under the Income Tax Act. . . . . . . . . . . . . . . . . . . . . 112 Chapter 11 Offences by Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Definition of a Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Contravention by a Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Chapter 12 Offences and Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Confiscation of the Benami Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Offence of entering into Benami Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Punishment for the offence of entering into Benami Transaction . . . . . . . . . . . . . . . 116 Offence of furnishing False Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Determination of Market Value of the Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Determination of price in certain cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Sanction for Prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Chapter 13 Special Courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Cognizance of Offence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Proceedings of Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 20

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Public Prosecutor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Power of High Court to Supervise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Chapter 14 Benami Transactions & Money Laundering. . . . . . . . . . . . . . . . . 133 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Benami Property Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Prevention of Money Laundering Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Objective of the PMLA Legislation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Offence of Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Process of Money Laundering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Enforcement of the PMLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 International Co-operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Financial Intelligence Unit - India. . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Anti-Money Laundering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Asia/Pacific Group on Money Laundering Membership. . . . . . . . . . . 138 Financial Action Task Force & Membership. . . . . . . . . . . . . . . . . . . . 138 Egmont Group Membership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Other Bilateral Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Regional Cooperation – Eurasian Group (EAG) Project. . . . . . . . . . . 139 Salient features of PMLA, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Authorities to Implement the Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Authorities under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Powers of the Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Powers of the Authorities under the PMLA. . . . . . . . . . . . . . . . . . . . . 141 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Attachment of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Procedure after Attachment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Position under Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Period of Attachment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Position under Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Time limit for filing Complaint to the Adjudicating Authority. . . . . . . . . . . . 147 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Position under Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 21

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Adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Adjudication Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Confiscation of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Obligations of Banking Companies, Financial Institutions and Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Enforcement Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Procedure and Powers of Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . 164 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Appeal to High Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Special Courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Vexatious Search. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Giving False Information or Failing to Give Information. . . . . . . . . . . . . . . . 170 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Bar of suits in Civil Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Proceedings to continue in event of death or insolvency . . . . . . . . . . . . . . . . 171 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Reciprocal arrangements for Attachment and Confiscation of Property. . . . . 173 Position under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Comparison with Benami Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 22

Table of contents

ANNEXURES Annexure I Annexure II Annexure III Annexure IV Annexure V

Annexure VI Annexure VII

The Benami Transactions (Prohibition) Act, 1988. . . . . . . . . . . . .

The Benami Transactions (Prohibition) Amendment Act, 2016. . .

The Prohibition of Benami Property Transactions Rules, 2016. . .

The Prohibition of Benami Property Transactions Act, 1988 [as amended by Act No. 43 of 2016]. . . . . . . . . . . . . . .

Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CBDT Notification No. 97/2016 dated 25th October 2016 notifying the Adjudicating Authority and the Appellate Tribunal until specifically established under the Benami Law. . . .

CBDT Notification No. 98/2016 dated 25th October 2016 notifying the effective date of the Benami Transaction (Prohibition) Amendment Act, 2016. . . . . . . . . . . . . . . . . . . . . . . .

CBDT Notification No. 40/2017 dated 18th May 2017 notifying the Income-tax authorities performing the functions of ‘Authority’ under the Act. . . . . . . . . . . . . . . . . . . . . . .

Second Schedule of the Income-tax Act, 1961 . . . . . . . . . . . . . . . .

Prevention of Money Laundering Act, 2002 [15 of 2003]. . . . . . .

181 185 217 225 257 257 258 259 275 301

23

Chapter 1

Introduction “Benami Property is not the creation of a statute. It acquired legal respectability by judicial law making”.

(130th Report of Law Commission)

The makers of the Constitution had to deal with many key issues to come up with the Constitution that is needed for a country like India with its diverse social fabric and economic issues. One of the key issues was the feudal set-up of India. The land ownership was concentrated in the hands of some and the rest had to struggle to eke out a living. In the Constitution adopted, the “right to property” was recognized as one of the Fundamental Rights under Art 19(1)(f) and 311.

Article 39 of the Constitution lays down certain principles of policy to be followed by the State to bring about reduction of the concentration of wealth and means of production from the hands of a few, and distribution of community resources to subserve the common good. These clauses highlight the Constitutional objectives of building an egalitarian social order and establishing a welfare State, by bringing about a social revolution assisted by the State, and have been used to support the nationalization of mineral resources as well as public utilities. Further, several legislations pertaining to agrarian reform and land tenure have been enacted by the federal and State Governments, in order to ensure equitable distribution of land resources.

As a part of implementing Art 39, to correct the land holding inequality, the Central and State Governments have enacted laws to regulate property rights.

First, the Government undertook to reconstruct the agrarian economy, inter-alia, by trying to confer right to property on tillers, abolition of zamindaris, giving security of tenure to tenants, fixing a ceiling limit on personal holding of agricultural land and redistributing the surplus land among the landless.

Secondly, in the area of urban property, measures have been taken to provide housing to the people, clearance of slums and planning, control rents, acquire property and impose a ceiling on urban land ownership etc.

Thirdly, the Government has undertaken to regulate private enterprises and nationalization of some commercial undertakings.

1

Articles 19(1)(f) and 31 stand repealed vide the Constitution (Forty-fourth Amendment) Act, 1978 w.e.f. 20.06.1979.

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Thus, various legislative measures have been undertaken to effectuate the accepted goal of establishing a socialistic pattern of society. Hence, Art 31 and 19(1)(f) were repealed.

In addition, with a view to correct the situation and bring in equitable distribution of available land, the Government brought in the following agrarian reforms: (1)

Intermediaries were abolished;

(2)

Ceiling was fixed on land holdings;

(3)

The cultivating tenant within the ceiling secured permanent rights;

(4)

In some States, the share of the landlord was regulated by the law;

(5)

In one State, the tiller of the soil secured cultivating rights against the absentee landlord, and in some States, the rural economy was readjusted in such a way, that the scattered bits of land of each tenant were consolidated in one place by a process of statutory exchange.

These reforms certainly implement the Directive Principles of State Policy.

In these circumstances, the zamindars tried to safeguard their right over the land by resorting to various methods to show on paper that their land holding was within the permissible limits. One of the ways was to put the property in the name of another person while the beneficial ownership was held by them. This method has led to the concept of Benami transactions.

CONCEPT OF BENAMI TRANSACTION Purchase or holding of properties in another name is known in India as a “benami transaction”. The custom has been recognized by Indian Courts over a long period2.

Under the English law, when real or personal property is purchased in the name of a stranger, a resulting trust will be presumed in favour of the person who is proved to have paid the purchase money in the character of the purchaser.

The counterpart of the English law of resulting trust referred to above, is the Indian law of Benami transactions.

The word “benami” is a South-Asian word. It means “without a name” or “no name”. It is used to define a transaction in which the real beneficiary is not the one in whose name the property is purchased.

“Benami” in its technical sense means “holding properties in the name of another”.

The essential legal characteristic of these transactions is that there is no intention to benefit the person in whose name the transaction is made. The name of that person is popularly known as “benamidar”, is simply an alias for that of the person beneficially interested. The benamidar has the ostensible title 2

26

See the 57th Report of Law Commission (1973), Para 1.5 of Chapter I.

Chapter 1

Introduction

to the property standing in his name. But the beneficial ownership of the 3 property does not vest in him but in the real owner. The system of Benami transactions is not peculiar to Hindu law, and it has some traces in Mohamadan law as well where it is known as ‘Farzee’.

The legal essence of Benami transaction revolves around the peculiar characteristic that there is no intention of benefitting that person in whose name the property is transacted.

TYPES OF BENAMI TRANSACTIONS Two kinds of Benami transactions are generally recognized in India.

A.

Where a person buys a property with his own money but gets it or holds it in the name of another person without any intention such other person, the transaction is called benami. In that transferee holds the property for the benefit of the person contributed the purchase money, and he is the real owner.

registered to benefit case, the who has

In this type of transaction, there is an operative transfer from the transferor to the transferee, though the transferee holds the property for the benefit of the person who has contributed the purchase money.

For example, when A sells a property to B but the sale deed mentions X as the purchaser. Here the sale is genuine, but the real purchaser is B and X is Benamidar. These types of transactions are usually termed as Benami.

In this class of cases, when a dispute arises as to who is the real transferee, whether X who is named in the sale deed or B, the real purchaser, the issue to be examined is the question as to who paid the consideration for the transfer, X or B.

B.

Where a person who is the owner of the property executes a conveyance in favour of another without the intention of transferring the title to the property thereunder, the transferor continues to be the real owner and there is no operative transfer at all. The title rests with the transferor notwithstanding the execution of the conveyance.

Hence, the word ‘benami’ is also occasionally used to refer to a sham transaction, like when A purports to sell his property to B without intending that his title should cease or pass to B. When the question is whether the transfer is genuine or sham, the issue to be verified and examined is not who paid the consideration but whether any consideration was paid at all.

The fundamental difference between these two classes of transactions is that, in the former there is an operative transfer resulting in the vesting of title in the 3

57th Report of Law Commission (1973).

27

Prohibition of Benami Transactions – Concepts & Law

Chapter 1

transferee, while in the latter there is no such transfer, the transferor continues to retain the title notwithstanding the execution of the transfer deed.

In both the cases, the real title is divorced from the ostensible title and they are vested in different persons.

The question whether a transaction is a Benami transaction or not mainly depends upon the intention of the person who has contributed the purchase money in the former case and upon the intention of the person who has executed the conveyance in the latter case.

HOW TO DECIDE WHETHER A TRANSACTION IS BENAMI Whether a transaction is Benami or not, is a subjective question varying according to facts and circumstances of the case. The Hon’ble Supreme Court has examined this issue in depth in the case of Jaydayal Poddar (Deceased) v Mst. Bibi Hazra & Others [AIR 1974 SC 171 : 1974 SCR (1) 70], and has laid down the criteria to be taken into consideration for coming to a conclusion as to whether a particular transaction qualifies to be called a Benami transaction. The Hon’ble Court has laid down as follows: “for determining this question, no absolute formulae or acid tests, uniformly applicable in all situations, can be laid down. However, in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances: (1) The source from which the purchase money came; (2) The nature and possession of the property, after the purchase; (3) Motive, if any, for giving the transaction a Benami colour; (4) The position of the parties and the relationship, if any, between the claimant and the alleged Benamidar; (5) The custody of the title deeds after the sale; and (6) The conduct of the parties concerned in dealing with the property after the sale.”

From the above, it can be seen that the dominant question is of intention and source of consideration paid for the transaction, though possession of property also matters. The motive in itself may not be a determining factor, but it has relative weight when it comes to burden of proof, which rests on the person who claims the transaction to be Benami.

Further, in the case of Bhim Singh & Anr v Kan Singh (and vice versa) [AIR 1980 SC 727 : 1980 SCR (2) 628], the Hon’ble Supreme Court came to the conclusion that: “the principle governing the determination of the question whether a transfer is a Benami transaction or not, may be summed up thus: 28

Chapter 1

Introduction

(1) The burden of showing that a transfer is a Benami transaction lies on the person who asserts that it is such a transaction (2) if it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary (3) The true character of the transaction is governed by the intention of the person who has contributed the purchase money and (4) The question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct etc.”

DEVELOPMENT OF BENAMI LAW IN INDIA The problem of property held Benami has been causing concern to taxing authorities. The Select Committee on the Taxation Laws (Amendment) Bill, 1969 had suggested that Government should examine the existing law relating to Benami transactions with a view to determine whether the Benami transactions should be prohibited.

On a reference made by the Union Government, by letter dated 20 December 1972, the Law Commission was asked to examine the question of prohibiting the Benami Transactions. The Law Commission took up the study of the question of prohibiting the Benami transactions and examined the implications of provisions of the Indian Trusts Act, 1882 and other statutory modifications of the Benami law as contained in the Code of Civil Procedure, the Transfer of Property Act, the Indian Penal Code and the Income-tax Act. It submitted a report after studying the Benami system as operating in India and England.

Partially implementing the recommendation of the Law Commission, an Ordinance styled as Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 was promulgated as Ordinance No. 2 of 1988 by the President of India on 19 May 1988.

Thereafter, the Law Commission was requested to take up the question of Benami transactions for detailed examination. After detailed examination, the Commission through its 130th Report submitted in 1988 recommended at para 1.5 on page 4 of Chapter I, that: “Refusal to recognize Benami transactions by denying a forum for enforcement of the rights based on Benami and thereby making the Benamidar the real owner would bring about a cessation of Benami being part of Indian Law.” 29

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The Law Commission vide its 130th Report on 14 August 1988 titled as “Benami Transactions-A Continuum” recommended passing of appropriate legislation and accordingly, the Benami Transactions (Prohibition) Bill, 1988 was enacted by Parliament on 19.07.1988 in place of the Ordinance.

The Benami Transactions (Prohibition) Act, 1988 came into force on 19.5.1988 and still remains in force. The Act prohibited Benami transactions and thus curbed the practice of Benami. To this extent, the objective and purpose of bringing in the Act were fulfilled.

The Act defines Benami transactions, prohibits them and further provides that violation of the Act is punishable with imprisonment and fine. The Act prohibits recovery of the property held Benami from Benamidar by the real owner.

Properties held Benami are liable for confiscation.

The Ministry of Finance was tasked with implementation of this Act. The Ministry in a background note furnished to the Committee stated that though the power to make rules was available to the Central Government under the Benami Transactions (Prohibition) Act, 1988, no rules could be prescribed due to procedural infirmities.

During the process of formulating the rules for implementing certain provisions of the Act, it was found that the provisions of the aforesaid Act were inadequate to deal with Benami transactions as the Act, (i)

does not contain any specific provision for vesting of confiscated property with the Central Government;

(ii)

does not have any provision for an appellate mechanism against an action taken by the authorities under the Act, while barring the jurisdiction of a Civil Court;

(iii)

does not confer the powers of the Civil Court upon the authorities for its implementation.

Further, matters of procedure relating to its administration, notice of hearing to parties concerned, service of notice and orders, powers of the competent authority relating to gathering of evidence etc had to be provided, which necessitated the Amendment Act. The word “wife” needed to be replaced with the word “spouse” and property purchased in the name of certain other family members is to be allowed under the Act.

Recommendations of Second Administrative Reforms Commission The Second Administrative Reforms Commission in its fourth Report presented in January 2007 on “Ethics in Governance” stated that: “…….Unfortunately, in the last 18 years, Rules have not been prescribed by the government for the purposes of sub-section (1) of 30

Chapter 1

Introduction

Section 5, with the result that the government is not in a position to confiscate properties acquired by the real owner in the name of his benamidars. The wealth amassed by corrupt public servants is often kept in ‘Benami’ accounts or invested in properties in others’ names.

Strict enforcement of the Benami Transactions (Prohibition) Act, 1988, could unearth such properties and make property accumulation difficult for corrupt officers and also work as a deterrent for others.

Steps should be taken for immediate implementation of the Benami Transactions (Prohibition) Act, 1988.”

Though the report of the Administrative Reforms Commission makes a pointed reference to the corruption of public servants, it is a common experience that all sections of society resort to making investments in Benami transactions with a view to reduce their tax out go and also for other social or family reasons. It was also seen that the intention behind the persons entering into Benami transaction is to hide their ill-gotten wealth.

ECONOMIC AND SOCIAL EFFECTS OF BENAMI TRANSACTIONS – MEASURES TO CURB THE TRANSACTIONS The existence of Benami transactions have multiple effects: (a)

They create a parallel economy;

(b)

They give rise to Black money;

(c)

They lead to tax evasion;

(d)

They lead to the land laws being flouted.

In view of the ill effects stated above, a comprehensive legislation on the prohibition of Benami transactions became necessary in order to prohibit holding property in Benami and restrict right to recover or transfer property held Benami, and to provide a mechanism and procedure for confiscation of property held Benami. The Government felt it necessary to amend the Benami Transactions (Prohibition) Act, 1988 and enact a comprehensive legislation to deal with Benami transactions to take care of procedural infirmities.

Consequently, the Bill to amend the Benami Transactions (Prohibition) Act, 1988 was passed by the Parliament and was notified on 11 August 2016 and it has come into force from 1 November 2016.

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Prohibition of Benami Transactions – Concepts & Law

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