Interim Submission

BENAMI - Transaction to defraud the Government

Submitted by:
Manu Gupta
BBALLB (Div. C)
PRN 11010224161
Group B Roll no. 73

1. Introduction
1.1.

Definition

The definition of a Benami transaction under the Prevention of BENAMITransactions [Prohibition] Act 1988 is given under Section 2(a) providing that a
Benami Transaction means any transaction in which property is transferred to
one person for a consideration paid or provided by another person. 1
In a prominent case2, it has been established that the definition of the
benami transaction as given under section 2 is not restricted in its scope and
application to Section 3 alone but also applies to Section 4 and 5 of Benami
Transaction (Prohibition) Act, 1988. Parliament has conveyed its intention that
the word benami transaction is not confined to one section alone and also that
the definition would contain only one category tripartite of benami transaction.
The parliament has chosen to confine the definition to one category only. The
idea was to make the intention abundantly clear that parliament did not want
to encircle the second category i.e. bipartite or sham transaction.
It can be further understood by the fact that even before the Benami
Transactions (Prohibition) Act was passed, two kinds of transaction were
recognized by the courts in India. The first kind of benami transaction was
1 Section 2(a) of The Benami Transactions (Prohibition) Act, 1988
2 Bhargavy P. Sumanthykutty v. Janaki Sathyabhama, AIR 1995 Ker 42.
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called the real benami transaction in which when A" sells a property to B but
the sale deed mentions C as the purchaser. Here the real owner is B and C
is only the benamidar. The second class or kind of transaction is the sham
transaction in which one person purports to transfer his property to another
without intending to pass the title to the transferee. This second type of
transaction was loosely called benami transaction. In the first type of
transaction since there are three persons involved, it is also referred as
tripartite benami transaction. The fundamental difference between the two
categories of transactions is that in the former there is an operative transfer
resulting in the vesting of title in the transferee, whereas in the latter there is
no operative transfer and the transferor continues to retain title of the property
notwithstanding execution of the documents.3
In another landmark judgment4, the principal governing the question
whether a transfer is benami transaction or not were be summed up:
1. The burden of showing that a transfer is 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 motive
governing

their

action

in

bringing about

the

subsequent conduct etc.

3 Bhargavy P. Sumanthykutty v. Janaki Sathyabhama, AIR 1995 Ker 42.

4 Raj Ballav Das v. Haripada Das, AIR 1985 Cal 2.
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transaction

and their

1.2.

Origin

The word Benami has been originated from Persian vocabulary and it
literally means property without a name. By the definition of Benami in the
Act, it can be construed that the word Benami is used to define a transaction
in which the real beneficiary is not the one in whose name the property is
purchased. As a result, the person in whose name the property is purchased is
just a mask of the real beneficiary.5
The issue of Benami transactions having a negative impact upon the
taxing authorities of the country was taken up by the Law Commission of India
in its Fifty Seventh Report in 1973, a time when the problem of property being
held benami was causing much trouble to the taxing authorities of India. The
Commission focussed upon the debarring of the Benami Transactions and
pointed out that the essential legal characteristic of these transactions is that
there is no intention to benefit the person in whose name the transaction if
being made. In other words, the benamidar is the person in whose name the
transaction is being executed and he is just an alias for the person beneficially
interested. The benamidar has the ostensible title to the property standing in
his name but the beneficial ownership of the property doesnt vest in him, it
rests in the real owner.6
1.3.

Essence and Motive

The essence of a benami transaction involves various aspects and could

be said to be the use of an alias in respect of the holding of property, usually,
with the object of concealing the real owners identity.7
Further, the motives behind the emergence of Benami Transactions are
manifold:

5 Cabinet approves new act to deal with benami transactions - The Times of India. (2011, July 21).
Retrieved February 10, 2016,
6 Fifty Seventh report of the Law Commission of India 1973

7 Fifty Seventh report of the Law Commission of India 1973

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1. In the early eighties, the Joint Hindu Family was the business system of
choice and a desire to make secret provisions and investments was one
factor which could have led to the practice of benami. 8
2. Defrauding the creditors of their just and lawful dues was present
prevalently in the eighties in India which could be a motive for benami
transactions in property.
3. Lastly, defrauding the government or the state authorities could be achieved
by way of benami by the means of evading taxes by having property in the
name of relatives of the real owner or some others name to evade taxation
as provided by the tax laws.
4. Benami transactions were also used as a way to conceal black money
obtained through corrupt practices.9

2. Act

and

Intention

required

for

Proving

Benami

Transactions
According to the Benami Transactions (Prohibition) Act, 1988 the burden
of proof lies on the person who is claiming and/or asserting that the
transaction is the kind of aforesaid transaction i.e. benami transaction. While
initially the person asserting the same has established his contentions in the
Court of Law the burden of proof shifts on the person on whom it has alleged
that he has been part of benami transactions. The rules of onus probandi
applies here.10
Even in several of the landmark cases set upon this point, 11 it has been
proved that the onus to prove that the transaction was benami is on the person
who sets it. Mere suspicion is no evidence to hold any transaction to be a
benami transaction, but should be proved by direct evidence.
8 West and Buhler, Hindu Law (4th Edition), Page no. 157
9 Benami Transaction defined and the relation between the terms benamidar and ostensible owner
(2013, May 09). Retrieved February 10, 2016
10 Benami Transaction defined and the relation between the terms benamidar and ostensible owner
(2013, May 09). Retrieved February 10, 2016
11 Drigpal Singh v. Wife of Laldhari Ojha AIR 1985 Pat 110; Rahul Amin v. Chabbahan Bibi AIR 1986 Cal
366
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The courts of the country have delivered many judgments for laying
down the guidelines for proving a benami transaction to compensate for the
lack of provisions in the 1988 Act itself. For the requisites of proving a benami
transaction coincide with two of the requisites of proving a fraud: Deception
and Dishonest Intention. The first step of proving a benami transaction would
be to determine the existence of the said benami transaction that would be
considered the trick / deception itself.
2.1.

Deception

In a landmark judgment12, it was held that the governing principle for

determining the question whether a transaction is benami or not is to be
proved by proving that the purchase money came from a person other than
the person in whose favor the property is transferred. In fact, the purchase is
prime facie to be inferred. The intention of the person who contributed towards
the money has to be inferred from the circumstances and relationship of the
parties and the motive governing their actions in bringing about the transaction
and their subsequent conduct.
2.2.

Dishonest Intention

For when the Dishonest intention is to be proved on the part of the

perpetrators, a judgment13 of the Delhi High Court would entail the approach
by holding that when it was alleged that the diversion of funds by Defendant
in favor of the other defendants was fraudulent and illegal, Section 6 of the Act
protected such a claim from the applicability of Section 4. The intention of the
Act is to vest ownership rights in benamidar as against the real owner.
Upon the conviction of a person under this Act, Section 3 of the Act
penalizes the person who has been proved to be guilty for Benami transactions
with the imprisonment of a term which may extend up to three years or fine or
both.
12 Mohinder Singh v. Parduman Singh, (1992) 196 ITR 786 (Delhi)
13 P.N.B. Finance Ltd. v. Shital Prasad Jain, AIR 1991 Delhi 13.
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3. Provisions under Criminal Law to admit and try Benami

cases
3.1.

Code of Criminal Procedure 1973

Section 3(4) of the Prevention of BENAMI-Transactions (Prohibition) Act

1988 provides for the offences under this act being non cognizable providing
the applicability of Section 155 of the Code of Criminal Procedure 1973 wherein
the means and guidelines of reporting of information to the police is provided
in cases of non cognizable cases. This is the means by which a criminal case
under this act is reported to the police and the police then start investigation
but only after the order of the Magistrate competent to take cognizance of the
case under Section 190 of the Code of Criminal Procedure 1973. The
proceedings are commenced, after the taking of cognizance, against the
accused before the Magistrate under Section 204 when the Issue of process is
commenced and the trial is started.
3.2.

Indian Evidence Act 1872

The Evidence Act 1872 provides for the relevancy of facts to the case
which is useful to establish a strong case against the accused under Sections 5
16. Also, in a relevant judgment, it has been held that mere suspicion is no
evidence to hold any transaction to be a benami transaction, but should be
proved by direct evidence. Hence, only direct oral evidence under Section 60,
62 and 63 of the Indian Evidence Act 1872 would be acceptable as admissible
evidence

for

offences

under

the

Prevention

of

BENAMI-Transactions

[Prohibition] Act 1988.14 In the conviction of the accused for the offence under
the Prevention of BENAMI-Transactions [Prohibition] Act 1988, documentary
evidence holds much more value, the regulating provisions for the admissibility
of which are given under Sections 61 78 of the Indian Evidence Act 1872 as
14 Drigpal Singh v. Wife of Laldhari Ojha AIR 1985 Pat 110
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the sale of property is to be proved and the name of the buyer is of utmost
importance in proving this fraud.

4. Case Laws Cited

Following are the relevant case laws to this study and these cases along
with a few other relevant as well as landmark judgments shall be analysed by
way of IRAC (Issue, Rule, Applicability, Conclusion) method in the final
submission of this study:

Bhargavy P. Sumanthykutty v. Janaki Sathyabhama, AIR 1995 Ker 42.

Raj Ballav Das v. Haripada Das, AIR 1985 Cal 2
Drigpal Singh v. Wife of Laldhari Ojha AIR 1985 Pat 110
Rahul Amin v. Chabbahan Bibi AIR 1986 Cal 366
Mohinder Singh v. Parduman Singh, (1992) 196 ITR 786 (Delhi)
P.N.B. Finance Ltd. v. Shital Prasad Jain, AIR 1991 Delhi 13
Nand Kishore Mehra. vs Sushila Mehra 215 ITR 218 (SC)
Rajam Ammal v. P.K. Pillai, AIR 1991 Mad 310
Urmila Bala Dasi v. Probodh Chandra Ghosh, AIR 1989 Cal 283.
Mithilesh Kumari v. Prem Behari Khare, AIR 1989 SC 1247
Ouseph Chacko v. Raman Nair, AIR 1989 Ker 317

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