An Act to prohibit benami transactions and the right to recover property held benami for matters connected there with or incidental thereto.
Be it enacted by Parliament in the Thirty ninth Year of the Republic of India as follows: —
(2) It extends to the whole of India except the State of Jammu and Kashmir.
(3) The Provisions of sections 3, 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988.
The Act does not apply to sham transactions. Ouseph Chacko v. Raman Nair, (1989) 180 ITR 511 (Kerala)
(a) “Benami transaction” means any transaction in which property is transferred to one person for a consideration paid or provided by another person;
(b) “prescribed” means prescribed by rules made under this Act;
(c) “property” means property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property.
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 favour 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 form the circumstances and relationship of the parties and the motive governing their action in bringing about the transaction and their subsequent conduct. Mohinder Singh v. Parduman Singh, (1992) 196 ITR 786 (Delhi)
A sham transcation is not benami and therefore does not come within the purview of Section 4 of the Act. (Yakub Shareef v. Maqdoom Shareef 1992, (1) Andhra W.R. 318)
The world `property' includes right to purchase under Hire Purchase Agreement. R. Rajgopal Reddy v. Padmini Chandrasekhran, AIR 1990 Madras 353.
(2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter.
(3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), an offence under this section shall be non-cognizable and bailable.
Sub-sections (1) and (3) of Section 3 are prospective in operation, sub-section (2) is only in the nature of an expression to Section 3 (1). Therefore, its scope cannot be wider than that of sub-section (1). It is clear that sub-section (2) which is in the nature of an exception to sub-section (1), which is prospective in operation, is also prospective in operation. B.G. Gangadharappa v. S. Chandrasekhar (1992) 196 ITR 277 (Kar).
Exception under Section 3(2) of prohibition of benami transactions made in the name of “wife or unmarried daughter” — Woman living as wife but not married with the man who purchased the property in her name not covered by the expression” wife or unmarried daughter — is inapplicable. Mithilesh Kumari v. Prem Behari Khare, AIR 1989 S.C. 1247.
4. Prohibition of the right to recover property held benami. — (1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property.
(2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.
(3) Nothing in this section shall apply, —
(a) where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family; or
(b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held the benefit of a other person for whom he is a trustee or towards whom he stands in such capacity.
The words “claim” or “action” used in Section 4 would also cover a proceeding in execution. Urmila Bala Dasi v. Probodh Chandra Ghosh, AIR 1989 Cal 283.
5. Property held benami liable to acquisition. — (1) All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure, as may be prescribed.
(2) For the removal of doubts, it is hereby declared that no amount shall be payable for the acquisition of any property under sub-section (1).
6. Act not to apply in certain cases. — Nothing in this Act shall affect the provisions of Section 53 of the Transfer of Property Act, 1882 (4 of 1882), or any law relating to transfers for an illegal purposes.
When it is alleged that the diversion of funds by Defendant No. 1 in favour of the other defendants was fraudulent and illegal, Section 6 of the Act protects 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 P.N.B. Finance Ltd. v. Shital Prasad Jain, AIR 1991 Delhi 13.
7. Repeal of provisions of certain Acts. — (1) Sections 81, 82 and 94 of the Indian Trusts Act, 1882 (2 of 1882), Section 66 of the Code of Civil Procedure, 1908 (5 of 1908), and Section 281A of the Income-tax Act, 1961 (43 of 1961), are hereby repealed.
(2) For the removal of doubts, it is hereby declared that nothing in sub-section (1) shall affect the continued operation of Section 281A of the Income-tax Act, 1961 (43 of 1961), in the State of Jammu and Kashmir.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely: —
(a) the authority competent to acquire properties under Section 5;
(b) the manner in which, and the procedure to be followed for, the acquisition of properties under Section 5;
(c) any other matter which is required to be, or may be prescribed.
(3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effects only in such modified form or be of no effect, as the case may be, so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
(2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance shall be deemed to have been done or taken under under the corresponding provisions of this Act.