Benami Law of 1988

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    • Recently, the Supreme Court struck down one of the provisions of the Benami Transactions (Prohibition) Act of 1988 which provides for the punishment of a maximum jail term of three years or a fine or both for those indulging in benami transactions.

    About the recent decision

    • About the act of 1988: 
      • The 1988 Act was made to prohibit Benami transactions and the right to recover property that is held to be Benami. 
    • Section 3(2) of the Benami Transactions (Prohibition) Act, 1988:
      • The apex court termed the provision unconstitutional on the ground of being manifestly arbitrary. 
      • It will not affect the civil consequences contemplated under the Act. 
        • Section 3 of the statute deals with the issue of Prohibition of benami transactions and its impugned sub-section (2) says: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. 
    • Section 3(3) of the 2016 amendment: 
      • It enhanced the three-year imprisonment to seven years and fine of up to 25% of the fair market value of the property, a provision that remains untouched.
    • No retrospective application:
      • The forfeiture provision under Section 5 of the 2016 Act being punitive in nature could only be applied prospectively and not retroactively.
    • Major issue:
      • Article 20(1): Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution. 

     Prohibition of Benami Property Transactions Act, 1988

    • It is an Act of the Parliament of India that prohibits certain types of financial transactions.
    • The act defines a ‘benami’ transaction as any transaction in which property is transferred to one person for consideration paid by another person.
      • Such transactions were a feature of the Indian economy, usually relating to the purchase of property (real estate), and were thought to contribute to the Indian black money problem.
    • The act bans all benami transactions and gives the government the right to recover property held benami without paying any compensation.

    Benami Transactions (Prohibition) Amendment Act, 2016

    • The Act seeks to deal with all such transactions which are carried out by a certain person but the consideration is provided and benefits are availed by some other person.
    • A benami transaction, as defined under Section 2(9) of the Act is a transaction in which:
      • The property is held by one person and paid for by another; or
      • It is held in a fictitious name; or
      • The owner of such property is unaware of or denies having knowledge of such ownership; or
      • The person financing such a transaction is not traceable.
    • Act prescribes certain exceptions to benami transactions under Section 2(9)
      • Karta for his or his family member’s benefit; or
      • A person standing in fiduciary capacity for the benefit of another, including a trustee, an executor, a partner, a company director or a depository participant or agent; or
      • A person for the benefit of his spouse or child; or
      • A brother or sister or lineal ascendant or descendent.
    • Application
      • A Benami transaction applies to properties (assets) whether movable or immovable, tangible or intangible, corporeal or incorporeal.
    • What are the Authorities established under the Act?
      • The Act provides for 4 major Authorities ie. The Initiating Officer, the Approving Authority, the Administrator and the Adjudicating Authority as appointed by the Central Government.
    • Penalties under this Act
      • The Act prescribes that whoever is found guilty of the offence of a benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years and shall also be liable to fine which may extend to 25 % of the fair market value of the property. 

    Way Forward

    • The Act is a considerable leap in the regime for eradication of black money. 
      • With an aim to fight back for black money circulation in the economy, the Government is coming up with a series of measures to curtail them. And this act takes primacy place among them.
    • Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act. 
    • The subsequent rapid developments of demonetization, amendments to the income tax laws and introduction of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 all together form a tough barricade for cornering corruption and making it difficult for the corrupt to escape. 

    Source: TH