Benami transactions are one of the most notorious sources of circulation of black money. The Government has recently been facing a great deal of heat on the issue of black money and corruption from the civil society and the Supreme Court for not doing enough to control this menace. Sadly, such transactions are rampant in the real estate sector of our country. Despite the fact that India has a Benami Transactions (Prohibition) Act since 1988, benami transactions have been rising unabated.

Benami transactions are made under the name of another person, who does not pay the consideration but merely lends his or her name as the ostensible owner of the property, while the real title vests in another person who actually paid the consideration and purchased the property. The essential legal characteristic of these transactions is that there is no intention to benefit the person in whose name the transaction is made. Such transactions were made usually to circumvent certain socially beneficial legislations such as the land ceiling laws, to transfer the property in the name of the relatives to evade taxes etc.

Benami transactions were also used as a way to conceal black money. With time, this became a common practise and a major cause of concern for the taxing authorities. Various recommendations were made to the Government over a period of time suggesting the formulation of a law for the regulation/prohibition of such transactions. Finally, in 1988, the Benami Transactions (Prohibition) Act, 1988 (‘Act’) was passed which not only disabled the real owner from recovering the property but also criminalised this practise. The Act allowed deals in the name of wife or unmarried daughter. It has a term of imprisonment of up to three years or fine or both. It is nearly 22 years since the Act was passed, but it has made absolutely no impact. Though the Act provides that there would be no benami deals, no visible action has been taken against persons resorting to such deals freely. This is because of lack of proper machinery to implement the Act. There have been no instances to show thatas per Section 5 of the Act, properties held benami have been acquired by the Government. The Act does not inculcate fear of any kind for those, who are dealing in benami names. It bifurcates income earning activities into fragments leading to loss of tax revenue. These lead to substantial litigation, where the burden of proving benami is on the Government, but it does not get discharged substantially because the facts are in the knowledge of respective parties.

Apart from the above, the Central Vigilance Commission (‘CVC’) has also been lobbying for a law to confiscate benami transactions for more than a decade now. A draft anti-corruption strategy drawn up by the CVC had recommended dovetailing enforcement of this law to the unique identification project. Owing to the infirmities in the Act, formulation of rules was not possible without a comprehensive legislation by repealing the Act.

As a consequence of the above and due to the pressure on the Government to act against corruption, the Government has recently approved a proposal to bring a new legislation for stricter control over benami transactions. The new Benami Transactions (Prohibition) Bill 2011 (‘Bill’) contains elaborate provisions dealing with the definition of benami transaction and benami property, prohibited benami transactions, consequences of entering into a prohibited benami transaction and the procedure for implementing the benami law. Confiscated property may be vested in the Central Government. Under the Bill, anyone violating the rule can be jailed for not less than six months, which may be extended to two years and also be liable to a fine. Because of its more detailed provisions, the Bill offers a widerlegal net within which such properties can be defined. According to the Bill, if any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into such benami transaction, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to two years and shall also be liable to a fine. Properties held by a coparcener in a Hindu undivided family and property held by a person in fiduciary capacity are excluded from the definition of benami transaction. Properties acquired by an individual in the name of spouse, brother or sister or any lineal ascendant or descendant are benami transactions which are not prohibited. Consequently, they are not subject to penal provisions.

More needs to be done to check benami and hawala transactions that are associated with black money. The Bill has brought some clarity on certain definitions such as property purchased in the name of a relative, say a spouse. It echoes a softer approach to the issue at a time when black money is a subject of heated public debate.