A basic synopsis of Benami Transaction as per the law prevailing in India

1. BENAMI
TRANSACTIONS
CA RATAN KUMAR AGARWALA
B.COM.,FCA,DISA(ICA)

2. BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988
In the past few years, we have seen the Government having taken major steps to end black money
dealings through various measures such as the Black Money Act, Income Disclosure Scheme,
Demonetization, etc. In this context, the terms ‘Benami Property’, ‘Benami Act’, ‘Benami
Transactions’, etc. have been making headlines for quite some time from now. What does the term
‘benami’ really mean? The term ‘Benami’ in Hindi translates to ‘no name’ or ‘without name’. Benami
transactions or Benami property would be one where a person’s own name is not used but the name
of another person or a fictitious person is used instead.
The original law relating to Benami transactions was laid down in The Benami Transactions
(Prohibition) Act, 1988. This Act consisted of only eight sections. The same was later amended by The
Benami Transactions (Prohibition) Amendment Act, 2016 which was made up of 72 Sections.

3. “BENAMI”-MEANING
MADE, HELD, DONE, OR TRANSACTED IN THE NAME OF
(ANOTHER PERSON) —USED IN HINDU LAW TO DESIGNATE A
TRANSACTION, CONTRACT, OR PROPERTY THAT IS MADE OR
HELD UNDER A NAME THAT IS FICTITIOUS OR IS THAT OF A
THIRD PARTY WHO HOLDS AS OSTENSIBLE OWNER FOR THE
PRINCIPAL OR BENEFICIAL OWNER.

4. “BENAMI TRANSACTIONS”-MEANING
A BENAMI TRANSACTION IS A TRANSACTION IN WHICH,
A PROPERTY IS TRANSFERRED OR HELD BY ONE PERSON
(MR A, THE ‘BENAMIDAR’) AND THE CONSIDERATION
FOR SUCH PROPERTY IS PAID BY ANOTHER PERSON (MR
B, THE ‘BENEFICIAL OWNER’) FOR WHOSE BENEFIT
SUCH PROPERTY IS HELD.

5. “TYPES OF BENAMI TRANSACTIONS
THE FOLLOWING TRANSACTIONS ALSO FALL UNDER THE DEFINITION OF BENAMI
TRANSACTIONS:
1. WHERE A PROPERTY RELATED TRANSACTION IS CARRIED OUT UNDER A FICTITIOUS NAME
NAME – THE BENAMIDAR CAN ALSO BE A FICTITIOUS PERSON
2. WHERE THE OWNER OF THE PROPERTY HAS NO KNOWLEDGE / DENIES HAVING ANY
KNOWLEDGE OF THE OWNERSHIP OF SUCH PROPERTY
3. WHERE THE PERSON PROVIDING THE CONSIDERATION IS UNTRACEABLE OR FICTITIOUS –
THE IDENTITY OF THE BENEFICIAL OWNER MAY ALSO BE UNKNOWN.

6. “EXCEPTIONS
The following type of transactions will not be treated as benami transactions:
PROPERTY IS HELD BY A MEMBER OF THE HUF FOR THE BENEFIT OF THE HUF AND THE
CONSIDERATION IS PAID FROM THE KNOWN SOURCES OF INCOME OF SUCH HUF;
A PERSON WHO HOLDS THE PROPERTY IN A FIDUCIARY CAPACITY FOR THE OTHER PERSON – FOR
EXAMPLE, A TRUSTEE FOR THE TRUST, A DIRECTOR FOR HIS COMPANY, A DEPOSITORY/DEPOSITORY
PARTICIPANT FOR A TRADER (HOLDER OF SHARES IN DEMAT FORM), ETC.;
AN INDIVIDUAL HOLDING PROPERTY IN THE NAME OF HIS SPOUSE OR CHILD AND WHERE THE
CONSIDERATION IS PAID FROM THE KNOWN SOURCES OF SUCH INDIVIDUAL ;
AN INDIVIDUAL HOLDING PROPERTY JOINTLY WITH A BROTHER, SISTER OR LINEAL
ASCENDANT/DESCENDANT AND WHERE THE CONSIDERATION IS PAID FROM THE KNOWN SOURCES OF
SUCH INDIVIDUAL.

7. INSTANCES OF BENAMI TRANSACTIONS
EVERY STATE HAS A CERTAIN LIMIT ON THE AMOUNT OF AGRICULTURAL LAND THAT AN
INDIVIDUAL OR HIS FAMILY CAN HOLD. THUS, WHERE SUCH A LIMIT IS REACHED, PEOPLE TRY TO
PURCHASE THE PROPERTY IN THE NAME OF ANOTHER PERSON BUT PROVIDE THE
CONSIDERATION FOR THE SAID PROPERTY.
A PERSON WHO HAS ACCESS TO PRICE SENSITIVE INFORMATION OF A COMPANY AS A RESULT OF
BEING IN A POSITION OF POWER WITHIN THE COMPANY WOULD NOT BE ALLOWED TO TRADE IN
THE SHARES OF THE COMPANY SINCE IT WOULD AMOUNT TO INSIDER TRADING. THEREFORE, TO
FIND A WAY OUT OF THIS, THEY INVOLVE A THIRD UNRELATED PARTY AND GIVE HIM THE FUNDS
TO TRADE ON THEIR BEHALF.
DURING DEMONETIZATION, THERE WERE MANY INSTANCES OF PERSONS DEPOSITING OLD NOTES
INTO THEIR BANK ACCOUNTS WHICH BELONGED TO ANOTHER PERSON AND THEN EXCHANGING
THEM FOR NEW NOTES. THE DEFINITION OF PROPERTY UNDER THE BENAMI ACT IS VERY WIDE
AND ALSO INCLUDES CASH. HENCE SUCH A TRANSACTION WOULD ALSO BE TERMED AS A
BENAMI TRANSACTION.

8. PUNISHMENTS
A. CONFISCATION OF BENAMI PROPERTY
B. Where a benami transaction has been entered into to defeat the provisions of any law,
avoid payment of statutory dues or avoid payment to creditors, any person who enters or
abets/induces another person to enter into such a transaction would be punishable with:
1. Imprisonment between 1 to 7 years and
2. Fine up to 25% of the fair market value of the property
C. Where a person who is required to provide information under this act provides false
information, he shall be punishable with:
Imprisonment between 6 months to 5 years and Fine up to 10% of the fair market value of the property