The Algorithm of Benami Transaction

This article has been written by Eashwari Nair. Eashwari is currently a student in Symbiosis Law School, Hyderabad.

I. WHY CALL UPON THE EXAMINATION OF THIS CONCEPT?

Ever since the apparent surgical strikes that took place in the industry of the economy  of India ,in the form of demonetisation, the not very clean wealthy people of the society are trying to figure out means to keep their black money with disclosing it , despite repeated attempts made by the central government to do so.  One of the most affected areas of the economy is the real estate category, where it was seen that there existed a parallel economy itself.  This bombshell made up of demonetisation exploded where nobody thought it would.

The rich just seem so very greedy and it can be seen via the fact that they refuse to disclose the money they own, they just refuse to deposit it. Instead they fall within the clutches of Benami transactions without them even knowing it.

This topic technically came into play on  the 1st of November when the 2016  amendment to the original  Prohibition of Benami Property Transactions Act, 1988 was created.  Not just unclean builders but those trying to get rid of the unaccounted money they hold fall into the tempting jaws of Benami Transactions.

II. WHAT ARE BENAMI TRANSANCTIONS ?

In order to understand what Benami Transactions are , let’s break it down into 2 parts , first let’s understand what the term Benami indicates followed by the term of Transaction.

  • BENAMI:-

The word Benami is seen to be rooted to the Persian language signifying “no name”  or “without a name”. Benami is almost always spoken with respect to real estate and the property involved. Thereby the person in whose name the property is purchased is just a mask of the real beneficiary.

  •  TRANSACTION:-

The transaction which is spoken off is in terms of transfer of property. This transfer of property can take place via various methods. It can be in form of a sale deed, gift etc which are further elucidated in property law. The form of transfer that comes into play with respect to Benami transaction is that of a sale deed.

  • THE FINAL EQUATION INDICATES:-

And hence clubbing the individual terms together gives us the equation signifying a property is held or transferred to a person, but the consideration[1] for this property is paid by somebody else. For example:- X,Y and Z are three parties ,  X purchases property from Y where the consideration is paid by Z.[2]

III. OTHER TERMINOLOGIES REGARDING THE BENAMI TRANSACTION.

  • BENAMI PROPERTY.

The subject matter i.e. the property involved in a Benami transaction is termed as Benami property.

  • BENAMIDAR:-

Is the fictitious person whose name the Benami property is transferred.

IV. VARIOUS TRANSACTIONS THAT QUALIFY AS A BENAMI TRANSACTION:-

There are various methods of carrying out a transaction that is considered to be a Benami transaction by nature. The following types of transactions are considered to be Benami by nature .

  • Those transactions that involve the interests of a third party, i.e the property is transferred or held by one particular individual but the consideration for this property is paid by another person .
  • Next, Any sort of transaction or arrangement made out or carried out with respect to a property in the name of a fictitious name.
  • Furthermore the scope of a Benami transaction extends to those transactions where the owner of the property is either not aware of his/her ownership or denies the knowledge of ownership.
  • Also Benami transactions include those transactions that take place where the person providing the consideration for the Benami property is either not traceable or is fictitious in nature.

V. THE EXCEPTIONS TO A BENAMI TRASACTION( IN BREIF)

Taking into account the recent amendment of the Benami Transaction, there are certain transactions that do not fall under the ambit of a Benami transaction. Those transactions that do not qualify as Benami Transactions are:-

  • A karta, or a member of a Hindu undivided family holds the property for his benefit or for the benefit of other members of the family and the consideration for such property has been provided out of the known sources[3] of the Hindu undivided family.
  • Also Benami Transactions do not include those transactions where a person standing in fiduciary [4]capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company etc.
  • Furthermore any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of income.
  • In addition to the above, the scope of a Benami transaction does not catch those transactions that take place in the name of the individual’s brother or sister , provided the brother and or sister involved appear to be joint owners in the document, and the consideration for the subject matter i.e the property that is considered has been provided or paid out of the known sources of the individual.

VI. CONCLUSION:-

It is seen that the original bill contained few sections , but the recent amendment bought about 72 new changes . The most interesting part of this bill i personally find is the timing of the implementation of this bill. Just when our hon’ble Prime Minister drops the bomb of demonetization, furthermore this bill aids the very object of demonetization by being it’s ally with respect to curbing the menace of black money via keeping an on the methods of property transactions.

[1] Consideration = money.

[2] A highly basic example .

[3] Known sources does not implicitly imply known sources of income.

[4] Fiduciary capacity implies – >nvolving trust, especially with regard to the relationship between a trustee and a beneficiary.



The December book bucket

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