The word Benami means anonymous or nameless. Benami transaction means that the person who pays for the property is not the person who owns or holds the property. In a Benami transaction, 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. Such transactions include transactions where a property related transaction is carried out under a fictitious name:
The Benamidar can also be a fictitious person, where the owner of the property has no knowledge / denies having any knowledge of the ownership of such property and where the person providing the consideration is untraceable or fictitious – the identity of the beneficial owner may also be unknown.

The Hon'ble Supreme Court in the year 1980 while dealing with the case of Thakur Bhim Singh v. Thakur Kan Singh[1], had elaborated the concept of Benami Transaction and included primarily 2 types of transactions broadly under its purview. Firstly, when a person buys a property with his own money in the name of another person without any intention to benefit such other person and secondly, when a person who is owner of the property executes a conveyance in favor of another without the intention of transferring the title to the property.

The relevant extract from the judgment reads as under:
The difference between the two kinds of benami transactions referred to above lies in the fact that whereas in the former case, there is an operative transfer from the transferor to the transferee though the transferee holds the property for the benefit of the person who has contributed the purchase money, in the latter case, there is no operative transfer at all and the title rests with the transferor notwithstanding the execution of the conveyance. One common feature, however, in both these cases is that the real title is divorced from the ostensible title and they are vested in different persons.

Benami transactions have been a prevalent custom or practice from immemorial time. Social and economic perspective in human society gave rise to this custom in this subcontinent. The practice has long been common in India for intending alienees of the land to take document of transfer in the name of their friends or relatives, sometimes in view to defeat the claim of creditors, sometimes in view of defeating other members of their family and sometimes to escape restrictions imposed upon them by the Government's Conduct Rules. Other reasons behind the Benami transaction include:

1. Muslim law of inheritance: The law of Muslim inheritance regarding a child whose father died during the lifetime of his grandfather. In this situation, where father dies during the life time of a grandfather, the child is excluded from the property of that grandfather. Here, the grandfather could buy property to his grandson's name. This may be a cause for emerging this practice among the Muslims.
    
2. Traditional Hindu inheritance: Considering the right of property for women under traditional Hindu law is much limited and to some extent, it can be said that this is not a right at all. In this situation, a father or a husband can buy property in the name of his daughter or wife taking the question of security in an unwanted situation. This legal issue may give rise to the practice of Benami transaction among the Hindu community.
    
3. Defrauding the creditors: Defrauding the creditors by making the property hide in the name of another person. In this approach, the modern transaction of banking and other financial firms lose a huge amount of money.
    
4. Tax evasion: This is the biggest reason of practicing Benami transactions. By using the property under the name of another person, a person can defend himself/herself on the ground that the property does not belong to him as it is not under his/her name.

For passing the Ceiling limit: Laws relating to ceiling limit of land work as an important tool to ensure equitable distribution of property. But many people, with a view to evade this ceiling law, buy property in the name of others due to which properties get concentrated within some individuals.

Before coming of the 1988 Act, benami transactions were not illegal in India, and there was no bar or punishment properties which were the subject matter of the benami transaction were also not liable for confiscation by the government. Though, the Benami transaction was permitted under law but in practice, there were some problems that arose between the owner and the Benamder, especially when the question absolute right or interest arose.

In such a situation, the court made some objective tests, to establish whether a property is benami or not, in Jayadayal Peddar v Bibi Hezra[2] which are following:

1. The source of purchase money.
2. Nature of the possession of the property after the purchase
3. What types of relationship subsisted between the owner and the Benamder. Whether the real owner and the Benamder were related to each other or were strangers or friends
4. Motive of the owner was examined that why the property was purchased in the name of the Benamder.
5. Conduct of the parties in dealing with the property, who used to take care of and exercised control over the property.
6. Custody of the title deeds after the sale[3].

Thus, the past legal position is that the Benami transaction was a valid and accepted one under broad circumstances where it does not create any statutory violation of law. In determining the ownership of the transfer, the court conducted the above-mentioned tests in the respective circumstances.

The Benami Transaction (Prohibition) Act, 1988 was enacted in order to prohibit all benami transactions and recovery of property which has been held as benami. The 1988 Act defined benami transactions as a transaction in which property is transferred to one person for a consideration paid or provided by another person, prohibited them and provided punishment for entering into any benami transaction with imprisonment for a term which may extend to three years or with fine or with both[4].

The 1988 Act further prohibited recovery of the property held benami from benamidar by the real owner and properties held benami were also liable for confiscation. The Act consisted of only nine sections out of which Sections 3, 4 and 5 are significant. Section 3 prohibits entering into a benami transaction.

The exceptions to the same are as follows- 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 unmarried daughter[5]. Section 4 provides that no suit or claim shall be maintained to enforce rights with respect to benami properties.

The exceptions to the same are: (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 for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity.[6] Section 5 provides that the benami properties shall be acquired by authority without any compensation or payment in return.

However, during the process of formulating the rules for implementing certain provisions of the 1988 Act, it was found that owing to infirmities in the legislation it would not be possible to formulate the rules without bringing a more comprehensive legislation and repealing the existing 1988 Act. Due to the infirmities in the 1988 Act, relevant rules for implementing the certain provisions of the 1988 Act couldn't see the light of the day.

The 1988 Act further didn't provide any mechanism or process of confiscation/acquisition of the benami property and hence, no such effective action for confiscation of benami property could be taken. The flourishing of black money in India is not due to lack of black letter of law but due non-implementation of an enacted statute by the administration.

Hence, recently the legislators drafted a new bill in tune with the current circumstances and requirements called The Benami Transactions (Prohibition) Amendment Act, 2016. It can be seen that the reason behind amending the 1988 Act instead of repealing the said Act, was to include all the benami transactions under its ambit on which no action was taken under the 1988 Act, so that consequential action could follow[7].

The Ministry of Law was of the opinion that in case, 1988 Act gets repealed by new act then no action would be possible on any such transaction which occurred between 1988 and the date of repealing the 1988 Act, as the benami transactions during the intervening period of twenty six years, would have in fact resulted in immunity since no action could be initiated in the absence of a specific provision in the Repeals and Savings clause.[8] It was therefore suggested by the Ministry of Law, that it would be advisable to comprehensively amend the existing Benami Transactions (Prohibition) Act, 1988, so that the offences committed during the last twenty-six years are also covered.

Under the 2016 Act, the term Benami Property under section 1(8) has been defined as under:
 A Benami Property means any property which is the subject matter of a benami transaction and also includes proceeds from such property.[9] From the above definition, it is clear that even the proceeds received from a property which is part of a Benami Transaction, will be covered under the definition of Benami Property. The definition of property under 2016 Act includes assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal.

Section 58(1) of the Act exempts property relating to charitable or religious trusts from the operation of the act. Giving such a wide exemption can be dangerous, as such properties might be used on the pretext of tax invasion. Members of such charitable or religious trusts can indulge in benami transactions, dodge the authorities and escape confiscation. The Act also exempts property brought in fiduciary capacity from the purview of benami transactions.

This exemption is inappropriate as directors of companies can take undue advantage of the same. In India families run most of the companies, brothers, sisters and wives are made partners and directors.

In such a scenario the directors of the companies often buy property in name of the company. In such cases, the individuals involved in benami transactions can also easily escape confiscation. The purchase of property by any person in the name of his wife or unmarried daughter has been saved and there is a presumption that the property has been purchased for the benefit of the wife or the un-married daughter. However, such a presumption is invalid as the real owner can buy the property in the name of wife or daughter without having an intention to benefit them.

The Amended Act in Section 53(2) stipulates that whosoever is found guilty of the offence of benami transaction will be imprisoned for seven years, which makes it a serious offence. However, the offence has not been made cognizable. The intention of the law is not made clear with such a provision. As, on one hand the offence has been made strict by rigorous imprisonment of seven years, and on the other it has been made a non-cognizable offence.

The Act does not concentrate powers in just one hand. It has made provisions to check the powers of the initiating officer and it also gives time and opportunity to the accused to appeal and prove that the property is not benami in nature. After passing of the Benami transaction Amendment Act 2016, the scope of Section 41 of Transfer of Property Act, 1882 has become very limited. The object of Section 41 of Transfer of Property Act is to protect the interest of the innocent third parties who with reasonable care and in good faith enter into a transaction with the ostensible owner, where the real owner through explicit declaration or implicit through his conduct authorizes the ostensible owner to transfer the property2.

After the passing of Benami transaction Act, the real owner has become ostensible owner except in some cases. The transferee who buys the property from the ostensible owner cannot take advantage of Section 41 except when the ostensible owner is the wife or unmarried daughter or someone in fiduciary relation with the real owner. As these are considered to be exceptions to benami transactions.

Benami transactions have been a bane of the Indian economy since the 1980's, requiring a comprehensive legislation to curb the effects of such transactions, which cripple a growing economy. This Amendment Act has been passed in the midst of growing public sentiments against corruption and the drive against black money in India. On careful examination, the Amendment Act, 2016 appears to be promising enough to address the legal infirmities that existed in the Act.

The proper implementation by the executive would cause immense deterrent impact in the society. As for instance, on one hand the provision of confiscation of benami properties sufficiently creates threat in the minds of people; and on the other hand the provision of exemption to those who declare their benami properties appears to be a lucrative incentive. Thus, if the new amended law is not handicapped by non-implementation then it can send shivers down the spine of those who have entered into such illegal transactions and prevent its prevalence in the country.

End-Notes:

1. Thakur Bhim Singh v. Thakur Kan Singh [1980] 3 SCC 72,
2. Jayadayal Peddar v Bibi Hezra, AIR, 1974, SC, 171
3. ibid.
4. The Benami Transaction (Prohibition) Act, 1988
5. Ibid
6. Ibid.
7. Tanu Rathor, Benami Transactions: A concise analysis, LEGAL SERVICE INIDIA (April 24,2019,10:00 am), http://www.legalservicesindia.com/article/2579/Benami-Property:-A-concise-analysis.html.
8. Ibid
9. The Benami Transactions (Prohibition) Amendment Act, 2016.