Benami Transaction and Sham Transactions
Prohibition of Benami Property Transactions Act, 1988, an act promulgated to prevent and prohibit “Benami” transactions in India on 5th September, 1988. The Act, 1988 has only 9 Sections and not so effective, while preventing and prohibiting “Benami” Transactions. The Act, 1988 previously called The Benami Transactions (Prohibition) Act, 1988.
There are various infirmities in The Benami Transactions (Prohibition) Act, 1988 and required extensive amendments and Central Government has amended The Benami Transactions (Prohibition) Act, 1988 by The Benami Transactions (Prohibition) Amendment Act, 2016. The title of the act has been changed from Benami Transactions (Prohibition) Act, 1988 to the Prohibition of Benami Property Transactions Act, 1988.
The Benami Transactions (Prohibition) Amendment Act, 2016 contains 72 Sections and has given vide power to the Central Government for enforcement. The Benami Transactions (Prohibition) Amendment Act, 2016 applied whole India except state of Jammu & Kashmir on 1st November, 2016.
Benami transactions were legally recognized by the courts to be valid prior to the promulgations of the 1988 ordinance.
The word “BENAMI” is a Persian word made up of “be” which means without and “nam” means name. It literally means “without name”.
Sundaram Nadar Vs. Sukumaran 2000(3) CTC 473: it donates a transaction effected by a person (beneficial owner) without using his own name, but in the name of other (benamidar).
Ranagappa Vs. Ranagaswami AIR 1925 Mad.1005; A benami transaction is one where one (beneficial owner) buys property in the name of another (benamidar), or gratuitously transfers his property to another (benamidar) without indicating an intention to benefit the other.
Law Commission in its 57the Report Define; “purchase or holding properties in the name of another, is known in India as a benami transaction. This custom has been recognized by Indian Courts for a long time. Literally the word “benami” means “without name”.
BENAMIDAR; is a person in whose name beneficial owner has transferred its property, the benamidar does not have any interest in the property transferred in his name. He is only lending his name to facilitate the beneficial owner. He in true sense is Trustee for the beneficial owner.
A transaction in which property is transfer only on papers and actually by the beneficial owner to the transferee. In this transaction the title and possession of property does not transfer to the transferee.
For a transaction to be “Benami”, there has to exist and actual transaction or arrangement which has taken place.
In “Sham” transaction or “bogus” transaction or “fictitious” transaction”, no transaction actually taken place and transaction merely shown to have taken place on paper.
Sree Meenakshi Mills Ltd. Vs. CIT  31ITR 28; the Supreme Court explained the word “Benami” such as the word “benami” is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B but the sale deed mentions X as the purchaser. Here sale is itself is genuine, but the real purchaser is B, X being his benemidar. This type of transaction generally called “benami transactions”. But sometime “Sham Transactions” are also termed as “Benami Transactions”.
Suppose A purports to sale his property to B without intending that his title should cease or pass to B is a “Sham Transaction”.
The fundamental difference in Benami and Sham transaction is that in benami transactions the transfer of property actually taken place. The title of the property after transfer vests with transferee (benamidar) but in shame transaction there is no transfer taken place legally and title and right in the property under consideration remain with the transferor i.e. A and property has been transferred on papers only.
In earlier Act, 1988 the “Sham Transactions “are not covered only “Benami Transactions “were dealt. The definition in Section 2(a) of Act, 1988 excludes “Sham Transactions”. The courts in various cases also ruled that “Sham Transactions” were outside of the provisions of Act, 1988.
Ouseph Chacko Vs. Raman Nair Raghavan Nair AIR 1989 Ker. 317 ITR511; the Court reviewed the provisions of Sections 81, 82 and 94 of the Indina Trust Act, 1882, which were repealed by Section 7 of the Prohibition of Benami Property Transactions Act, 1988 (now Section 56 of the Act). The Court noted that in chapter IX declare certain obligations to be in nature of the trust. Section 81 applied in those cases where it did not appear that the transferor intended to dispose of the beneficial interest.
Example: suppose Mr. A coveys land to Mr. B without consideration and declare no trust of ant part. It seems that A if not in intention to transfer beneficial interest in the property under consideration to B. In this case B is holding property for the benefit of A and it is a “Sham Transaction” and Section 81 of the Indian Trust Act, 1882 is applicable.
Section 82 deals with a transaction in with Mr. A transfer his property to Mr. B but in name of Mr. X. The consideration in this case was paid by Mr. B and Mr. X is acting as benamidar for beneficial owner Mr. B. This transaction is termed as “Benami Transaction”.
POSITION UNDER AMENDED ACT, 2016; amended Section 2(10) defined “Benamidar” and it includes mere name lender. The person who has given his name for the transfer of property or on whose name a property has been transferred, without transfer of possession and title of the property is also treated as benamidar under the Act, 2016. The purpose of including a mere name lender within the definition of benamidar would appear to enlarge the scope of “benami transaction” to cover “sham transaction” also.
THE OBJECTIVE OF THE ACT; “Act to prohibit a “benami” transaction so that beneficial owner would be compelled to keep the property in his own name only and legal complexities owing to the apparent ownership not being real ownership could be avoided.
PENALTY FOR BENAMI TRANSACTIONS; SECTION 53
Section 53(1); where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of any 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 the benami transaction, shall be guilty of the offence of benami transaction.
Section 53(2): whoever found guilty under provisions of Section 53(1) of the Act, 2016 shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also liable to fine, which may extend to 25% of the fair value of the property under consideration.
OFFENCES TO BE NON-COGNIZABLE; SECTION 61 ACT, 2016
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 an offence under this Act, shall be non-cognizable.
PENALTY FOR FALSE INFORMATION SECTION 54 OF ACT, 2016;
Any person who is required to furnish information under the Act, 2016 knowingly gives false information to any authority or furnishes any false document in any proceedings under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend five years and shall also liable to fine 10% of the fair market value of the property.