The Benami Transactions (Prohibition) Act, enacted in 1988, prohibits “Benami” transactions and gives the government the power to confiscate “Benami” property.

What is a Benami property?

“Benami” is a Hindi word meaning “without a name”. A “Benami” transaction is performed in a fictitious name. Or the real owner buys it in someone else’s name to make a profit and avoid tax laws.

The laws state that a “Benami” transaction is a deal “in which a property is transferred to or held by a person and consideration for that property has been provided or paid for by another person.”

It also includes transactions in which “property is held for the immediate or future benefit, direct or indirect, of the person who rendered the consideration”.

In simpler terms, if ‘A’ paid for the property but it is in someone else’s name ‘B’, it is said to be Benami property. Here, if either A or B is fictitious, the property is considered a Benami property. This law also applies in the event that the owner denies any knowledge of possession of such property. Cash and sensitive information may also be considered “property” for the purposes of the law. Under Section 5 of the Act, the Center can seize any property that has been marked as Benami property.

But there are some exceptions in the law. If the property is held by a member of a Hindu undivided family (HUF) on behalf of the HUF or on behalf of his spouse or children, it cannot be considered a benami. Even if the property is held in trust, it does not fall under the scope of the law.

The biggest bone of contention here is the law changes in 2016. Let’s look at the changes:

With the amendment that came into force on November 1, 2016, subsection 2 was added to Section 3 Part 3 of the Act. It stipulated that anyone entering into a Benami transaction would be punished with imprisonment for up to three years or a fine, or both. This was ruled unconstitutional by the Supreme Court.

What did the Supreme Court say about the law? CJI NV Ramana-led SC Bank said Tuesday that the provisions in Section 3 were “unreasonably harsh” and ruled them unconstitutional. The provisions in Section 5, which allow the government to confiscate property, were also ruled unconstitutional as “half-baked”.