Benami Law: What is the Benami Transactions (Prohibition) Act, 1988?

Introduced in 1988 and amended in 2016, the Benami Transactions (Prohibition) Act prohibits Benami transactions and gives the government the right to recover Benami property

The Supreme Court of India (SC) on Tuesday ruled that an amendment to the Benami Act that came into effect on November 1, 2016, cannot be applied retrospectively to the transactions between September 5, 1988, and October 25, 2016. 

The apex court also declared section 3 of the amendment act unconstitutional. The section provided a three-year jail term and a penalty for people involved in such transactions.

"There is no doubt that the unamended 1988 Act tried to create a strict liability offence and allowed separate acquisition of benami property. This begs the question whether such a criminal provision, which the State now intends to make use of, in order to confiscate properties after 28 years of dormancy, could have existed in the books of law. Other than the abuse and unfairness such exercise intends to bring about, there is a larger constitutional question about existence of such strict provisions without adequate safeguards," said the SC bench led by Chief Justice NV Ramana. 

What is the Benami Law?

Introduced in 1988, the Benami Transactions (Prohibition) Act prohibits Benami transactions and gives the government the right to recover Benami property. 

According to the act, a Benami transaction is a transaction "where a property is transferred to or is held by, a person, and the consideration for such property has been provided, or paid by, another person". 

It also includes transactions where "the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration."

In simpler terms, if "A" has paid for the property, but it is in the name of some other person "B", it is labelled as a Benami property. 

Here, if either A or B are fictitious, the property is considered a Benami property. This law also stands in the case of the owner denying any knowledge of holding such property. 

However, when 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 Benami. Also, if the property is held in a fiduciary capacity, it does not come under the ambit of the law.  

According to the law, the Centre can confiscate any property that has been tagged as a Benami property.

Cash and sensitive information can also be termed as 'property' under the act. 

What were the amendments to the act in 2016?

The amendment that came into effect on November 1, 2016, inserted a sub-section 2 in section 3 of part 3 of the act. It specified that whoever enters a Benami transaction shall be punishable with imprisonment for a term of up to three years or a fine or both. 

The new punishment was also being applied retrospectively to the transactions that took place before 2016. 

SC, on Tuesday, stated that the provisions under section 3 are 'unduly harsh' and declared them unconstitutional. 

The provisions under section 5, which allows the government to confiscate the property, were also declared unconstitutional and they were 'half-baked'.