India: Power Of Appellate Tribunal To Remove The Name Of Beneficial Owner From List Of Parties In A Benami Transaction

Last Updated: 12 April 2019
Article by Vijay Pal Dalmia, Partner and Aditya Dhar

By Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@vaishlaw.com Mobile No.: +91 9810081079
Linkedin: https://www.linkedin.com/in/vpdalmia/
Facebook: https://www.facebook.com/vpdalmia Twitter: @vpdalmia
And Aditya Dhar, Advocate
Phone: +91 11 42492573
Email id: aditya.dhar@vaishlaw.com

"Benami Transaction" is defined under Section 2 (9) (A) of The Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred to as "the Act") as:

  • a transaction or arrangement 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 is further the requirement of Section 2 (9) (A) of the Act that the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.

For instance, A transfers his property to B but the consideration for such property has been provided by C for immediate or future benefit, direct or indirect, of C. In this case, B will be the Benamidar i.e., in whose name the benami property is transferred or held and C will be the Beneficial Owner for whose benefit the benami property is held by the Benamidar.

"Benami Property" as defined under Section 2 (8) of the Prohibition of Benami Property Transactions Act, 1988 means any property which is the subject matter of a benami transaction and also includes the proceeds from such property.

"Beneficial Owner" is defined under Section 2 (12) of the Prohibition of Benami Property Transactions Act, 1988 as a person, whether his identity is known or unknown, for whose benefit the benami property is held by a Benamidar.

The principles governing the determination of the question whether a transfer is a benami transaction or not as laid down by the Hon'ble Supreme Court of India in the case of Bhim Singh v. Kan Singh, AIR 1980 SC 727 may be summed up as under:

  1. The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction;
  2. If it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary;
  3. The true character of the transaction is governed by the intention of the person who has contributed the purchase money; and
  4. The question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct etc.

Chapter IV of the Act deals with the Attachment, Adjudication and Confiscation.

Section 24 under Chapter IV deals with the Notice and attachment of property involved in benami transaction. Section 24 (1) to Section 24 (4) deals with

  • issuance of show cause notice by the Initiating Officer to the Benamidar to show cause as to why the property should not be treated as a benami property [Section 24 (1)]
  • copy of notice issued under sub section (1) of Section 24 to be issued to the beneficial owner as well if his identity is known [Section 24 (2)]
  • provisional attachment of the property by the Initiating Officer held benami with the previous approval of the Approving Authority for a period not exceeding ninety days from the date of issue of notice under sub-section (1) [Section 24 (3)]
  • passing of an order by the Initiating Officer continuing the provisional attachment of the property made under sub-section (3), with the approval of the Approving Authority till the passing of the order by the Adjudicating Authority under sub-section (3) of section 26 of the Act or revoke the provisional attachment of the property with the prior approval of the Approving Authority [Section 24 (4) (a)]
  • passing of an order by the Initiating Officer provisionally attaching the property with the prior approval of the Approving Authority till the passing of the order by the Adjudicating Authority under sub-section (3) of section 26 of the Act or decide not to attach the property as specified in the notice, with the prior approval of the Approving Authority [Section 24 (4) (b)]

within a period of ninety days from the date of issue of notice under sub section (1) and after making enquiries,

As per Section 24 (5) of the Act where the Initiating Officer passes an order continuing the provisional attachment of the property under sub clause (i) of clause (a) of sub section (4) or passes an order provisionally attaching the property under sub clause (i) of the clause (b) of that sub section, he shall within fifteen days from the date of the attachment, draw up a statement of the case and refer it to the Adjudicating Authority.

Section 26 under Chapter IV of the Act deals with Adjudication of benami property. On receipt of a reference under sub section (5) of section 24, the Adjudicating Officer under section 26 (3) of the Act shall after –

  1. considering the reply, if any, to the notice issued under section (1);
  2. making or causing to be made such inquiries and calling for such reports or evidence as it deems fit; and
  3. taking into account all relevant materials,

provide an opportunity of being heard to the person specified as a benamidar therein, the Initiating Officer, and any other person who claims to be the owner of the property, and thereafter, pass an order –

  1. holding the property not to be a benami property and revoking the attachment order; or
  2. holding the property to be a benami property and confirming the attachment order, in all other cases.

Chapter V of the Act deals with Appellate Tribunal

Section 46 under Chapter V deals with the Appeals to Appellate Tribunal. Under section 46 (1) any person including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal in such form and along with such fees, as may be prescribed, to the Appellate Tribunal against the order passed by the Adjudicating Authority under sub section (3) of section 26, within a period of forty five days from the date of order. As per section 46 (2) the appeal may be entertained after the said period of forty five days if the Appellate Tribunal is satisfied that the appellant was prevented , by sufficient cause, from filing the appeal in time.

Section 46 (4) lays down the following powers of the Appellate Tribunal while deciding the appeal:

  1. to determine a case finally, where the evidence on record is sufficient;
  2. to take additional evidence or to require any evidence to be taken by the Adjudicating Authority, where the Adjudicating Authority has refused to admit evidence, which ought to have been admitted;
  3. to require any document to be produced or any witness to be examined for the purposes of proceeding before it;
  4. to frame issues which appear to the Appellate Tribunal essential for adjudication of the case and refer them to the Adjudicating Authority for determination;
  5. to pass final order and affirm, vary or reverse an order of adjudication passed by the Adjudicating Authority and pass such other order or orders as may be necessary to meet the ends of justice.

A plain reading of section 46 (4) shows that it is within the powers of the Appellate Authority to remove a party named as Beneficial Owner from the array of parties. One of the principles as discussed above is that the intention of the person contributing the purchase money has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct etc.

If it is proved that there was no intention of the alleged Beneficial Owner to enter into a benami transaction and that he does not claim the property attached by the Initiating Officer and confirmed by the Adjudicating Authority, such Beneficial Owner can be removed as such from the list. In the case of Johnson Watch Co. Pvt. Ltd. vs. The Initiating Officer, Circle (1), (http://atfp.gov.in/writereaddata/upload//Judgement/Judgement_29DIB1QQ4M_44499.PDF ) the Ld. Appellate Tribunal for Forfeited Property, New Delhi modified the order of the Adjudicating Authority to the extent that the appellant is not a benamidar/ beneficial owner and removed its name as beneficial owner/benamidar from the list. In the said case, the grievance of the appellant before the Appellant Tribunal was that when the Authority has come to the findings that the Initiating Officer has not said anything substantial against the present appellant and that the appellant has nothing to do with M/s. Apsara Merchantise Pvt. Ltd. or the amount lying in the bank account of benamidar which is not legally claimed by the appellant, the Adjudicating Authority ought to have held that the appellant is not a Benamidar with regards to the amount lying in the account of SBI and attached by the Initiating Officer and that the appellant's name ought to have been removed as a Benamidar.

The Appellate Tribunal observed that it is clear from the impugned order that the learned Adjudicating Authority, on the basis of material, fact and circumstances has held that the Initiating Officer has not said anything substantial against the appellant and also has considered the plea of the appellant that it is not claiming the amount lying in the bank account of benamidar. There is no rebuttal by the respondent that the appellant had supplied watches to M/s. Daintree Metals Pvt. Ltd. and received payments through banking channel in the ordinary course of its business. The appellant had also filed all the supporting documents with respect to the said transactions with M/s. Daintree Metals Pvt. Ltd. The most important aspect is also that the Initiating Officer has not challenged the aforesaid findings of the learned Adjudicating Authority.

In the above case, the Appellate Tribunal held that the appellant is neither a Benamidar nor a Beneficial owner within the meaning of the definitions defined under Sections 2(10) and 2(12) of PBPT Act, 1988 and varied/modified the impugned order to the extent that the appellant is not a Benamidar/Beneficial Owner and hence its name is removed as Beneficial Owner/Benamidar from the list.

In light of above discussion, it is apparent that the Appellate Tribunal under Section 46 of the Act has the power to remove the name of the Beneficial Owner from the array of parties if there is nothing substantial against the Beneficial Owner and the attached property is not claimed by the Beneficial Owner.

The judgement can be accessed from: http://atfp.gov.in/writereaddata/upload//Judgement/Judgement_29DIB1QQ4M_44499.PDF

© 2018, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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