Benami Law

Benami Law- Relevance for UPSC Exam

General Studies III- Money Laundering and its prevention.

In News

The Supreme Court has declared as “unconstitutional and manifestly arbitrary” the amendments introduced to the Benami Property Transactions Act, 1988 in 2016, which apply retrospectively and can send a person to prison for three years even as it empowers the Centre to confiscate “any property” subject to a benami transaction.

What is Benami Property?

• Benami in Hindi means without name.
• So, a property bought by an individual not under his or her name is benami property which can include property held in the name of spouse or child for which the amount is paid out of known sources of income.
• A joint property with brother, sister or other relatives for which the amount is paid out of known sources of income also falls under benami property.
• The transaction involved in the same is called Benami transaction.
• The benami transactions include buying assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents.

What is the Benami Law?

• The first act against benami properties was passed in 1988 as the Prohibition of Benami Property Transactions Act, 1988.
• To block all loopholes, the government in July 2016 decided to amend the original act.
• So, after further amendment, Benami Transactions (Prohibition) Amendment Act, 2016 came into force on November 1, 2016.
• The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine.
• The PBPT Act prohibits recovery of the property held benami from Benamidar by the real owner. Such, properties are liable for confiscation by the Government without payment of compensation.

The Amendments

• The 2016 law amended the original Benami Act of 1988, expanding it to 72 Sections from a mere nine.
• Sections 3(2) and 5 were introduced through the Benami Transactions (Prohibition) Amendment Act, 2016.
• A Bench, led by CJI N.V. Ramana, declared Sections 3(2) and 5 introduced through this amendment as unconstitutional.

Section 3(2)

• According to this, a person can be sent behind bars for a benami transaction entered into 28 years before the Section even came into existence.
• CJI Ramana held that the provision violated Article 20(1) of the Constitution. Article 20(1) mandates that no person should be convicted of an offence, which was not in force “at the time of the commission of the act charged as an offence”.

Section 5

• It said that “any benami property shall be liable to be confiscated by the Central Government”.
• The court held that this confiscation provision cannot be applied retrospectively.
• The CJI dismissed the government’s version that forfeiture, acquisition and confiscation of property under the 2016 Act was not in the nature of prosecution and cannot be restricted under Article 20.

Need to curb benami transactions

• Rather than hoarding the black money in cash, the tax evader invests their accumulated illegal money in buying benami properties
• The whole process affects the revenue generation of government hampering growth and development of the state.
• Since the percentage of tax payer in the country is a dismal low, the government fails to successfully implement its policies and schemes due to lack of resources.
• Benami transactions also serves the illicit purpose of money laundering.

Way Forward

• Due process of law needs to be followed in true letter and spirit while enacting a tough law against benami properties which is the need of the hour to check corruption.