Legislation on benami transactions In India – a critical study

Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of India that prohibits certain types of financial transactions. The act defines a 'benami' transaction as any transaction in which property is transferred to one person for a consideration paid by another person. Such transactions were a feature of the Indian economy, usually relating to the purchase of property (real estate), and were thought to contribute to the Indian black money problem. The act goes on to ban all benami transactions and the right to recover property held benami. The Act came into force on 5 September 1988. Although benami transactions are now illegal, the act had limited success in curbing them. Updated versions were therefore passed in 2011 and 2016, seeking to more comprehensively enforce the prohibitions. In 1973, the Law Commission of India after studying various Acts and prevailing benami system, recommended formulating an Act to tackle the issue. Accordingly, the Benami Transactions (Prohibition) Act, 1988 was enacted by the Parliament which came into force on 19 May 1988. However, due to various deficiencies in the Act, the rules required for operationalizing the Act were not framed. To address these deficiencies, several years later, in 2011, the Government of India introduced "Benami Transactions (Prohibition) Bill, 2011 and 2015" After attacking black money by demonetisation announced on November 8th 2016 of high value currency notes, Prime Minister Narendra Modi is all set to take on ‘Benami’ properties to check corruption. In his last Mann Ki Baat of the year 2016, Modi said the Government will soon operationalise a strong Law to effectively deal with ‘Benami’ properties. “We will take action against ‘benami’ property. This is major step to eradicate corruption and black money… We are going to take action against the properties which are purchased in the name of others (Benami). That is the property of the Country,” said the Prime Minister Narendra Modi. The Government has already enacted the Benami Transactions (Prohibition) Amendment Act, 2016 which provides for rigorous imprisonment of up to seven years, and a fine which may extend to 25 per cent of the fair market value of the Benami property. It also empowers the Government to confiscate deposits of people using others accounts to convert unaccounted wealth into white money. But it seems it has not deterred the corrupt from amassing benami properties. This paper brings out whether the Legislation given in 2016 would really serve the required purpose for which it is made.