BENAMI TRANSLATIONS :

A LEGAL TOOL OR A LOOPHOLE?

INTEGRAL UNIVERSITY LUCKNOW

FACULTY OF LAW

COURSE: LAW OF PROPERTY (LW-369)

SESSION: 2024-25

SUBMITTED BY:
AREESHA AAFREEN SUBMITTED TO:
Enrollment No: 2200100935 MR. FAIZ OSMANI
Course: B.A. LL.B (3rd Year) (ASSISTANT PROFESSOR)

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 ACKNOWLEDGEMENT

First of all, I bow in reverence to the Almighty for blessing me with strong will power,
patience and confidence, which helped me in completing the present work.

I am writing to express my sincere gratitude to Prof. (Dr.) Naseem Ahmed (Dean ,

Faculty of Law) for the support and guidance provided during the process of writing
my recent article. Your encouragement and feedback have been invaluable in shaping
my understanding of legal research and writing.

I would also like to extend my appreciation to Dr. Seema Siddiqui (Head of

Department) for creating an environment that fosters academic growth and critical
thinking. Your leadership has inspired me to delve deeper into legal discourse and
explore new avenues of legal analysis.

Furthermore, I am grateful to my course teacher Mr. Faiz Osmani (Assistant

Professor), for their expertise and dedication in guiding me through the intricacies of
legal writing. Their insightful feedback and constructive criticism have significantly
enhanced the quality of my work.

I am proud to have had the opportunity to contribute to the legal literature under your
mentorship, and I look forward to applying the skills and knowledge gained from this
experience in my future endeavors.

Thank you once again for your continuous support and belief in my academic
pursuits.

AREESHA AAFREEN
B.A. LL.B
2200100935

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 TABLE OF CONTENT

S. NO. TITLE PAGE NO.

1. Introduction 4
2. Historical Background 5
3. Concept of Benami Transactions 5-7
4. Nature of Benami Transactions 7-8

5. Prohibition of Benami Transactions 8

6. Whether it is a Legal tool or Loophole 9-10

7. Conclusion 10

8. References 11-12

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 BENAMI TRANSLATIONS : A LEGAL TOOL OR A LOOPHOLE?

I. INTRODUCTION

The word “Benami” has originated from Persian vocabulary and literally it means
‘anonymous’ or ‘nameless’ or ‘property without a name’. The term ‘benami transaction’ is
used to describe a transaction where one person pays for property but the property is transferred
to/held by somebody else. In such transactions, the person who pays for the property is the
ultimate beneficiary of the property directly or indirectly but his name is not recorded as the
legal owner of the property. The person in whose name the property is transacted is called as
the Benamidar. The person on whose name the property has been purchased is called the
Benamidar and the property so purchased is called the benami property and the person who has
financed the said purchased is referred to as the real owner. This enables the payer/beneficiary
to achieve undesirable purposes such as utilizing black money or evading the payment of tax or
avoiding making payments to his creditors. Such a property is considered benami and illegal
under the Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred as the
“Act, 1988”).

There were no specific procedures for the implementation of the Act of 1988. Thus, this Act was
unable to curb all such illegal transactions. Several amendments were brought and this Act was
renamed as Benami Transaction (Prohibition) Amendment Act, 2016 (hereinafter referred as the
“Act, 2016”). The new Act was first introduced as a Bill in Lok Sabha on May 13, 2015 by
finance minister Arun Jaitley. It was then referred to the Standing Committee on Finance which
gave its report on April 28, 2016. Lok Sabha passed the bill on July 27, 2016 and Rajya Sabha
gave its nod on August 2, 2016. After assent of the President this Act was notified and made
effective from November 01, 2016. This Act provides deterrence for benami transactions. Under
this Act, whoever is found guilty of the offence of benami transaction shall be punished. It also
provides the authorities for keeping a check on benami transactions and describes offences and
penalties.

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 II. HISTORICAL BACKGROUND

The earliest noteworthy mention of benami transactions was in the 18th century when the British
had colonised the territory of India. In the case of Gopeekrist Gosain v. Gungapersuad1 it was
held that such benami transactions were a part of India’s custom and therefore must be
recognized. Thereafter, Section 81 and 82 of the Indian Trusts Act, 1882 (hereinafter refereed
as the “Act, 1882”) extended legislative recognition to benami transactions due to which the
Indian Courts were bound to enforce them. The rationale provided for justifying these
transactions was Section 5 of the Transfer of Property Act, 1882 according to which there is no
prohibition on transfer of property in the name of one person for the benefit of the other 2.

Eventually such transactions were entered between parties to defraud public revenues. In order
to remedy this situation the Parliament introduced Section 281A in the Income Tax Act, 1961
(hereinafter referred as the “Act, 1961”) to prohibit the institution of suits with regards to benami
properties. The widespread menace of illegal benami transactions was not effectively curtailed
and therefore Sections 81 and 82 of the Act, 1882 and Section 281A of the Act, 1961 were
repealed. Thereafter following the recommendations of the 57th Law Commission report the
Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 was
promulgated by the President on 19th May, 1988. The said Ordinance was subjected to criticism
from press and public on the grounds that it was not an effective mechanism to curb benami
transactions. Thus, 130th Law Commission Report submitted certain recommendations. After
incorporating the relevant recommendations of the 130th Law Commission the Benami
Transactions (Prohibition) Bill was passed by both the Houses of Parliament. On 5th September
1988 it became the Benami Transaction (Prohibition) Act, 1988.

III. CONCEPT OF BENAMI TRANSACTIONS

Position under Indian Law:

1
(1854) 6 MIA 53.
2
The Prohibition of Benami Property Transactions Act, 1988, Act No. 45, Acts of Parliament, 1988.

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Purchase or holding of properties in the name of other is known as a Benami Transaction in
India. The essential legal characteristic of these transactions is that there is no intention to
benefit the person in whose name the transaction is made. The name of that person, popularly
known as ‘Benamidar’, as Privy Council pointed out, is simply an alias for that of the person
beneficially interested. The Benamidar has the ostensible title to the property standing in his
name; but the beneficially ownership of the property does not vest in him but in the real owner3.

There are differences between ostensible owner and benamidar under section 41 of the Transfer
of property Act, 1882. An ostensible owner is one who has all the indicia of ownership without
being the real owner. There may be difficulty in ascertaining whether a person is an ostensible
owner or real owner. The Supreme Court has observed, long time ago, in the case of Jayadayal
Poddar v. Bibi Hazra 4 that whether a person is an ostensible owner or not is a subjective
question to be decided on the basis of facts and circumstances. According to the Court the
following considerations must be taken into account while deciding whether a person is
ostensible owner or not-

i. Source of purchase money i.e., who paid the price?

ii. Nature of possession after the purchase
iii. Motive for giving benami colour to the transaction i.e., why the property was purchased
in the name of other person?
iv. Relationship between the parties i.e., whether the real owner and the ostensible owner
were related to each other or were strangers or friends?
v. Conduct of the parties in dealing with property i.e., who used to take care of and had
control over the property?
vi. Custody of the title deeds.

Two kinds of ‘benami’ transactions are generally recognised in India. Where a person buys a
property with his own money but in the name of another person without any intention to benefit
such other person, the transaction is called benami. In that case, the transferee holds the property

3
Pether Perumal v. Muniandy, (1980) I.L.R. 35 Cal. 551, 558 (Privy Council); Gurnarain v. Sheolal, A.I.R. 1918
PC 140.
4
A.I.R. 1974 SC 171.

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for the benefit of the person who has contributed the purchase money, and he is the real owner.
The second case, which is loosely termed as a benami transaction is a case where a person who
is the owner of the property executes a conveyance in favour of another without the intention
of transferring the title to the property there under. In this case the transferor continues to be the
real owner. The difference between the two kinds of Benami Transactions referred to above lies
in the fact that whereas in the former case there is an operative transfer from the transferor to
the transferee though the transferee holds the property for the benefit of the person who has
contributed the purchase money, in the later case, there is no operative transfer from the
transferor to the transferee at all and the title rests with the transferor notwithstanding execution
of the conveyance.5

One common feature, however, in both these cases is that the real title is divorced from the
ostensible title and they are vested in different persons. The question whether a transaction is a
benami transaction or not mainly depends upon the intention of the person who has contributed
the purchase money in the former case and upon the intention of the person who has executed
the conveyance in the latter case. It is only in the former case that it would be necessary when
a dispute arises as to whether the person named in the deed is the real transferee or not, to
enquire into the question as to who paid the consideration for the transfer. But in the latter case,
when the question is whether the transfer is genuine or sham, the point for decision would be,
not who paid the consideration but whether any consideration was paid. 6

IV. NATURE OF BENAMI TRANSACTIONS

Benami Property is defined as any property, which is the subject matter of a benami transaction
and includes the proceeds from such property 7 . It includes assets of any kind -movable,

5
DINSHAW FARDUNJI MULLA, THE TRANSFER OF PROPERTY ACT, 296 (11 th ed. 2013).
6
Bhim Singh v. Kan Singh, AIR 1980 SC 727; Meenakshi Mills, Madurai v. Commissioner of Income Tax,
Madras, 1956 S.C.R. 691.
7
Supra note 3, Section 2(8).

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immovable, tangible, intangible, any right or interest, or legal documents. As such, even gold
or financial securities could qualify to be benami.

Benami transaction is a method by which a person becomes the virtual owner of a property
through the power of attorney although legally the property is not reported as bought or sold.
Consequently, the taxes due to the Government at the time of such transactions are not paid.
The Privy Council in the case Pether Perumal v Muniandy8 held that the person who lends his
name for the purchase of property and has ostensible title, i.e., the benamidar is nothing but an
alias for the real owner who is has beneficial ownership of the property.

Section 4(9) of the Act, 2016 defines Benami Transaction as any transaction or an 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 and such the property is held for the immediate
or future benefit, direct or indirect, of the person who has provided the consideration.

Further this provision also provides that a transaction or an arrangement in respect of a property
carried out or made in a fictitious name; or a transaction or an arrangement in respect of a
property where the owner of the property is not aware of, or, denies knowledge of, such
ownership will be called benami transaction.

V. PROHIBITION OF BENAMI TRANSACTIONS

Benami transactions are prohibited and if any person is making such transaction will be
punished as per the various provisions of the Act. Section 6 has prescribed that all benami
transaction shall be held void and liable to be confiscated by the Central Government. Properties
which are subject matter of benami transaction are liable to get confiscated by the confiscation
authorities. Such properties can also be not re-transferred by the benamidar. In case of
contravention, such transfers shall be treated as null and void9.

8
Supra note 4.
9
Id.

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 VI. WHETHER IT IS A LEGAL TOOL OR LOOPHOLE?

The characterization of benami transactions as a “tool” or a “loophole” is context-dependent,

evolving significantly with legal and societal shifts. Historically, while these transactions might
have served limited, sometimes socially acceptable purposes, their inherent lack of transparency
made them highly susceptible to abuse, thus transforming them into a significant “loophole.”
The legal framework, particularly the 2016 amendment to the Prohibition of Benami Property
Transactions Act, 1988, has aimed to close this loophole. However, the complexities of proving
intent and navigating exceptions create ongoing challenges. Case law illuminates this evolution.

For instance, the Supreme Court’s involvement in cases like “Union of India v. M/S. Ganpati
Dealcom Pvt. Ltd 10.” Highlights the judicial grappling with the Act’s retrospective application
and the need for clarity in its enforcement. This case, among others, shows that the courts are
consistently working to define the boundaries of the benami act. These judicial actions,
combined with the strengthening of the legislative framework, have effectively shifted benami
transactions from a widely exploited loophole to a high-risk activity, though the potential for
misuse necessitates continued vigilance. Therefore, while historical contexts might have lent
some credence to its use as a “tool,” the overwhelming prevalence of its abuse for illicit purposes
firmly establishes it as a “loophole” that legal mechanisms are actively working to close.

The answer is nuanced. While the law aims to eliminate the loophole, the inherent nature of
certain transactions means that the potential for misuse will always exist. The strong legal
framework has turned benami transactions from a commonly used tool, into a very risky
undertaking.

The effectiveness of the law hinges on its robust implementation, including:

• Thorough investigations by authorities.

• Efficient adjudication of cases.
• Public awareness campaigns to deter benami transactions.

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(2020) 17 SCC 324

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In conclusion, the Prohibition of Benami Property Transactions Act has transformed benami
transactions from a widely exploited loophole into a highly risky undertaking. However,
vigilance and continuous efforts are essential to ensure that this complex issue is effectively
addressed, and that the legislation serves its intended purpose of curbing corruption and black
money.

VII. CONCLUSION

There are certain provisions of the Act which are a bit problematic as discussed above. Whereas
there are various provisions which make sure that the powers of the authorities are not limited
in the hands of the few. Certain exemptions are given in the act which is unnecessary for instance
exempting religious or charitable institutions; property bought in fiduciary relationship and
bought in the name of wife or daughter. The Act limits the scope of Section 41 of Transfer of
Property Act. It can be to the disadvantage of the transferee or the individual who buys benami
property, for reasons discussed above.

Thus, overall there are certain loopholes in the Act like every other law. The impact of the Act
cannot be same on everyone. It might have a positive impact on individuals who plan to invest
in real estate, due to price rationalization. On the other hand, it might have a negative impact on
those who might want to invest in real estate to utilize the unaccounted money. Therefore, there
cannot be a straitjacket analysis of the Act, 2016 it is subjected on the individual who is affected
by the same. The judiciary will have to interpret these loopholes for better implementation of
the Act.

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 REFERENCES
• CASES REFERRED

1. Gopeekrist Gosain v. Gungapersuad, (1854) 6 MIA 53.

2. Gurnarain v. Sheolal, A.I.R. 1918 PC 140

3. Jayadayal Poddar v. Bibi Hazra, A.I.R. 1974 SC 171.

4. Pether Perumal v. Muniandy, (1980) I.L.R. 35 Cal. 551

5. Union of India v. M/S. Ganpati Dealcom Pvt. Ltd, (2020) 17 SCC 324

• BOOKS REFERRED
1. Dr. Saxena Poonam Pradhan, Property Law, (2 edn. Lexis Nexis 2011) 178

2. Vishwas Shridhar Sohoni, Transfer of Property Act (4”edn, Premier Publishing Company
2012) 184

• STATUTES REFERRED

1. Transfer of Property Act, 1882

2. Benami Transactions (Prohibition) Act, 198

3. Prohibition of Benami Property Transactions Act, 198

4. Indian Trust Act, 188

5. Taxation Laws (Amendment) Act, 1972The Constitution of India, 1950

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• E-RESOURCES

1. Vibha Sirothiya, Position of ostensible owner under Indian Property Law vis a vis Benami
Transactions. Accessed at: http://www.goforthelaw.com/articles/fromlawstu/article28.htm
(accessed on March 1st, 2025).

2. Law Commission of India, Fifty-seventh Report, Benami Transactions. August, 1973,

http://lawcommissionofindia.nic.in/51-100/Report57.pdf (accessed on March 1st, 2025).

• DATABASES AND WEBSITES

1. https://www.drishtiias.com/

2. http://www.scribd.com

3. http://www.legalserviceindia.com

4. http://www.lexisnexis.com/in/legal

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