Open Access Research Article
LEGAL MECHANISM FOR THE ECONOMIC HAVOC CAUSED BY BENAMI TRANSACTIONS
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Article Details
“LEGAL
MECHANISM FOR THE ECONOMIC HAVOC CAUSED BY BENAMI TRANSACTIONS”
AUTHORED BY - SONAL PRIYA (B.A. LL.B.)
SEM- 7, A21511120010
ABSTRACT
The legal mechanism for dealing with the economic havoc caused by benami
transactions includes severe rules
and enforcement under the Benami
Transactions (Prohibition) Act, 1988,
and subsequent amendments, which empower authorities to seize properties
involved in such transactions and impose heavy penalties on offenders.
Furthermore, several regulatory and investigative organisations, including
the Income Tax Department, have been actively monitoring and investigating potential
benami transactions. To uncover such violations, they utilise
innovative data analysis and financial auditing technologies and methodologies.
The government's commitment to reducing benami transactions emphasises the
importance of maintaining economic stability and integrity by discouraging and punishing individuals who engage in these illegal
financial practises. Overall, the legal framework, together
with strict enforcement, is critical in protecting the country's economy from
the harmful impact of benami transactions.
KEYWORDS-
ECONOMIC HAVOC, BENAMI
TRASACTIONS, ECONOMIC
STABILITY, LEGAL FRAMEWORK
The term “Benami” basically means “without a name.” A benami transaction is defined as a
“transaction in which property is transferred to one person in exchange for
consideration paid or provided by another person.
Benami properties are those that are held by an owner
through proxies. The property is purchased in the name of or held in the name of a person
who has neither
paid for it nor actually enjoys it. It may even be held in the name of a non-existent person.
Such front person
is known as 'Benamidar'. This
name is only an assumed name for the actual owner, the 'Beneficial Owner'.
Thus, the Benami property transaction is where the 'Beneficial Owner' buys the
property in the name of a Benamidar but seeks to enjoy it himself.
Thus, a 'Beneficial Owner' is a person (whether
his identity is known or not) for whose benefit the benami property is held by a Benamidar. Sometimes the Benamidar does not know or cannot disclose
the identity of the real owner. He may have only taken money and placed some
signatures. Even in these conditions, the property will be benami.
Over the years,
it was noticed that people had begun
to enter Benami
transactions in real estate,
shares, fixed deposits, vehicles and even in contracts. The main motives
were to avoid
payment of statutory dues or taxes, defrauding banks, and creditors by
avoiding making payments to them and to disguise the real ownership of a property
to prevent detection of the illegal
activity that produced it. Therefore, to curb such socio-economic
offences Government of India have implemented legal mechanisms which provide a
broad scope to protect the economic fibre of our country.
ILLUSTRATION -
Mr. A buys a house in the name of his sister-in-law Mrs. B. Payment
has been made by A and he
and his family start
to live in that
house. Even if B is
a rich lady, the transaction is Benami. B is the Benamidar and A is the beneficial
Owner.
ECONOMIC COCEQUENCES CAUSED BY BENAMI
TRANSACTIONS
Transactions such as these were once common in India’s
economy. They predominantly involved the acquisition
of real estate. Additionally, these transactions were considered
to add to the country’s black money
problem. The increase and spread
of such money can seriously impact the economy as it can significantly reduce
government revenue. This type of wealth is available in the economy in large
amounts, which can result in the running of a parallel economy. It is a well-known fact that India
already has various
corrupt practices. Black money
has added to this corruption through benami transactions which are made for
concealing the black money. The most common
way in which corruption is practised in this country
is by way of bribing bureaucrats, government officials, etc. for getting
their work done.
Such money goes to
unaccounted books and is never shown
as income, thereby adding
this type of money
to the Indian economy. Therefore, black money is consequential to
corruption, and the already existing corruption is consequential to such money,
thereby forming a never-ending vicious circle unless some serious step is taken
by the government. The illegally
earned money or the black usually gives
rise to numerous
illegal activities in society, and corruption is among them. The time period of elections is also the time when the illegal
and illicit use of black
money can be seen. Various
terrorist activities are backed by the holders of black money, which is even
harmful to the whole country.
Furthermore, when Black money circulates in the market,
it leads to high inflation in the market.
The inflated prices
of Real Estate
are an example of this. India's
Black Money is stashed in tax havens abroad like Swiss Bank.
LEGAL MECHANISMS AND ITS IMPLICATIONS
Benami transactions were first prohibited in India and
was a non- cognizable offence under The
Benami Transactions (Prohibition) Act, 1988. The legislative intent behind
the prohibition on benami
transactions was to deter
people from engaging in such
transactions for dishonourable
purposes, such as money laundering, tax evasion, and diverting assets in order
to create the appearance of insolvency and defeat the legitimate claims of
creditors. In simple words, the 1988 Act
made any benami transaction a punishable offence, as well as any suit, claim, or action to enforce any right in respect of any property held
benami against the person in whose name the property was held. In other words,
the legal right to claim beneficial ownership in any benami property has been
terminated in its entirety.
Despite
the Benami transactions being banned now, the act only had a minor impact on
them. To fight against this problem, updated versions were passed in 2011 and
2016 to enforce the bans more broadly. After examining numerous acts and the
Benami system, in 1973, India’s Law Commission proposed an act for fighting the
bad debt.
The Benami Transactions
(Prohibition) Amendment Act, 2016, was
previously passed by the government. It stipulates a maximum sentence of seven
years in prison and a fine of up to 25% of the fair market value of the Benami
property. It also allows the government to seize deposits made by people who
convert unaccounted cash into white money through other accounts. However, the corrupt
have not been discouraged from amassing Benami estates and burden of proving a Benami Transaction, always
rests on the person alleging the transaction However, the Act has stated that
the following property will not be considered as Benami Transaction:
·
Property held by a Karta or a member of Hindu
Undivided Family where the consideration of such property is provided or paid
from a known source.
·
Property held by a person standing in a fiduciary
capacity for the benefit of another person towards whom he stands in such
capacity.
·
Property held by any person being an individual in the
name of his spouse or in the name of any child of such individual and the
consideration for such property has been provided or paid out of the known
sources of the individual.
·
Property held by any person in the name of his brother
or sister or lineal ascendant or descendant and the consideration for such
property has been provided or paid out of the known sources of the individual.
SOCIO- ECONOMIC
BENEFIT OF THE ACT; MY OPINION
Since the 1980s,
benami transactions have been a major drain on the Indian economy,
necessitating extensive laws to curtail their effects, which impair a
growing economy and help combat bad loans. In response to growing public
outrage over rising lender fraud and India's
fight against black money, this Amendment Act was passed.
A closer look finds that
the Amendment Act of 2016 seems to have promise for resolving the Act's legal issues criminal activities and strengthen creditors nationwide.
The correct implementation of the executive would have a significant
deterrent impact on society. Instilling terror
in people's minds is the threat of collecting Benami
assets, for instance, but offering an exemption to
those who disclose their Benami holdings appears to be an effective incentive.
Because of this, if the newly updated rule is not hindered by
nonimplementation, it might send shivers down the spines of people who have
engaged in illegal operations and increase lenders all over the nation.
SUGGESTIONS AND WAY FORWARD
The Benami Transactions (Prohibition) Amendment Act,
2016 is now in effect, and the government wishes
to move to intensify its fight against
black money. However,
glitches need to be fixed. According to the legislation, anytime a benami property is seized,
the Centre would become the legal owner of all rights and titles. This
expropriator power must be used with extreme care, and safeguards must ensure
that. The legislation only exempts
Benamidar from its application if the property is financed by known sources of
income, such as a trustee or a member of a Hindu Undivided Family.
Adjudicating authorities and an appellate tribunal will
deal with benami transactions. An efficient
functioning of the judicial system
is a must to lower disputes and cut needless delays in confiscation of benami
properties. Black money finds refuge in real estate, which is made easier by undetermined titles.
This needs to alter. Additionally, the government must guarantee
property owners' ownership. The Torrens system,
in which state agencies directly
register land ownership, is
the way forward for India. Clear government-guaranteed titles will stop shady
real estate transactions. Institutional change is also necessary to eliminate the financing of political parties outside of the law
and lessen the artificial scarcity of urban land. When every money is recovered, benami real estate transactions
would come to an end.
CONCLUSION
The Benami Transactions (Prohibition) Act 2016
amendments will eventually stabilise the market, foster transparency, reliability, and confidence, and support lenders.
The amendment's objectives
were to outlaw Benami transactions, punish those who engaged in them, and make
the fight against bad debt more widespread because they had evolved into a way for the corrupt
to evade taxes, concentrate land, and launder money. They had also helped
members of the middle and lower classes realise
their dream of owning a home. One of the most common areas
to invest black money in India is real estate. This legislation is a step in
the right direction, along with other
regulatory adjustments like the implementation of the Goods and Services
Tax (GST), the Real Estate (Regulation and Development) Act (RERA), and Land Digitization. The economy may experience short-term losses in a variety of
industries, most notably real estate, but it will boost long-term participation
in the real sector from local investors, financial institutions, and
institutional investors from abroad. However, it is challenging to identify
Benami properties, and litigation is limited, due to the nature of the
relationship between parties, such as blood relatives or family members.
Article Information
LEGAL MECHANISM FOR THE ECONOMIC HAVOC CAUSED BY BENAMI TRANSACTIONS
Authors: SONAL PRIYA
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/11/23
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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