All You Need to Know on Benami Property Law

Posted on: Oct 20, 2022 | 3 mins | Written by: HDFC ERGO Team

All You Need to Know on Benami Property Law

There have been major crackdowns on Benami properties in the last few years. Being aware of the Benami Act and its minor nuances can help you better understand the law and the impacts that it can have on you. If you have a property with legal clearance, it is advisable to buy a home insurance policy for the same.

What Does ‘Benami’ Mean and When is a Transaction ‘Benami Transaction’?

The term Benami refers to something that is held, done, or transacted under someone else’s name. Thus, a Benami transaction refers to transactions where a property is transferred to the name of one person and the considerations are paid by another person. Let us consider a property that is bought by Mr A but he does not buy the property under his name. Rather he uses the name of Mr Z for the purchase of the property. However, the money for transaction flows from Mr A. In such cases, the property is called a Benami property. Here Mr Z is just a face or name whereas Mr A is the actual beneficiary.

What are Benami Properties?

As mentioned above, if a property is bought by someone but is present in the name of someone else, it would be termed as a Benami property. A common example in our space is when a house or property is bought by a person in the name of his daughter-in-law. The property or house is sold to the lady but all the payments are done by her father-in-law. The property in question is a Benami property.

It is important to note that Benami property is not limited to immovable properties only. It essentially is valid for all kinds of assets. Though houses and properties majorly constitute Benami properties, vehicles and jewellery can also be termed as Benami.

Is Benami Transaction Illegal/Unlawful?

These kinds of transactions have been around in India for a while now. An early case in Calcutta was where a person bought a house in the name of his fictitious wife. However, with time Benami transactions have been used for various other kinds of motives, such as money laundering and evading taxes.

There are also several instances where these transactions are used for diverting the assets of a person to someone else’s name. Thereby defrauding creditors and discarding claims made by them. With an increase in mischievous activities, Benami transactions were deemed to be illegal. Thus, it becomes even more important to buy home insurance for your property or house to safeguard it from any unknowns.

Implications of a Benami Transaction

As we have discussed previously, Benami transactions are illegal and unlawful. If Mr A buys a property in the name of Mr Z, it is a Benami transaction. And if Mr A wants to file a case to retrieve the property from Mr Z, it will not be entertained and the claim will be rejected. On the other hand, it does not mean that Mr Z can enjoy the perks of owning the property. After an overhaul of the 1988 Benami Law in 2016, such properties can now be attached and confiscated if there is a need.

Administration’s Role Post Confiscation

After an order is passed to confiscate property, an administrator is entrusted with receiving the property and managing it as well. Once the order is made, the administrator will begin to take possession of the property in question. Within 7 days of receiving the order, the administrator will order the occupants of the property to surrender the property.

Remedies for Wrongful Attachment of Property

● Take Help Of Appellate Tribunal

Any person who receives an order of confiscation, this includes the initiating officer, an appeal with the Appellate Tribunal within 45 days of receiving the order. If there is any substance to the claim, the Appellate Tribunal might decide to hear the case within a year of the order. It is applicable to any party that is aggrieved by an order of confiscation. For your house, ensure that you purchase a home insurance policy to aid you in such legal issues.

● Writ With High Court

Though it is not a common route, in exceptional cases you can file a writ petition with the High Court against the confiscation order either by the initiating officer of adjudicating authority. You can explore this option if there has been a violation of principles or fundamental rights or if the authorities are patently indiscriminate. A home insurance policy will offer complete peace of mind.

Defenses to Benami Charges

Here are some examples of transactions that might not necessarily trigger the Benami Law.

● Hindu Undivided Family/Karta

If a property is held by a Hindu undivided family or the Karta of the family, the property is held for the benefit of the family members and the payment of such is well known to the family.

● Spouse/Children

If a transaction is made where a property is bought in the name of a spouse or children or brother or sister or lineal ascendant or descendant and the consideration is paid out of known sources.

● Fiduciary Capacity

If a property is held by someone who is in a fiduciary capacity the property, this can be done for the benefit of the other person if the earlier has the capacity to stand in as a fiduciary. Common examples include executor, partner, depositor, trustee, or director of a company. If you are entrusting someone with the same, it is recommended that you buy a home insurance plan as well.

Share Purchases

It is possible that the name of an individual is present in the register of shareholders in a company but the person is not the beneficial holder of the shares. In such instances, the person whose name is entered in the register must declare it to the company within a prescribed time frame and format. Else the person who has the beneficial interest in the shares cannot make any such claims.

Is Benami Law Applicable to Older Transactions?

The Act is applicable in two different buckets:

● Transactions that were made before the 2016 amendment

● Transactions that are made after the 2016 amendment, 25.10.2016

Any transaction made after the amendment might result in imprisonment of up to three years or a fine or both. In certain cases, the punishment can be more severe with up to seven years of imprisonment and a fine that is 25% of the fair market value of the property. However, the harsher punishment is not valid for retrospective transactions.

Offences by Corporate Bodies

As per the law, if a corporate body or company is found to be breaking any laws pertaining to Benami Act, all the people who are responsible for the company or conducting the company are guilty.

Income Tax Act and Benami Law

If a person is in the possession of money, jewellery, bullion or other valuable articles and there are no records of them in any of the books, the income taxes on the same will be charged at a flat rate of 77.25%. However, if a person is just a benamidar and does not actually hold the assets, the above is not applicable.

For Properties Outside

Though the Benami Act is extensive and exhaustive, it does not have any authority over properties that are outside India.

Conclusion

The stricter norms are to curb the evasion of taxes and money laundering and black money. However, individuals who do not have any such concerns must buy home insurance plans to keep their properties legally safe. A home insurance plan will not give you immunity against Benami properties, but it can help you with legal complications if a property is wrongly attached.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

A Guide for Homeowners to Stay Safe from Home Title Theft

Renting a House? 10 Laws that Every Tenant & Owner in India must Know

Myth Busted: It Is Not Compulsory To Buy Home Insurance With A Home Loan

Bharat Griha Raksha – Here’s Everything about Standard Home Insurance Cover

Learn How to Switch Home Insurance with IRDAI's Permission