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  • 25 August, 2022

  • 9 Min Read

Benami Law  

Benami Law

The Supreme Court recently overturned a part of the Benami Transactions (Prohibition) Act, 1988 that imposed a maximum three-year prison sentence, a fine, or both, as a penalty for engaging in Benami transactions.

About the recent judgment

In regards to the 1988 act:

  • Benami transactions and the power to recover property that is believed to be Benami were rendered illegal by the 1988 Act.
  • The highest court declared Section 3(2) of the Benami Transactions (Prohibition) Act, 1988, illegal on the grounds that it was obviously arbitrary.
  • The civil penalties that are planned under the Act won't be impacted by it.
  • Benami transactions are prohibited under Section 3 of the law, and the sub-section (2) that is being challenged states that anyone who engages in a Benami transaction is subject to a sentence of up to three years in prison, a fine, or both.
  • Section 3(3) of the 2016 amendment increased the three-year sentence to seven years in prison and increased the fine to up to 25% of the fair market value of the property. This part of the law is still in effect today.

Absence of retrospective application

  • Due to its punitive nature, Section 5 of the 2016 Act's forfeiture provision could only be implemented going forward, not in the past.
  • Because Section 3(2) of the 2016 Act violates Article 20(1) of the Constitution, it is likewise invalid.

Prohibition of Benami Property Transactions Act, 1988

  • Certain kinds of financial transactions are restricted by an Act of the Indian Parliament.
  • A "Benami" transaction is one in which property is transferred to one person in exchange for money paid by another person, according to the statute.
  • Such transactions, which were common in the Indian economy and typically involved the purchase of real estate, were believed to be a factor in the country's black money issue.
  • The act forbids all Benami transactions and grants the government the authority to seize assets held in Benami without having to make any sort of payment in return.

Benami Transactions (Prohibition) Amendment Act, 2016

  • The Act aims to address all such transactions in which one party engages in them, while another party receives consideration and benefits as a result.
  • According to Section 2(9) of the Act, a Benami transaction is one in which one person holds the property while another pays for it; the property is held in a fictitious name; the owner of the property is unaware of or denies knowing about its ownership or the source of the financing for the transaction cannot be identified.
  • The act establishes certain exceptions to Section 2 Benami transactions. They are:
  • Karta for the advantage of himself or his family; or
  • A person acting in a fiduciary capacity for another, such as a trustee, executor, partner, business director, depository participant, or agent; or a person acting on behalf of their spouse, child, brother, sister, or other lineal ancestor or descendant


Any property (asset), whether mobile or immovable, tangible or intangible, physical or incorporeal, can be the subject of a Benami transaction.

What do the Authorities created by the Act do?

In accordance with the Act, the Central Government shall appoint the initiating officer, approving authority, administrator, and adjudicating authority.

Sanctions imposed by this Act

According to the Act, anyone found guilty of engaging in a Benami transaction is subject to harsh imprisonment for a term that must not be less than one year but may reach seven years, as well as a fine that may amount to up to 25% of the property's fair market value.


  • The Act represents a significant improvement in the system for getting rid of black money.
  • The government is putting up a number of steps to stop the flow of black money in the economy in an effort to combat it. And among them, this action occupies the first position.
  • Concerned authorities cannot begin, continue, or end criminal prosecutions or confiscation processes for transactions that took place before the 2016 Act went into effect.

Demonetization, income tax legislation changes, and the 2015 implementation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act all work together to create a formidable barrier that corners corruption and makes it impossible for the corrupt to flee.

Also, Read - Post-retirement Allowances to Supreme Court Judges

Source: The Hindu

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