An economic offence has multiple layers to it. The commission of a criminal act for pecuniary gains is merely the tip of the proverbial iceberg. A parallel economy largely run by anti-social elements or their agents often involves a copious number of cash transactions. However, the enjoyment of such illicit money is severely curtailed. The process of converting the proceeds of crime (black money) into legitimate money (white money) that can be freely used is called money laundering. A typical money laundering operation consists of three stages namely placement, layering and integration. In a country like India where poverty and illiteracy are still rampant, ‘Benami’ transactions have historically been perceived as an effective method to both conveniently hide as well as launder illicit money.
Typically ‘Benami’ transactions especially in the guise of property and real estate are not only effective in the placement and layering process of money laundering but due to reduced rates of taxation on capital gains (subject to the provisions of Sections 45 to 55 of the Income-tax Act) and the tax exempt nature of sale of agricultural land (subject to the provisions of Sec.
2(14)(iii)of the Income-tax Act) have also been seen as the most ‘Tax effective’ means of integrating the laundered money back into the economy. In an effort to curb profits from criminal activities as well as in collection of taxes, the Legislature has undertaken many steps in to impose strong deterrents upon and to aid effective action upon economic offences.
Various laws such as the PMLA (Prevention of Money Laundering Act), the Companies Act, the Information Technology Act and the Benami Property (Prohibition) Act, 1998 have seen wide-ranging amendments to address the challenges thrown up by technology and globalization.
The Original Benami Transactions (Prohibition) Act, 1998 (hereinafter referred to as the ‘principal act’) was inadequate to address the hazards of uncontrolled Benami transactions in a country. The ‘Benami Transaction’ as defined by the original enactment meant “any transaction in which property is transferred to one person for a consideration paid or provided by another person” with exceptions provided for coparceners in a Hindu Undivided Family & a person holding property in a fiduciary capacity subject to the conditions laid down by Sec. 4(3)(a).
Though the Act provided for acquisition of Benami properties, via Sec. 5, it did not explicitly make holding Benami properties a criminal offence under the Act and also not set up a comprehensive mechanism for administration of the Act.
The Statement of Objects & Reasons to the Benami Transactions (Prohibition) Amendment Bill, 2015 states that it was found that the provisions of the Benami Transactions (Prohibition) Act, 1988 were inadequate to deal with Benami transactions as the Act did not contain any specific provision for vesting of confiscated property with the Central Government, have any provision for an appellate mechanism against an action taken by the authorities under the Act, while barring the jurisdiction of a civil court, confer the powers of the civil court upon the authorities for its implementation or provide for adequate rule making powers.
The provisions of Sec. 4 the Benami Property (Prohibition) Act, 1988 (hereinafter referred to as the amending Act) considerably expanded on the definitions provided by the principal Act. Besides introducing new definitions, it has also comprehensively overhauled the definitions provided by the principal Act.
- Section 4 of the amending Act defines ‘Benami Transactions’: A “Benami transaction" means a 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 the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration OR 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; OR a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.
- Section 4 of the amending Act defines ‘Property’. The principal Act had defined property to mean property of any kind, whether movable or immovable, tangible or intangible, and included any right or interest in such property. The amending Act expands the definition of ‘Property’ to further include within its ambit assets that can be corporeal or incorporeal, any rights or interest or legal documents or instruments evidencing title to or interest in the property and if the property is capable of conversion then the property in the converted form. Importantly, it also includes within the definition of property any of the proceeds from the property.
- The principal Act, being enacted in 1988 also suffered from limitations imposed by developing technology as well as legal jurisprudence. Though the Financial Memorandum of the 2015 Bill also sought the implementation of the said Act by the existing institutional structure of the Income Tax Department, the legislature in its wisdom has seen it fit to comprehensively set out Authorities for the implementation of the Act, the composition of the said authorities, the Jurisdiction exercised by the said authorities and the powers thereof (Chapter III Amending Act).
The Authorities set out for the purposes of this Act are [Sec. 18(1)]
- The Initiating Officer
- Approving Authority
- Administrative Authority
- Adjudicating Authority
It has specifically been provided by Sec. 19(1) that the authorities shall have all the powers as vested with a civil court under CPC (Code of Civil Procedure) while trying a suit with respect to discovery and inspection, enforcing the attendance of any person for examination under oath, compelling production of books of account and other documents, issuing commissions, receiving evidences on affidavits and for any other prescribed matters.
The Act also provides that the following officers shall assist the authorities in the enforcement of this Act subject to Sec. 20 of the Amending Act:-
- Income Tax Authorities
- Customs and Central Excise Department Officers
- Narcotics Drugs and Psychotropic Substances Act Officers
- Officers of a recognised stock exchange
- Officers of Reserve Bank of India
- Officers of Enforcement under Foreign Exchange Management Act
- Officers of Securities and Exchange Board of India
- Officers of any ‘body corporate’ constituted or established under State of Central Act
- Officers of the Central Government, State Government, local authorities or banking companies notified by Central Government for the purpose of this Act.
Sec. 24 of the Amending Act empowers the Initiating Officer to issue a show cause notice to a Benamidar based on material in his possession after recording his reasons in writing with a copy to be sent to the beneficial owner if traceable. It further empowers him, if he is under the opinion that the Benami may alienate the said property, to attach the said property with previous approval of the Approving Authority for a period not exceeding ninety days. After making inquiries and calling for reports and evidence within a period of ninety days of issuing the show cause notice the Initiating Officer has the power to provisionally attach the Benami property if not already done and if provisional attachment is already done, the Initiating Officer has the power to pass an order continuing the attachment until the Adjudicating Authority passes the order in the matter. However, if the said provisional attachment is done or continued by the Initiating officer as per Sec. 24(4), he shall have to draw up a statement of the case and refer it to the Adjudicating Authority within 15 days.
The effectiveness of the amended Act shall be gauged by its performance over time, however it is a giant stride in the right direction.