Blend Reforms with Penalties to checkmate Benami
Published: Jan 11, 2017
Facts Contradict PM's Claim on Benami Transactions law
The Prime Minister Narendra Modi has distorted the country's multi-law battle against benami deals in his zeal to take jibes at the Opposition particularly the Congress Party. The anti-benami/fictitious provisions have been incorporated into corporate, banking and other enactments over the decades. Moreover, Benami Transaction Prohibition Act (BTPA) 1988 has been enforced and repeatedly taken cognisance of by the judiciary except for the provision that enables authorities to seize benami immovable property. Modiji's digitally-empowered advisors should have searched Supreme Court (SC) website to access judgments that have factored in BTPA. Such an approach might have restrained PM from using BTPA gun to take potshots at his political rivals time and again.
Before putting the entire domain of benami in perspective, consider what Mr. Modi has stated on BTPA post-demonetization. In his ‘Mann Ki Baat'on 25th December 2016, he stated: "You are possibly aware of a Law about Benami Property in our country which came into being in 1988, but neither were its rules ever framed, nor was it notified. It just lay dormant gathering dust. We have retrieved it and turned it into an incisive law against 'Benami Property'. Speaking at BJP Parliamentary meeting on 16th December, PM referred to BTPA and quipped: "For some reason or the other no regulations were issued under the act. In other words, it remain unimplemented for more than twenty five years." A plain reading of BTPA would show that our beloved PM is distorting facts. The Act defines property as "property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property". Section 1(3) of the BTPA reads as: "The provisions of sections 3, 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988."
When PM says that no rules/regulations were issued under the Act, he was obviously referring to Section 5 of the Act. It says: "Property of benami liable to acquisition- (1) All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure as may be prescribed." Rajiv Gandhi Government left this provision open-ended because it BTPA legislation comes under the concurrent list of the Constitution and the Centre has has to rely on States for acquiring benami realty assets as land is a State subject. The nation would be grateful to Modiji if he discloses whether he tried enacting BTPA-type State law during his 14-yr tenure as Chief Minister of Gujarat. The fact that BTPA has been enforced barring this provision can be verified by flipping through Parliament records as well as judgments delivered by Supreme Court and high courts. Mr. Modi's advisors might like to read Delhi High Verdict dated 22nd March 2011 whose subject is mentioned as BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988.
They are presumably familiar with Supreme judgment in the Justice P.D. Dinakaran versus Judges Inquiry Committee. In this verdict dated 26th August 2011, Charge Number 13 reads as "Mr. Justice P.D. Dinakaran further charge against you is that you in your own individual capacity and as the de facto beneficiary of the assets created in the hands of the benamidars and your wife." This charge is linked to allegation against him that he entered into "Benami transactions prohibited and punishable under the Benami Transactions (Prohibition) Act, 1988." The allegation was levelled by 50 members of the Rajya Sabha in "a notice of motion" submitted to President of India for removal of Justice P.D. Dinakaran, who was then posted as Chief Justice of the Karnataka High Court.
It is here pertinent to recollect Supreme Court verdict (2016-TIOLCORP-04-SC-CM) dated 11th July 2016. It upheld Securities and Exchange Board of India (SEBI) order on demat shares issued under initial public offer of companies and subscribed through benami/fictitious accounts. As noted by the Judgment, "From all the transactions, which are in the nature of a scam, it is clear that the demat account holders were not genuine and either they were benami or fictitious and the shares were purchased on behalf of someone, who had financed these demat account holders and a show was made as if the shares were finally sold to the concerned respondents."
This brings us to anti-benami prohibiting tool, Know your customer (KYC) guidelines laid down by SEBI, Reserve Bank of India (RBI), other regulatory agencies and even leading service providers. One of the RBI's earlier master circular on KYC issued to Banks during March 2004 says: "Care should be exercised to ensure that the joint accounts are not used for benami transactions." The objective of BTPA is thus achieved through KYC regulations laid under different laws. In fact, objectives of checkmating Benami transactions were incorporated in certain laws much before BTPA was conceived. Modiji might well finding it interesting to know that the proposal to seize benami property was first put in legal format in early fifties.
Introducing the Banking Companies (Amendment) Bill 1953 in Rajya Sabha on 14th December 1953, Deupty Minister for Finance Mr A.C. Guha stated: "we have provided that benami property should also be attached. It is not a question of just seizing and putting it to auction. The liquidator with the help of the court should have the right to attach a benami property. There is a similar provision in the Indian Companies Act in section 235 and we are providing here the same thing, so that it may be easily available to the liquidators." He added: "So we are providing here that any property suspected to be benami might be attached by the liquidator and then it will be the responsibility of the director to go before the court and prove that it is not a benami property, and that the property really belongs to the person in whose name it stands."
Another case in point is Section 68A of Companies Act. It stated: "(1) Any person who - (a) makes in a fictitious name an application to a company for acquiring, or subscribing for, any shares therein, or (b) otherwise induces a company to allot, or register any transfer of, shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years."
Yet another pre-BTPA initiative was unveiled in 1972. Moving the TAXATION LAWS (AMENDMENT) BILL, 1972 in Rajya Sabha, the Finance Minister, late Y. B. Chavan stated: "Finally, in order to discourage benami holding of property with a view to tax evasion, the Bill seeks to make a provision in the Income-tax Act debarring a person from enforcing his claim in a court of law to any property held for him benami by another person, unless the claimant has disclosed the income from the property in a return of income, or the property itself in a return of net wealth furnished by him. If he has done neither, he may give notice to the Income-tax Officer of his claim to the property, and thereupon the proposed restriction will cease to operate."
(Naresh Minocha, is a veteran journalist and specializes in telecom, energy, chemicals, agriculture, economic reforms and governance. In his over 36-years journalistic career, he has worked in different capacities for both Indian and foreign media organizations.)
