Benami Transaction

BENAMI TRANSACTION

By Ch. Muhammad Bashir, Advocate, Faisalabad & Member Punjab Bar Council

A lot of confusion exists as to the true nature of a Benami Transaction. This article is an effort to make it clear and also deal with other questions relating thereto.

Nature of Benami Transaction:

The person who is Benamidar has nominal title to the property, the person who purchases the property in the name of Benamidar has the real title to the property. The law imposes an obligation in the nature of trust on the Benamidar. He is a constructive trustee. He holds the property for the benefit of the person who has the real title to it. When a transaction of purchase is proved to be Benami, Courts give effect to the real title and not to the nominal title.

In Sri Minakshi Mills Limited, Madurai v. Commissioner of Income Tax, Madras (AIR 1957 SC 49) the word "Benami" is stated to be used to denote two class of transactions which differ from each other in their legal character and incidents. In one sense it signifies a transaction which is real, as for example, when A sells property to B, but the sale deed mentions X as the purchaser. Here the sale is genuine but the real purchaser is "B", X being the Benamidar. This is the class of transaction which is usually termed as Benami. But the word Benami is also occasionally used, perhaps not quite accurately, to refer to a sham transaction as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor containing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B to inquire into the question whether the transfer is genuine or sham, the point of decision would be, not who paid the consideration but whether any consideration was paid.

The said' enunciation of word "Benami" has been followed by Lahore High Court in Jane Margret William v. Abdul Hamid Khan 1994 CLC 1437.

The first category of transaction is, in essence a "Benami" transaction. It has statutory backing of section 82 of the Trust Act, 1882, which is reproduced hereunder:

"Where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee. The transferee must hold the property for the benefit of the person paying or providing the consideration."

The Benami transaction finds mention in section 66 of Civil Procedure Code from two angles. In section 66(1) the suit is barred against a person claiming title under a purchase certified by the Court on the ground that the purchase was made on behalf of the plaintiff or on behalf of some one through whom the plaintiff claims:

Subsection (2) however permits the entertainment of suit to obtain declaration that the name of any purchaser certified by Court was inserted in the certificate, fraudulently or without the consent of real purchaser or interfere with the right of a third person to proceed against that property, though ostensibly sold to the certified purchaser on the ground that it is liable to satisfy a claim of such third person against the real owner.

Section 53 of Transfer of Property Act, 1882 deals with prohibition of benami transaction to defeat or delay the creditors of the transferor but protects the rights of a transferee in good faith and for consideration. It also safeguards the rights of a subsequent transferee if the transfer was made with intent to defraud him.

The said section is reproduced hereunder:

(1) Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditors so defeated or delayed.

Nothing in this subsection shall impair the rights of a transferee in good faith arid for consideration.

Nothing in this subsection shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree‑holder, whether he has or has not applied for execution) to avoid `a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor, shall be instituted on behalf of or for the benefit of, all the creditors.

(2) Every transfer of immovable property made without consideration with intent to defraud the subsequent transferee shall be voidable at the option of such transferee.

For the purposes of this subsection, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.

Section 41 of Transfer of Property Act, 1882 enables real owner to avoid alienation by a benamidar in case the transfer from the latter was in the knowledge of the real owner. The said section is reproduced hereunder:

"Section 41, where, with the consent express or implied, of the persons interested in‑ immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorized to make it provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith."

Fraud element is inherent in Benami Transaction:

In the very nature of Benami transaction an element of fraud is inherent. Why does the supplier of purchase money for the purchase of property, instead of getting the sale deed executed in his own, favour, gets the same executed in the name of a person, whether that person be his child or wife or friend? In normal, circumstance he should get, the sale‑deed executed in his own favour. When he gets the sale‑deed executed in favour of another person there must be some reason for doing so. There may be variety of reasons. But the obvious one are that either there is legal disability on his part to purchase the property or he finds a way out to invest his black money in another's name or he wants to avoid the burden of taxes, in the shape of income‑tax, wealth tax, or property tax. In all these eventualities infringement of law is involved and the real purchaser derives some monetary benefit out of benami transaction. It is after a lapse of some time he seeks to get the property transferred in his own name. Normally fraud vitiates even the most solemn proceedings but, ironically, in the case of benami transaction, our legal systems feeds the fraud by lending help to the real owner in getting the property restored to him, which he himself at one time, had got transferred in the name of another person.

Federal Shariat Court in PLD 1983 FSC 28 has held that:

"The object of the petitioner therefore is that we should perpetuate the element of fraud which is generally current in a Benami transaction. We regret that we cannot be a party to the perpetuation of fraud. "

One thing which is significant to note in Benami transaction is that the benamidar is hardly aware of transfer of property in his favour, as the whole transaction is concluded in his absence.

Test of Benami Transaction:

For determining the benami nature of a transaction Supreme Court of India in lava Dyal Pedder v. Bibi Hazra AIR 1974 SC 171 has laid down the following tests:.

(1) The source from which the purchase money came.

(2) The nature and possession of the property after the purchase.

(3) Motive, if any, for giving the transaction a benami colour.

(4) The position of the parties and relation, if any, between the claimant and the alleged benamidar.

(5) The custody of the title deeds, after the sale; and

(6) The conduct of the parties concerned in dealing with the property after the sale.

Supreme Court of Pakistan in Muhammad Sajjad Hussain v. Muhammad Anwar Hussain 1991 SCMR 703 has held that the following factors are to be taken into consideration to determine the benami nature of a transaction:‑‑

(i) Source of consideration.

(ii) From whose custody the original title deed and other documents came in evidence.

(iii) Who is in possession of suit property; and

(iv) Motive for benami transaction,

In PLD 1971 Karachi 763 it was held that as "Benami" transactions are quite common, even slight quantity of evidence may suffice to show that the person in whose name the property appeals to be is not the real owner thereof. Even direct evidence is not necessary to discharge the burden of proof, particularly when the transaction is an old one.

In PLD 1970 Lahore 654 intention has been held to be a deciding factor. It has been held that:

"The basic document of title is rarely of any help in benami transaction because, as pointed out in some precedents, the idea, irrespective of any motive in making a benami transaction, is to conceal the reality. The investigations made for the discovery of the reality may lead to the conclusion that either the intention was to make a gift or to create a quasi‑trust. If it is proved that there was a gift then that puts an end to the controversy about the benami character of the transaction, because then the ostensible owner should be declared to be the real owner but if the conclusion is that the real owner desired to remain the beneficiary and allowed the ostensible owner merely to act as his trustee, then it is benami transaction. "

Onus of Proof:

"In cases of Benami transaction the initial onus of proof is on the person who claims the property in the name of another to be his own.

In 1991 SCMR 203, it has been held that the initial burden of proof is on the party who alleges that an ostensible owner is Benamidar for him and that the weakness in the defence evidence would not relieve a plaintiff from discharging the above burden of proof. The burden of proof, may shift from one party to the other during the trial of a suit. Once the burden of proof is shifted from a plaintiff on a defendant and if he fails to discharge the burden of proof so shifted on him, the plaintiff shall succeed. "

In PLD 1971 Karachi 763 it has been held that even slight quantity of evidence showing the payment of consideration money having proceeded from the plaintiff will be enough to discharge the burden.

The purchase of property by father in the name of minor children and by husband in favour of resource-less wife has been considered to be a case of benami transaction.

In AIR 1918 PC 140 it has been held that the system of acquiring and holding property and even of carrying on business in names other than those of the real owners, usually called the benami system, is and has been a common practice in India.

In AIR 1968 Pat. 110 the Court has gone to hold that in case of purchase in the name of wife or son it is the party in whose name, it was purchased to prove that he was solely entitled to the legal and beneficial interest in such purchased estate.

In 1994 CLC 1437 supra it has been held

"Where any property was purchased by a husband in the name of his wife or by a father in the name of his son, presumption was that they are benamidars and if they claimed it their own by alleging that husband or father intended to make a gift of property to them, onus would rest upon them to establish such a gift."

Limitation for filing, suit:

The suit for declaration by a real owner against the benamidar is covered by Article 120 of Limitation Act, which provides a period of 6 years from the accrual of cause of action. The cause of action will arise when the benamidar refuses to acknowledge title of the real owner.

Court‑fee in benami cases:

A plaintiff in Benami case seeks declaration as to his being the real purchaser under sale‑deed, which is ostensibly in the name of the defendant. In other words it is a case of substitution of plaintiff's name in place of that of the defendant. The plaintiff has already borne the expenses of the registered deed in the shape of stamp duty and registration fee. .

It is not a case of re‑conveyance of the property to the plaintiff by the defendant, as the defendant was not possessed of title in the property. He was simply acting as carrier of the property on behalf of the plaintiff for some time.

In 1994 CLC 1437 (supra) dealing with a suit for declaration as to being real owner of property purchased in the name of wife it has been held that:

"There is no question that in view of the declaration of title, to which he has been found to be entitled, he is also entitled to get the possession of the property. To do complete justice and to save the parties of further litigation, there is power in the Courts to allow the amendment of the plaint at any stage of the suit. In case, the relief of possession flows from the main relief of declaration of title and the case squarely falls within section 42 of the Specific Relief Act and section 7, clause (iv)(c) of the Court Fees Act."

In 1995 MLD 316, it has been held that in a suit for declaration on the basis of Benami transaction factum of sale by itself being not disputed in controversy relating to Benami transaction. The dispute virtually remaining confined to determining the normal and real owner of property provision of section 7(iv‑a) Court Fees Act was not attracted. The plaintiff would be at liberty to state in "terms of section 7(iv)(c) Court Fees Act, 1870, the amount at which the values of the relief was sought".

Unhealthy effect of Benami Transaction:

Having regard to the nature of Benami transaction, its ill‑effects on society are too numerous to justify its retention in our legal system. Hereunder are detailed a few of them to give an idea of it:

(1) It helps in evasion of taxes in the shape of income‑tax, wealth tax, property tax and land revenue.

(2) It encourages bribery and corruption by facilitating absorption of corrupt money in the Benami transactions.

(3) It encourages commission of fraud on innocent purchasers from Benamidars, having no knowledge of Benami Character of sale in favour of vendors.

(4) It helps the cunning husbands to deceive innocent wives. Firstly a husband in order to win favour of his wife gets a property transferred in her name but when the passion of husband subsides or a dispute arises between the two, he turns round to reclaim the property on the plea of benami.

(5) It obstructs economic planning by deceiving the planners to believe the benamidars to be real owners of the property.

(6) It breeds bribery and corruption among the politicians and public servants in helping them to shield their illegal wealth in Benami transactions.

It was perhaps, in view of these adverse effects of benami practice that India has abolished it through Benami Transaction (Prohibition) Act, 1988.

Federal Shariat Court in PLD 1983 FSC 28 had advised the petitioner before it to approach the Legislature to make Benami transaction, punishable by law.

The law‑makers will be well advised to abolish Benami transaction.

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