Context: Recently, the Supreme Court had struck down Sections 3(2) of the Benami Transactions (Prohibition) Act of 1988.

Key highlights

• Sections 3(2) provides for the punishment of a maximum jail term of three years or a fine or both for those indulging in ‘benami’ transactions.

• The provision was declared unconstitutional for being "manifestly arbitrary."

• The verdict came in response to the Centre's appeal against a Calcutta High Court decision holding that the amendment made to the 1988 Act in 2016 would be applicable with prospective effect.

• It has been observed that the Benami Transactions (Prohibition) Amendment Act, 2016 condemned not only transactions which were traditionally denominated as “benami” but rather a “new class of fictitious and sham transactions”. 

• Sections 3(2) and 5 were introduced through the Benami Transactions (Prohibition) Amendment Act of 2016.

• Section 3 of the statute deals with the issue of “Prohibition of benami transactions” and its impugned sub-section (2) states-  “Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.”

• Article 20(1) mandates that no person should be convicted of an offence which was not in force “at the time of the commission of the act charged as an offence”.

Benami transaction

• It refers to the property-related transaction carried out under a fictitious name, or one where the owner of the property denies having knowledge of the ownership, or if the identity of the real or beneficial owner is unknown.

• It is not to be confused with a situation where an individual buys property in the name of his spouse or a family member, or jointly owns property with a sibling or another relative.

Benami Transactions (Prohibition) Act, 1988 and amendments in 2016

• The law came into effect in 1988 with just 8 sections.

• The Act has granted extensive powers of discovery, inspection, compelling attendance, and compelling production of documents to officials.

• It also empowered authorities to seek the assistance of police officers, customs officers, income tax officers, etc., for furnishing information.

• The 2016 law amended the original Benami Act of 1988 with multiple additions and had 72 sections.

• The 1988 Act was made to prohibit ‘benami’ transactions and the right to recover property that is held to be 'benami'.

• Section 5 of the 2016 Amendment Act said that “any property which is subject matter of a benami transaction shall be liable to be confiscated by the Central Government.” 

Punishments under the Benami Act include

Confiscation of benami property

Under a benami transaction which has been done to avoid provision of law, avoid payment of dues to creditors, or any person who enters or abets another person to enter into such a transaction is punishable with:

• Imprisonment between 1 to 7 years

• Fine up to 25 % of the fair market value of the property

Section 54 of the 2016 Act, when a person asked for information gives wrong information, they shall be punishable with:
6 months to 5 years of imprisonment

• Fine up to 10 % of the fair market value of the property

Section 3 (2) mandates punishment of three years’ imprisonment for those who have entered into benami transactions between September 5, 1988 and October 25, 2016.