Name game: Mumbai’s scam-tainted Adarsh housing society (left) allegedly has at least 30 benami flats

One of the allegations against Kanhaiyalal Gidwani, a prime accused in Mumbai’s Adarsh housing society scam, is that he owns three benami flats in the high rise building. In fact, according to the Central Bureau of Investigation which is probing the scam, of the 103 flats in the building, more than 30 are benami, or those bought by one person in the name of another.

Investing in benami property is considered to be one of the easiest ways of parking ill-gotten wealth in India. Benami transactions are also resorted to for tax evasion, defrauding creditors and sometimes even by mafia dons to operate through aliases.

Investing in benami property is hardly a new phenomenon, though. In the olden days zamindars are said to have registered lands in the names of even their pets to evade land limitation laws. “It’s just a continuation of that policy, only it’s got more sophisticated,” says Manoj Misra, managing director, Augtics Services, a real estate research firm based in Noida.

India does have a law, the Benami Transactions (Prohibition) Act, 1988, that is supposed to check such fraudulent property deals. But it has remained largely ineffective. In fact, it has always been a half-baked law as successive governments failed to notify the rules for certain sections of the law and hence they remained inoperative. To address the continued problem of benami property purchases, the government has now introduced a bill called the Benami Transactions (Prohibition) Bill, 2011.

The new bill scores over the existing law on several counts. In the latter a benami transaction has been defined as “any transaction in which property is transferred to one person for a consideration paid or provided by another person”. However, the proposed law makes the definition more comprehensive and states that a benami transaction can also occur when “property is held for the immediate or future benefit, direct or indirect, of the person providing the consideration.”

Experts feel that the bill is a major improvement on the 1988 law. “The current act lacks the basic requirements for controlling benami transactions and has structural loopholes,” remarks Saroj Jha, partner, SRGR Law Offices, Delhi. “For instance, the definition of benami is very broad and open to interpretation. It was necessary to streamline the law keeping the existing realities in mind.”

Agrees Misra, “The best thing about the proposed law is that it defines benami transactions in very clear terms. This is a much more comprehensive bill.”

The bill’s Statement of Objects and Reasons too says that the current law proved to be inadequate to deal with benami transactions as it “(i) does not contain any specific provision for vesting confiscated property with the Central government; (ii) does not 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; (iii) does not confer the powers of the Civil Court upon the authorities for its implementation.”

“Had the government notified the rules way back in 1988, it would have been easier to confiscate the properties of those who enter into benami transactions,” says a former head of the Central Board of Direct Taxes.

One aspect of the new bill which will be of interest to most citizens is that relating to buying property in the name of family members. The present law states that punitive action will not apply to the purchase of property “by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter.” (In the case of other family members, the property can be gifted to them legally, but no benami purchase can be made in their name.)

However, the new bill is much more generous in this regard. Clause 3 states that the provisions of the benami law shall not apply when a transaction “entered into by any person, being an individual, in the name of his (a) spouse; (b) brother or sister; or (c) any lineal ascendant or descendant.”

“This provision is far more lenient and will be welcomed by many in India,” says Harbhajan Singh Thukral, a Delhi-based lawyer. Agrees Jugal Kishore Agrawal, a property expert in Jaipur, “This provision recognises the reality of the Indian situation. The fact is that in India people like to keep property within the family.”

However, others feel that the bill is taking an overly lax approach by excluding property purchased in the name of a brother or sister and lineal ascendants and descendants from the ambit of what constitutes benami. “Giving such a wide exception can be dangerous as most benami properties are purchased in the name of one of these relatives. So the property may escape confiscation,” says Jha.

Confiscation of benami property is another important aspect of the proposed law. While the existing one does provide for it, since the rules to appoint an authority to implement the act were never framed, the government was in no position to confiscate benami property. However, the new law includes a provision to appoint an “authority” to initiate action against benami property. “Once the law is passed by Parliament, an authority would be established to identify and confiscate benami properties,” says Thukral.

What’s more, there are detailed provisions in the bill on the process of vesting benami properties with the central government. Clause 16 states: “all the rights and title in such property shall vest absolutely in the central government free of all encumbrances and no compensation shall be payable in respect of such confiscation.”

The proposed law also includes a provision for appeal against the acquisition of benami properties by the government. The Adjudicating Authority and the Appellate Tribunal established under the Prevention of Money-Laundering Act, 2002, to hear the grievances of those charged under the law, will now also deal with complaints against government action under the benami law. The government proposes to amend the Money Laundering Act accordingly. “This provision will give a chance to a benami property accused to present his case before it goes to the court which is very welcome,” says Agrawal.

Despite the many merits of the bill, some feel that merely revamping the existing law to check benami transactions will not be effective if the government is really looking to contain the flow of black money. “Unless appropriate laws are enacted to curb black money itself, nothing will work,” says Jha.

But others are not so pessimistic. “We really needed a law on benami transactions that was strong on intent and content. I think the government has shown the intent,” says Misra.

It remains to be seen if the content — the final shape the bill takes — proves to be a serious attempt to root out benami property transactions.