2017 (10) TMI 1515 - HC - Benami Property

Prohibition of Benami Property Transactions Act - identifying a benami transaction - HELD THAT - This Court must notice the relevance of Sections 2(9)(B) and (D) of the 1988 Act (as amended) which inter alia collectively define a benami transaction as an arrangement in respect of a property carried out in a fictitious name where the person providing the consideration is not traceable. This Court on the basis of materials placed is satisfied that the IO has applied his mind to the facts painstakingly collected and the issue now requires solid factual adjudication at the level of the AA - preliminary legal objection taken by Mr. Kar is not persuasive for a Writ court to interdict a proceeding under the 1988 Act qua a private limited company where the dominant shareholders are de facto the Company itself and it has become necessary to identify the structure and role of the entities in respect of a transaction which requires exploration at the appropriate factual level on its alleged benami colour. Distance claimed by Mr. Kar of the shareholders from any interest in the immovable property of the Company on the strength of the decision reported MRS. BACHA F. GUZDAR BOMBAY VERSUS COMMISSIONER OF INCOME-TAX BOMBAY 1954 (10) TMI 2 - SUPREME COURT would depend on the ground situation influencing the pecuniary proximity in a given case which require to be exhaustively examined at the level of the AA. This Court cannot be oblivious to the fact that the attachment declared by the IO is provisional and the petitioners should not shy away from an adjudication by the AA if they are sure that factually the Company stands on firm ground. Point against retrospectivity of the penal provisions in the 2016 Amendment Act is answered with the observation that the 1988 Act as amended in 2016 imbibes the colour of a statute in restraint of acts constituting benami transactions. The Act does not seek to create any vested/substantive rights only indirectly protecting transactions which fall within the exceptions of a benami transaction viz. Section 9(A) (i) to (iv). Section 1(3) of the 1988 Act itself provides for prospectivity of its operative portions viz. its penal clauses in contra distinction to its definition/defining provisions. Furthermore this Court has no reason to accede to Prayer (a) of the Writ Petition upon noticing that the steps contemplated under Section 24 (supra) follow the notice of the IO and being procedural apply in seriatim to the notice for the purpose of identifying a benami transaction prohibited in the statute book w.e.f. 19th May 1988. The orders impugned of the IO are thus not interfered with.

Summary

Issues:
Challenging initiation and reference of proceeding under The Prohibition of Benami Property Transactions Act, 1988 by Initiating Officer under Sections 24(1) and 24(4) of the Act.

Analysis:
The writ petition challenged the initiation and reference of a proceeding under The Prohibition of Benami Property Transactions Act, 1988 (the Act) by the Initiating Officer (IO) under Sections 24(1) and 24(4) of the Act. The notice under Section 24(1) stated that the consideration for a property was provided by unknown entities, satisfying the definition of a Benami transaction. The Company responded, denying the applicability of the Act and arguing that the IO's jurisdiction was limited to the Income Tax Act. The IO, in his order under Section 24(4), found that funds used by the Company for property purchase belonged to undisclosed persons, indicating a potential Benami transaction. The IO ordered provisional attachment pending further adjudication by the Adjudicating Authority (AA).

The petitioner's counsel argued that the proceeding was misconceived, citing legal precedents and questioning the retrospective application of penal provisions. The Respondents contended that the adjudication process was incomplete, and the Company's investments traced back to fictitious entities. They argued that the writ petition was premature and the attachment was provisional pending final adjudication. The Court examined the definitions of Benami property under the Act, emphasizing the need for factual adjudication at the AA level.

The Court found that the IO had diligently considered the collected facts, requiring factual adjudication at the AA level. It dismissed the petitioner's legal objections, stating that exploration of the transaction's benami nature was necessary. The Court highlighted the provisional nature of the attachment and encouraged the petitioner to participate in the AA adjudication if confident in their position. The Court rejected the argument against the retrospective application of penal provisions, stating that the Act aimed to prevent benami transactions and did not create substantive rights.

In conclusion, the Court upheld the IO's orders, finding no jurisdictional violation in exercising powers under the Act. The writ petition was disposed of, and parties were directed to comply with necessary formalities for obtaining a certified copy of the order.