Although the Benami Property Transactions Act of 1988 criminalised Benami dealings and the recovery of such properties, Benami transactions are widespread even today. It’s been 22 years since the Act was passed, but it has made no impact on the industry and continues to be the main reason for the proliferation of black money. In a bid to change this, the Act was amended late last year and came into force on November 1. Now called the Benami Transactions (Prohibition) Amendment Act, 2016, it aims at fixing the loopholes in the earlier Act, but is yet to be implemented effectively.
Features of the new Act
The original 1988 Act contained only sections 1 to 9. After the amendment, the Act now contains 71 sections. The government can now confiscate the property without paying any compensation to the buyer or benamdar, thus prohibiting its recovery.
The lack of institutional machinery in the previous Act was a major limitation, says Chitty Babu, Chairman and CEO, Akshaya. He says one of the key changes that will ensure transparency is the introduction of four authorities — Initiating Officer, Approving Authority, Administrator, and Adjudicating Authority — who will conduct investigations and inquiries on Benami transactions. An Appellate Tribunal will hear appeals passed by the Adjudicating Authority, and these in turn will be heard by the High Court.
Earlier, the definition of a ‘Benami transaction’ was limited to “any transaction in which the property is transferred to a person for a consideration paid or provided by another person.” This definition also included properties purchased by a person in the name of his/ her spouse or any one of the children. Hence, the Courts held that it could not be conclusive that the transaction was Benami based on this fact. This is one of the reasons the previous Act was not effectively implemented, says S.C. Raghuram, Partner, RANK Associates, a Chennai-based law firm.
The new law provides up to seven years’ imprisonment and a fine for those indulging in such transactions, whereas the earlier law provided for up to three years imprisonment or fine or both.
New Act and black money
It’s a known fact that immovable assets such as real estate (Benami Property) are the most popular means to park unaccounted money, and this is why a large number of Benami transactions take place in India every year. Before the amendment, most land was purchased through unaccounted transactions. The realty industry, often claimed to be the hub of black money, is under pressure to switch to cashless transactions after demonetisation, says Chitty Babu. The Act will further reduce black money transactions, thereby adjusting prices as per the set land value, making it accessible for buyers to buy a property without hassles.
The recent measures introduced by the Registration Department such as the compulsory disclosure of PAN or other proof of ID, Tax Deducted at Source (TDS) certificates, etc., are other steps to ensure transparency. If these measures are strictly implemented, over a period of time, it will not be possible to divert black money into real estate.
What happens to a Benami property?
After getting an approval from the Approving Authority, the Initiating Officer can investigate alleged Benami transactions. A notice will be issued to the benamdar and the actual owner, if his/ her identity is known. The officer can investigate for a maximum of 90 days, and if the investigation period needs to be extended, it has to be referred to a three-member Adjudicating Authority. If the Authority declares a Benami property, it will pass into the custody of an Administrator.
Appeals against the order of the Adjudicating Authority can be made to a three-member Appellate Tribunal within 45 days, which has to deliver its order within one year. Moreover, once the property is confiscated, it will either be auctioned or used by the government.
Benefits for developers and buyers
Developers, buyers and lenders will be the major beneficiaries, says A. Shankar, National Director, JLL. Clarity on titles will help developers conclude joint venture transactions faster and open up land parcels for development. With increased transparency, title risks will reduce, thereby boosting genuine buyer confidence. “The Act will also eradicate time-consuming processes such as property checks by lenders and banks,” he says.
Disputes like multiple ownerships, false ownerships, and litigation/ unknown ownerships are a threat to the industry, and the practice of adding the correct name to the property will diminish this. “If implemented in the right manner, the Act will significantly reduce the time buyers spend to buy a property,” says Pankaj Ojha, Chief Marketing Officer, SPR Group.
Apart from the Benami Transactions Act, the Real Estate (Regulation and Development) Act, and the Land Acquisition Rehabilitation and Resettlement (Amendment) Bill 2015 will bring in a better functioning system. Darshan Jain, Project Director, Vijayshanthi Builders, says with increased transparency, there can be a control on the maximum number of property registrations done under one name. Land inventory can also be managed better.
Successful enforcement and long-term impact
It is inferred that the Act will have a major impact on the industry in the long run. Transparency and clarity on titles will bring in genuine investors and make it an end-user driven market, says Shankar.
“The Act will not only help seize Benami property, but boost the economy. The sector has already started witnessing an increase in private equity funding for well-established developers, and this trend is likely to continue,” he adds.
If implemented in the right manner, the Act will significantly reduce the time buyers spend to buy a property