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Supreme Court strikes down provision of Benami law

  • Published
    24th Aug, 2022

The Supreme Court recently struck down one of the provisions of the Benami Transactions (Prohibition) Act of 1988.

  • The Supreme Court struck down section 3(2) of the Benami Transactions (Prohibition) Act, 1988 calling the provision ‘unconstitutional’ on the ground of being ‘manifestly arbitrary’.
  • It provides for the punishment of a maximum jail term of three years or a fine or both for those indulging in ‘benami’ transactions.
  • The verdict came on the appeal of the Centre challenging the Calcutta High Court judgement in which it was held that the amendment made in the 1988 Act in 2016 would be applicable with prospective effect.
  • The 1988 Act was made to prohibit ‘benami’ transactions and the right to recover property that is held to be 'benami'.

Benami Transactions (Prohibition) Act of 1988

  • The Act prohibits benami transactions and provides legal provisions for confiscating benami properties.
  • It defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person.

Benami Transactions:

  • The benami transaction is any transaction in which property is transferred to one person for a consideration paid by another person.
  • Benami is a Persian language word that means “without name” or “no name”. In this Act, the word is used to define a transaction in which the real beneficiary is not the one in whose name the property is purchased.
  • As a result, the person in whose name the property is purchased is just a mask of the real beneficiary.
  • Assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents. As such, even gold or financial securities could qualify to be benami.

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