LEGAL CHAT
Benami transactions and its implications
SRINATH SRIDEVAN
Many persons want to know whether they can purchase properties in the names of their brothers, sisters, relatives or friends. For various reasons, they do not want to hold the properties in their own names. Often, only a Power of Attorney is taken in the name of a nominee. The general feeling is that, if a Power of Attorney is taken, the transaction is as good as a sale. Many problems may arise out of these situations. It is better to understand the implications of these i
ssues.
The purchase of property by one person in the name of another person will amount to a benami purchase. The person in whose name the property stands does not pay the sale price. He or she is a name lender. Such a person will be a loyal holder and acts at the directions or at the behest of the person paying the sale price. A situation is created where the title vests in the name of one or more persons, but the property is actually purchased by one or others who are the beneficial owner or the owners as the case may be. Earlier, these transactions were permitted and were legal. However, now, these types of transactions are prohibited. In addition, there are various issues that may arise.
Many issues
Benami transactions cover all kinds of properties. It is now covered by an Act known as The Benami Transaction (Prohibition) Act, 1988. After the passing of the Act, benami transactions of the above said nature are prohibited and the Act specifically provides no person shall enter into any benami transaction. Assume that one person purchased the property in the name of another. Thereafter, there is a change of loyalty. The person having the property in his or her name denies that the property is beneficially owned by the person who has paid for it.
In such a case, the person who has paid for the property cannot file any suit or other proceedings to enforce his or her rights in respect of the property in issue held benami in the name of the other person or any other person who may be involved in the transaction.
Similarly, if such other person who is holding the property in his name is involved in any suit or proceedings, the person who has paid for the property cannot plead any defense based on any right in respect of such property held Benami.
Therefore, person contemplating to buy properties in the names of others will have to consider issue seriously as besides resulting in loss of title, it also amounts to an offence punishable as per the provisions of the Act.
To have a better understanding, the following example may be helpful.
Sale price
As already stated, to come under the purview of the benami transaction, the property must be in the name of one person, the sale price or sale consideration should be paid or provided by another. The sale consideration thus flows from a person other than the person in whose name the property is purchased. If the person in whose name the property is purchased has made a contribution towards the sale consideration, then the transaction may not amount to a benami transaction, Further, the reasons for withholding the names of the persons making the contributions for the purchase of the property will also be looked into.
There are certain exceptions to the above said position. The property may be purchased by a person in the name of his wife or unmarried daughter. Such a person may be able to prove that he is a real and beneficial owner of the property.
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