India’s new ‘benami’ regime to deter sham land transfers

By L Badri Narayanan and Amar Gahlot, Lakshmikumaran & Sridharan
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India has had a law prohibiting benami transactions since 1988. Benami transactions involve transfer of property in the name of a person who acts as a front, with the consideration provided by another person. Such transactions are structured to defraud creditors, conceal ownership for social reasons, conceal illegal monies or untaxed funds.

L Badri Narayanan Partner Lakshmikumaran & Sridharan
L Badri Narayanan
Partner
Lakshmikumaran & Sridharan

The Benami Transactions (Prohibition) Act, 1988 (now renamed as the Prohibition of Benami Property Transactions Act, 1988), has recently been amended to bring in a stricter and more rigorous regime to discourage such surrogate transactions.

The need for a benami law in India was felt as early as 1969, when a select committee suggested to the government to have such a law. The country’s Law Commission was then mandated to examine the matter, and its recommendations (in the 57th Law Commission Report, 1973) were enacted as the law in 1988.

The 1988 law, however, was never notified. In addition, it was a hurried and incomplete piece of legislation, which suffered from several procedural infirmities. The authorities created under the act were not vested with enough power. Also, there was no appellate mechanism available under the law. Further, the rules required for the law’s implementation were never framed.

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L Badri Narayanan is a partner and Amar Gahlot is a principal associate at Lakshmikumaran & Sridharan.

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