2021 (10) TMI 1380 - HC - Benami Property

Benami transactions - Notice and attachment of property involved in benami transaction - Reason to believe - whether the transactions in question constituted benami transactions, and merely adopt the identical contents of the communication of the forwarding authority? - petitioner argues that no material was available with the Department to discharge such onerous burden and thus the assumption of jurisdiction was itself bad in law - HELD THAT - The nature of the transactions in question have to be established by the petitioner before the authorities upon the respondents discharging the initial burden cast upon them to furnish the primary evidences available with them to the effect that the property is benami in nature. This is a rebuttable presumption and the effectiveness of the rebuttal will depend on the evidences furnished by the noticees to the authorities. In our considered view, therefore, the enquiry contemplated at the stage of initial investigation is only preliminary, based upon prima facie reasons and conclusions. A detailed verification of the evidences as regards whether the transactions were benami or otherwise can, and must only be undertaken in the course of adjudication and not at the stage of preliminary enquiry. The thrust of the petitioner's case is the alleged insufficiency of materials as well as the fact that the evidences gathered are unreliable. However, and at the risk of repetition, the enquiry conducted under Section 24 is only a preliminary enquiry and the use of the phrase 'reason to believe' only indicates a prima facie satisfaction that all was not well as regards a particular transaction. In the present case, the trajectory of events as has been noticed by me in the preceding paragraphs of this order do not lead to the conclusion that the respondents had no reasons at all to justify the invocation of Section 24. Denial of opportunity to cross examine the parties at the stage of investigation - As regards this, the respondents deny that such opportunity was sought for by all petitioners. In any event, they reiterate that opportunity for cross examination will be granted, as appropriate, in the course of adjudication proceedings. In the present case, the testimony of the parties is one among other material that the respondents claim to be in possession of. The petitioners also rely upon a decision of the learned single Judge in Thilagarathinam Match Works Vs. Commissioner of Central Excise, Tirunelveli 2013 (11) TMI 535 - MADRAS HIGH COURT to the effect that where the assessee asks for a request for cross examination, such request must be acceded to. Thus, the process and procedure as envisaged for provisional attachment under Section 24 is of a narrower compass when compared with the process of adjudication to follow thereafter. That apart, not all the petitioners before me appear to have sought an opportunity to cross examine witnesses. It would thus suffice to state that it is open to the petitioners to make such request for cross-examination once they have been supplied with the relied upon documents at the time of adjudication, and such request, if and when made, will be considered by the respondents in accordance with law. The mode of payment employed as between the parties and the actual amount transacted are pure questions of fact that are best left for verification and determination by the authorities concerned. This question is also left open for decision in the course of adjudication by the authorities. The challenge to the impugned orders under Section 24(4) fails and the respondents are directed to proceed in line with Sections 25 and 26 forthwith. All writ petitions are dismissed. The petitioners were protected during the pendency of these Writ Petitions by virtue of an undertaken given by learned Standing Counsel for the respondents that there would be no escalation of the matter to the stage of adjudication. With the passing of this order that undertaking does not continue any longer. The respondents will continue with adjudication under Section 25 and complete proceedings in light with the mandate of that Section. Notices under Section 26 of the PBPT Act will be issued within a period of 30 days from date of issue of these orders accompanied with all material that the respondents rely on and proceedings under Section 26 shall be conducted scrupulously in line with the mandate thereof. The petitioners shall be afforded full opportunity to put forth all contentions before the adjudicating authority who shall take note of the same and pass speaking orders in accordance with law. Connected Miscellaneous Petitions are closed and the order of interim protection, if any, stands vacated forthwith. No costs.

2022 (7) TMI 779 - HC

Issues Involved:

1. Whether the transactions in question qualify as benami transactions under the Prohibition of the Benami Property Transactions Act, 1988 (PBPT Act).
2. Whether the procedural requirements under Section 24 of the PBPT Act were followed by the respondents.
3. Whether the petitioners were given an adequate opportunity to present their case and cross-examine witnesses.
4. The impact of demonetization on the transactions and whether the consideration involved was valid.
5. The maintainability of the Writ Petitions.

Issue-wise Detailed Analysis:

1. Whether the transactions in question qualify as benami transactions under the PBPT Act:

The petitioners argued that the transactions were purely commercial and did not fall under the definition of benami transactions as per Section 2(9) of the PBPT Act. They contended that the properties were developed and owned by them, and the transactions were conducted through normal banking channels. The respondents, however, concluded that the transactions were benami, with the petitioners holding properties as benamidars for VKS. The court noted that the term "benami transaction" includes any arrangement where the property is held by one person but the consideration is provided by another, and the property is held for the benefit of the person who provided the consideration. The court emphasized that the burden of proving that the transactions were benami lies with the respondents, and this needs to be established during the adjudication process.

2. Whether the procedural requirements under Section 24 of the PBPT Act were followed by the respondents:

The court examined whether the respondents followed the procedural requirements under Section 24, which involves issuing a notice to show cause, provisional attachment of the property, and making inquiries. The respondents argued that sufficient materials were gathered during the search, leading to a prima facie satisfaction that the transactions were benami. The court held that the enquiry under Section 24 is preliminary and based on prima facie reasons. The court found that the respondents had reasons to justify the invocation of Section 24 and that the petitioners would have the opportunity to present their case during the adjudication process.

3. Whether the petitioners were given an adequate opportunity to present their case and cross-examine witnesses:

The petitioners claimed that they were not given an adequate opportunity to cross-examine witnesses and present their case. The respondents countered that such opportunities would be provided during the adjudication process. The court referred to the Supreme Court's judgment in Andaman Timber Industries, which held that denial of cross-examination would result in a violation of natural justice. The court concluded that the petitioners could request cross-examination during the adjudication process, and such requests should be considered by the respondents in accordance with the law.

4. The impact of demonetization on the transactions and whether the consideration involved was valid:

The petitioners argued that the consideration involved in the transactions was paid in demonetized currency, which ceased to be legal tender, and thus did not amount to valid consideration under the PBPT Act. The court acknowledged that demonetized currency does not constitute legal tender and that the mode of payment and the actual amount transacted are factual questions that need to be verified during the adjudication process. The court left this question open for determination by the authorities during adjudication.

5. The maintainability of the Writ Petitions:

The respondents raised a preliminary objection regarding the maintainability of the Writ Petitions, arguing that the petitioners should cooperate with the ongoing proceedings. The court held that the Writ Petitions were premature and directed the petitioners to participate in the adjudication process under Sections 25 and 26 of the PBPT Act. The court dismissed the Writ Petitions and directed the respondents to proceed with adjudication, ensuring that all material relied upon is provided to the petitioners and that the petitioners are given a full opportunity to present their case.

Conclusion:

The court dismissed the Writ Petitions, directing the respondents to proceed with adjudication under Sections 25 and 26 of the PBPT Act. The petitioners were instructed to participate in the adjudication process, where they would be given the opportunity to present their case and request cross-examination. The court emphasized the need for strict compliance with the procedural requirements of the PBPT Act and left certain factual questions, such as the impact of demonetization, to be determined during the adjudication process.

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