2017 (10) TMI 1653 - HC - Benami Property

Benami transaction proceeding initiated by the Initiating Officer (IO) - validity of proceeding under the Prohibition of Benami Property Transactions Act 1988 - retrospectivity or prospectivity of the penal provisions in the 2016 Amendment Act - jurisdictional violation of exercise of powers under the 1988 Act (as amended) - Company denied that the provisions of the 1988 Act are at all applicable to the facts of the present case and if at all the IO has jurisdiction only to inquire under Section 68 of the Income Tax Act - HELD THAT - This Court must notice the relevance of Sections 2(9)(B) and (D) of the 1988 Act (as amended) which inter alia collectively define a benami transaction as an arrangement in respect of a property carried out in a fictitious name where the person providing the consideration is not traceable. This Court on the basis of materials placed is satisfied that the IO has applied his mind to the facts painstakingly collected and the issue now requires solid factual adjudication at the level of the AA. This Court is also satisfied that the preliminary legal objection taken by Mr. Kar is not persuasive for a Writ court to interdict a proceeding under the 1988 Act qua a private limited company where the dominant shareholders are de facto the Company itself and it has become necessary to identify the structure and role of the entities in respect of a transaction which requires exploration at the appropriate factual level on its alleged benami colour. Distance claimed by Mr. Kar of the shareholders from any interest in the immovable property of the Company on the strength of the decision reported in 1954 (10) TMI 2 - SUPREME COURT (supra) would depend on the ground situation influencing the pecuniary proximity in a given case which require to be exhaustively examined at the level of the AA. This Court cannot be oblivious to the fact that the attachment declared by the IO is provisional and the petitioners should not shy away from an adjudication by the AA if they are sure that factually the Company stands on firm ground. Point raised by petitioner against retrospectivity of the penal provisions in the 2016 Amendment Act is answered with the observation that the 1988 Act as amended in 2016 imbibes the colour of a statute in restraint of acts constituting benami transactions. The Act does not seek to create any vested/substantive rights only indirectly protecting transactions which fall within the exceptions of a benami transaction viz. Section 9(A)(i) to (iv). Section 1(3) of the 1988 Act itself provides for prospectivity of its operative portions viz. its penal clauses in contra distinction to its definition/defining provisions. Furthermore this Court has no reason to accede to Prayer (a) of the Writ Petition upon noticing that the steps contemplated under Section 24 (supra) follow the notice of the IO and being procedural apply in seriatim to the notice for the purpose of identifying a benami transaction prohibited in the statute book w.e.f 19 May 1988. The orders impugned of the IO are thus not interfered with. Accordingly no jurisdictional violation of exercise of powers under the 1988 Act (as amended) is found by this Court.

Summary

Issues: Challenge to initiation and reference of proceeding under The Prohibition of Benami Property Transactions Act, 1988 (1988 Act) by Initiating Officer (IO) under Sections 24(1) and 24(4) of the 1988 Act respectively.

Analysis:
1. Initiation of Proceedings: The writ petition challenged the initiation and reference of proceedings under the 1988 Act by the Initiating Officer (IO) under Sections 24(1) and 24(4) of the Act. The notice under Section 24(1) indicated that the consideration for the property in question was provided by unknown entities, satisfying the definition of a Benami transaction under Section 2(9) of the 1988 Act. The Company, in response, denied the applicability of the Act and argued that the IO's jurisdiction is limited to inquiries under the Income Tax Act. However, the IO, in his order under Section 24(4), found that the funds used to purchase the property belonged to undisclosed persons, indicating a potential Benami transaction.

2. Legal Arguments: The legal arguments presented by both parties focused on the applicability and interpretation of the 1988 Act. The Respondents argued that the process of adjudication was incomplete, and the Company could approach the Appellate Tribunal after adjudication by the Adjudicating Authority (AA). They contended that the Company was acting as a Benamdar or a shell company for undisclosed investors. The Petitioner argued that the proceedings initiated by the IO were misconceived and that the penal provisions of the 2016 Amendment Act cannot apply retrospectively.

3. Court's Findings: The Court analyzed the definitions of Benami property and transactions under Sections 2(8) and 2(9) of the 1988 Act. It noted that the IO had diligently collected facts and that factual adjudication was necessary at the level of the AA. The Court rejected the argument that shareholders had no interest in the Company's immovable assets, emphasizing the need for a detailed examination at the AA level. The Court upheld the provisional attachment by the IO, stating that the petitioners should not avoid adjudication by the AA if they believe they are on firm ground.

4. Retrospectivity of Penal Provisions: The Court addressed the argument against the retrospective application of the penal provisions in the 2016 Amendment Act. It observed that the 1988 Act, as amended, aimed to prevent Benami transactions and did not create vested rights. The Court found no reason to interfere with the IO's orders, emphasizing the procedural nature of the steps under Section 24 to identify Benami transactions.

5. Conclusion: The Court concluded that there was no jurisdictional violation in the exercise of powers under the 1988 Act. The writ petition was disposed of, and the Court upheld the orders of the IO. The Court clarified that the Act's penal clauses were prospective, and the IO's actions were in line with the statutory provisions.

6. Disposition: The Court disposed of the writ petition, stating that no affidavits were required. The urgent certified copy of the order was to be provided to the parties upon compliance with necessary formalities.