2024 (1) TMI 687 - HC - Benami Property

Provisional attachments made by the Initiating Officer u/s 24(3) of the Prohibition of Benami Property Transactions Act - HELD THAT - There are two facts (a) the Judicial Custody of the petitioners, who are also the directors of the company based on the case registered and (b) the order of provisional attachment made by the initiating authority on 03.02.2023, when they were still in judicial custody, which makes alienation impossible on the date the order of attachment was passed. The respondents step into the scene only after the registration of the case but they are not the investigating agency. And it is not in dispute that these petitioners were arrested some two years after the registration of the said criminal case. Where were they during the interregnum? Were they absconding then? Maybe, or may not be, which is not very pertinent for the present. The point is whether the initiating officer knew that the petitioners were in judicial custody when Sec 24(1) show cause notice was issued, and provisional attachment under Sec.24(3) was made? There is nothing on record to indicate it. What is the extent to which the initiating authority may have to travel for forming his opinion, and what is the extent to which he should spell out the grounds there for when an order of provisional attachment is made? - The scheme of the Prohibition of Benami Transaction Act is looked into, it makes benami transaction a crime, and besides providing for the confiscation of the property found to be held benami, it also provides that both the benamidars and the beneficiary are liable for criminal prosecution u/s 53 of the Act. An attachment of the property till an order of confiscation is made is only a preliminary step in that direction, and all that is required at that point in time is the existence of a suspicion that the property could be involved in a benami transaction. Here is a situation where a FIR is laid against the petitioners in Cr.No .92 of 2020 on 23.11.2020, the Income Tax Department has taken a couple of years to believe that that the property could be involved in a benami transaction. When a show cause notice under Sec.24(1) is issued, it is based only on this prima facie suspicion, and this suspicion is sufficient for the initiating authority to form an opinion on provisional attachment. Set in the context, Sec.24(1) notice does not conclude anything as to affect the right of the petitioners. Indeed, the Act provides lots of checks and balances within its scheme in order to ensure that right to property of the citizen is not invaded and trampled upon by the statutory functionaries. At the first stage, it issues a show cause notice u/s 24(1), and waits for the response of the suspected benamidar and the beneficiaries. They have ample opportunity to show cause and to establish that there is no basis for the initial suspicion of these authorities. Till a decision is taken on the show cause notice issued under Sec.24(1) of the Act, the property which might face confiscation in an eventuality of final adjudication enabling it, the property must be secured for purposes associated with the working of the Act. It will be silly for an initiating authority to let an alienation of a benami property even as it tries to fix responsibility on the suspects. A provisional order of attachment needs to be understood in that context. It is not same as an order of attachment before judgement under Order XXXVIII Rule 5, 6 CPC. There the attachment is made not with any intent to secure it for a possible confiscation for the benefit of revenue administration of the State, but only to secure the interest of a creditor-plaintiff. Therefore, the standard required for an order under Order XXXVIII Rule 5,6 CPC are more stringent since it neither involves a crime, nor it involves the interest of the State. The provisional attachment made by the initiating officer cannot be termed as bad in law. He has done that which the statute contemplates. And, this attachment is only provisional. Admittedly, the matter is now pending before the Adjudicating Authority. The petitioners have all the opportunities to approach the adjudicating officer and explain why the provisional order of attachment is bad. To conclude, this Court does not find merit in these petitions and hence, all the writ petitions stand dismissed.

Issues Involved:
1. Validity of Provisional Attachments under Section 24(3) of the Prohibition of Benami Property Transactions Act, 1988.
2. Service of Notice under Section 24(1) of the Act.
3. Formation of Opinion by the Initiating Officer.
4. Approval by the Approving Authority.

Summary:

Issue 1: Validity of Provisional Attachments under Section 24(3) of the Prohibition of Benami Property Transactions Act, 1988
The petitioners challenged the provisional attachments made by the Initiating Officer under Section 24(3) of the Act. They argued that the properties could not be alienated as they were in judicial custody when the provisional order was made. The court held that the provisional attachment made by the initiating officer was not bad in law and was done as per statutory requirements. The attachment is provisional, and the matter is now pending before the Adjudicating Authority, where the petitioners have the opportunity to contest the attachment.

Issue 2: Service of Notice under Section 24(1) of the Act
The petitioners contended that the notice under Section 24(1) was not served on them as they were in judicial custody, and it should have been served on the Prison Superintendent. The respondents argued that they were unaware of the petitioners' judicial custody. The court noted that there was no indication that the Initiating Officer knew about the petitioners' judicial custody when the notice was issued and the provisional attachment was made.

Issue 3: Formation of Opinion by the Initiating Officer
The petitioners argued that the Initiating Officer did not apply his mind and formed an opinion without a rational basis. The court referred to the scheme of the Act, which requires only a suspicion that the property could be involved in a benami transaction for provisional attachment. The court found that the suspicion was sufficient for the Initiating Officer to form an opinion on provisional attachment.

Issue 4: Approval by the Approving Authority
The petitioners claimed that the approval by the Approving Authority was given after the provisional attachment was made, which is against the statutory requirement. The respondents submitted that the approval was given before the provisional attachment, and it was later extended. The court found that the provisional attachment was made as per the statute, and the approval process was followed correctly.

Conclusion:
The court dismissed all the writ petitions, finding no merit in the petitioners' arguments. The provisional attachments were upheld, and the petitioners were directed to approach the Adjudicating Authority to contest the attachments. No costs were awarded, and connected miscellaneous petitions were closed.

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