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TMI Blog2024 (3) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... 2021 and January 20, 2022 respectively. Subsequently, show-cause notices were issued under Section 24(1) of the Benami Act on March 28 and March 29, 2022 for 37 sale transactions entered into by the petitioner by separate registered sale-deeds. 3. Learned counsel argues that the basic ingredients for assumption of jurisdiction under the Benami Act are not fulfilled in the present case. 4. It is argued that the petitioner, in its replies, has disclosed the source from where the purchase money came, that is, from loans obtained from other companies. It is contended that, thus, the transactions do not fall within the purview of Section 2(9) of the said Act. The respondents particularly rely on sub-clause (D) of Section 2(9) which provides that a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious is also a benami transaction under the Act. 5. It is argued that the burden of showing that a transfer is benami lies with the person asserting the same which corresponds to Sections 91, 92, 101, 102 and 106 of the Indian Evidence Act, 1872. For such proposition, the petitioners cites Jaydayal Poddar (Deceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well. Hence, it cannot be said that the source of the consideration is not traceable. 10. Learned counsel for the petitioner next argues, by placing reliance on Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay, reported at AIR 1955 SC 74, that shareholders are not the owners of the company. The respondents contend that jurisdictional facts could be assumed by contending that the shareholding pattern of the petitioner-Company had been changed in the year 2015. It is argued by the petitioner that the change of shareholding pattern can never be contended for assuming jurisdiction under the Benami Act as it is trite law that a shareholder of a company is not an owner of the company. 11. The petitioner next contends that the writ petition is very much maintainable. On similar facts, it is argued that the Rajasthan High Court held so in its judgment of Shri Kalyan Buildmart Pvt. Ltd. Vs. PCIT, reported at (2021) 131 Taxmann.com 99 Raj. 12. In the present case, it is argued that the jurisdictional question was raised in the replies of the petitioner. The challenge made to the order passed under Section 24(4) of the Benami Act is on the basis of the principles of natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority was seized of the matter whilst the Initiating Officer was practically functus officio and later transposed to the status of an adversary before the Adjudicating Authority, though he remained duty-bound to carry out such other or further enquiries which may be directed by the Adjudicating Authority, if wanted. 17. The orders under Sections 24(3) and 24(4), it is argued, clearly set out the ground that the petitioner had acquired the 37 properties for a total consideration of Rs. 28.10 Lakh. After analysis of the creditworthiness of the primary shareholders, it was found that the initial primary shareholders and the petitioner were formed in a planned manner ranging within a week of formation of the petitioner-Company and that each allottee had raised capital by issuing shares at a high premium, having acquired bogus share capital from another set of paper companies with premium only to provide accommodation entries to another set of companies including the petitioner. 18. It is contended that none of the four companies to whom the shares of the petitioner-Company were allotted had any revenue from operations and had filed loss each year since incorporation and these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsatisfactory, for which the impugned actions have been taken by the respondents. However, the order of provisional attachment will attain finality only after the order passed under Section 26(3) by the Adjudicating Authority. 26. The petitioner has relied on judgments by bringing forward only one aspect of benami transactions as envisaged under Section 2(9)(A). the judgments cited by the petitioner, particularly Jaydayal Poddar (Deceased) (supra), Mangathai Ammal (Deceased) (supra) and Bacha F. Guzdar (supra) are all based on such limb of argument. 27. The "beneficial owner" in the present case, as defined under Section 2(12) of the Benami Act, is the person/persons whose identity is unknown, for whose benefit the benami property is held by the benamidar. 28. The petitioner, it is argued, can very well challenge the final adjudication by the Adjudicating Authority under the Benami Act itself and cannot stifle the legitimate adjudication process by filing a writ petition. 29. The petitioner relies on BRC Construction Company Private Limited & Anr. Vs. Union of India & Ors., reported at 2017 SCC OnLine Cal 16142, but the courts specifically noticed the significance of Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Single Judge of the Madhya Pradesh High Court in Kailash Assudani (supra) laid down the proposition that the principles of natural justice are codified in terms of Section 26(6) of the Benami Act and the order passed by the Adjudicating Authority can be assailed before the Appellate Tribunal. 38. In Kunisetty Satyanarayana's case, the Supreme Court was deciding on a challenge against a show-cause notice issued on cancellation of a caste certificate. There, it was held by the Supreme Court that ordinarily a writ petition should not be entertained against a mere show-cause notice or and at that stage the writ petition may be held to be premature. Discretionary jurisdiction should not ordinarily be exercised by quashing a show-cause notice or charge-sheet except in very rare and exceptional cases. 39. The common refrain in all the above judgments is that at the stage of issuance of a show-cause notice, the writ court ordinarily does not interfere. The Supreme Court, however, although in a somewhat different context, has observed that only in rare and exceptional cases such interference is called for. 40. With utmost respect, this Court cannot accept as absolute the view taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiate such exercise at the root. Thus, we are to look into the issue whether there was any palpable and erroneous assumption of jurisdiction in the present case. 45. The respondents have also cited BRC Construction Company (supra), where a learned Single Judge of the this Court held against interdicting a proceeding under the Benami 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 the role of the entities which requires explorations at the appropriate factual level regarding the benami colour. 46. The court proceeded on the premise that on a plain reading, the said fact could not be a sufficient indicator that there was an ingredient of benami transaction, which required a factual consideration and assessment. Hence, in the present case as well, we are to ascertain whether the shareholding pattern or the change in it has any relevant bearing prima facie on the allegation of benami. 47. It is evident from the scheme of the Benami Act that the definition of „benami transaction' has undergone a sea-change after the 2016 Amendment. Sub-clause (D) of Section 2(9) of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal attachment for a period not exceeding 90 days. Under sub-section (4) of Section 24, within the said 90 days, after making enquiries and calling for reports or evidence and taking account of all relevant materials, he can extend the order of attachment till the passing of the order by the Adjudicating Authority under sub-section (3) of Section 26. 54. Thus, Section 24 does not contemplate any prior opportunity of hearing being given to the noticee. The reason for such omission can be found in Section 26, under which the Adjudicating Authority, upon receipt of a reference under Section 24(5), issues a fresh notice to furnish documents, particulars or evidence, etc., and provides for an opportunity of hearing being given to the alleged benamidar under sub-section (3) of Section 26. The Madhya Pradesh High Court, in the judgment of Kailash Assudani (supra), was justified to the extent of laying down the proposition that Section 26 is a self-contained code embodying principles of natural justice. 55. Section 24 is just a precursor of the said exercise in order to provide teeth to the authorities to prevent the disposal of the subject-property of benami transaction till an adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 63. Chapter IV of the Benami Act provides the procedure leading to such confiscation. Sections 24 and 26 have been discussed above. Section 27 is the culmination of such proceeding which provides that where an order is passed in respect of any property under Section 26(3) holding it to be a benami property, the Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned, make an order of confiscating the property held to be a benami property. 64. Thus, two layers of protection are given to the petitioner - a right of hearing under Section 26(3) before declaring the transaction a benami transaction and another right of hearing before confiscation and vesting of the banami property. 65. In fact, a third safety net is provided to the benamidar by way of an appeal under Section 30 read with Section 31 of the Benami Act. 66. In the present case, the petitioner, thus, has ample remedies in law under Sections 26 and 27 as well as by way of an appeal under Sections 30 and 31 and can avail of the same in accordance with law, raising all questions, even including those relating to jurisdiction. 67. However, in patently exceptional cases, where it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the high value transactions, nor did it have the required creditworthiness to have obtained loans to be invested in purchase of the 37 subject properties. 73. By relying on Bacha F. Guzdar (supra), the petitioner has raised an issue as to whether the shareholders can be equated with the company insofar as ownership of assets are concerned. The proposition of Bacha F. Guzdar (supra) ordinarily holds good. However, corporate jurisprudence has evolved over the years, honing the concept of piercing the corporate veil sharper, by widening its scope to different spheres of financial activity. 74. Seen from such perspective, if the entire body of shareholders comprises of only four entities which are shell companies having no business operation, the company itself is virtually owned by those companies. To add further, the said shares were totally taken over by only two companies at a huge premium. The premium was enhanced by a quantum leap from Re. 1/- per share to Rs. 499/- per share. By virtue of such transactions, it does not leave anything to guesswork to come to the conclusion that a money-trail emerges, which is open-ended at the source. 75. Seen in proper perspective, the prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that sub-clause (D) does not merely restrict itself to non-traceable sources of consideration but also to "fictitious" sources of consideration. Hence, there is sufficient prima facie material to indicate that the transactions-in-question were arrangements in respect of properties where the person providing the consideration is fictitious. 78. Hence, this Court does not find that there is ex facie erroneous assumption of jurisdiction by the Investigating Authority or the Adjudicating Authority under the Benami Act sufficient to displace the legitimate opinion formed in writing by the Investigating Authority, which justifies the reference to the Adjudicating Authority after issuance of notice and passing of provisional assessment order, which was continued subsequently. 79. For an adjudication of merits on the issues involved in the present case as indicated above, a full-fledged enquiry on factual assessments based on appreciation of evidence is required, which is entirely unwarranted at the instance of the writ court, since a comprehensive procedure is provided in Section 26 of the Benami Act, which is, as the Madhya Pradesh High Court held, in the nature of a self-contain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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