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The Benami Transactions (Prohibition) Act of 1988 is an Indian law that does not allow for certain types of financial transactions. Any transaction in which the property is transferred to one person for a consideration paid by another person is defined as a ‘Benami’ transaction under the statute. Transactions such as these were once common in India’s economy. They predominantly involved the acquisition of real estate. Additionally, these transactions were considered to add to the country’s black money problem.
The act also prohibits all Benami transactions and the power to retrieve Benami-owned property. It became effective on September 5, 1988. Despite the Benami transactions being banned now, the act only had a minor impact on them. To fight against this problem, updated versions were passed in 2011 and 2016 to enforce the bans more broadly. After examining numerous acts and the Benami system, in 1973, India’s Law Commission proposed an act for fighting the bad debt.
Socio-Economic benefits
Benami transactions have been a scourge on the Indian economy since the 1980s, needing comprehensive legislation to limit their impacts, which cripple a rising economy and aid in the fight against bad loans. This Amendment Act was enacted in response to mounting public opposition to increasing lender fraud and India’s campaign against black money. Closer inspection reveals that the Amendment Act of 2016 appears to be hopeful in fixing the Act’s legal problems.
The executive’s proper implementation would have a huge deterrent effect on society. For example, on the one hand, the danger of confiscation of Benami properties instils fear in people’s minds; on the other hand, the provision of exemption to those who report their Benami holdings looks to be a lucrative incentive. As a result, if the newly modified law is not hampered by non-implementation, it can send shivers down the spines of individuals who have engaged in illicit activities and boost the lenders throughout the country.
Law Passed for Benami Transactions
To combat the existence of the Benami transactions, the Parliament passed the Benami Transactions (Prohibition) Act, 1988. This took effect on May 19, 1988. Despite this, there were a few flaws in the act. Hence, the rules that needed to be established to fight against the mentioned issue could not be drafted. Later, the Indian government proposed the ‘Benami Transactions (Prohibition) Bill, 2011 and 2015’.
Prime Minister Narendra Modi prepared to take on ‘Benami’ properties to combat corruption following the announcement on November 8, 2016, of the demonetisation of high-value currency notes. Mr Modi stated, in his final Mann Ki Baat of 2016, that the government will soon implement a strong law to deal with ‘Benami’ properties efficiently. ‘We will take legal action against the property of “Benami”.’
This is a significant step forward in the fight against corruption and black money. We will take legal action against properties purchased in the name of others (Benami). The Prime Minister stated, ‘That is the country’s property.’ The Benami Transactions (Prohibition) Amendment Act, 2016, was previously passed by the government. It stipulates a maximum sentence of seven years in prison and a fine of up to 25% of the fair market value of the Benami property. It also allows the government to seize deposits made by people who convert unaccounted cash into white money through other accounts. However, the corrupt have not been discouraged from amassing Benami estates.
Consequences of Benami Transactions
Entering into Benami transactions is illegal under the Prohibition of Benami Property Transactions Act provisions. This act further states that anyone who engages in Benami transactions faces a sentence of rigorous imprisonment for a period of not less than one year and not more than seven years. In addition, a fine of 25% of the property’s fair market value must be paid.
The act also forbids the genuine owner from recovering Benami property from the benamidar. Also, where the Benamidar re-transfers the property to the beneficial owner who was fighting the bad debt, the re-transfer transaction is ruled null and void. These properties are subject to taxation.
Multiple Ownership
Most properties are declared Benami when the confidence of lenders (whether private equity or banks) will also be boosted. The residential sector is plagued by multiple, fraudulent, unknown ownerships, particularly in mini-metros and non-metro markets. When the title to a property is unclear, the lending institution will generally undertake its title search before authorising the loan. With the increase in bad debts, it’s no wonder that banks closely examine the ownership before lending to boost the lenders.
Conclusion
In the long run, the modifications to the Benami Transactions (Prohibition) Act 2016 will help stabilise the industry and create transparency, confidence, and reliability and boost the lenders. The amendment’s goals were to prohibit Benami transactions and punish those who participated in them because they had become a method for the corrupt to avoid paying taxes, concentrate land, and launder money while also assisting the middle and lower classes in realising their dream of owning a home and made the fight for the bad debt throughout.
In India, real estate is regarded as one of the most popular places to invest unexplained funds. This legislation, along with other regulatory changes such as the adoption of the Goods and Services Tax (GST), the Real Estate (Regulation and Development) Act (RERA), and Land Digitisation, is a step in the right direction. It may cause short-term losses in different businesses, particularly real estate, in the economy, but it will increase long-term participation in the real sector through foreign institutional investors, financial institutions, and local investors. However, because of the nature of the relationship between parties, such as blood relatives or family members, it is difficult to recognise Benami properties, and litigation is limited.
