2025 (5) TMI 1770 - AT - Benami Property

Appellate Tribunal upholds provisional attachment of agricultural lands and bank accounts under Prohibition of Benami Property Transactions Act

The Appellate Tribunal under SAFEMA upheld provisional attachment of agricultural lands and bank accounts under the Prohibition of Benami Property ... Prohibition of Benami Property Transactions - provisional attachment of agricultural lands and money kept in bank accounts - HELD THAT:- The first requirement in order to characterise any transaction as ‘benami transaction’ is that that the property which is the subject matter of such transaction is ‘transferred to’ or is ‘held by’ any person. There is no doubt in the instant case that the properties that have been held to be ‘benami properties’, were transferred to and were also held by the alleged benamidars. Indeed, it is an admitted fact that the properties in question were in the first instance, purchased in the names of the alleged Benamidars as the same could not have been purchased in the name of the company, being agricultural lands belonging to persons of the SC category. This aspect of the definition of ‘benami transaction’, therefore, does not need to be dwelled upon any further. There is little room for doubt that the consideration for the properties was provided by Sh. Parihar, the alleged beneficial owner. In fact, it has been expressly argued on behalf of the appellants that simply because Shri Parihar has provided funds to these persons for purchase of lands, it cannot lead to a presumption that these persons are benamidars of Shri Parihar. Hence the factum of consideration having flowed from Sh. Parihar, the alleged beneficial owner, is indisputable. The third requirement in order to characterise any transaction as ‘Benami Transaction’ is that the property is held either directly or indirectly for the benefit of the person who has provided the consideration. In the present case, Sh. Ravindra Pratap Singh Parihar who is ‘person’ within the definition provided under section 2(24) was deriving or would have derived the benefit from the properties indirectly through the company, M/s Ravi Surya Developers Pvt. Ltd., in which he had overwhelming controlling interest. Considering the entire modus operandi adopted for the acquisition of the subject properties and the holding structure of the company, the thinly-worn veil of a corporation, in our view, cannot insulate the appellant from the rigor of the Act. As such, we are of the view that the transaction falls well within the definition of ‘benami transaction’ as provided under the PBPT Act on this yardstick too. The fourth requirement in order for a transaction to be characterized as a ‘benami transaction’ is that the transaction does not fall within any of the specific exceptions provided under (i) to (iv) of the said sub-section. We have considered the above submission on behalf of the appellants. At the outset, we observe that the exception provided under section 2(9)(A)(ii) would arise only in a situation where a property is held by a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity. In the present case, the alleged beneficial owner is Sh. Ravindra Pratap Singh Parmar and not the company. It is not the case of the appellants that Sh. Hemraj Dhobhi, Sh. Banwari Lal Bairwa and other alleged benamidars stood in a fiduciary capacity vis-à-vis Sh. Parihar. There is nothing on record to show nor it has been argued before us, that any fiduciary relationship existed between them and Sh. Parihar. As such, this argument of the appellants also fails and is rejected. Finally, to recapitulate, the facts on record in the present case clearly reveal that the kingpin and mastermind behind the entire chain of transactions was Sh. Ravindra Pratap Singh Parihar who was also intended to be the ultimate beneficiary of the same. All operations were tightly-controlled and managed by him by holding in his possession the original agreements and sale deeds, powers of attorney, wills, signed blank cheques, and even maintaining the books of account and filing ITRs of the benamidars. Considering all above as well as the specific legal requirements laid down by the PBPT Act to characterise a given transaction as a ‘benami transaction’ impugned transactions are clearly ‘benami transactions’ within the meaning of the Act so as to attract the full rigor of the Act. The attachment of the same has, therefore, rightly been confirmed by the Adjudicating Authority in our view. No grounds to interfere with the impugned orders. All these appeals, which are directed against the two orders are, therefore, dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal under the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act), as amended in 2016, are:Whether the agricultural lands and bank accounts provisionally attached by the Adjudicating Authority (AA) constitute 'benami properties' under section 2(9)(A) of the PBPT Act;Whether the persons in whose names the properties and bank accounts are held qualify as 'benamidars' or were holding the properties in a fiduciary capacity as directors or partners of the concerned company/LLP;Whether the transactions fall within the exceptions provided under section 2(9)(A)(ii) of the PBPT Act, specifically the fiduciary capacity exception;Whether the modus operandi adopted to acquire agricultural land belonging to SC category persons through directors/partners of the company/LLP to circumvent the restrictions under the Rajasthan Tenancy Act amounts to a benami transaction;Whether the evidence on record sufficiently establishes that the beneficial owner, who provided the consideration, was deriving immediate or future benefit, directly or indirectly, from the properties;Whether the provisional attachment orders confirming the attachment of properties and bank accounts were legally sustainable.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the properties and bank accounts are 'benami properties' under section 2(9)(A) of the PBPT ActLegal framework and precedents: Section 2(9)(A) defines a benami transaction as one where a property is transferred to or held by a person, consideration is provided by another person, the property is held for the immediate or future benefit of the person who provided the consideration, and the transaction does not fall under specified exceptions.Court's interpretation and reasoning: The Tribunal noted that the properties and bank accounts were held in the names of various persons (alleged benamidars) but the consideration was provided by Shri Ravindra Pratap Singh Parihar (the alleged beneficial owner). The properties were agricultural lands belonging to SC category persons, which could not be directly purchased by the company or non-SC persons under the Rajasthan Tenancy Act. The investigation revealed that the funds for purchase were advanced by Shri Parihar to the benamidars, who had little means and were controlled by him.Key evidence and findings: Ledger accounts, bank statements, digital data from the accountant's computer, and statements of the alleged benamidars established that Shri Parihar provided substantial loans credited to their bank accounts, which were used to purchase the lands. The benamidars had no independent financial wherewithal, did not attend board meetings, and their ITRs were filed by Shri Parihar. Blank cheque books and original sale deeds were seized from Shri Parihar's premises, indicating his control over the properties and accounts.Application of law to facts: The factual matrix satisfies all criteria of section 2(9)(A): properties held by benamidars, consideration provided by Shri Parihar, and properties held for his immediate or future benefit.Treatment of competing arguments: The appellants argued that the properties were held by directors/partners in fiduciary capacity for the company, not Shri Parihar personally, and that the company and individual are separate legal entities. The Tribunal rejected this, emphasizing that Shri Parihar was the ultimate beneficiary through his controlling shareholding and that indirect benefit suffices under the Act.Conclusions: The properties and bank accounts are benami properties under the PBPT Act.Issue 2: Whether the persons holding the properties qualify as benamidars or held the properties in fiduciary capacity as directors/partnersLegal framework and precedents: Section 2(9)(A)(ii) of the PBPT Act exempts transactions where property is held by a person standing in fiduciary capacity for the benefit of another person, including directors of a company.Court's interpretation and reasoning: The appellants claimed the benamidars were directors/partners holding the properties for the company's benefit in fiduciary capacity. The Tribunal examined whether a fiduciary relationship existed between the benamidars and Shri Parihar personally, as the beneficial owner. It found no evidence of such fiduciary relationship between them and Shri Parihar. The benamidars' statements revealed they had no knowledge or control over company affairs and acted merely as name-lenders.Key evidence and findings: The benamidars did not introduce capital, did not attend board meetings, and their bank accounts were controlled by Shri Parihar. The conveyance deeds executed on behalf of the company were all dated after summons were issued, indicating an attempt to create a facade of legitimacy.Application of law to facts: The fiduciary capacity exception applies only where the property is held for the benefit of the person to whom the fiduciary duty is owed. Here, the benamidars did not stand in fiduciary capacity towards Shri Parihar personally, but purportedly towards the company. The company was not the beneficial owner; Shri Parihar was.Treatment of competing arguments: The appellants' argument that the benamidars were legitimate directors holding property for the company was rejected as a sham, given the lack of participation and control by the benamidars and the timing of conveyance deeds.Conclusions: The fiduciary capacity exception under section 2(9)(A)(ii) does not apply, as no fiduciary relationship existed between the benamidars and Shri Parihar.Issue 3: Whether the modus operandi to circumvent the Rajasthan Tenancy Act restrictions amounts to a benami transactionLegal framework and precedents: Section 53 of the PBPT Act penalizes benami transactions entered into to defeat any law. The principle that statutory provisions cannot be evaded by indirect or circuitous methods is well established in Indian jurisprudence.Court's interpretation and reasoning: The Tribunal found that the entire scheme was devised by Shri Parihar to circumvent the Rajasthan Tenancy Act, which prohibits purchase of SC category agricultural land by non-SC persons. The lands were purchased in the names of SC category persons (benamidars) who were inducted as directors/partners, but the beneficial ownership and control rested with Shri Parihar. The properties were converted to non-agricultural use and transferred to companies controlled by Shri Parihar.Key evidence and findings: Seizure of original documents, powers of attorney, wills, blank cheque books, and digital data confirmed the control and management by Shri Parihar. The pattern of transactions, including loans, repayments, and transfer of properties post-conversion, demonstrated the artificial nature of the arrangement.Application of law to facts: The Tribunal held that the arrangement was a clear attempt to defeat the provisions of the Rajasthan Tenancy Act and fell squarely within the prohibition of benami transactions under the PBPT Act.Treatment of competing arguments: The appellants contended that the directors/partners held the properties temporarily in fiduciary capacity and that the transactions were legitimate business practices. The Tribunal rejected this, emphasizing the intent and effect of the transactions as contravening law.Conclusions: The modus operandi adopted amounts to a benami transaction, attracting the rigors of the PBPT Act.Issue 4: Whether the provisional attachment orders confirming attachment of properties and bank accounts were legally sustainableLegal framework and precedents: Under section 24(4) of the PBPT Act, the Initiating Officer may provisionally attach benami properties. The Adjudicating Authority is empowered to confirm such attachment upon satisfaction of the benami nature of the transaction.Court's interpretation and reasoning: The Tribunal found that the Initiating Officer had sufficient material and evidence to pass the provisional attachment orders. The Adjudicating Authority's confirmation was based on detailed examination of facts and law, including the definition of benami transaction and exceptions.Key evidence and findings: The evidence included seized documents, bank statements, ledger accounts, statements of benamidars, and digital data establishing the flow of funds and control of properties by Shri Parihar.Application of law to facts: The Tribunal concluded that the attachments were justified and in accordance with the PBPT Act, given the benami nature of the transactions.Treatment of competing arguments: The appellants' contentions regarding fiduciary capacity, legitimate business practices, and separation of company and individual were considered but found insufficient to overturn the attachment orders.Conclusions: The provisional attachment orders confirmed by the Adjudicating Authority were legally sustainable and rightly upheld.3. SIGNIFICANT HOLDINGS'The Legislature, in our view, while defining a 'benami transaction', consciously used the words, 'the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration'. Thus, even when the consideration is provided now and the benefit is derived in future, and even in a situation where the person who has provided the consideration is indirectly deriving the benefit from the property through an entity, the transaction in question would constitute a benami transaction.''The exception provided under section 2(9)(A)(ii) would arise only in a situation where a property is held by a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity. In the present case, the alleged beneficial owner is Shri Ravindra Pratap Singh Parmar and not the company. There is nothing on record to show nor it has been argued before us, that any fiduciary relationship existed between them and Shri Parihar. As such, this argument of the appellants also fails and is rejected.''It was so held by the Hon'ble Supreme Court in Jagir Singh vs. Ranbir Singh and Ors. and Dayal Singh and Ors. Vs. Union of India (UOI) and Ors. The view taken by the Apex Court in the said cases has subsequently been reiterated in a host of other decided cases. Though the above case laws specifically refer to an Act of the Parliament, the underlying principle would apply equally to a law enacted by the State Legislature.''Considering the totality of facts, as well as the specific legal requirements laid down by the PBPT Act to characterise a given transaction as a 'benami transaction', we are of the considered view that the impugned transactions are clearly 'benami transactions' within the meaning of the Act so as to attract the full rigor of the Act. The attachment of the same has, therefore, rightly been confirmed by the Adjudicating Authority in our view.'Core principles established:A transaction is benami if property is held by one person but consideration is paid by another and the property is held for the benefit of the person who paid consideration, directly or indirectly.The fiduciary capacity exception applies only where the property is held by a person standing in fiduciary capacity towards the beneficial owner; mere directorship in a company does not automatically confer fiduciary capacity towards an individual shareholder.Indirect benefit through a company controlled by the beneficial owner suffices to constitute a benami transaction.Attempts to circumvent statutory prohibitions by indirect means, including through benami transactions, are prohibited and attract penal consequences under the PBPT Act.The veil of corporate entity cannot be used to shield benami transactions from the rigour of the law.Final determinations on each issue:The properties and bank accounts were held in benami transactions as defined under section 2(9)(A) of the PBPT Act.The persons in whose names the properties were held did not stand in fiduciary capacity vis-`a-vis the beneficial owner, Shri Ravindra Pratap Singh Parihar.The modus operandi to circumvent the Rajasthan Tenancy Act restrictions was an unlawful benami transaction.The provisional attachment orders confirming attachment of the properties and bank accounts were valid and rightly upheld by the Tribunal.