2025 (11) TMI 1743 - HC - Benami Property

Section 24 Benami Act notice and attachment upheld; only basic material needed for 'reason to believe' benami role

Shyamsundar Sharma Versus ACIT/Initiating Officer, Benami Prohibition Unit-2, Delhi & Anr.

HC upheld the show cause notice and provisional attachment issued under Section 24 of the Benami Act against the petitioner engaged in goods transport ... Benami Transactions - Validity of the Show Cause Notice - compliance of statutory preconditions u/s 24(1) - previous approval of the Approving Authority in writing for attaching provisionally the property - expression ‘reason to believe’ - IO had no material for reason to believe and no satisfaction recorded - definition of Benami transaction as defined u/s 2 (9) - business of Goods Transport Services - bank accounts of a party were freezed only on suspicion and not on basis of some material - HELD THAT:- In Section 24 of the Benami Act, only on the basis of some material in his possession, the Initiating Officer can form a belief of a person being Benamidar in respect of a property. Standard of basis of belief is on higher pedestal in the Benami Act than the belief under BNS and BNSS (earlier IPC and Cr.P.C.) but it falls short of ‘prima-facie case’ which is a standard for a Judicial or Quashi Judicial Authority for proceeding against a person under respective laws. Therefore, Section 24(1) of the Benami Act does not burden an Initiating Officer to first work out a prima-facie case before issuing a show cause notice or give opportunity of hearing and cross examining the witnesses to notice. This is a reason that under Section 24(4), the Initiating Officer is empowered either to continue with the provisional attachment made under Section 24(3) of the Benami Act or revoke such provisional attachment with prior approval of the Approving Authority. The Initiating Officer, under Section 24(5) of the Benami Act may thereafter draw up a statement of the case and refer it to the Adjudicating Authority. On receipt of reference under Section 24(5), the Adjudicating Authority shall issue a notice to the Benamidar and after considering his reply and making the necessary enquiries and calling for evidence, provide for an opportunity of being heard to the Benamidar as well as the Initiating Officer. As we are considering the validity of show cause notice, we cannot enter into the question of standard of proof in accordance with Bharatiya Sakshya Adhiniyam, 2023. It is enough that the Initiating Officer seized of some material and on the basis of such material he formed an opinion. The petitioner has raised doubt as to whether the case of petitioner falls within the definition of Benami transaction as defined under Section 2 (9) of the Act. We are of the opinion that in show cause notice, the Initiating Officer has given reasons as to how it is a case of Benami transaction and at this initial stage, this Court would not like to enter into the complexities of the merit and evidence of the case for the purpose of determination of a Benami transaction. There is no doubt that Section 24(3) of the Benami Act provides for previous approval of the Approving Authority in writing for attaching provisionally the property held Benami. But there is no statutory requirement that copy of such approval by the Approving Authority should be supplied to Benamidar or Beneficial owner alongwith attachment order. However, if the petitioner makes a demand of such copy, the department must provide it to him. Remaining questions raised by the petitioner as above are to be considered by Adjudicating Authorities and not by this Court. Grievance of the petitioner is that his all accounts have been attached leaving no money with him even to pay salaries of his employees and conduct normal business activities. We are of the opinion that it would be open for the petitioner to raise this plea before the Adjudicating Authority, who is empowered to revoke the attachment order under Section 26 of the Benami Act. Here, we deem it appropriate to say that any observations of this Court in this order shall not affect the adjudicating process and the Adjudicating Authority shall be at liberty to form its own opinion on all the issues raised by the petitioner before it. Accordingly, we find no substance in the writ petition. The same is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the statutory preconditions under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 for issuance of a show cause notice and consequential provisional attachment were satisfied. 1.2 Scope and standard of judicial review of the Initiating Officer's 'reason to believe' under Section 24(1), including whether such belief was vitiated by absence of material, borrowed satisfaction, or misidentification of the noticee. 1.3 Whether, at the stage of Section 24 proceedings, the Initiating Officer is required to provide prior hearing, opportunity of cross-examination, and to comply with evidentiary standards such as Section 65B of the Indian Evidence Act / Bharatiya Sakshya Adhiniyam. 1.4 Whether non-supply of the written approval of the Approving Authority under Section 24(3) and 24(4) vitiates the provisional attachment and subsequent proceedings. 1.5 Whether the existence of an efficacious statutory remedy before the Adjudicating Authority under Section 26 bars or limits interference by the Court under Article 226 at the show cause/attachment stage. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Statutory preconditions under Section 24(1) for issuing show cause notice and provisional attachment Legal framework 2.1 The Court reproduced and analysed Section 24 of the Benami Act. It identified the following preconditions for issuance of notice under Section 24(1): (i) there must be material in possession of the Initiating Officer indicating Benami transactions; and (ii) on the basis of such material, the Initiating Officer must have 'reason to believe' that any person is a Benamidar in respect of a property, and must record such reasons in writing. Interpretation and reasoning 2.2 The Court held that in judicial review of a notice under Section 24(1), its attention is confined to whether some relevant material was in the possession of the Initiating Officer and whether that material bears a rational nexus to the reasons recorded; the Court will not examine sufficiency or quality of such material. 2.3 In the present case, the material in possession of the Initiating Officer included: (i) Excel sheets titled 'Bogus Expense Employee-wise' seized from VMPL's premises detailing payments, including entries in the name of 'Shyam Sunder'; and (ii) sworn statements of the promoters and auditor of VMPL admitting to a modus operandi of bogus billing, routing funds through vendors/accommodation entry providers (including Shyam Air Courier) and receiving cash back after deduction of commission. 2.4 The Court found this material sufficient to satisfy the first precondition of Section 24(1) that there be material indicating Benami transactions. 2.5 As to the second precondition-'reason to believe' that the petitioner is a Benamidar-the Court noted that the Initiating Officer had recorded in detail why the petitioner was considered a Benamidar, including: (i) identification of Shyam Air Courier as one of the bogus vendors; (ii) digital evidence listing 'Shyam Sunder' under bogus expenses; and (iii) corroborating statements of VMPL's key persons implicating vendors including Shyam Air Courier. Conclusions 2.6 The Court held that both jurisdictional preconditions under Section 24(1) were met: the Initiating Officer had material in his possession and had recorded reasons to believe that the petitioner was a Benamidar. The show cause notice and consequent provisional attachment orders under Section 24(3) and 24(4) were therefore not without jurisdiction. Issue 2: Nature and standard of 'reason to believe' under Section 24(1) and scope of judicial review, including allegations of borrowed satisfaction and misidentification Legal framework 2.7 The Court relied on Section 24 of the Benami Act and on the definition of 'reason to believe' in Section 2(29) of the Bharatiya Nyaya Sanhita, 2023, equating it to 'sufficient cause to believe that thing but not otherwise.' It distinguished this standard from the 'reasonable suspicion' basis of arrest under Section 35 of the Bharatiya Nagarik Suraksha Sanhita, 2023, and from a 'prima facie case' required for judicial or quasi-judicial proceedings. 2.8 The Court referred to the principle, as articulated by the Supreme Court in Amarendra Kumar, that where an enactment uses expressions like 'is satisfied', 'has reason to believe', the opinion of the authority is conclusive if: (a) prescribed procedure is followed; (b) the authority acts bona fide; (c) it forms its own opinion and does not borrow someone else's; and (d) it does not proceed on a fundamental misconception of law. Interpretation and reasoning 2.9 The Court held that the standard of 'reason to believe' under Section 24(1) is stricter than mere suspicion, but lower than a prima facie adjudicatory standard; it only requires formation of a bona fide belief on the basis of some relevant material. 2.10 The Court clarified that its role in judicial review is confined to examining the existence of material and the rational connection between such material and the belief formed; it cannot substitute its own opinion for that of the Initiating Officer or enter into appreciation of evidence. 2.11 On the allegation of 'borrowed satisfaction', the Court noted that the Initiating Officer's show cause notice and attachment order contain detailed, independent reasons, referencing seized material and recorded statements. This demonstrated independent application of mind and negated the plea of borrowed satisfaction. 2.12 On misidentification (Shyam Sunder Sharma vs. 'Shyam Sunder Choudhary'), the Court recorded the petitioner's contention that his name and business differ from those mentioned in the Excel sheets. It contrasted this with the Revenue's case that investigations showed no other 'Shyamsundar' having dealings with VMPL except the petitioner, and that his identity also emerged from the statements of beneficial owners. The Court found that, at this stage, the material sufficed to give the Initiating Officer reason to believe that the 'Shyamsundar' mentioned was the petitioner. Conclusions 2.13 The Court held that the Initiating Officer's 'reason to believe' was based on relevant material, involved independent application of mind, and met the statutory standard. The Court declined to interfere with this subjective satisfaction in writ jurisdiction. 2.14 The plea of misidentification was rejected for the limited purpose of testing jurisdiction at Section 24(1) stage, leaving all factual disputes to be agitated before the Adjudicating Authority. Issue 3: Procedural requirements at Section 24 stage-hearing, cross-examination, and evidentiary standards including Section 65B Legal framework 2.15 The Court analysed Section 24(1)-(5) to delineate the scheme: (i) Initiating Officer forms 'reason to believe' on material in his possession and issues show cause notice under Section 24(1); (ii) he may provisionally attach property under Section 24(3) with prior approval of the Approving Authority; (iii) after inquiry and consideration of material, he may continue or revoke the attachment under Section 24(4); and (iv) then refer the case to the Adjudicating Authority under Section 24(5) where full adjudication, including hearing, occurs. Interpretation and reasoning 2.16 The Court held that Section 24(1)-(4) proceedings are preliminary and investigative in nature, not adjudicatory; they are meant to preserve property from alienation pending adjudication under Section 26. 2.17 The Court specifically held that Section 24(1) does not impose an obligation on the Initiating Officer to establish a prima facie case, nor to give a pre-notice hearing or an opportunity to cross-examine witnesses. The statutory design reserves a full opportunity of being heard, including enquiry and calling of evidence, to the Adjudicating Authority under Section 26. 2.18 As to evidentiary standards, including the requirement of a Section 65B certificate for electronic records, the Court held that such standards under the Indian Evidence Act / Bharatiya Sakshya Adhiniyam apply at the stage of proof before an adjudicatory forum and not at the stage of issuing a show cause notice or provisional attachment. It therefore found the petitioner's reliance on Chandrabhan Sudam Sanap inapposite at this preliminary stage. 2.19 The Court also observed that questions relating to the weight, admissibility, and sufficiency of digital and other evidence, including whether the Excel sheets are 'dumb documents' or whether statements not specifically naming the petitioner can be relied upon, are matters for the Adjudicating Authority, not for writ review at this stage. Conclusions 2.20 The Court held that the Benami Act does not require the Initiating Officer at Section 24 stage to afford an opportunity of cross-examination, to strictly comply with evidentiary rules such as Section 65B, or to prove Benami transactions beyond reasonable doubt. 2.21 The Court rejected the petitioner's challenge on grounds of alleged violation of principles of natural justice at the Section 24 stage, while clarifying that full procedural safeguards and evidentiary scrutiny will be available before the Adjudicating Authority. Issue 4: Effect of non-supply of approval of the Approving Authority under Section 24(3) and (4) Legal framework 2.22 Section 24(3) mandates that provisional attachment by the Initiating Officer requires 'previous approval of the Approving Authority' by order in writing. Section 24(4) also contemplates prior approval of the Approving Authority for continuation or fresh provisional attachment. Interpretation and reasoning 2.23 The Court accepted that obtaining written approval from the Approving Authority is a condition precedent for the validity of attachment orders under Section 24(3) and 24(4). 2.24 However, the Court held that there is no statutory requirement that the said approval be annexed to, or supplied along with, the attachment order to the Benamidar/beneficial owner. 2.25 The Court added that if the petitioner specifically demands a copy of such approval, the department is obliged to supply it. Conclusions 2.26 Non-annexing of the Approving Authority's written approval to the attachment order does not by itself vitiate the procedure under Section 24. 2.27 The validity of the attachment is not affected merely because the approval order was not initially furnished; the petitioner may seek and obtain a copy on request. Issue 5: Maintainability and extent of interference in writ jurisdiction in presence of remedy under Section 26, including hardship from attachment of all bank accounts Interpretation and reasoning 2.28 The Court emphasised that the Benami Act provides a self-contained, quasi-judicial mechanism with a hierarchy of authorities. After the Initiating Officer's actions under Section 24, the matter proceeds to the Adjudicating Authority under Section 26, where the petitioner can raise all factual and legal contentions, including on evidence, misidentification, nature of transactions, and hardship. 2.29 The Court noted that the Initiating Officer had considered the petitioner's reply (including his reliance on VMPL's declaration) and rejected it with detailed reasons in the provisional attachment order. This distinguished the case from situations where action is taken merely on suspicion without dealing with the reply, as in the authority cited by the petitioner (Poonam Malik). 2.30 As to the plea that attachment of all bank accounts caused severe financial hardship (including inability to pay salaries, loans, and business expenses), the Court held that such grievances and requests for partial or full revocation of attachment can appropriately be raised before the Adjudicating Authority, empowered to revoke attachment under Section 26. Conclusions 2.31 In view of the existence of an efficacious statutory remedy before the Adjudicating Authority and the preliminary nature of Section 24 proceedings, the Court declined to exercise its writ jurisdiction to quash the show cause notice or attachment orders. 2.32 The writ petition was dismissed, with liberty to the petitioner to urge all remaining questions (including those framed in paragraph 39 of the judgment and pleas of hardship) before the Adjudicating Authority, which shall independently adjudicate without being bound by the Court's observations on merits.