2025 (12) TMI 1207 - AT - Benami Property

Auction purchase funded via alleged lender-whether payments were benami u/s2(9)(D); provisional attachment upheld, appeals dismissed.

The dominant issue was whether the auction purchase funded through a lender constituted a benami transaction under the 1988 Act, justifying confirmation ... Provisional Attachment Order - Definition of benami transaction u/s 2(9)(A) - benami transaction naming the benamidar - consideration paid by the fictitious person or is not traceable - show cause notice - purchase of the property by the purchasers without credit worthiness either of the companies or of the individuals - HELD THAT:- In the instant case, the lender M/s Star Capita granted loan beyond availability of funds with it and, therefore, it became a case of benami transaction because the purchaser was not having capacity to purchase the land and even the lending company was not having credit worthiness to extend huge loan and accordingly the Provisional Attachment Order was confirmed. The appellants have projected that since the money was routed through banking channel for purchase of the property in auction, the case of benami transaction would not be made out. The arguments were made in ignorance of the fact that M/s Star Capita was not having capacity to extend huge loan and, in fact, deeper investigation was caused. It was found that the relatives of Gunda Akhil Kumar are running and controlling M/s Star Capita. No credible explanation could be given for a small company to extend huge loan when turnover of M/s Star Capita was below Rs. 2 Crores. The few partners were unaware of the loan activities and were lacking credit worthiness and thereby it was taken to be a case under Section 2(9)(D) of the Act of 1988. We further find that merely for the reason transaction is made through banking channel does not mean that it was a transaction out of the funds of the appellants, rather the present matter is falling under Section 2(9)(D) of the Act of 1988 representing unknown beneficial owners. M/s Star Capita was not having worthiness to extend the loan. Its source to extend the loan could not be shown. The counsel for the appellants was given opportunity to refer to the reply given before the Adjudicating Authority to show that money was generated by M/s Star Capita out of the legitimate sources which may be advancement of money by Shri Lokesh Kumar and Shri Satish Kumar or otherwise. No pleading to this effect could be shown either in the reply to the show cause notice issued by the Adjudicating Authority or even in the appeals. It is despite the opportunity provided by the Tribunal. Thus, the source of consideration remained unknown and otherwise failed to disclose it in the hands of M/s Star Capita thus the Adjudicating Authority rightly confirmed the Provisional Attachment Order finding it to be a case under Section 2(9)(D) of the Act of 1988. The exception to Section 2(9)(A) is not applicable in the case falling under Section 2(9)(D) of the Act. Thus, we find no ground to interfere in the impugned order. Appeals accordingly fail and are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the acquisition of the attached agricultural land was a 'benami transaction' falling under Section 2(9)(D) of the Prohibition of Benami Property Transactions Act, 1988, on the footing that the consideration was provided by a fictitious/untraceable/unknown person and the apparent purchasers lacked capacity. 2. Whether routing the purchase consideration through banking channels and describing it as a loan from a lender entity was sufficient to negate benami character, despite findings that the lender lacked creditworthiness and the source of its funds remained unexplained. 3. Whether the appellants could avoid the consequence of Section 2(9)(D) by invoking the exclusion/exception relating to fiduciary capacity under Section 2(9)(A), in the facts found by the Tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Section 2(9)(D)-unknown/fictitious provider of consideration and lack of capacity Legal framework: The Tribunal examined the case as framed and confirmed under Section 2(9)(D) of the Act of 1988, i.e., a transaction where the person providing consideration is fictitious or untraceable/unknown, resulting in the transaction being treated as benami. Interpretation and reasoning: The Tribunal accepted the core factual foundation relied upon by the authorities: the apparent purchasers did not have means to pay the purchase consideration and claimed funding through a lender entity. On scrutiny, the Tribunal found the lender's ability to advance large loans was not established; the lender's turnover was found to be below Rs. 2 crores while the asserted lending exposure/payables ran into very large figures, and partners/persons connected with the lender were unaware of the alleged loan activities. Physical verification of the lender's office and recorded statements were treated as supporting circumstances showing the lender was not functioning as claimed. The Tribunal held that the loan was 'beyond availability of funds' with the lender, and the source of the lender's funds was not demonstrated, leaving the real provider of consideration effectively unknown. Conclusions: The Tribunal concluded that the source of consideration remained unknown/unexplained in substance and that the case correctly fell within Section 2(9)(D). On that basis, confirmation of the Provisional Attachment Order was upheld. Issue 2: Effect of banking-channel payments and 'loan' explanation on benami determination Legal framework: The Tribunal considered the appellants' contention that payment through banking channels and disclosure of a loan source negated benami, and assessed it against the findings underpinning Section 2(9)(D). Interpretation and reasoning: The Tribunal rejected the proposition that banking-channel routing, by itself, proves that funds belonged to the purchasers or that the transaction is non-benami. It reasoned that where the claimed lender lacks demonstrated creditworthiness and cannot explain the origin of funds, mere banking movement does not answer the statutory concern of an unknown beneficial owner/unknown provider of consideration. The Tribunal further noted that, despite being given an opportunity, the appellants failed to produce documents (including bank statements of persons asserted to have provided funds to the lender) and could not point to pleadings before the Adjudicating Authority or in the appeals establishing legitimate sourcing of funds in the lender's hands. Conclusions: The Tribunal held that banking-channel payments did not rebut benami character in the present facts because the underlying source of consideration remained unproved and the lender's capacity was not established. The adverse inference drawn from non-production of supporting material was upheld, supporting continuation of attachment. Issue 3: Non-applicability of fiduciary exception (Section 2(9)(A)) to a case decided under Section 2(9)(D) Legal framework: The Tribunal addressed the appellants' reliance on the exclusion for fiduciary capacity mentioned in relation to Section 2(9)(A), while noting that the authorities had proceeded under Section 2(9)(D). Interpretation and reasoning: The Tribunal determined that the appellants' attempted reliance on the exception tied to Section 2(9)(A) could not displace a finding recorded under Section 2(9)(D). Since the Tribunal affirmed that the case involved an unknown/unexplained provider of consideration and lack of lender capacity, it treated the matter as squarely governed by Section 2(9)(D), rendering the cited exception inapplicable on the Tribunal's accepted factual and legal characterization. Conclusions: The Tribunal concluded that the fiduciary-capacity exception did not assist the appellants because the case was sustained under Section 2(9)(D), and therefore it declined interference with confirmation of the Provisional Attachment Order and dismissed the appeals.