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: (i) Whether confirmation of the Provisional Attachment Order under Section 2(9)(D) of the Prohibition of Benami Property Transactions Act, 1988 was justified where the purchasers had purchased property in DRT auction using amounts advanced by M/s Star Capita and payments were routed through banking channels but the lender's source/credit worthiness was not satisfactorily demonstrated.Issue (i): Whether the Adjudicating Authority rightly confirmed provisional attachment under Section 2(9)(D) of the Act of 1988 on the ground that the lender (M/s Star Capita) lacked credit worthiness and the source of funds remained unexplained, thereby establishing an unknown beneficial owner/benami transaction.Analysis: The finding examined the loan sanction documents, bank records and audited financials of the entities involved. The lender's audited turnovers and payables were compared with the large advances purportedly made. Independent verification of the lender's premises and statements showed lack of capacity and unexplained receipts. Opportunities were afforded to produce corroborative bank transfers from alleged fund providers, which were not produced. The absence of credible evidence as to the source of funds and the lender's inability to demonstrate sufficiency of funds led to the conclusion that the transactions fit within the notion of unknown beneficial ownership under Section 2(9)(D), notwithstanding routing through banking channels or the fact of purchase at public auction. The exclusion under Section 2(9)(A) (fiduciary capacity) was held inapplicable on the facts.Conclusion: The confirmation of the Provisional Attachment Order under Section 2(9)(D) is upheld; the appellants' challenge is rejected.Final Conclusion: The appeals are dismissed and there is no interference with the Adjudicating Authority's confirmation of attachment, resulting in the upholding of the impugned order.Ratio Decidendi: Where a purchaser relies on advances from a third party, the transaction may be treated as benami under Section 2(9)(D) if the purported lender cannot satisfactorily demonstrate credit worthiness or the lawful source of funds; mere routing of payments through banking channels or purchase at public auction does not displace the requirement to prove the lender's capacity and source.