Benami transfers of loan and shares: payor control, sham repayments found; transactions held benami and appeals dismissed

Whether the transfers constituted a benami transaction: AT found the requisite indicia of benami (lack of genuine consideration and control by the real payor) were satisfied because the purported loan/consideration originated from the payor-group, funds were rotated among related entities, and the nominee remained under the dominion of a director introduced by the payor to secure control and comply with EMC shareholding conditions; asserted loan repayment was a sham and no effective third-party repayment occurred. Outcome: the transaction was held benami and the appeals were dismissed.

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Issues: (i) Whether the transactions between OMIPL and HEPL including advancement of Rs.12 crores, acquisition of shares and land in the name of HEPL, and subsequent repayments through inter-company and related party transfers constitute a benami transaction within the meaning of the Prohibition of Benami Property Transactions Act, 1988; and whether the Adjudicating Authority correctly confirmed the Provisional Attachment Order.

Analysis: The material examined includes the loan of Rs.12 crores from OMIPL to HEPL, bank transfers showing HEPL transferring significant sums to the SPV (TEGNA) for acquisition of shares and land, the timing and source of repayments traced through the bank accounts of Mr. Mohinder Singh Malik and related entities, redemption of fixed deposits and credits from companies connected to OMIPL, and evidence that HEPL had negligible independent revenue while repayments were effected by funds traced to OMIPL-connected parties. The statutory standard under Section 2(9)(A) of the Prohibition of Benami Property Transactions Act, 1988 requires establishing that the consideration for the property was provided by one person while ownership stands in the name of another, and that the arrangement is not covered by recognised exceptions. The pattern of transfers, redemption of FDs, and credits from entities under OMIPL control were found to demonstrate that the consideration for the impugned properties (land and shares) originated from OMIPL and that repayments were effectuated by rotating funds among related parties rather than genuine independent repayment by HEPL or its principals. The evidence was held sufficient to satisfy the statutory ingredients of a benami arrangement and to justify confirmation of provisional attachment.

Conclusion: The payment of consideration for the impugned properties was provided by OMIPL while ownership was recorded in the name of HEPL; the repayments were not bona fide but effected by rotation of funds among OMIPL-controlled entities. Therefore the transactions constitute a benami transaction and confirmation of the Provisional Attachment Order is upheld in favour of the respondent.

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