Benami Transactions Act (Prohibition), 1988
Benami purchases are purchases in false name of another person, who does not pay the consideration but merely lends his name, while the real title vests in another person who actually purchased the property and he is the beneficial owner. Benami transactions used to take place to evade law of perpetuity, because of parda system, to avoid annoyance, Zamindar’s desire to avoid indignity and legal disability, mysterious desire etc.
Benami transactions were noticed as early as the year 1778 in Mr. Justice Hyde’s notes after the establishment of British rule in India . In 1854 the committee on a review of cases in Gopeekrist Gosain Vs. Gungapersuad, (1854) 6 MLA 53, held that benami transaction is a custom of the country and must be recognized till otherwise ordered by law. In 1882 sections 81 and 82 of Indian Trusts Act gave legislative recognition to the practice of benami transactions and the courts were bound to enforce it.
Such benami transactions abused and defrauded public revenues and creditors. The Parliament for the first time intervened in 1976 when it introduced section 281A in the Income-tax Act, 1961 barring the institution of suit in relation to benami properties. But this too did not stop benami transactions and its consequences, this time the Parliament totally prohibited the benami transactions and made it an offence also, prohibiting all suits, claims and actions based upon benami transaction. The Parliament also in order to stop the abuse and fraud by the benami transaction property without compensation repealed section 82 of Indian Trusts Act and section 281A of the Income tax Act along with other consequential repeal. The Law Commission was requested to examine the subject on benami transactions in all its ramifications. The Law Commission submitted its 57th Report. To implement the recommendations of the Law Commission President promulgated the Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 on 19th May, 1988 by which it barred all suits and defenses based upon benami transactions. This Ordinance was converted into an Act by introduction of a Bill in the Parliament.