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Report No. 130

5.11. There was one serious submission that there are provisions in the tax laws and in the company law which have recognised benami transactions and which also empower the authorities under the Act to proceed against the real owner, ignoring the umbrella of benami transaction. Numerous sections were brought to the notice of the Law Commission. It is unnecessary to reproduce them here. Let it be made distinctly clear that tax laws were enacted when benami was part of Indian law.

Therefore, tax laws have to come up to the level where benami ceases to be a part of Indian law. However, even subject to that position, it should be distinctly made clear that the prohibition against benami is between the real/ beneficial owners and the name-lenders. If the authorities under the tax laws are satisfied that a device has been entered into to defeat the tax laws, it can proceed to recover tax demands ignoring the facade of apparent or real ownership, as the case may be.

5.12. It was emphatically stated before the Law Commission that there are provisions in the Indian Trusts Act, 1882, which, on their proper interpretation, spell out a trust in favour of the so-called real or beneficial owner of property. Apart from all other sections, it is worthwhile to refer to sections 81, 82 and 94 of the Indian Trusts Act. It may be mentioned that, by the provisions of the Ordinance, section 82 of the Trusts Act has been deleted. But it has kept sections 81 and 94 untouched.

5.13. Section 81 provides that where the owner of property transfers or bequeaths it and it cannot be inferred consistently with the attendant circumstances that he intended to dispose of the beneficial interest therein, the transferes of legatee must held such property for the benefit of the owner or his legal representative. Illustration (a), section 81, read as under:

"(a) A conveys land to B without consideration and declares no trust of any part. It cannot, consistently with the circumstances under which the transfer is made, be inferred that A intended to transfer the beneficial interest in the land. B holds the land for the benefit of A."

5.14. Numerous transfers of agricultural and urban land have been noticed wherein the sole object of the real owner was to defeat the agrarian and urban land reform and ceiling laws. The misuse and abuse of the provisions of the Trusts Act requires to be more specifically spelt out. In fact, the use of the word 'trust' brings to mind some kind of fiduciary relationship with confidence in the trustee to act in a manner useful to the beneficiary. This was the laudable object. How it is perverted may be stated. One Shri S. Jagannathan, recent recipient of Bajaj Award for public service, drew attention of the President of India to the abuse of the provisions of Trusts Act for augmenting the nefarious activities of the landlords who wanted to defeat land laws.

A copy of his communication was sent by Banwasi Seva Ashram to the Law Commission pointing out the evil effects of 'benami transactions in land in Tamil Nadu by creating a large number of fake trusts'. In the List attached to Shri Jagannathan's letter, he has set out details of as many as 21 trusts involving thousands of acres of land. He has also specifically pointed out the names of landlords who have used the facade of trusts for protecting their land holdings. He has also given another list in which benami transactions in the name of family members, friends and servants were entered into to defeat land laws.

As the information is very useful, the whole of it is annexed to this report (Appendix I), Similarly, the Law Commission also received a copy of a letter by Pattaligal Pannai Ashram dated July 28, 1988, to the former Chief Justice Shri RN. l3hagwati pointing out the misuse of benami transactions in land in the name of false or fake trusts for pseudo-religious services (Appendix II). This evil is well-known and does not need detailed discussion. In the view of the Law Commission, provisions of Century Old Trusts Act, of 1882 vantage when private property was sacrosanct are being abused since the advent of the Constitution to defeat the constitutional culture.

The information herein supplied is revealing and a time has come to take effective action in this behalf, otherwise all socially beneficent legislation will meet its Waterloo at the altar of so-called sanctity of private property. Once the private property is being used, as pointed out earlier, to defeat social morality, the transactional law in respect of it becomes part of public law and must be enforced accordingly.

5.15. Section 82 provides that where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person paying or providing the consideration. This section has been deleted by the Ordinance.

5.16. Section 94 provides that: 'In any case not coming within the scope of any of the preceding sections, where there is no trust, but the person having possession of property has not the whole beneficial interest therein, he must hold the property for the benefit of the persons having such interest, or the residue thereof (as the case may be) to the extent necessary to satisfy their just demands'.

5.17. The Indian Trusts Act is of 1882 vintage. It was the hey day of laissez faire. Private property was sacrosanct. Every legal device was resorted to protect property. Hence came the doctrine of the constructive or resultant trusts. These provisions are anachronistic in character. They provide an umbrella or shield for defeating socially beneficent legislation or tax legislation. If A transfers the property, one fails to understand why he should not transfer the property including the beneficial interest therein. If A purchases property, one fails to understand why he should not purchase in his own name unless his intention is to keep secret the source of the consideration paid by him and that source may be tainted with criminality.

Therefore, every conception that a transfer of property takes place either by purchase or by transferring without consideration and in the name of person who has no interest in the property save the name-lender, post-Constitution society and the constitutional legality should extend no protection to it. Therefore, all the three provisions will have to go with a specific section that where a person is recorded as a holder of property, it would provide conclusive evidence by the necessary legal presumption that he is the full owner of the property except in cases of mortgage which again must be by a registered instrument.

And when it is said that one is a recorded owner of a property, it includes all kinds of property. To illustrate one point, if a shareholder is recorded as the owner of shares in the Register of Shareholders required to be maintained by the company under section 155 of the Companies Act, it would be conclusive proof that he is the owner of the shares and nothing to the contrary shall be provable in any proceeding nor any transfer without consideration shall be recognised except where it is by gift.

5.18. The last important aspect which must be dealt with refers to a glaring lacunae in administration of civil laws. Where anything done or omitted to be done is an offence, administration of criminal justice requires that there must be an enforcement machinery and there must be judicial branch enquiring into what is alleged to be an offence by enforcement machinery. The State is vitally interested in peace and harmony in the society. Administration of criminal law, therefore, presages that there must be a very effective implementation machinery of laws prescribing offences and punishments for them.

5.19. In the matter of tax laws, the State is equally vigilant. The tax laws bring in the revenue for oiling the machinery of Government. The revenue generated by tax laws is available for carrying on socially beneficent activities of a welfare State like ours. The usual well-noticed tendency in the society is not to pay taxes. Few can assert as done by Justice Holmes that; "Taxes are what we pay for civilized society. I like to pay taxes, with them I buy civilization."1

Today the most noticeable tendency is not to pay taxes. The State, on the one hand, is interested in generating maximum revenue and tax-payers are equally interested in paying the least, if not paying at all. Even when benami was part of Indian law, tax law and allied laws had taken recourse in their own way of ensuring due obedience of the tax laws. Therefore, there is an elaborate machinery set up under the tax laws for their effective implementation.

1. McDowell Co. Ltd. v. Commercial Tax Officer, (1985) 3 SCR 791 (809).

5.20. However, when one comes to civil laws, in general it can be said with confidence that there is nothing like a State machinery for enforcement of those laws. Parties whose rights are affected by statutes are left to fend for themselves to get relief by initiating action before fora set up for the same. The fora would not act on its own. Someone has to move it. Even when it comes to weaker sections of the society, civil laws ordinarily do not provide for enforcement machinery. In generally referring to civil laws, the labour laws are not included therein.

To take an illustration. Transfer of Property Act contains numerous provisions. None can say that there is some machinery for enforcement of the provisions of Transfer of Property Act. In an orderly development of society where the emphasis is on developmental planning for transformation of the society, it is equally necessary to have an enforcement machinery. The Law Commission would require an extensive research for suggesting an instrumentality for enforcement of civil laws. With the time constraint as has been spelt out in this case, it is not possible to undertake such extensive survey. It is equally impermissible not to touch the aspect at all.

5.21. What is meant by the Law Commission when it talks of machinery for enforcement of civil laws? Taking the present situation about benami transactions and the suggested remedies for their total prohibition, one cannot derive effective benefit from the legislation unless there is some machinery for enforcement of prohibition against benami transactions. Assuming that on the recommendation of the Law Commission, prohibition against benami transactions is imposed, if the benami transactions are not made penal, invariably people would enter into benami transactions because they have their own benefits.

Unless the real owner and the benamidar fall out or the enforcement authorities under the tax laws come across a position where tax law is defeated by benami transaction, no one would proceed to enquire into the legality or otherwise of tax law and get it declared illegal. Even under the socially beneficent legislation like ceiling on land enacted with the wholesome object of equitable distribution of nature's munificence, namely, land, there is no effective machinery to checkmate defeating of these laws. Suppose, a landlord transfers a piece of land in the name of his own cultivator.

For the purposes of record, the cultivator would be the owner. The landlord would benefit by escaping from the tentacles of ceiling laws and the cultivator would never be able to go against the landlord. This was adhered to when it was said that 'the real owner may just depend upon muscle power for asserting his rights. In fact, much of the land grab in this country has been done through muscle power and political patronage rather than by resort to courts of law.'1

1. Mr. K.N. Balasubramanian in The Economic Times dated June 22, 1988: The Benami Ordinance (1) - Another Paper Tiger, p. 5, column 5.

5.22. Various aspects herein delineated do make out a good case for an enforcement machinery of even civil laws. Now it is not possible to set up a whole enforcement machinery of inspectors and superior officers. The Law Commission is of the opinion that time has come when involvement of voluntary agencies in enforcement of laws would go a long way to spread constitutional culture of obedience to laws. And if the constitutional culture spreads, strife and confrontation in the society would be considerably minimised.

Therefore, a beginning should be made in this case by authorising recognised non-governmental organisations being empowered to lay a complaint before a tribunal - a District Judge in each district should be declared as a tribunal for the purposes of this Act - pointing out the violation, namely, entering into a benami transaction. The tribunal must investigate the complaint. Legal aid authorities must assist the complainant in performance of his public duty. If the complaint is found to be frivolous, vexatious or malicious, the tribunal would be justified in awarding suitable compensation to the party against whom complaint is made. This is in brief the outline of the method of enforcement of civil laws.

5.23. Another existing machinery already recommended by the Law Commission can be put to better use even in this behalf. In the report on Gram Nyayalaya,1 the Law Commission recommended appointment of Liaison Officers attached to Gram Nyayalayas. For a detailed discussion of their role, the report may be studied. A duty may be added to the duty list of these Liaison Officers that in their overall supervision of enforcement of laws in the rural areas, they must equally look at violation of prohibition of benami transactions. And authority should be conferred on them to lay a complaint in this behalf before the District Judge as Tribunal under this Act. A similar machinery may as well be set up for urban areas.

1. LCI, 114th Report on Gram Nyayalaya.

5.24. Indian Trusts Act deals with private trusts and trustees of such trusts. However, when it was found that there is an element of public trust in certain types of trusts, the concept of Charity Commissioner was brought in for supervision over management and tackling the irregularities in public trusts. Most of the States have enacted their laws for dealing with public trusts which include both charitable and religious trusts. However, the private trusts which are controlling enormous property were left untouched. The principle of benami resulted in legal concepts of constructive or resultant trusts. Now that benami is done away with, a question that faces us is whether the element of public law should also involve itself in supervising private trusts?

If this is not done, benami may rear its ugly head in the form of trusts as pointed out in Appendices I and II. Therefore, an officer, by whatever designation called, but partaking the characteristics of Charity Commissioner may as well be invested with power to investigate into the affairs of the private trusts where such trusts have afforded a shield and protection to impermissible benami transactions in future. This will be one additional method of supervising the enforcement of civil laws. According to the Law Commission, all these measures would provide comprehensive enforcement machinery for the law, which will replace the Ordinance.

5.25. The Law Commission recommends accordingly.

D.A. Desai,
Chairman.

V.S. Rama Devi,
Member-secretary.

New Delhi,
Dated: 14th August, 1988.



Benami Transactions - A Continuum Back




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