Report No. 57

Chapter 2

Benami Transactions in General

2.1. Nature of a benami transaction.-

The nature of a benami transaction has been described by the Judicial Committee -of-the Privy Council1 thus-

"The system of acquiring and holding property and even of carrying on business in names other than those of the real owners, usually called the benami system, is and has been a common practice in the country The rule applicable to benami transactions was stated with considerable distinctness in a judgment of this Board delivered by Sir George Farwell.2 Referring to a benami dealing, their Lordships say: "It is quite unobjectionable and has a curious resemblance to the doctrine of our English law that the trust of the legal estate results to the man who pays the purchase money, and this again follows the analogy of our common law that where a feoffment is made without consideration the use results to the beoffer".

"So long, therefore, as a benami transaction does not contravene the provisions of the law, the courts are bound to give it effect. As already observed, the benamidar has no beneficial interest in the property or business that stands in his name; he represents, in fact, the real owner, and so far as their relative legal position is concerned, he is a mere trustee for him."

1. Gurnarayan v. Sheolal Singh, AIR 1918 PC 140 (143).

2. Silas Kunzvar v. Besraj Ranjii Singh, AIR 1915 PC 96 (Also see para. 1.11, supra).

2.2. As between the benamidar and the real owner, the law fully recognises the ownership of the real owner, and disregards the benamidar. This, of course, is subject to certain statutory exceptions, which will be dealt with in due course.1

1. See Chapter 4, infra.