Benami Transaction A Blueprint

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Law Commission Report

Benami Transaction A Blueprint

13°

LAW COMMISSION OF INDIA

ONE HUNDRED THIRTIETH REPORT
0

BENAMI TRANSACTIONS -
A CONTINUUM

1988

Tel. No. 334475

D.A. DESAI LAW COMMISSION

CHAIRMAN . GOVERNMENT OF INDIA
SHASTRI BHAVAN
NEW DELHI

August 14, 1988.
D.O. NO. 6(2)(3)/88--LC-LS

Shri E. Shankaranand,
Minister for Law and Justice,
Government of India,

Shastri Bhavan,

NEW DELHI.

Dear Shri Shankaranand,

You may kindly recall your letter dated July
22, 1988, by which the Law Commission was
requested to take up the case of Benami
Transactions (Prohibition of the Right to Recover
Property) Ordinance No. 2 of 88 for detailed
examination and give its considered views as early
as possible so that the Bill to replace the
Ordinance may be drafted on the basis of the
recommendations of the Law Commission and get the
same passed before the close of the Monsoon
Session of Parliament. The letter of reference
was received on July 22, 1988. Immediately
thereafter, the Law Commission started looking
into the various ramifications of the Ordinance
including the extensive coverage, if any, that may
be recommended. The Law Commission, of course, as
you know, had the advantage of its'earlier report
(Fifty-Seventh).

Ordinarily, the Law Commission before giving
its considered views, likes to develop a national
debate for ascertaining the views of the society
so as to make effective recommendations to be in
tune with the mores of the day.

with the time constraint, it was not possible
to follow this regular procedure of the Law

Commission. But it is anathema to the Law
Commission' to give its views as perceived by it
only. To the limited extent of the time
permitting, restricted . debate with some
outstanding personalities, who have made name in
different walks of life, was undertaken. The Law
Commission, to the extent, became well-informed.
After collating all the material, the report has
been drawn up. '

I have great pleasure in sending this report
today. In order to appreciate the width and
coveragae of the report, I would request you to
place the report of the Law Commission on the
Table of the House while moving the Bill in the
Parliament, e

I am reasonably sure that it would help the
Government of India, as stated in your reference
letter, to draw up a comprehensive Bill for
replacing the Ordinance.

with kind regards,

Yours sincerely,.

(D.A. DESAI)

Encl: 5 Report

CHAPTER I

CHAPTER II

CHAPTER III

CHAPTER IV

CHAPTER V

NOTES AND

REFERENCES

APPENDIX I

APPENDIX II

CONTENTS

PAGE
INTRODUCTORY ... 1
THE APPROACH ... 9
TEE COVERAGE OF THE STATUTE ..° 20
BENAMI TRANSACTIONS AND
MOTIVATIONS FOR THE SAME ... 35
THE COURSE OF FUTURE ACTION
INDICATED ... 42
0., 64
COPY OF THE LETTER DATED JULY 13,
1988, ALONG WITH ITS ENCLOSURES,
FROM SHRI PREMBHAI OF BANWASI
SEVA ASHRAM, MIRZAPUR (U,P.),
ADDRESSED TO CHAIRMAN, LAw
COMMISSION ... 0.. 68

COPY OF THE LETTER DATED JULY 28,

1988, ALONG WITH ITS ENCLOSURES,

FROM SHRI S. JAGANNATHAN OF

PATTALIGAL PLJNAI ASHRAM, TAMIL

NADU, ADDRESSED TO HON"BLE MR.

JUSTICE P.N, BHAGWATI, FORMER

CHIEF JUSTI"E OF INDIA AND A

COPY WHEREOF HAS BEEN ENDORSED

TO THE'CEAIRNAN, LAW COMMISSION,

AMONGST OTHERSV ... .0. 80

CHAPTER I

INTRODUCTORY

1.1. The President of India, in exercise of

powers 'conferred by clause (1) of article 123 'of

the Constitution, promulgated an ordinance, styled

as. "Benami Transactions (Prohibition of the Right

«to Recover Property) .Ordinance, 1988", being

Ordinance No. 2 of 1988, on May 19, 1988. It came

into force immediately on promulgation;

1.2. The Oroinance in terms partially implemented

the recommendations of the Law Commission of India
. 1
relating to benami transactions. It appears that

the Minister of Law, Justice and Company Affairs,
by his letter dated December 20, 1972, invited the

Law Commission of India to examine the question of

'prohibiting. benami transactions. 'The letter

proceeded to recite 'the problem of property held

benami has been causing concern to the taxing

authorities for some time. The Select Committee_

on the Taxation Laws (Amendment) Bill, 1969, had
also suggested that Government should examine the
existing law relating to benami transactions with

a view to determining whether such transactions

should be prohibited. _The suggestion was

reiterated in Parliament during the debate on 'the

Taxaticn Laws (Amendment) Bill, 1971.".

153. Accepting the reference, the Law Commission

-unoertook to examine the matter and let the

Government have the benefit of its advice on the

question of prohibiting the practice of holding

..'.

propertg benami.

1.4. The Law Commission in its report analysed
the nature of a benami transaction, its history as
part of Indian legal system and tits judicial
recognition and concluded, after reference to the
decision of the Federal Court,2 that all benami
transactions need not be regarded as reprehensible
and improper and that there is nothing inherently
wrong in it and it accords within its legitimate
scope with the ideas and habits of people.3 It
was, however, further of the opinion that 'Every
benami transaction is not harmless. Past
experience shows that benami transactions have
often been resorted to for furthering illegal» or
questionable objects, including the evasion of
taxes. Benami transactions are sometimes also
~ 4
resorted to in order to defeat creditors.ic
After having examined legal and factual
controversies attending upon benami transactions,
a conclusion was reached as to what steps should
be indicated for either prohibiting or regulating
benami transactions with a view to minimising

litigation. It may be mentioned here that the

guiding consideration of the Law Commission at the
reI2vant time in formL-ating its Vrecommendations
was reducing litigation in the courts arising from
benami transactions. it guoted with aporoval the

observation that "the law permitting and

recognising benami transactions results in a lot

. 5
of wasteful litigation...o'. This approach

influenced to some extent its'recommendations.

1.5. The Law Commission' examined three
alternatives.' They may be extracted:

"(i) Entering into a Eenami transactions
could be made an cffence;. I I
(ii) A provision may be enacted to the effect
that in a civil suit a right shall not
be enforced against the benamidar or
against a thi"d person, by or on behalf
of the person claiming to be the real
onner or the property on the ground of
benami; a similar provision could be
made to bar defences on the ground of

benami .,

(This provision would be based 'on the
principle on V which the existing
provisions in the Civil Procedure Code
and the new grovision'in the Income--tax
Act are based, but could be wider in

scope and more radical).

(iii) 'The present presumption of a resulting
trust in iavour of the person who
provided the consideration. may be
displaced (as in England) by the
presumption of advancement, in cases
where the person to whom property is
transferred is a near relative of the
person who provided the consideration.
(This would bring in the doctrine of
advancement, so as to rebut the
presumption of resulting -trust under
section 82 of the Trusts Act).".

Ultimately, it was of the considered opinion that
the first alternative was not likely to be
effective and the third alternative, though least
drastic, yet the whole thing would turn upon the
intention of parties and, therefore, the practical

advantage of such a provision will be its

elasticity. In other words, it would equally be
A 6

ineffective and accordingly recommended the

second alternative for implementation; In its

view, the refusal to recognise benami transactions

by denying a forum for the enforcement of rights

based 'on benami and thereby making the benamidar
the real owner would bring about a cessation of
benami being tart of Indian law. It also

recommended certain consequential amendments.

106. The regcrt was with the Government for about

a decade and a half. Ultimately it appears that

the Government of India resolved to implement thee

recommendations of the Law Commission. The
Ordinance more or less bodily adopted the draft

recommendation set out under the marginal note
7

"Recommendation" with one important variation

that while the Law Commission was of the opinion
that it is necessary to make an exception for past
transactions¢ as the provisions of the Ordinance
stand, the President appears to have resolved to
make them retroactive. The widespread belief held
now is that the oberation of the provisions of the
Ordinance would be retroactive and even the past
banami transactions would be governed by the
provisions of the Ordinance if it becomes
necessary for the parties to such past benami
transactions to either file a suit to enforce any
right in respect .of any property held benami
against the person in whose name the property is
held or against any other person by or on behalf
of the person claiming to be the real owner "of
such property or defend claiming right in respect
of any property held benami whether against the
person in whose name the property is helo or
against any other person. This understanding of

8
the Ordinance has led to a debate in print media.

The grievance therein stated is that "such
legislation cannot be enacted with retrospective
effect for the person purchasing benami property
before May 19 (date of the Ordinance) did so
keeping in mind the laws relating to benami
transactions prevalent at that time. How can the
State snatch away" his right to enforce his
cwnershil of that prcperty?'.9

1.7. Since the promulgation of the Ordinance,
while broadly welcoming the attack on one of the
court articulated institutions protecting
unaccounted money, the pendulum has swung both the
ways manifesting public reaction to this overdue
legal reform. To cite only a few instances, one
national daily published detailed, analytical and
informative articles under the headings 'Benami
Revolution may be stillborn' and 'The Ordinance

10
can prove Se1f--defeating', and the other of
which note may be taken is 'The Benami Ordinance

(1) Another Paper Tiger and (2) Boon for Reducing
11

Tax Burden'. In between, such views as_

"Banishing Benami Holdings' ano 'Welcome

13
Crdinance' have appeared.
1.8. The Ordinance was promulgated on May 19,
1988. In view of the provision contained in
article l23(2)(a) of the Constitution, in order to

perpetuate its existence, an Act replacing the

Ordinance will have to be put on the statute book'

_within a period of six weeks from the reassembly

of Parliament, failing which the Ordinance would
cease to operate. The Parliament has reassembled.
The grocess of replacing the Ordinance by an Act

appears to have started.

IQ9. On July 22, 1988 late in the evening} a
communication was received from the Minister of
Law, Justice and- Water Resources setting out
therein the circumstances leading to the
promulgation of the Ordinance. In that very
communication ;he referred to a communication from
the Minister of Planning and- Programme
Implementation to the Prime Minister of India
subsequent to the promulgation of the Ordinance
and a decision of the Government of India to
request the Law Commission to take up this
question of benami transaction for detailed
examination and to give its considered views as
early as possible so that the Bill to replace the
Ordinance may be drafted on the basis of the
recommendations of the Law Commission and get the
same passed before the close of the monsoon
Session of Parliament. The next three days were
holidays and the office was closed. There was a
certain constraint on the time available to the

Law Commission, both as to its existence as also

to the time--frame within which a considered report
can be submitted which may help the Government of
India in drafting the Bill to be moved to replace
the Ordinance. but the letter of the Minister of
Law, Justice and Water Resources, after noticing
that the Law Commission was very busy in
finalising some of the reports, yet considered
examination of the issue of benami transactions by
the Law Commission very necessary 'in view of its
importance and the reference of which will be a
very progressive measure and can go a long way to
curb the proliferation of black money in the
country'. The Law Commission, with considerable
maladjustment of its work schedule? in larger
public interest offered its services. If the Law
Commission had time at its disposal as desired by
it, this subject has such vast dimensions that an
indepth study C0010 have been undertaken. But
within the parameters of the reference and the
constraint on time, as detailed a study as
possible with the help of the research staff of
the Law Commission and a limited debate has been
undertaken in preparing this report. Keeping

within the time schedule, this is the report.

CHAPTER I1

THE APPROACH

2=l°~ The history oi freedom movement hears enough
testimony to the twin goals promised cn attainment
ct political independence: economic emancipation
and social justice. Even then, while framing the
Constitution and making the right to property a
tundamental right, hindsight reveals that a grave
error was committed in making the right to
property a tundamental right. Social
reconstruction and social justice measures, more
or less undertaken in implementation of the
Directive Principles of State Policy as set out in
Part IV or the Constitution, floundered on the
bed-rock of fundamental right to property.
Measures after measures were invalidated on the
ground that they violated fundamental right to
property. The pendulum swung in one direction to
such an extent that when the State enacted a
legislation for replacing the management of a
company which the directors had threatened to
close down, the Court invalidated the legislation
on the ground that the legislation authorised a
deprivation of property or the company within the
meaning of article 31 without compensation and
thereby violated the fundamental right of the

company guaranteed by article 31(2) of the

1
Constitution as it then stood. The right to

property where there was no deprivation but merely
substitution of management thwarted an attempt to
infuse lite into an industrial undertaking which

had pecome sick. From Maharaja Kameshwar Singh's

2 3
case to Womanrao's case via the cases of Subodh
4 5 6
Gcpal , I.C. Golaknath , R.C. Cooper , Madhav Rao
7 8

Scinoia and Kesavananda Bharati , the fundamental
right to property enjoyed such an impregnable
position that it almost nullified every attempt at
social justice and social reconstruction. This
resistance to change evoked a sharp reaction and a
demand to abolish the right to property from the
array of Fundamental Rights in Part III of the
Constitution was stridently_ voiced. The
protagnosists of private property went to the
extreme length of saying that what is there to
work in our Indian Constitution if the right to
property is not accorded the status of a
fundamental right. They even ignored the warning
given by a former Chief Justice of India in one of
his opinions that it was an error to place the
right to property in the chapter on Fundamental
Rights. Even when the right to property was
getting entrenched as a road block, a view was
expressed in a dissenting opinion that: 'it is

futile to cling to our notions ot absolute

sanctity of individual liberty or private property
and to wishfully think that our Constitution-
makors have enshrined in our Constitution the
notions of individual liberty and private property
that prevailed in the 16th century when Hugo
Grotius flourished or in the 18th century when
Blackstone wrote his commentaries and when the
Federal Constitution of United States of America
was framed. We must reconcile ourselves to the
plain truth that the emphasis has now unmistakably
shifted from the individual to the community. We
cannot overlook that the avowed purpose of our
Constitution is to set up a welfare State by
subordinating the social interest in individual
liberty or property to the larger social interests
in the rights of the community.'.1o Yet it was
canvassed that unless a human being develops a
sense of belonging, he would hardly be able to put
in his best effort to contribute to the national
good or to the national cake. And un1ess,it was
said,that the national cake is enlarged, what is
there to distribute by way of social justice and
what social reconstruction is possible? Private
property from the point of view of these persons
was sacrosanct. Ultimately a nation cannot be
thwarted in its onward march when the right to
property became an insurmountable road block. A

surgical operation for the improved health of the

nation became an urgent necessity and right to
prcperty was removed from the array of Fundamental
Rights by deleting articles l9(l)(f) and 31 from
the Constitution.l1 The earlier approach led a
jurist to state that in that approach there was
something more than self-luminous judicial policy-
making was.at stake and that was, in one phrase,
"the economic development of India".12

2.2. At the bottom of all this ambivalence was
the judicial opinion expressed soon after the
Constitution came into force that when Fundamental
Rights and Directive Principles of state Policy
stand in confrontation to each other, the
Directive Principles have to yield supremacy to
the Fundamental Rights and run subordinate
thereto°l3 The ambivtlence continued till the
decision in Minerva Mills" casel4 where it was
reiterated that Directive Principles specify the
socialist goals to be achieved and these are to be
achieved without abrogation of fundamental rights.
How this is to be achieved in a case of
confrontation is left unanswered? Directive
Principles were considered by some commentators on
our Constitution 'the humanitarian socialist
precepts that were, and are, the aims of the

Indian social revolution". At the other extreme

end was the opinion by a member of the Constituent

Assembly that the; were "veritable dustbin of
sentiment ....... socially resilient as to permit
any individual of this House to ride his hobby

lb
horse into it",

Read collectively, directive
princitles presented. a picture of a society
toward; which the Government would, by affirmative
action, strive to reach. It was always assumed
that the Government was solely responsible for
transformation of the society and the State was
expected to play a vital role in the welfare of
the people. It is true that ordinarily
fundamental rights and directive yrinciples have
to stand in harmony with each other. But if there
is a confrontation, the fundamental _rights of
individuals have to yield to the greatest good of

greatest number as repnesented by the directive

princiglesg

2,3. The Law Commission refers to this past
histtry for a limited purpose that again it is

dea<i" with private property in this report. It,

therefore, wants to make its approach clear,

specific and unambiguous.

2.4. Preamble to the Constitution promised. that
by effectively using the power conferred by the
Constitution on various limbs of the Government,

they will strive to set up-a society in which will

v~*'2aI

permeate justice, social, economic and political,
and furnish eguality E oppotunity' assuring the
dignity of the individual. Supplemented by
Directive Principles, all the instrumentalities of
the State were under a constitutional obligation
to strive to promote the welfare of the people by
securing and protecting as effectively as it may a
social order in which justice, social, economic
and political, shall inform all the institutions
of national life. The state shall further strive
to minimise the inequalities in income and
eliminate inequalities in status, facilities and
opportunities not only amongst individuals but
also amongst grougs of people residing in
different areas or engaged in' different
vocations.l7 In order to promote the welfare of
people by transforming the exiséting social order
into one in which justice, social, economic' and
golitical, shall inform alllthe institutions »of
national life, amongst others, the methodology was
that- the State shall direct its policy 'towards
securing that the ownership and control ~of the
material resources of' the community are so
distributed as best to subserve the common good
and that the operation of the economic system does
not result in concentration of wealth and means of

18
production to the common detriment;

.Ukv

2.5. India is a socialist State. One of the
fundamental requirements of a socialist State is
to provide for social control of means of
production. The control of means of production by
few individuals results in creating a vested
interest. It becomes in fact the starting point
of exploitation by those who control the means of
production of those who have to serve the
controllers of means of production. Socialist
State would presage an effective social order in
which there would be equitable distribution of the
national cake. Concentration of wealth
represented by property in the hands of few would
be a negation of a socialist Stater Therefore,
the State policy was to be directed towards the
operation of the economic system in such manner as
not to permit concentration of wealth in the hands
of few\ because such concentration is generally
presumed to be to the common detriment. Power of
wealth is generally put to nefarious uses and its
tremendous concentration must be deemed to be
anti--socialn Therefore, concentration of wealth
has always to be curbed by effective state action.
Property of every sort is a tangible manifestation

of concentration of wealth.

2.6. By removing the protection of fundamental

right on private property, first important step

was taken towards removing a road block in
dex*lopmental programr s. The next step was to

curb unlawful and nefarious uses of property.

2.7. In modern times, the word 'property' has
acquired an extensive connotation. Land and
anything attached to earth is described as

immovable property, Movable property comprehends
cash, shares in joint stock companies, debentures,

fixed deposit receipts, bank accounts, jewellery

and such intangible assets as patents and
cogyright, the last being described as
intellectual property. Power of wealth may

manifest itself in myriad types of property.
Acquisition of shares would enable a person to
control the company of which shares have been
acquired by him. Deposits and other methodsv of
financing industrial activity also allows wide

control of the activity financed.

2.8. Right to property never belonged to the
category of what are called "natural rights'. It
is a creation of law and the manner in which it is
created, to the same extent it can be extinguished
by law, where, therefore, a legal system or a
legal formulation or a statutory measure has
extended 9]J_deserved protection to property, on

the ugly and evil features of property becoming

manifest, the statute can withdraw the umbrella of
protection. with the developing notions of social
justice, a protection to a kind of property once
considered valid and just may be withdrawn on the
ground that the protection itself has become

counter--productive.. »

299. Eenami property is not the creation of a

.statute." It _acguired legal respectability by

judicial law~making; iThe earliest case to which
reference. was made in the earlier report of the
Law Commission was of the year 1915. Quoting Sir
George Farwell's observation that a benami
transaction, a dealing common to Hindus and
ﬁohammedans alike, is much in use in India.
According to him, it was quite unobjectionable and
has a curious resemblance to the doctrine of the
English law' and tracing the history down to the
laterv cases, the Law Commission concluded that
benami has become part of Indian law.l9 The Law
Commission recommended that it is time that benami
ceases _to be a part of Indian law because it was
resorted to usually (but not always) with the
object of concealing the real owner, fraud on
creditors, desire to evade taxes aszglso to avoid

certain, political and social risks. It was in

l973, that is, nearly a decade and a half back,

that the Law Commission recommended to the
Government of India that benami should cease to be
a part of the Indian law, This report was
published and it was a notice to all benamidars as
well as the so-called real owners that Government
may contemplate enacting a legislation to put an
end to benami as part of Indian law. As the
present trend of thinking is that the proposed
legislation replacing the Ordinance should be
retroactive, a grievance may be made that the
Government should not haze acted abruptly without
giving locus Eenitentia_ to those who entered into
benami transactions when they were valid and would
have no chazze to set right their house. In the
opinion of the Law Commissionaanotice of a decade
and a half is more than adequate for this purpose

and therefore, it is not necessary to grant any

such indulgence.

2°10. The assumption that benami transactions
only relate to immovable property does 'not bear
scrutiny. Benami holders of shares of joint stock
companies, benami or fictitious bank account
holders, benami holders of fixed deposits in
companies, name lenders for bearer bonds issuance
of which was legitimated by a decision of the
21

Supreme Court ani encouragement to benami in no

uncertain measure, all these have contributed

today to defeating of tax laws, violation of
social morality and concentration of property
standing in the way of development programmes of
the nation. The approach of the Law Commission
accordingly is that benami transactions in respect
of' any property, including intangible property
like the patents and the copyright, should be
COVGICO in the proposed legislation. The
legislation must have extensive application as not
to permit a single loophole for providing an
escape route to any kind of property which can be
held benami. And the entire gamut of umbrella of
protection to benami must be completely, fully and
effectively folded up. This is our approach and
the various aspects are dealt with in the light of

this approach.

2¢lLo This approach ensures that a withdrawal of
the protection on fundamental right to property,
coupled with total denial of any protection of any
legal formulation to benami property, when put in
juxtaposition,' would at least go a long way in
eliminating power of wealth as represented by

property to the common detriment.

CHAPTER III

THE COVERAGE OF THE STATUTE

3.1. As the question of benami transactions has
been examined way back in 1973 by the Law
Commission, the present effort is not to re-
examine and re--write everything concerning benami.
In fact this report may be treated as a turther
continuation of the recommendations made in the

earlier report.

3.2, The first question that must engage our
attention at once is the Width and coverage of the
proposed legislationo In order to encompass
benami transactions concerning various types of
property, the legislation should cover both
movable, immovable, tangible and intangible
property. Unfortunately every type of property,
such as land, houses, shares, debentures, bonds,
bank accounts, deposit receipts and negotiable
instruments, is capable of being held benami.
Therefore, it is equally legitimate to have an
extensive coverage of the proposed legislation by

encompassing property of every denomination.

3.3. The ruck lies in a constitutional conundrum
whether land, both agricultural and urban, can be
the subject matter of a legislation by Parliament

in View of entry l8 in the State List. This

constitutional conundrum should not detain us in
view of the tact that the proposeo legislation in
pith anc substance wouio oe covered by entry 6 in
the Concurrent Listg That is to say the
legislation in pith ann substance would be dealing
with transactions of property or the transactional
aspect of property. Therefore, indisputably
Parliament would have power to legislate on the
topic or Benami Transactions, whatever be the
nature of the

property covered by such

transactions.

3.4. Should the legislation be only prospective
or retroactive is the next important aspect to
which we must address ourselves. The earlier
report of the Law Commission clearly intended the
legislation to be only prospective. It was so
specifically indicated in the report. The Law
Commission was of the opinion that 'the proposed
legislation should not apply to past transactions
because those transactions would have been entered
into after keeping in mind the legal position as
understood at present, namely, that the real owner

can always enforce his rights against the

1
benamidar'. When the Ordinance was issued, the
past transactions were not excluded from its
operation. In cther words, it was retroactive in

operation.

3.5. In the available time, the Law Commission
held dialogues with retired Chief Justice of
lnoia, a sitting Jucge of the Supreme Court, an
eminent jurist, a former Minister of Law and
JUStlC€ and a journalist who had contributed
analytical articles on the topic covered by the
ordinancea One of the Views expressed during
this oebate by one of the participants was that in
the past benami transactions were entered 'into,
when benami was a part of the Indian law. Benami
transactions came to acquire the legal affirmance

by Judge-made law.

3.6. Two inter-connected questions arise in this
behalf; (1) is there any provision in the
Constitution which would put a fetter on the
plenary power of the Parliament to enact law with
retroactive operation; and (2) would such a

retroactive legislation be invalid for any reason?

3.7. Articles 245 and 246 of the Constitution
conter plenary power on the Parliament and State
Legislatures to legislate on topics reserved for
them in the Constitution. The power of the
Parliament to legislate is traceable to articles
245 and 246 and the only constraint on the power
is the one mentioned therein. There is no

constraint either in article 245 or article 246 on

(F:

plenary power of tne Parliament to. lggiglatg
ret*cactively in respect of the topics 'reserved
for it under the Seventh Schedule" ' This plenary
power is subject to the provisions ot the
Constitutionc The Constitution is the conclusive
instrument by which powers are affirmatively
createo or negatively restricted. 'The only
relevant test for the validity of a statute made
under article 245 is whether the legislation is
within the scope of the affirmative grant of power
or is forbidden by some provision of the

Constitution.'

3.8. Therefore, what ralls for consideration is
whether there is anything in the Constitution
which puts a fetter on the power of the Parliament
on its capacity to leg'slate even retroactively.
Democratic culture abhores E5 Egg; facto
lcgi:Tation° Lo scme extent it has been referred
to in article 20(1). It provides that 'no person
shall be convicteo ot any offence except for
violation of law in force at the time or the
commission or the act charged as an offence, nor
be subjecteo to a penalty greater than that which
might have been inflicted under the law in force
at the time of the commission or the offence'.
Art. 20 (1) prescribes a prohibition against ex

post tacto legislation in the field of criminal

N
U)

law. Without further dilating on this topic, it

can be concludeo .at once that ex post facto

legislation may be violative of article 20, clause
(1), but that article would not come in the way of
Parliament to legislate retroactively in areas
not covered by article 20(l)° Shorn of
embellishment, the plenary power of the Parliament
to legislate conferred by articles 245 and 246
does not sutfer a constraint against it
legislating retroactively in field other than
criminal lawn Undoubtedly, any legislation to be
valid must meet the test of Part IIl of the
Constitution. That is not the problem at present.
The only question that is being debated is: is
there anything anywhere in the Constitution which
would either put a fetter or a constraint on the
power of the Parliament to pass a legislation

making it retroactive in operation?

3.9. Could such a retroactive legislation be
challenged on the ground that it invalidates
transactions which were valid at the time ot the
entry into transactions? The constitutional
validity of a statute depends entirely on the
existence of legislative power and the express
provision in article 13. Apart from that
limitation, the Legislature is not subject to any

other prohibition. And it is judicially accepted

«._a..n-jg.

that the power of the Legislature to Lass a law
A

includes a power to pass it retrospectively.' A
Legislature has the power, except in a matter for
which there is prohibition like the one contained
in article 20(1) of the Constitution, to make laws
which are groslective in operation as well as laws
which have a retrosgeotive operation. There is no
limitation on the power of the Legislature in this
respect. Essentially it is a matter relating to
the capacity and competence of the Legislature.
Although most of the laws made by Legislature have
a prospective operation, occasions arise quite
often when necessity is felt of giving
retrospective effect to the law.D

3°10. Retrospective operation of law in the field
of election has been ughelo. One Kanta Kathuria,
holding the office of Special Government Pleader
to regresent the SLéCG of Rajasthan, contested an
election to the State Legislative Assembly and was

declared electedc His election was challenged,

inter alia on the ground that he held an office of

profit within the meaning of article l9l(l) of the
Constitution, The High Court set aside his
election. During the pendency of his appeal in the
Supreme Court, the State of Rajasthan amended the
relevant Provisions of the law declaring that the

holder of the office of Special Government Pleader

was not disqualified from being chosen as, or for
being, a member of the State Legislative Assembly.
The Act was made retroactive and removed the
appellant"s disqualification retrospectively.
Though there was a oivision of opinion amongst
five Judge Bench hearing the appeal, all the
Judges were, however, unanimous on the point that
the Amendment Act had removed the disqualification
of the appellant retrospectively. Hidayatullah,
CJo, observed that it is well recognised that
Parliament and Legislature of the States can make
the laws operate retrospectively, He went so far
as to say that any law that can be made
prospectively can be made with retrospective
operation except that certain kinds of laws cannot
operate retrospectively- Election law is not one
such CaSOo6 It is indisputable that the law
removing benami transactions from Indian law can
be prospectively made. For the same reason, it

can as well be made retrospectively.

3.11. In the debate, a gosition emerged that at
any rate a reasonable agproach necessitates that
all those who had entered into benami transactions
in the past knowing them to be permissible under
the law should be given locus penitentia ranging
from three to six months, giving time to the real

owner or owners holding beneficial interest in the

yrcperty held benami to reclaim the property and
thereafter impose a total bar against entering

into benami transactions in future.

3.120 when the Law Commission dealt with benami
transactions in 1973, "right to property" was
Fundamental as set out in articles 31 and
l9(l)(f). Validity of any legislation entrenching
upon the right to acquire, hold and dispose of
property was likely to be tested on the
fundamental right enshrined in article l9(l)(f)
and could be sustained,on the only ground that the
law imgoses reasonable restrictions in the
interests of the general public or for 'the
protection of the interests of any Scheduled
Tribe. It is not necessary to speculate on the
gossible outcome of the challenge but one can say
confidently that the law prohibiting benami
transactions could have been sustained in the
interest of general public. That apart, articles
l9(1)(f) and 31 both are deleted and, therefore,
the constraint on the power of the Legislature in
dealing with property subject to article 300A has

disappeared.

3.130 Thus, even though the proposed legislation
is not likely to violate any fundamental right, it

was suggested that even to meet the test of

w,.JT.:Mv\',%4'" 77*.' '

article 14, a rational approach demands that some
time must be given to those who entered into
benami transactions at the time when they were
valid according to law in force. The Law
Commission sees no justification for further
extension of any time in this behalf. In fact,
the Law Ccmgission is in favour of making the Act
retroactive to the same extent as the Ordinance
today stands. Undoubtedly, benami became part of
Indian law by Judge-made law. Legislature can
always step in to nullify such Judge-made law.
And the Legislature has power' to pass such
legislation with retroactive operation to nullify
the eftect of the judgment. To illustrate what is
being asserted here, it may be pointed out that
one KoLe Gupta challenged the election of the

returned candidate shri A.N. Chawla on diverse

grounds, inter alia, contending that the returned

candidate incurred an unauthorised expenditure in

excess of the prescribed limit of Rs.l0,000 in
contravention of section 77 and thereby committed

the 'corrupt practice" defined in section 123(6)

of the Representation of the People Act, 1951. In
an appeal against the dismissal of the petition by
the Delhi High Court, the Supreme Court held that:
"in the first place, a political party is free to
incur any expenditure it likes on its general

garty gropagenda though, of course, in this area

also some limitative ceiling is eminently
desirable coupled with filing of return of
expenses and an independent machinery to
investigate and take action. »It is only where the
expenditure is incurred which can be identified
with the election of a given candidate that it
would be liable to be added to the expenditure of
that candidate as being impliedly authorised by
,
him".I The ratio decidendi of the judgmeni;was that
if a political party incurs expenditure for a
particular candidate so as to benifit him, the
expenditure_so incurred by the political party is
liable to be included in the expenditure incurred
by him on the ground that it is authorised by

him.

3.14. Quick upon the heals of the aforementioned
decision, the Representation of the People Act,
1951, was amended by the Amendment Act of 1974 by
which an Exglanation was added to section 77 of
the Act to the effect that notwithstanding any
judgment, order or decision of any court to the
contrary," any expenditure incurred or authorised
in connection with the election of a candidate by
a political gartg or an; other association or body
of gerscns or b; individual (other than the

cancicate or his election agent) shall not be

ceemec to be, and shall not ever be ceemed to have

been, expenditure in connection with the election

incurreo or authorised by the candidate or by his_

election agent for the purposes of the sub-section
(underlining is ours). The language of the
Explanation leaves no room for doubt that it would
be retroactive in operation and if it is so, the
effect of the decision in K.L. Gupta°s case would
be nullified. This retroactive operation of the
expression was .challenged even though tthe
Amendment Act of 1974 was inserted in the Ninth
schedule. The Court in Indira Gandhi"s cases
unanimously upheld the validity of retroactive
operation of the explanation added to section 77.

There are a number of other decisions supporting

this view. Rule 5 of the Central Civil Services

~(Temporary Service) LIICS; T1965 provided that the

services of temporary Government servant who is
not in quasi--permanent service shall be liable to
termination at any time by a notice in writing
given either by the Government servant to the
appointing authority or by the appointing
authority to the Government servant. The period
of notice shall be one month. It was settled by a
catena of decisions that payment in lieu of
notice must be forthwith i.e. simultaneous. In
other words, order of termination of service must

be acccmpaniedy in the absence of notice, with a

pay gacket for one month. If there is dichotomy
between the two i.e. both the acts were not
simultaneous, the order would be unsustainable.
Subsequently, a proviso was added to rule 5 and
brought into operation retrospectively with effect
from May 1, 1965 and the retrospective operation
0

of the rule was held valid .

3.15. Therefore, it is unquestionable that save
the inhibition prescribed in article 20(1) of the
Constitution, there is no constraint or fetter on
the plenary power of the Parliament to enact a
legislation making it retroactive in operation.
If it is permissible, the Law Commission sees no
justification for not making it so, nor for giving
any locus genitentia to those who had entered into

the transaction in the past.

3,16. Having given adequate reasons supported by
the decisions of the highest court that the
plenary power of the Parliament to legislate is
not subject to inhibition that Parliament cannot
retroactively legislate, it must further be spelt
out clearly that any such inhibition, if read,
would hinder the effectiveness of the Parliament
to transform the society by rule of law. The
Executive and the Legislature are under a
constitutional mandate to take steps, consistent

with its financial capacity and other resource

position, to translate into reality the Directive
Principles set out in Part IV of the Constitution.
Each such legislation, to specifically abrogate
the rights of vested interests, to bring succour
and cheer to the downtrodden and underdog would
necessitate legislation impinging upon things done
in the East. Zamindars acquired large zamindaries
by devious methods and obtained the protection of
foreign rulers by having a stamp of legality on
such acquisitions. If Legislature could not
legislate to abolish zamindari save on the pain of
paying compansation because of the right to
property being fundamental then, agrarian reform
measures could never have been passed. No one
can, therefore, be heard to say that when in the
past they did certain things, entered into
contracts, concluded transactions consistent with
the legal position then obtaining, they could not
be divested by de--recognising the transactions for

the purpose of social reconstruction.

3.17 An alternative approach that emerged in
the debate was that even conceding the plenary
power of the Parliament to enact law with
retroactive operation except in the area excluded
by Arto 20(1), the retroactive operation is likely
to violate article 14 as recently interpreted in

10
number of important judgments. Briefly stated,

this new dimension of article 14 is that in its
midth_and coverage, it is not limited to cases of
discriminatory classification but it has activist
magnitude and it embodies a guarantee against
arbitrariness. No attempt, it was said, should be
countenanced "to truncate its all-embracing scope
and meaning for, to do so would be to violate its
activist magnitude. Equality is a dynamic concept
with many aspects and dimensions and it cannot be
"cribbed, cabined and confined' within traditional
and doctrinaire limits. From a positivistic point
or view, equality is antithetic to arbitrariness.
In fact, equality and arbitrariness are sworn
enemies; one belongs to the rule of law in a
republic while the other, to the whim and Caprice
of an absolute monarch." 11 It was said that
what has been lawful for over three quarters of a
Century, if invalidated today, could certainly be
styled as arbirtrary and would violate article 14
If the new dimension of article 14, namely,
anything arbitrary is violative of article 14 is
invoked, that approach by itself without anything
more make it regressive and would perpetuate
vested interest which certainly was never
intended. If in the field of property which has
the inbuilt tendency to create a vested interest,

the doctrine of arbitrariness could be invoked to

perpetuate concentration of property, the very new
dimension of article 14 would effectively deprive
Legislature of any power. And let it not be
forgotten that concentration of property has
always to be effectively dealt with by law.
Therefore, any interpretation of article 14 in
the light of its new dimension were to deny power
to the Legislature to deal with concentration of
property, the very doctrine of arbitrariness would
perpetuate arbitrariness. Therefore, while
attempting to disburse property for more equitable
distribution in the society, article 14 with its
new dimension cannot and would not stand in the

way 0

3 18. Therefore, viewed from either angle, the
Law Commission is of the firm opinion that the
legislation replacing the Ordinance should<3lQO be
retroactive in operation and that no locus
Eenitentia need be given to the persons who had
entered into benami transactions in the past. They
had notice of one and a half decadesl' to set

their house in order. No more indulgence is

called for.

CHAPTER IV
EENAMI TRANSACTIONS AND
MOTIVATIONS FOR THE SAME
401" Ii legislation were to be enacted on the
lines of the Ordinance alone, a legitimate
criticisn would be voiced as to how the State or
the society at large is benefitted by making an
ostensible owner a real owner and oepriving the
real owner of his beneficial interest, both are
parties to a benami transaction. Benami
transaction generally implies that when one
purchases the property in the name or other, the
other being a name lender, and the purchaser did
not propose to transter beneticial interest to
him, the name lendei is a benamidar and the one
who advances consideration is the real owner and
also described_as holder or beneticial interest in
the propertya It should, however, not be
understood that oenami transaction emerges only
from a transaction of sale and purchase of
property. In fact, in modern times and at least
since the advent of the Constitution, when
attempts were made to destroy vested interest in
land by abolition of zaminoari as well as
aoclition or estates and simultlaneously making
tne tiller the cwner of the land, a large scale

benami transactions have come into existence where

the real owner of land whose holding woulc exceec

the ceiling prescribvd under agrarian reform laws

would permit the land to be held by the tiller

without transferring ownership rights to him.

Thereoy, he succeeds in defeating the agrarian

reform laws and perpetuates his holding. To

illustrate, section 57 of the Bombay Tenancy and

Agricultural Lands Act, 1948, provided that on the

tillers' day - April 1, 1957 - the tenant shall

become the owner of the land. The title was to be

transferred by the operation of law and it became
indefeasible subject to some of the provisions of

the Act. Decades after the statute was in

operation, a survey in Borsad taluk of Kaira

district of Gujarat State revealed thousands of

concealed tenancies. In the process, the holder

oefeated socially beneficent legislations - one,

the aforementioned Act and another, the Act

prescribing ceiling on agricultural holding. Same
S

modus operandi was resorted to when Urban Land

Ceiling Act came into forceo In fact, knowledge

of such situation probably led the Minister of

Planning and Progamme Implementation to state in

his letter dated May 25, 1988, which led to the

present reference, that comprehensive legislation

may be cnacted 'to effectively checkmate the

transactions in fictitious names or those in the

names of dogs, cats and long dead persons, etc.'.

€020 Benami transaction activities have thus

cncowpassea all areas of property relationships.'

Whatever be the nature of the property, there can
be a benami holoer of it. An impression,
therefore, requires to be removeo that benami
transactions are generally the outcome of sale and

purchase of property.

4,30 The information so far collated in the

preceding paragraphs would necessitate a serious

question to be posed and answered. The question

posed curing the debate was that the Law

Cowmission should not start with a belief,

according to them not legitimate, 'that the
motivation behind benami was always and
necessarily illegitimate. It was said with

emphasis that benami can be also for _legitimate

purpososa An illustration was given during the'

debate that take a case where 'A' not only
intensely loves his wife but also holds the belief
that she is the harbinger of good luck and,
therefore, 'A' woulo like to buy the property or
transfer the property with him to his wife without
any intention of transferring any beneficial
interests Proceeding further, it was said that in
order to establish his bong fides, 'A' would

continue to show the property in his wealth tax

return or in his income-tax return and, therefore,

any suggestion that the transaction was entered

into with a View to defeating tax laws would stand

negativedo It was, therefore, asserted that in

such a case, to make wife an owner and deprive the

real owner at the property would be irrational,

apart trom being more illegitimate than the

illegitimate benami transaction itself. The

Commission remains unconvinced. If 'A' loved his

wite so intensely and believed her to be the

harbinger of good luck, why should he not transfer

the property to her for good and disclose the

transaction? Such an hypothetical illustration

cannot conceal the real fact that ordinarily

benami transactions are entered into for various

illegitimate purposes. The primary aim is to

deteat the tax laws, such as wealth tax, gift tax
and income--tax, as also estate cuty when it was in

force and which has come back in a different form;

Continuec benami transactions would have an impact

on the same. Similarly, socially beneficent
legislaticns were enacted both by the States and
the Centre for equitable re-distribution of
property and for removing inequalities in income,
simultaneously with status and opportunity. And
benami were entered into with the sole and avowed
aim of defeating the saneo Hewsoever. one may

dislike this, it cannot he wished away.

4.4. The Law Commission made nunsrous efforts by
raising the question repeatedly whether there is
any area in which it benami transaction operates,
it woulo uavc the cover of legitimacy in the sense
of justitiablc social morality and in which to
dcrivc unjust enrichment was absent. Though the
Commission struggles hard, it coulo not come
accross any. It may be that the attention of th:
Law Commission may have escaped that rarest of
rar; case where bonami may be treated as
legitimate and justified socially and ethically
anc consistent with the morcs of the Cay, yet the
illegitimate arta or th: illegitimate motivation
behind entcring into ocnami transactions is so
wide and so vast that small invisible area of so-
callcc legitimacy may be ignorco. Therefore, the
Law Commission is of the firm opinion that benami
transacticn- in any torm in respect of any kind of
property, tangiblc or othcrwisc, should be covered

within the proposes legislation.

4.5. Bcforc we conclude on this chapter, it- is
necessary to point out that certain tax laws have
confirmed legitimacy on the benami transactions
and ocrivcd benefit in th; form of revcnue
collection from it. It was, thtretore, said that

if now all bcnani transactions are invalidated and

hm'

an all-enveloping prohibition is imposed, the
Lgvtnue laws woulo suffer loss of revenue.
RCILKCHCC in this connection was made to section

27 of thc Income-tax Act, 1962 dealing with inconc

irom nous; propcrtyo The various sub-scctions of

section 27 deal with transfer of property by

husband to wife and vice versa. It also involves

the case of impartablc cstatc. The Law Commission

is unable to appreciate how a total prohibition of

benami transaction ano the holder boing made the

real owner would oefcat rcvcnuc lawso If one

escapes, the other pays, and if it is suggested

that the other may not be within the dragnet of

tn; tax laws ano that both woulo benefit by the

prohibition and abolition ot bcnami transactions.

In the immediate ltuturs such vetfsct may be

producoo but the long term interest woulo help in

defending such spurious stransactions between

husband and wife; Section 22 may be' read

aocordinglyo But it was-pointed out that whore

transfer of' flats is prohibitoo eithcr 7by the

rules of the co-operative society which has built
the ftlats or by the rules of authorities like the
a modus'oEerandi has

come into cxistcnbe whereby violating the law, the

Delhi Development Authority,

flat is

amount 'and take anlirrcvocable power of' attorney

and enter int? P9§§§§§i;E;a alt masi£urthek;_said_Lw____.

sold 'an6 the purohasér 'would "pay 'they

that! tho provisions of the Income-tax Act have
recognised such transfgrs and treat the attorney
as owner for thc purpose of incomo--tax as pcr the
provisions of the Finance Act, 19870 If the sole
purpose of entering into such a transaction is the
violation or existing law which has been passeo
aftcr cue consideration, it is time that no
rccognition is conicrrco and the law is allowed to
take its own course. Even in the name of rtvcnuc
loss, violation ct existing laws cannot be

protected.

40;. The Law Commission would like to make it
vary clear that somc of the provisions of the tax

laws may becomc anachronistic because ot the

present approach of thc Law Commissiono This is
incvitablco The tax laws worc cnactcd at a time
When bonami was a part of Indian law. Such laws

would have to ccntorm to the changing legal orderc
Yet a further solution is offered in this behalf

in the ncxt chapter.

CHAPTER V
THE COURSE OF FUTURE ACTION INDICATED

5.10 On the earlier occasion when the' Law
Commission dealt with the subject of benami
transactions, 'a very limited attack was directed
against benami transactions by merely refusing the
assistance of the court machinery to recover
benami pro}erty by the real ownero Briefly, the
real owner of the property is precluded from
instituting a suit or bringing an action in
respect of any property held benami against the
benamidar or against any other person. similarly,
defence based on any right in respect of any
progerty held benami, whether against the
benamidar or against any other person, was not to
be permitted by the court. This is the legal
position under the Ordinance. A glaring lacuna

appears in this limited approach.

5.2. Let it not be forgotten that the benami
transactions were never entered into between rank
strangers. Generally the relationship between the
real owner and the ostensible owner was one of
confidence or they were near blood relations.
when land was transferred with a view to defeating
ceiling laws or socially beneficent legislation,

the benamidar was generally a farm labourer,' a

servant or a rent collector. "In some of the
cases, the benamicar was either a wife or a

daughter or a very near blood relation.

Encomyassing the entire gamut of benami
transactions, one thing that emerges

unquestionably is that the real owner and the
cbstensible owner were either in a fiduciary
relationship or blood relationship or close
intimate friendship. If such persons were the
parties to benami transaction, as between them, a
litigation was generally not even conceived. The
Ordinance which follows the report of the Law
Commission of 1973 merely prohibits court action
at the instance of the real owner against the
benanidar or a defence based on benami on behalf
of the real owner. If these close intimate
rriends/relations would not resort to court
proceedings, the Ordinance does not even remotely
affect them or their benami transactions. The
Ordinance will remain "a paper tiger', ineffective

in_every manner, It would be inane.

5.3. Further, in worldly ways it can be easily
circumvented. If the benamidar chooses to re-
transfer the property to the real owner, there is
nothing in the Ordinance which will come in' the
way of benamidar re--transferring the property to

the real owner. Coupled with this is the fact

.43

C"""-«».

after

that even the Ordinance, there is no
yrohibition against entering into benami
transactionso It is neither made illegal nor

criminal. Therefore, the net effect would be that

even after the Ordinance and even after the Act

reglacing the Ordinance is put on the statute

book, benami transactions can be entered into with

impunity and as and when necessary the ordinance

or the Act replacing it would be rendered inane by
voluntary re--transfer of property by the benamidar

to the real owner. Should the Legislature

legislate to merely put on the statute book

something which is toothless, meaningless and

wholly empty?

554. It is idle to speculate that benami

transactions were entered into without any

specific motivation behind them. And primarily

the motivation was illegitimateo one can go into

the motivation of a benami transaction and one

would discover an attempt either to defeat tax

laws or socially beneficent legislations or
occasionally to shield money obtained by corrupt
practices used in acquiring property. If such were

the motivations, it would be putting a premium on

dishonesty to treat benami transactions as merely
a problematic of civil law or transactional law.
In fact, under the garb or the pretext of an

apparently innocuous transaction, the real purpose

and motivation was wholly illegitimate. Now,

undoubtedly, benami was a part of Indian law. But

when the notion of legality is used to defeat

gublic convenience, justify wrong, protect fraud

or oefend crime, the law should permit lifting of

the veil to ascertain the reality so is to unearth

1
illegitimacy behind the transaction

5,5. Viewed from this angle, one can confidently

say that the real/beneficial owner on the one hand

and the benamidar on the other were Earticiges

criminis. Both of them were participants in an

activity apparently into a superficially viewed

legal transaction but in reality and in substance

into a criminal activity to shield the real owner

from showing the property as his either in his

wealth tax, income-tax or even the source of

consideration with which the property was

acquired. The real/beneficial owner and the

benamidar share the same fraudulent intent and the

same avowed intention of entering into a

transaction tainted with criminality. Therefore,

it can be said with confidence that they were

participes criminis.

By the operation of the Ordinance, one of

the two parties to the illegitimate transaction

obtains an undeserved advantage. If, as the

.3:
U1

Ordinance is understood, any action at the
instance of the real owner against the benamidar
in relation to the property held benami is
excluded from the cognizance of the court,
obviously for all practical purposes the benamidar
vis--a--vis the real owner would become the owner of
the property" and gig £3332 the real/beneficial
ownership of the real owner would be extinguished.
lo some extent this can be termed as unjust
enrichment by the benamidarc Should the law

permit it? That is the substantial question.

5.7. As the Ordinance stands, the benamidar
cannot be deprived of property acquired benami by
the real owner through the assistance of the
court. Benamidar would for all practical purposes
remain the owner an- may be able even to transfer
a good title, if he so chooses, to sell, mortgage
or transfer the groperty. This unjust enrichment
of the benamidar deserves to be dealt with by an
appropriate Erovision. one can draw the analogy
from the provision contained in section 269C of
the Income--tax Act, 1961, which provides that if
any immovable property of a fair market value
exceeding one hundred thousand rupees has been
transferred by a person to another person for an
apgarent consideration which is less than the fair

market value of the property and the consideration

for such transfer as agreed to between the parties

.35 not been truly stated in the instrument of
transfer, the competent authority can start a
grcceeding under section 269C read with section
26:9 for the acquisition of such immovable
¢rt'ertv° Sections 265C and 269D on their own
force will not apply to a benamidar. But an

aggronriate legislation may authorise competent

authority under the tax laws to call _upon the

benamidar, the beneficiary of the Ordinance, to

explain how ané from where he had acquired the

requisite fund for acquiring the property and if

it is satisfactorily established that he was a

mere name-lender without having invested a

tarthing in the transaction, a proceeding for

acquisition of the property can be initiated. He

is requires to be paid nothing because he has

invested nothing. This approach would to some

extent strike at the illegitimacy of transactions

anu the acquisition of the property would be

justified in larger national interest. Apart from

this, geople will think twice before lending their

nameso
5°8. There must be one more string to the bow.
As gointed out hereinbefore, while the court

assistance would be denied under the ordinance to

the real owner to recover the property transferred

(

acnani iron the bcnamioar, nothing noulc come in
the way of the benamidar re-transterring the same
property inter vivcs to the real owner.
Obvicuslyp when such re--transfer takes place, the
provisions of the Giit Tax Act can be invoked it
it is done without consideration or for a
consideration other than cash or service rendered
or any apparently named consideration which is not
paid" In such an event, the tax authorities must
be enpowered by a suitable provision to enquire
into tne legitimacy of the transaction" If it is
satistied tnat the attempt is to restore the
property to the real/beneficial owner by a
benamidar, the law should stop in and intcrdict it
from being ooneo If the real owner cannot recover
property and the ostensible owner has no interest
in the property, obviously a provision can be mace
for acquiring the property without payment of any

considerationo

5¢9t Along with the aforementioned two
approaches, benami transaction should be
prohibiteo by the proposed statute. Entering into
a oenami transaction should be made an otfenoen)
This aspect was examined by the Law Commission on
an earlier occasion. It is not £or a moment
suggesteo that any prosecution shculo be launched

for the benami transactions entered into prior to

the date of the Oroinance. That would fail on the
t0UCh°StCUC of arti le 20(1) of the Constitution.
What is suggesteo here is that frcw the date of
the legislation, a prohibition should be enacted
against entering into benami transactions in
future ano it it is satisfactorily established, a
punishment should be awarded. There should be no
consideration for such transaction, Power of
wealth, if not curbed, is likely to destroy the
power of CtfiC€o At all times, power of wealth
and power of office stand in confrontation. It is
absolutely necessary in the larger interests of
the society to have an effective check on power of
wealth. Bcnami represents a facet of power of
wealtho It has to be curbed. Therefore, such
transaction in future should be prohibited and a

provision for punishment should be incorporated.

5DlUO There was one suggestion that emerged in'

the cebate referred to earlier which needs to be
examined here" It was said with a certain amount
of feeling that even after extensive amendment of
Hindu Law and more scientific and generous rules
or inheritence under the mohammeoan Law, female
heirs are at a comparative disadvantage in
inheriting the property that should otherwise come

to then. It was said that some exception should

be wade in favour of wife and daughter, more

particularly, unmarried daughter, where either the
father or the mothei would like to buy a property
in the name of the unmarried daughter or the
husband would like to buy the property in the name
of his wifec The submission was that they are
such near relations that any element of
criminality cannot even be imagined amongst such
intimate relations" Distinguishing the case of a
son, it was said that he is bound to inherit the
property of his father and, therefore, no
exception should be made in his case. In view of
the provisions of section 64 of the Income--tax
Act, one is at a loss to understand how is the
wife to be benefitted by becoming a benamidar in
respect of some property, consideration of which
is paid by the husband and transferred directly in
the name of the wifea The case of an unmarried
daughter may stand on a different footing.
However, if any exception is to be made for a
proprty held benami by a wife or unmarried
daughter, in the opinion of the Law Commission, a
presumption should be added that to the extent,the
wife or the unmarried daughter becoming a
benamidar of a property purchased or transferred
by the husband or the father, as the case may be,
the doctrine of advancement, as understood in the

English law, may be incorporated in the Indian law

and the husband or the father, as the case may be,
will not be entitled to reclaim the property on
the ground that either the wife or the unmarried
daughter was a benamidaro This would at least
establish that the husband or the father, as the
case may be, was genuinely interested in
conferring some benefit on the wife or the
unmarried daughter, as the case may be. Beyond
that, no exception need be considered with regard

to prohibiting benami transactions in future.

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.

5ol2a 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

to sections 81, 82 and 94 of the Indian

Trusts Act, It may be mentioned that by the

-1
L

8 of th

(L)

provisions of the Ordinance, section

Trusts Act has been deleted, But it has k t

sections 81 and 94 untouchedo

5.13. 'Section 81 provides that where the owner of
property transfers or bequeathcs it and it cannot
be infered consistently with the attendant

circumstance: '"?t he intended to dispose of the

Leneficial interests therein, the trarsferee or
legatce must held such property for the benefit of
the owner or his legal representative.
Illustration (a), section 81, reads 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 th: transfer is

made, be inferred that A intended to transfer

the beneficial interest in the land. B holds

the land for tht benefit of A."u

5.14. Numerous transfers of agricultural and
urban land have been noticed whereinw 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 So 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 ynefarious
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 landg He has also

specifically pointed out the names of landlords

who have used the facade of trusts for protecting
'heir 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 E). 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 P.N. Bhagwati
pointing out the misuse of benami transactions in
land in the name of false or fake trusts for
pseudo--religious services (Appendix ll). 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
Vintage 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.

F015, Section 82 p.3vides 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 considerationo 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 ias the case
may be) to the extent necessary to satisfy their

just demands"°

5,170 The Indian Trusts Act is of 1882 vintage.

It was the hey day of laissez fairer Private
property was sacrosancto Every legal device was

resorted to 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

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 sharos_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
by is the owner of i1C shares and nothing to the
contrary shall be proveable in any proceeding nor
any transfer without consideration shall be

recognised except where it is by gift.

5.180 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, therefire, presages that there must

be a very effective implementation machinery of

laws prescribing offences and punishments for

them"
5.190 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."2 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
elaboratae machinery set up under the tax laws for

their effective implementation.

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 machinerye 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.

5.210 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 benefitsa 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 po er for assertirg 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.'.3

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, vaxatious or malicious,
the tribunal would be justified in awarding
suitable compensation to the party against whom
cewglaint is agizn This is in brief the outline

of the method of enforcement of civil laws.

5c23o 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,4 the Law Commission recommended
appointment of Liaison Officers attached to Gram

Nyayalayas. For a detailed discussion of their

role, the report may be studiedi 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
transactionso 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 0

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 officerp 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 lawso According to the Law
Commission? all these measures would provide
comprehensive enforcement machinery for the law,

which will replace the Ordinance.

5025. The Law Commission recommends accordingly.

(DeAo DESAI)
CHAIRMAN

(V¢S° RAMA DEVI)
MEMBER SECRETARY

NEW DELHI,

AUGUST 14, 1988.

NOTES AND REFERENCES

Chapter I

2.
3.
4.
5.

10.
ll.

12. Editorial,
13. Editorial,

LCI, 57th Report on Benami Transactions, August
1973.

Punjab Province V.
LCI, 57th Report,

Ibid., para 1.15.

Hasman Gani Ahmed Sahib v. Vidhadhar Krishnarao Mung
YAppea1 No 533 of 1968Ydecided on 17.1.1969 by Patel
and Wagle J.J. quoted in Para 6.21 LCI,57th Report.

LCI, 57th Report, paras 6.24, 6.26 and 6.27.
para 60330

Neena Vyas in The Statesman dated 4-6-1988,
Revolution May be Stil1born' p.7.

£219»

Neena Vyas in The Statesman, Delhi Edition, dated 4th
and 5th June,1988.

Daulat Singh, AIR 1942
para 1.14.

'Benami

K.N.Balasubramanian in {he Economic Timeg, New Delhi
Edition, dated 22nd and 23rd June 1988.

1he;Tribune dated 21st May, 1988.
.bla._t.i,9.r3.a_l._P.I.e.r.«2_l.<2 dated 23rd May. 1988.

9I3.9.p.t_<:r,_1.1;
l. Dwarakadas_Shrinivas V. §holapurm§Rinning"aQ§_weaVigg
Qggpgg1_§Eg, 1954 SCR 674.

2. 1952 SCR 89.

3. (1981) 2 scc 362.

4. 1954 SCR 587.

5. (1967) 2 SCR 762.

6. (1970) 3 son 530.

7. (1971) 3 scR 9.

Chapter II(contd)

8.
9.

10.

ll.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

(1973) Suppl. SCR 1.

Hidayatullah, J., in his concurring opinion in
I.CoGglaknath case, see supra note 5.

S.R.Das, J., in his dissenting opinion in Subqgh
Gopal Bose's case, see supra note 4.

The Constitution (Forty-fourth Amendment) Act,1978.

Dr.Upendra Baxi, The Little Done: The Vast Undone,
1967 gggrnal of Indian Law Institute, Vol.9,p.323
at 383.

§t§te_g§ Madras v . Champakam Dorairajan, 1951 SC
226 1951 SCR 525'

(1980) 3 scc 625.

Granville Austin, The Indian Constitution : The

Cornerstone of a Nation, pp. 75476.

T.T.Krishnamachari as quoted by Granville Austin ibid
The Constitution of India, article 38.

Id . article 39(b) and (c).

Anyone interested in the history of development of

law about benami transactions may see 57th_Beport
of the Law Commission of India where most of the

cases have been extensively quoted.

LCI, gggp Report, para 1.7.

§;"¢§§rg vs. Union of India (1981) 4 SCC 675.

Chapter III}

V11.

'12.

LCl, 57t Report, pnra 6.29

Smt. Indira Nehru Gandhi V. Raj Narain, (1976) 2
SCR p. 436

';g., p. 437

;g., p. 138.
., p. 481.
Kanta Kathuria V. Manak Chand Surana,

1972 SCR 830.
Yvnwer Lal Gupta v. Amar Nath Chawla, (1975) 2 SCR 259
Note No.2 above.

Raj Kumar v. Union of Ind1a,(1975) 4 sec 13

'C1

.'.'4c. 0

Royappa V. State of Tamil Nadu:(1974) 4 SCC
3 at 38;

Raman Dayaram Shetty V. International Airport Authority
of India and Ors. ,(1979) 3 sec 489:

Mancka Gandhi v. Union of India, AIR 1978 SC 597;

Ajay Hasia and Ors. V. Khalid Mujib Sehrawardi and othegg,
1981) 1 SCC 722.

LCI 57th Roport--Put them on notice in 1973. It is a
a published document r"comrcnding abrogation of benami
transactions.

Chepter V

United States V. Milwaukee Refrieerator Eransit

Company, ouoted in Penningtog's Comgany aw,
5th Edition, p. 58, in the context of lifting a

veil of corporate entity to ascertain the reality.

Mo Dowell Co. Ltd. vs. Commeggial Tax Officer,
(1985) 3 SCR 791 at 809.

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

L.C.I. 114th Repont4on.Gram .gzayala1a.

Cable: Banwasi/ Ashram TUBRA
BANWASI SEVA ASHRAM
Govind Pur (Via Turfa)'
Mirzapur (U .P.)"

No . 4:809/88-89 Date 13th July, 3988

My dear Justice Desai,

I am enclosing the copy of a letter written by

Shri S. Jagannathan (Sarvoda leader-)\ to the President of
India regarding the Benami transactions of land in
Tamil Nadu by creating a large number of Fake Trustsa
Shri Jagannathan is a conscienceus social worker

long connected with the Sarvodaya and Bhoodan movement
was President of the All India Serva Seva Sangh for

two terms, has lead a series of Satyagrahas to success-~
fully distribute temple and trust lands to the landless
in Tamilnadu. He had also made experiments with the
help of'NABARD and local banks to transfer land of the
défunct trusts to the landless by way of bank purchase»

I am forwarding his letter to you to seek your
valuable, advice in planning an effective administrative/
legal action for the peaceful transfer of Benami land
to the actual tillers.

I shall be grateful for an early response in the
mattero

with deep personal regards I remain,

Yours sincerely,
Sd/--
(' Prembhai )'
Justice Shri D.A. Desai,

.. 59 -

His Excellency,

The President of India,

new p_e_11;L;L,

Respected and Dear President,

Sarvodaya Movement, as well lmown to your Excellency, is
engaged in the peaceful 'solution of the land problem for
the past 30 years eversince Acharya Vinobaji started the
Bhoodan Movement in 1951 and LAFTI is a registered
organisation of Sarvodaya for a special experiment of
distributing land to the landless poor through bank
operations and Government participation, ass. a non-violent
alternative to the conflicting situation in East Thanjavur
due to the concentration of lands in a few hands and the

highest percentage of landless labour in that area.»

But during our Search for the peaceful solution orthe land
problem we were very much worried and perturbed by the '.
benami transactions in such a large scale throughout the
country, corroding the society to a moral degradation and
economic chaos denying justice to the poor. fbrruptilidm
and Benami transaction are twin evils that havegripped
the country to strengulation of all moral values. The
recent ordinance promulgated about benami transaction
(prohibition of Right to recover Property)' uplifts and
regenerates the Nation to great moral heights.-

we submit our gratitude to the President for the ordinance
promulgated at the most opportune time. We welcome whole
heartedly the speedy ponouncement of the ordinance in
order to instal the moral dignity and promote the
economic welfare of the country by controlling and
abolishing the benami transaction. Your bold step
inspite of the Parliament not in session, to take

uugoocm

-vr{\_';\1-v

lmmeciiatc action in exercise of the pawar confratcrea by

Clause {1} waif 3.3.3 cpf hm Cunstitution
all section as a vfisﬁ-. ma tirnely measura to raise
ecsnmgic smnﬁard of the people, particularly"
section who will be 'xzsenafitv:-.5: as "aenazsiaharsu 'ma pasberity.

will hail the ardinaazxca as one of ':L'§.s'&01*ic imam:-tancse fur
'vfelfara of the p::;or§ 1: the ordinance

t'-Le prcsmotion gi 't:.'r»:=.
and implementeci in tha true spirit';

is S£3'.\?iCﬂlSl}" ttrken "Q

Irhwever it is cur emlav-.7:
same 6;: scregencias in the implemantzxtik
will arise which ﬂso should» be

sevc=rD.3. rlryubts anri 1r:.«:m:.a:=:
attensiecl tax in the interest of the public.

close ralatiorxs anti ﬁriends
' se their rights, vested. on
'£3.11 have the

3.3? Erna 'aenézﬁ mars ~ufn:> art;
will never comeﬁaﬁiard ta ta
aim-mac, naither this sazrvents

them by the. or
The ardgnance will be null

q:-urage. to claim thqir ri ghts;

3&3 T1333 K3C'3'3'~?'n53
henmsiﬂliars may mt 'gelsng to
most of that: ~3x1g.9;g,Ld in pmfcssrmns such as ﬂoaters, engineers,
5:1 <:';,s§1€'-Ci1"n.S etc. There shsuld be a.

he aria at that the benaxai fiha-.rs 'benefitized. by the

clause to t
Qxdinsnce sh:>u1,C1 be bclaw %;'m:=. pmzertzr line -3: otheréise
3119-IE1 benanxidhars abave the poverty line slfaculd

the Eiuverzmc-.nt for distribution to

the categcry sf the pear, 333

'gusine 55 inaustri

landless paor.
ufxd hcura .3 raachinery 'cm iwnﬁfy

Thcrrzfere tim Gzw.-rmaent 523:,»
in e'=ser;r state in $363: by

and list. £31113 'aha benemidhars

2.53 "fa alarify am 4; the b3'fxD..*:\iIihs:+.'£S 'dnsse \-!':;o are helm!

hm. 3;:-'Marts? 11:23 .
'5')? Tc csniim
p:-warty line.
G3} Ant} to taking away the
15'I§CE.'$SS«|
V1

-'71-

3. Besides the benemi transactions in individual-nmes of '

'close relations, friends and servants, the other glaring benami

transaction by the land owners. to escape from the Land Ceiling
-Act is transfer of lands in the name of religious and public
trusts. The land owners assurne thepseude posture of religious
mind and public spirit, just to hoodwink the public md the
Government. Such spurious trusts created in the name of schools,
hospitals dharmashalas etc. should be taken over by Government
for distribution to the landless.

A sample survey taken in 10 blocks of East Thanjavur where

LAFTI is operating gathered by public information in the villages,
some of them verified by the re cords frm the concerned village
officers, is enclosed herewith for your kind notice. All the
trusts are only in name and the trust lands are mizsused for
their own selfish ends. The endowment of landed property as
trusts during these days of huge' population. and when the tillers

are land hungry, is anti people and anti social. Therefore

the lands under all trusts created eversince 1947, should be

taken over and distributed'to the poor. '

We feel the ordinance will be a boon to the people for controlling _

and abolishing the hen:-mi transaction in the name of individual!
and trusts. We hope the ordinance will have' effective clauses
to control and ultimately elimino:tfp~ the benami transactions
through notification or necessary rules there--on ahead of the
Parlio.mentary.Legi slative procedures, for the projected points -
referred to in our' apppeal. .

Thanld-ng you Yours sincerely,

Sd/-~ S. Jagannathan.»

INNWI

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« Hsaaaz mwuomoma nm>wHmU:E mmmummm>LH mmww%mm% mmnom mp wmaamQEwmmwHmUc:m.m wamcﬁg 'ml Vs \ Hucooaﬂmuscpsnwcw IOU! to )V In7nN Cox .3 "LAND BELONGS TO GOD is. TO SOCIETY" -- GANDHIJI A PE TTAL IGAL PANNAI ASHI XM (Community Training Centre for Agri. Labour) Valivalam P.O. 610 207, Thanjavur District, Tamil Nadu, INDIA.

28th 'July, 1988 Dear shri P.N. Bhagavatiji, I am glad Shri Prembhai of Banwasi Seva Ashram wrote to you in connection with our representation to the President regarding the benami ordinance. This benami ordinance is just a bolt from the blue promulgated by the Central Governent. Where was the demand for such an ordinance; which will not have any impact in the society. The Law Commission had strongly recommended for the Abolition of the benami transfers and Tamilnadu Government passed by an over whelming majority Benami Abolition Bill in 1982 which was vetoed by the center when it was sent for President's assent. The present ordinance is not for Abolition of the benami transfer but confirming the illegal transfers of the land owners, by bestowing ownership to the benamidhars. If the benamidhars is a landless poor below the poverty line, he should be given the ownership but benamidhars of nonacultivation class should not be given the ownership. After all neither the servant nor the close relation as the benamidhars will never claim for ownership. The ordinance will be nullified. This ordinance will be of significance if the Government takes the responsibility of publishing the benamidhars with the extent of land, survey number etc. and ownership bestowed only to those who are below the poverty line.

I had the opportunity to meet our President Shri R.Venkataramanj1, Shri Bhardwaji, the Union Law Minister, and also Mrs. Sheila Dixit the Minister for Parliamentary Affairs. They Were definite that the Government will not take such responsibility of publishing the names of benamidhars. They are of the View that only Voluntary agencies like Sarvodaya can take up the cause of educating and organising the Benamidhars.

But unless the untill we know who are the benamidhars, it is not possible to educate or organise them.

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The most glaring benami transactions in large extent of land are in the name of talse trust, for religion, public services etc. Both the-President and the Law Minister said that the benami trusts cannot come under the purview rof the ordinance. It will have to be dealt with by a separate Act.

The Supreme Court a few months before declared 25 benami trusts created by Bodh Gaya Mahant as bogus and ordered 25009 acreas to be taken over and distributed to the landless. We have hundreds of such false trusts throughout the country and a sample survey of few cases in East Thanjavur is enclosed herewith for your information. I hope some of you who are interested in the public cause will take up the matter and efile a suit against such benami trust in Supreme Court. We shall gather more informations of bogus trusts and send you in course of time. A press Conference was held at Madras on 26th July, 1988. Herewith enclosing my press statement and also what appeared in Indian Express on 26th July. We expect your early reply. ' With kind regards, ea /--

S , J_A_(;,z'x1\TI1'Arp{--mN Encls: aq.

Copies to:

Justice Shri D.A. Desai, Justice Shri R.N. Mishra, Prof. Upendra Baxi, Shri Jose Werghese.

-- 81 _ PRESS STATEMENT:

The Eenami (Prohibition of Right to recover Property) Ordinance Sarvodaya Representation to the President.

A People's Movement is the only Remedy During the early sixties the landlord lobby in the ruling party manoeuvred to provide all sorts of loopholes and exemption clauses to escape from the Land Ceiling Act that they managed to cover up all most all their lands by benami transactions and the surplus lands to come under the hot was very 1 ».1n negligible. Since then the word "Benami" is of common usage.» especially in the rural partsto signify the imoral transfer of lands in the names of faithful servants, and close relatives and the worst of Benami is the cheat in the name of religious and public charitable trusts endowing large extent of lands.

There are hundreds of acres in the name of educational trusts but nowhere any trace of educational activities, similarly lands in the name of choultries and annadhanas Trusts but nowhere any form of choultry functioning or annadhanas offered, all cheat in the name of high sounding noble purposes. Where is the necessity of choultries and annadhanas; if the Tiller of the land is given the right of cultivation and enjoyment.

A society of economic injustices and exploitation abounds with such enslaving and spoon feeding institutions of charity.

T' .

Herewith a sample survey of Trusts is some villages of East Thanjavur.

Thus the history of Land Ceiling Acts in the country has been a hoax of deception and failure.

Tamilnadu was the premier State to bring Benami Abolition Act in 1982 passed by an overwhelming majority in the State Assembly. But the powerful vested interests vetoed the Act when the Bill was sent for the Presidcnt's assent. Again in spite of the Law Commission categorical recommendation for the abolition of Benami transactions, a Eenami (Prohibition of Right to Recover Property) Ordinance confirming ownership to the Benamidhars was promulgated on May 19th of 1988.

-82-

Again the powerful influence of fuedalistic class has connived the promulgation of Ordinance to its own benefit.

The Benami Ordinance giving legal sanction to the Benami transactions ultimately benefit only the landowners. It is a wellsknown fact that the benamidhars neither the servants nor the close relatives will ever claim the right of ownership and the status quo will continue, nullifying the Ordinance.

Sarvodaya Movement has appealed to the President of India that the Government should take the responsibility to publish the list of Benamidhars in every state and confirm ownership only to the landless who are below the poverty line and the other benami lands should be taken over by the Government for distribution to the landless.

Sarvodaya has also requested that all the Trusts lands should be taken over for distribution to the landless. Hope the Government will provide the necessary legal sanction to this effect while the Ordinance will be placed before the Parliament for approval during the ensuing winﬁer session.

Bt those vho_are in the helm of affairs of the Government are of the View that only Voluntary Organisations such as Sarvodaya Movement can educate and organise the benamidhars to claim their rights over the land.

Corruption and Benami transactions are the two evils strangling the country to moral degradation and economic chaos. A _ National Upheaval, organising People's Morchas against corruption of official bureaucracy in the block, taluk and district offices and people's non--vio1ent occupation of all benami lands in the name of individuals and trusts will vitalise the Nation, with the raise of the people's power. All the political parties are after capturing power and counting on votes. But a People's Movement against the official corrution and Benami holdings of thew vested interests is the crying need of the hour which will surely purify the polity of the country.

sa/_ s . JAGANNATHAN SARVODAYA. MOVEME_JNT .

-83-

FRESH ORDINANCE ON BENAMI HOLDINGS URGED Express News Service Madras. July 25: All trust lands, in East Thanjavur ' especially, should be taken over by the Governmnt of India through Presidential Ordinance as the Benami (Prohibition of Right to Recover Property) Ordinance issued in May 1988 does not bring within its ambit the 'benami' ownership by the trusts.

.Mr. S. Jagannathan, Chairman, Association of Sarvaseva Farms, has urged President R. Venkataraman.

In a representation handed over to the President he pointed out that the Benami Ordinance benefited only the ' landowners, who had clearly manipulated to vest the ownership of their lands with their close relatives and trusted servants. The status quo(of large-scale benami ho1dings)continued. thus defeating the very objective of the law. 0 The President was also requested to advise the Government to publish the list of"benamidhars'in each State, so as to find out the real owner of the lands: mwnership must be vested enly with the landless poor, and the surplus lands taken over by the Government. A Mr. Jagannathan said that he explained how in the name of trusts, big landlords had cleverly retained possession of the. hundreds of acres of land, hoodwinking the people and the Government. Those 'spurious trusts' created in the name of schools, hospitals, Dharmasalas, etc. should be taken over by the Government. A Ansample surveyyconducted by his movement in East Thanjavur revealed that 21 different trusts 'owned' about 5,800 acres of wet lands, including 2,300 acreas by a trust in Kumbakonam, which is alleged to be a benami holding of a Cong.I bigwig.

Mr. Jagannathan, who is a member of the Land for the Tillers' Freedom said that he also met the Union Law Minister Mr.Ehardwaj ' and Mrs. Sheila Dixit, Minister for Parliamentary Affairs, and . -84- requested them to make suitable amendments when the Benami Ordinance was taken up in Parliament during the coming monsoon session.« Meanwhile, his movement would mobilise public opinion throughout the State so that the individual 'owners' of" the lands could be persuaeded to avail of the Ordinance and take over the lands, without any fear. He was also planning to organise an all--party conference in Madras city sometime in August to chalk out measures to unearth the benami holdings. ' He said that Tamil Nadu was the pioneer in bringing the Benami (Land) Abolition4ACt as early as in 1981, but the Centre did not arrange for the requisite Presidential assent to it. Again when the ordinance to end Benami land holdings was issued in May 1988, the "powerful influence of the feudalistic class'connived to dilute the law so as to cover only individual benami holdings and no t trust lands, he alleged.

-85-

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