Calcutta High Court (Appellete Side)
Macro Entertainment Private Limited & ... vs Union Of India & Ors on 30 October, 2017
Author: Subrata Talukdar
Bench: Subrata Talukdar
1
30.10.2017
S.L-18(KB)
W.P. 25872 (W) of 2017
Macro Entertainment Private Limited & Anr.
Versus
Union of India & Ors.
Mr. Jaydip Kar
Ms. Rakhi Shroff
... For the Petitioners.
Mr. Animesh Kanti Ghoshal
Mr. Siddhartha Lahiri
... For the Respondents
Party/Parties are represented in the order of their name/names as printed above in the cause title.
Under challenge in this writ petition are both the initiation and reference of the proceeding under The Prohibition of Benami Property Transactions Act, 1988 (for short the 1988 Act) by the Initiating Officer (for short IO), also under the 1988 Act, respectively under Sections 24(1) and 24(4) of the 1988 Act.
The notice under Section 24 (1) of the 1988 Act, inter alia, reads as follows:
"Material on record, marked as annexure-V, reveal that the entities which provided the consideration are either fictitious or non traceable. It is 2 evident from the above facts and circumstances that the consideration related to the transactions of the property in concern is provided by another person and it is held for the future benefit of another person whose identity is not known.
The above conditions satisfy the definition of the Benami transaction u/s 2(9) of the PBPT Act 1988. Thus I have reason to believe and I am satisfied that the property in the form of Flat having details discussed above, is a Benami property as per section 2(8) of the PBPT Act 1988."
The notice under Section 24 (1) was answered by the Writ Petitioner/Company vide its reply dated 10th August, 2017. The Company denied that the provisions of the 1988 Act are at all applicable to the facts of the present case. The Company took the point that, if at all, the IO has jurisdiction only to inquire under Section 68 of the Income Tax Act (for short the IT Act).
The reply to the Section 24 (1) notice (supra) was finally considered by the IO vide his order dated 12th August, 2017 under Section 24 (4) of the 1988 Act. The IO, inter alia, concluded that both the paper and the 3 fund trails connecting to the purchase of the scheduled property in issue, inter alia, point to fictitious/non- transparent/non-visible entities. The IO found, on the basis of the available materials, that the funds utilised in the name of the Company to purchase the property in issue belonged to person/persons whose identities have not been disclosed. The usufructs of the purchase, although ostensibly in the name of the Company, may be ultimately beneficial to the non-
transparent/fictitious/non-visible entities behind the suspected benami purchase.
Therefore, the IO ordered that the provisional attachment under Section 24 (3) shall continue till the Adjudicating Authority (for short AA) further adjudicates under Section 24(3) of the 1988 Act.
On the strength of the decision reported in AIR 1955 SC Page 74 at Paragraph 7 thereof, Mr. Kar argues that the question of fictitious entities behind the fund alleged to have been utilised by the Company for the purchase of the property in issue would not be attracted in law since, such fictitious entities are not referable to the shareholders of the Company, who carry no fiduciary interest connected to the property of the 4 Company. The law as elucidated in AIR 1955 SC Page 74 (supra), inter alia, permits the share holders to only participate in the profits of the Company in the form of dividends without being required to exercise any participatory involvement in its immovable assets.
Therefore, Mr. Kar submits that the fundamentals of the proceeding initiated by the IO under Sections 24 (1) and 24(4) are misconceived. Hence, this writ petition is maintainable on the above ground, in addition to the ground that the penal provisions under the Amendment Act of 2016 to the 1988 Act cannot apply retrospectively.
Arguing on behalf of the Respondents/Revenue, Mr. Ghoshal points out that in view of the provisions of the 1988 Act, as amended in 2016, the process of adjudication is not complete. The writ petition is premature since, after the adjudication by the AA, the Company shall have the opportunity, if called for and advised, to approach the Appellate Tribunal.
Mr. Ghoshal submits that the profile of the investments made by the Company as evident from the facts collected by the IO connected to the purchase of the scheduled property traces its source to funds from fictitious entities which are required to be identified. On 5 the basis of the materials available to the IO, the Company is believed to be acting as the benamdar, or, apropo the current lingo in vogue of the Ministry of Corporate Affairs (MCA), Government of India, a shell or "dabba" company of investors at large.
Mr. Ghoshal also submits that the attachment is purely provisional and is pending final adjudication by the AA. Accordingly, Learned Senior Counsel argues that the writ petition is not maintainable.
Having heard the parties and considering the materials placed, this Court records its findings as follows.
First, the essence of a benami transaction stands defined under Sections 2(8) and 2(9) of the 1988 Act (as amended). Both the statutory provisions are set forth below for the sake of this discussion.
"2(8): "benami property" means any property which is the subject-matter of a benami transaction and also includes the proceeds from such property"
"9 (A) a transaction or an arrangement ----
(a) where a property is transferred to, or is held by, a person, and 6 the consideration for such property has been provided, or paid by, another person; and
(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by----
(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 7 1996 ( 22 of 1996) and any other person as may be notified by the Central Government for this purpose;
(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint- owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or"8
Second, this Court must notice the relevance of Sections 2(9)(B) and (D) of the 1988 Act (as amended) which, inter alia, collectively define a benami transaction as an arrangement in respect of a property carried out in a fictitious name where the person providing the consideration is not traceable.
Third, this Court, on the basis of materials placed, is satisfied that the IO has applied his mind to the facts painstakingly collected and the issue now requires solid factual adjudication at the level of the AA.
Fourth, this Court is also satisfied that the preliminary legal objection taken by Mr. Kar is not persuasive for a Writ court to interdict a proceeding under the 1988 Act qua a private limited company where the dominant shareholders are de facto the Company itself and it has become necessary to identify the structure and role of the entities in respect of a transaction which requires exploration at the appropriate factual level on its alleged benami colour.
Fifth, the distance claimed by Mr. Kar of the shareholders from any interest in the immovable property of the Company on the strength of the decision reported in AIR 1955 SC 74 (supra) would depend on 9 the ground situation influencing the pecuniary proximity in a given case which, require to be exhaustively examined at the level of the AA.
Sixth, this Court cannot be oblivious to the fact that the attachment declared by the IO is provisional and the petitioners should not shy away from an adjudication by the AA if they are sure that factually the Company stands on firm ground.
Finally, the point raised by Ld. Counsel for the petitioner against retrospectivity of the penal provisions in the 2016 Amendment Act is answered with the observation that the 1988 Act, as amended in 2016, imbibes the colour of a statute in restraint of acts constituting benami transactions. The Act does not seek to create any vested/substantive rights, only indirectly protecting transactions which fall within the exceptions of a benami transaction, viz. Section 9(A) (i) to (iv).
Furthermore, Section 1(3) of the 1988 Act itself provides for prospectivity of its operative portions, viz. its penal clauses, in contra distinction to its definition/defining provisions. Furthermore, this Court has no reason to accede to Prayer (a) of the Writ Petition 10 upon noticing that the steps contemplated under Section 24 (supra) follow the notice of the IO and, being procedural apply in seriatim to the notice for the purpose of identifying a benami transaction prohibited in the statute book w.e.f. 19th May, 1988.
The orders impugned of the IO are thus not interfered with.
Accordingly, no jurisdictional violation of exercise of powers under the 1988 Act (as amended) is found by this Court.
Affidavits are not invited.
WP 25872 (W) of 2017 stands disposed of.
Urgent Photostat certified copy of this order, if applied for, be handed over to the parties on compliance of necessary formalities.
(Subrata Talukdar, J.)