Many persons want to know whether they can purchase properties in the names of their brothers, sisters, relatives or friends. For various reasons, they do not want to hold the properties in their own names. Often, only a Power of Attorney is taken in the name of a nominee. The general feeling is that, if a Power of Attorney is taken, the transaction is as good as a sale. Many problems may arise out of these situations. It is better to understand the implications of these i ssues.
The purchase of property by one person in the name of another person will amount to a Benami purchase. The person in whose name the property stands does not pay the sale price. He or she is a name lender. Such a person will be a loyal holder and acts at the directions or at the behest of the person paying the sale price. A situation is created where the title vests in the name of one or more persons, but the property is actually purchased by one or others who are the beneficial owner or the owners as the case may be. Earlier, these transactions were permitted and were legal. However, now, these types of transactions are prohibited. In addition, there are various issues that may arise.
Many issues
Benami transactions cover all kinds of properties. It is now covered by an Act known as “The Benami Transaction (Prohibition) Act, 1988. After the passing of the Act, Benami transactions of the above said nature are prohibited and the Act specifically provides no person shall enter into any Benami transaction. Assume that one person purchased the property in the name of another. Thereafter, there is a change of loyalty. The person having the property in his or her name denies that the property is beneficially owned by the person who has paid for it. In such a case, the person who has paid for the property cannot file any suit or other proceedings to enforce his or her rights in respect of the property in issue held Benami in the name of the other person or any other person who may be involved in the transaction. Similarly, if such other person who is holding the property in his name is involved in any suit or proceedings, the person who has paid for the property cannot plead any defense based on any right in respect of such property held Benami.
Therefore, person contemplating to buy properties in the names of others will have to consider issue seriously as besides resulting in loss of title, it also amounts to an offence punishable as per the provisions of the Act.
Points to consider
To have a better understanding, the following example may be helpful.
As already stated, to come under the purview of the Benami transaction, the property must be in the name of one person, the sale price or sale consideration should be paid or provided by another. The sale consideration thus flows from a person other than the person in whose name the property is purchased. If the person in whose name the property is purchased has made a contribution towards the sale consideration, then the transaction may not amount to a Benami transaction, Further, the reasons for withholding the names of the persons making the contributions for the purchase of the property will also be looked into. It will also be screened as to whether there is any intention to avoid public revenue or any dishonest intention is entertained.
If the intention to purchase the property is to avoid payment of taxes, the transaction will be scrutinized from this angle as well.
Insofar as the name lender is concerned, they may not also be very happy as the Act provides that the properties held Benami shall be subject to acquisition by the Authority concerned. The Authority can follow such procedure as is required under the facts and circumstances.
In a typical Benami transaction, the Sale Deed or Deed of Conveyance will not contain any details on the source of funds. Therefore, the source of funds for both the persons claiming to be real and beneficial owner and the person lending his or her name will have to be looked into. All the attendant circumstances will be seen. Inferences may be drawn on the conduct of parties involved in the transaction. Other events which are related to the transaction may also provide a clue in this regard.
The background of the person in whose name the property is purchased, his or her capacity to invest or raise funds, the participation of the name lender in the transaction and the involvement in the transaction will also become relevant issues. This has to be decided on the basis of attendant facts and circumstances and considering all the relevant facts and issues, it may differ on a case to case basis.
In addition to the above factors, the sources of funds, nature of property, motive for holding the Benami property, the relationship between the parties, the person having custody of title deeds and the contact of the parties are all factors which will be vital in these transactions.
The exceptions
There are certain exceptions to the above said position. The property may be purchased by a person in the name of his wife or unmarried daughter.
Such a person may be able to prove that he is a real and beneficial owner of the property. The securities held by a depositary as a registered owner under the provisions of The Depositaries Act, 1996 or participants or the agents of a depositary may also be proved by the real owner.
Further, the property which is held by a coparcener in a Hindu Undivided Family and the property held for the benefit of the other coparceners of the family will not amount to a Benami transaction. Similarly, the property held by a trustee or other person who, in a fiduciary capacity has the benefit of another person for whom he has a trustee will also normally not amount to a Benami transaction. Fiduciary capacity means being in a position of a trustee and being in a position where the person can be stated to have duties of good faith, trust, confidence and transparency and one who must exercise a high standard of care in managing another person’s money or property.
The above positions are only basic guidelines. The simple matter however is that all persons intending to purchase properties in the names of others have to consider the implications of the legal provisions, the fact that the persons concerned may unwittingly or unknowingly commit an offence and the fact that both real and beneficial holder and the name lender may ultimately lose the property.
The circumstances may also engender manipulations by other persons who are in the know of things and who may be in a position to cause mischief or nuisance or even more serious situation in the lights of having knowledge of the transaction.
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